Another record for gold... And why Marc Faber says it's going higher... Why we'll see a stock rally... Banks and money-market funds holding cash... IMF wants more money... Euro crisis deepens... Two more billionaire fund managers hang it up... A simple way to save more money...
The debt ceiling debate is ongoing. (We're now six days from the August 2 deadline.) Europe is crumbling. And the market is in major "risk off" mode today. Everything is selling off... Everything but gold. As the world continues awakening to the disaster that is fiat money and the reality that governments will always print their way out of a crisis... gold is soaring. The precious metal hit an all-time high of $1,629.60 an ounce today (though it has since pulled back). Silver hit $41.55 today.
We're certain the U.S. government will raise the debt ceiling... The current debate is just theatrics. Though, I suppose we should thank the debt debate for opening America's eyes. Everyone is worried that our debt situation is out of control and the U.S. will be downgraded. The market selloff and subsequent gold rally are evidence of that.
But when the entire world thinks one way, the money is usually made on the other side of the bet. We predict once the government reaches an agreement on the debt ceiling (which it will), we'll see a huge stock rally. And gold will correct (though only temporarily). Longtime Digest readers or people who have seen our End of America video know we're long-term bearish on the U.S. and long-term bullish on gold. It's a function of an insurmountable debt load... and world governments continuing to paper over their problems (more on this in a bit).
It's difficult to place a value on gold in today's market. It's not a stock with a price-to-earnings ratio or an income-producing piece of real estate. It's "real money" that can trade wildly on waves of fear and greed... It's "anti paper money." As the world prints more money, gold marches ever higher. Nobody knows exactly how high it will soar (though we've heard estimates from $1,500 to $10,000 an ounce). One gold bull, Marc Faber, offers an opinion...
Faber, who publishes The Gloom, Boom & Doom newsletter, said in an interview with King World News…
|
I just calculated if we take an average gold price of say around $350 in the 1980s and then we compare that to the average monetary base in the 1980s and to the average US government debt in the 1980s... but if I compare this to the price of gold to these government debts and monetary base, then gold hasn't gone up at all. It's gone actually against these monetary aggregates and against debt it has actually gone down. So I could make the case that probably gold is today very inexpensive. |
One reason we think we'll see a major stock rally on the debt "solution" is because tons of cash has built up on the sidelines right now. Banks and money-market funds are stockpiling cash leading up to the August 2 deadline. If the U.S. actually gets downgraded, these entities will need to hold far more cash in reserves (to comply with international banking standards).
According to Barclays Capital, government-only money-market funds have increased cash to 68% of assets from 48% at the end of March. "We've built up liquidity with a rather meaningful amount of maturities prior to the debt ceiling," said Robert Brown, head of money markets for Fidelity. In particular, money-market funds are avoiding the one-month Treasury notes, which mature on August 4 and August 11. The interest rates on one-month debt securities are now more than double the rate for three-month U.S. paper.
It seems the U.S. government isn't the only such organization thirsty for funds. Now, the International Monetary Fund (to which the U.S. is the largest contributor) wants more money. At a Council of Foreign Relations event in New York yesterday, the head of the world's bailout fund, Christine Lagarde, said, "The question is, do we still have the level of resources that is now needed and appropriate to address... the crises? Maybe it could do with more. In the not-too-distant future, we will probably have to revisit this issue."
The IMF has already increased its resources several times since 2007. It doubled its fund last year. The fund currently has around $1.5 trillion of commitments (though the IMF says only around $396 billion of that is available to lend in the next year... and most of that will go to Greece).
Once the IMF exhausts its funds saving Greece... Italy and Spain (both of which would bankrupt the IMF and European bailout funds on their own) remain. Yields in Italy and Spain are still rising. The euro is falling. And the European Union still says it won't increase the size of the 440 billion euro European Financial Stability Facility. It's only a matter of time.
Last August, billionaire money manager Stanley Druckenmiller, a George Soros protégé, closed his hedge fund... And we told you to expect more high-profile fund managers – guys who have made billions of dollars – to close shop. At the time, we wrote...
|
Stanley Druckenmiller is hanging it up. Facing the first down year in a 30-year career as a hedge-fund manager (his main fund is down about 5% this year), Druckenmiller has decided to return his clients' capital and retire. We think you'll see more of this – that is, more hedge funds going out of business – as the global credit bubble deflates. |
|
Druckenmiller's career happens to correlate perfectly with the largest inflation in history. As credit multiplied between 1980 and 2010, folks like Druckenmiller were paid unbelievable sums for managing the resulting capital flows. But... the credit spigot has been tightening up, at least for private capital. Now, the only bubble left is the one being blown up by Washington in the form of Treasury obligations. – Porter Stansberry, August 18, 2010 S&A Digest |
Today, two hedge-fund titans, including Druckenmiller's former employer, announced they're closing their funds to new money. George Soros announced his flagship Quantum Fund would not accept new "non-family" money, converting the fund to a family office... This is the first time he closed the fund in 38 years. Investors who invested $100,000 with Soros at the fund's 1973 inception are sitting on more than $100 million today... Soros averaged around 20% a year, a cumulative return of more than 100,000%. Only Warren Buffett performed better over the same time period, returning around 135,000%.
