Editor's note: Will gold stocks really soar in the next financial crisis?
Does it really make sense to keep a portion of my wealth in gold stocks, which are among the market's riskiest securities?
In the July 24 Digest, Porter mentioned the role that gold plays in our extremely dangerous financial system. After publishing that essay, we received countless e-mails from readers asking these questions and others.
Last week, Porter answered them with an exceptional mailbag reply. To make sure none of our readers miss it, we're publishing Porter's brilliant answer – and grave warning – below...
The Most Important Financial Warning You'll Read in 2015
By Porter Stansberry, founder, Stansberry Research
Yes, there are plenty of examples in history when gold stocks (and other resource stocks) were safe havens during a financial crisis.
Look up the history of Homestake Mining during the Great Depression, for one example.
Gold plays a unique role in the modern economy.
All of our fiat currency (and the entire global financial system) is a huge, complex web of interconnected IOUs.
Anyone who says he really understands the implications of a major bank or insurance company failure in our current system is lying. That's why the Fed panicked in late 2008. It had no idea what would happen if Lehman's failure led to a run on its European creditors. It had no idea what would happen if AIG failed and took Goldman (AIG's main trading partner) down with it.
I believe in the next down credit cycle, we will witness losses in the corporate-bond market in excess of $1.5 trillion (with a T).
I believe this because I've studied the history of these down cycles and I've spoken with Marty Fridson (the world's leading corporate bond-market analyst) about it.
The Fed's actions from 2009 to 2014 "short-circuited" the normal market clearing process, which means there's far more "dodgy" debt out there than normal. There's a huge overhang of credit excess just waiting to be written off. This vast overhang of debt is largely responsible for the weak economic rebound we've experienced – the excesses of the last cycle were never really expunged.
The big question, then, is when will the Fed allow the U.S. economy to write down these bad debts (and the associated inflated asset price levels)?
I don't know the answer to that question.
My bet is that they'll continue to try fighting "the last war" until there's some kind of epic collapse unlike any we've ever seen in modern times... or until there's a sea change in U.S. politics (unlikely, in my view).
In any case, when the time comes that either the U.S. begins printing huge sums of money to fight deflation (and to avoid writing down bad debts), or uncertainty grows about the reliability of counter parties in the global financial system, you'll see gold prices (and gold stocks) soar.
Gold is the only universally accepted financial asset that isn't someone else's liability. That's a unique trait in a world that has gone mad for debt.
And I'm certain that quality will be appreciated at some point again.
Regards,
Porter Stansberry
Editor's note: If you want to make the biggest possible gains in the coming explosive rise in gold, you need to get to know Doug Casey. Doug is a master speculator with an incredible track record of predicting big trends in the stock market. Today, he's bullish on a specific group of gold stocks that could return 500% or more in the next few years. We recently put together a video presentation explaining this opportunity... and how it could make you a fortune. You can view it here.