Larry Summers is absurd... The only way to fix our debt crisis... Schwarzman watching Saturday Night Live... Our new favorite gold stock... $5,000 gold... Is Fort Knox lying?... Bill Gross says U.S. is worse than Greece...
"The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it is resolved only by increases in confidence, borrowing and lending, and spending."
Larry Summers, the former director of the National Economic Council under Obama, wrote the above in an opinion piece that ran in the Washington Post and Financial Times. Summers said unless we continue stimulus, the U.S. risks falling into a "Lost Decade" like Japan.
The only true solution to our problem is to not let debts get to this level in the first place. But the U.S. gave up on that in 1971, when we abandoned the gold standard. Now, the only real answer is to repudiate our debts. But that would crash our system… a fate no politician will accept.
And a man like Larry Summers, a product of our system, won't let that happen. He engineered the 1998 bailout of hedge fund Long Term Capital Management, which was an early sign that our nation's debt was too large.
He truly believes more debt will solve the problem. But it has never worked. The more debt we take on, the harder it is to maintain that debt... And the more likelihood there is of a systemic collapse.
We aren't the only ones who think Summers' views are nuts. According to the political news website Politico, Steve Schwarzman, the billionaire founder of private equity firm Blackstone Group, called Summers out at his firm's executive meeting yesterday... "I thought I was looking at a Saturday Night Live script," Schwarzman said, according to a source who retold the event to Politico. "Who was in charge the past two years?"
In his May 2011 issue of True Wealth, Steve Sjuggerud discussed his recommendation of Silver Wheaton, one of his favorite stocks to play a boom in precious metals...
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True Wealth readers are up 55% on Silver Wheaton since I recommended it just six months ago. |
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The full story is even better... If you'd put $10,000 in Silver Wheaton at its low two and a half years ago, you'd have over $167,000 today. |
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What does Silver Wheaton do to make those kinds of returns? |
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It's incredibly simple, actually... |
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Six months ago in True Wealth, I explained it: "Its 'business' is driving to the bank and cashing royalty checks. When your business is depositing big checks payable to you, it's near impossible to lose money." |
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I called Silver Wheaton "one of the best business models I have ever seen." |
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With gains like that – and a simple business model of collecting royalty checks – wouldn't you like to find another Silver Wheaton? |
Unlike mining companies, these royalty companies don't have to spend massive amounts of cash to develop deposits. Nor do they explore for deposits. Companies like Silver Wheaton and Royal Gold, as Steve said, simply collect paychecks as the gold mining companies do the hard work. Their most difficult decision is which mines to partner with.
We're constantly searching the market for the best precious metals plays – especially royalty companies. But they're difficult to find. Phase 1 editor Frank Curzio recently discovered a new royalty company trading for a little more than $1 a share – dirt-cheap. Shares have little downside (based on the royalty streaming model), and the management team is great.
The CEO of this tiny company was once a top executive for one of the largest royalty streaming companies in the world. He left just to start this company. He already raised more than $240 million. The company used the cash to buy into several gold projects, which are already generating huge cash flow for this tiny company.
Frank is projecting at least 200% upside for the stock over the next 24 months. That's if gold prices average $1,400 an ounce. If gold prices push higher, the company could easily be a five-bagger. He will be holding a special conference call with the CEO and one of the top gold analysts in the industry on June 21. To learn more on his favorite royalty company, click here...
We think these royalty companies will do well if gold and silver prices hold steady. If metal prices soar, these companies could go parabolic. A recent report from the bank Standard Chartered said three factors will send gold to $5,000 an ounce.
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We believe that these factors – limited gold production, buying by central banks and increasing demand from India and China – can potentially drive the gold price to US$5,000/oz, as highlighted in our commodity team's earlier report, Gold – Super-cycle to extend above US$2,100/oz (17 April 2011). |
You can read the full report here.
One factor the Standard Chartered report doesn't cover... What if the central banks don't really have all the gold they say is there? Now, Texas congressman Ron Paul is calling on the U.S. to prove it owns the gold it claims. The U.S. claims it holds 700,000 gold bars in Fort Knox. And Paul is calling for the Treasury and U.S. Mint to testify at a subcommittee hearing on June 23 about the authenticity of that gold.
In the February 24, 2011 Digest, we discussed resource expert Eric Sprott's view that the world is out of silver:
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[The] world is out of silver. Sprott says aggregate investment demand for silver between 2000 and 2009 was 293.8 million ounces (according to the GFMS, the world's foremost precious metals consultancy). Using his own numbers, Sprott compiles the silver holdings for seven large investors, including himself, iShares Silver Trust, ZKB, GoldMoney, etc. Just those seven entities own 519.6 million ounces of silver... That's 225.8 million missing ounces. And again... That's only seven investors. It doesn't include central banks, individuals, hedge funds, etc. |
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It's obvious, as Sprott notes, silver data has been "very, very misstated." Sprott ends his speech saying, "There's $22 billion of silver available in the world, of which the ETFs already own half, and between you guys and us we probably own the other half... which means there's nothing left." |
Standard & Poor's downgraded Greece from B to a triple-C credit rating, giving the country the world's lowest credit rating. The downgrade reflects Standard & Poor's "view that there is a significantly higher likelihood of one or more defaults," the credit-rating agency stated yesterday. Swaps on Greek debt, insurance contracts that pay out in case of default, jumped 47 basis points yesterday to a record 1,610.
If one of the "Big Three" rating agencies – S&P, Moody's, and Fitch – says a sovereign will default, you can bet it will default. These companies are perpetually behind the times. The credit markets have been signaling a Greek default for months. Now, the rating agencies are playing catch up.
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New 52-week highs (as of 6/13/11): Forest Laboratories (FRX).
In today's mailbag, a woman takes our side, the truth about farmland, and another success story. Send us your feedback here... feedback@stansberryresearch.com.
"Anonymous offended female finds fault with for-men food metaphors. Seriously? From the 'Professional Left' to the 'Perpetually, Perfunctorily Offended'... apparently, we will never outgrow the '60s." – Paid-up subscriber Melinda G (who describes herself as a "non-male subscriber whose money is just as good at Stansberry & Associates as any male's, I'll betcha.")
"Farmland actually went for $13,000 and acre in Iowa last year. I know this because I purchased farmland in Illinois about a year ago, when prices were about half of what they are today. Even at those prices I net 4-5% in rent – not bad but not great – but people buying today must be doing so thinking sell it tomorrow at an even better price as opposed to doing it for the rent, but in my view the value of the land still comes back to what an investor can get in cash flow.
"While it is true that the yield per acre is going up, which can translate into justifying a higher rent, the yield isn't going up that fast! Perhaps if one can get the seeds that Jack used to grow his beanstock then paying this much for farmland makes sense. I read your newsletter everyday; thanks for thinking outside the box." – Paid-up subscriber Rob Typher
"I subscribed to the Stansberry Newsletter about a month ago after watching the video, and am pleased so far, although for perhaps different reasons than you might think. I was influenced by your suggestion to 'short' the Euro (by purchasing EUO) to develop my own 'short' technique. Since I believe that after QE2 the markets will crash, as there will be nothing left to hold them up, I have shorted all the major indices with ETFs.
"In two short weeks, I have made a 6% return on my $70K investment. And that is as of this morning when the markets are up and my ETFs are all down (a dead cat bounce)! So although I did not take your advice directly, I was influenced by your broad thinking and product selection to create my own solutions. Now, that's teaching us unwashed masses to fish!" – Paid-up subscriber Douglas Herz
Regards,
Sean Goldsmith
Baltimore, Maryland
June 14, 2011