According to Soros' sons, they are closing the fund because of new rules that regulate hedge funds. As a family office, the Soros clan can run money without regulatory bothers. We think the true reason for the closure is a combination of what we wrote above and ego... Soros was down 6% this year through June. And last year, the fund returned 2.63%.
Starting August 1, Steve Cohen of SAC Capital Advisors, another billionaire fund manager, will no longer accept additional money from new or existing investors. If we were Steve Cohen, we'd shut down completely... The SEC is after him.
Most people don't want to hear it, but the surest way to get wealthy in life is to simply save your money. It's undoubtedly the most boring thing to do with money, but it's necessary. And while it sounds obvious, based on lots of the feedback we receive, there are tons of readers without any savings (but with substantial debts).
If you're interested in learning how to better save money, I urge you to read this free essay from our friends at The Palm Beach Letter. (Tom Dyson, the former editor of The 12% Letter is the publisher.) In this essay, Mark Ford – Tom's partner and a mentor to Porter – explains his "three bucket" system for saving money... and how it made him rich. You can read the essay completely free, here...
|
New 52-week highs (as of 7/26/11): SPDR Gold Trust (GLD), Comstock Resources (CRK).
More praise for Dan Ferris' latest 12% Letter and a misdirected accusation in the mailbag. Send your notes to feedback@stansberryresearch.com.
"I know you want to steer discussion away from politics, but please, not before I get my two cents worth in too...
"Dan Ferris's last newsletter was the best information I have seen on the entire debt limit debate. If Bill, Angela, and Orin read this newsletter they would have a completely different view of your publications and research.
"Lots has been said of the motives in this debate on the part of the republicans and democrats. But how about the other two parties involved, the media and the white house.
"The media wants a 'countdown frenzy' so they can increase their ratings and sell more expensive advertising. The white house just wants a deal (instead of a solution) so BO can make it to his birthday party fundraising bash in Chicago next week.
"As a result, it is an utterly ridiculous circus which should be obvious to any informed rational individual.
"If all the parties involved spent as much time seeking a solution as they do posturing, trying to make political hay, seeking their own self interests, blaming others, etc. we would not be having this debate. But oh, it would not be a crisis then, would it?
"Thank you again, Dan Ferris!" – Paid-up subscriber Tom Jepsen
"Thanks for all the wonderful reporting you've done. If not for you guys we wouldn't we wouldn't read or hear of many things that the mainstream media doesn't deem worthy for our eyes or ears.
"The main problem we have is we have too many Sacred Cows in America. They come in many shapes and sizes and with many political affiliations. They come in many colors and sizes. Most of them get fed at the trough that America has become. We have so many now that we've had to borrow to support them all. And we just can't afford it any more.
"We all (every citizen in this country) have to realize that we have borrowed just about all we can borrow to support all these Sacred Cows.
"As long as things were good nobody really seemed to notice. We could all still make our payments and still feed all these cows even if we were overextended a little bit.
"But now that things are tight, we have to thin the herd because we just can't afford to feed them all. We need to reduce the number of those Sacred Cows, whether they be loved by Republicans or Democrats, by Christians, Muslims, or Buddhists, loved by the rich, or the poor or somewhere in between. Each cow is loved by someone who says 'Don't take the cow I love, take that other one.' We just can't afford to do that anymore.
"We've come to the point where we have to make hard decisions, and we need to thin the herd before we lose the farm. Everyone's going to have to be willing to give one of their Sacred Cows, before we lose our whole American way of life." – Paid-up subscriber Chris Zell
"Porter: I like your review most of the time but I am surprised that you use "Komrade" when referring to the president and most recently to a member of Congress. It is distracting at best and reduces your argument in my opinion. He is not a communist by any stretch of the imagination so why use it. Just my opinion." -- Paid-up subscriber Max Girouard
Ferris comment: Socialists, communists, fascists... It's a waste of time trying to distinguish one from the other. They're all just thieves draping their criminal actions in complex-sounding theoretical clothing. I find it impossible to take any of them seriously. I'll stop calling them "Komrade" when they stop behaving like Soviets.
Porter comment: While Dan uses the "Komrade Obama" reference, I don't. Never have. I prefer to write his name this way: OBAMA! Here's how I described the reference in 2007 when I first started using it:
|
It just happens naturally when I type his name... OBAMA! I think it's a natural outgrowth of his political campaign. OBAMA! is the perfect political creature. He is an utter and instant creation of our flimflam political process. He's the Diet Coke of politics. A candidate from central casting, who knows nothing and has no agenda other than power. He is perfect... OBAMA! |
Regards,
Sean Goldsmith
Baltimore, Maryland
July 27, 2011