The latest warning sign the dollar is toast...
Last week, Germany's central bank – the Bundesbank – announced it would bring back within its borders 300 of 1,500 tonnes of gold it currently stores with the Federal Reserve (and all of the 374 tonnes of gold it stores in France). We wrote about the announcement here and here.
Germany repatriating its gold is one of the many warning signs we've had that the entire global paper-money system is collapsing under the weight of the colossal debts it has enabled. We've predicted that the dollar will eventually lose its status as the world's reserve currency. And as we lose the power to print money to pay our debts, America will face a severe financial crisis...
And that's the biggest reason why I (Porter) don't use any leverage to buy real estate. I don't want to owe money to anybody in a world where the dollar could collapse overnight.
This isn't the first time our allies have demanded we return their gold...
In the late 1960s and early 1970s... as the Vietnam War was ratcheting up domestic spending and inflation... The world lost faith in the U.S. to cut its budget and reverse its trade deficit.
Keep in mind... This was a time when foreign governments could legally redeem their paper dollars for gold. So French President Charles de Gaulle began doing just that. In 1965, he took $150 million of his country's dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France.
Spain did the same... redeeming $60 million of U.S. dollar reserves for gold. Many other nations followed suit.
To stop a run on Fort Knox, President Nixon ended the direct convertibility of the dollar to gold on August 15, 1971.
I described what happened next in the January 2012 Stansberry's Investment Advisory:
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The "sheeple" cheered, as they always do whenever something is done to "stop the speculators." But the joke was on them. Within two years, America was in its worst recession since WWII... with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.
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Of course, at the time, the U.S. was the world's largest creditor... Today, we're the biggest debtor in history. So the consequences will be much worse...
Germany is clearly questioning if we're still a reliable borrower. Essentially... it's asking for its gold back because it has doubts that the Federal Reserve still has it. It's terrifying when one of our long-term allies essentially says, "We don't trust you anymore. Give us back our gold."
That's a big deal... It means that we're on the way to losing our ability to finance our government spending with debt. And when that happens, it's going to be an absolute nightmare.
I don't want to borrow money from banks because I'm afraid that they will have to call it back in an emergency. And I don't want to lend money to banks because I'm afraid they will all collapse.
And I sure as heck don't want to put my gold in a bank because I don't want them to seize it. So where do I hide my gold? Tomorrow... I'll tell you.
The latest warning sign the dollar is toast...
Last week, Germany announced it would repatriate some of its gold from the U.S. and France. As we explain in today's Digest Premium... this isn't the first time an ally has asked us for its gold back... And it spells bad news for the dollar's future as the world's reserve currency.
To continue reading, scroll down or click here.
The latest warning sign the dollar is toast...
Last week, Germany announced it would repatriate some of its gold from the U.S. and France. As we explain in today's Digest Premium... this isn't the first time an ally has asked us for its gold back... And it spells bad news for the dollar's future as the world's reserve currency.
To subscribe to Digest Premium and access today's analysis, click here.
Remembering 'you gotta work'... The new imperative: 'you gotta print'... What to do when working and saving are under attack...
Remember when we were kids and our parents taught us all to print money in the basement so we could pay the bills and buy food at the grocery store?
Of course you don't.
Remember when we went to school and the teacher showed us how to debit and credit our bank accounts to the tune of billions of dollars at the stroke of a computer key?
No?
And who doesn't remember how all our relatives constantly reminded us to print enough money for college?
Nobody remembers any of that growing up... It never happened because that's not anything like how the world works.
How does the world work? We all know the answer. The world works by working. Everybody has to work to get what he wants out of life.
What I (Dan Ferris) do remember growing up is helping old ladies carry their groceries for tips when I was about seven or eight years old. I remember getting my first real job when I was about 10, delivering newspapers Monday through Saturday for $7 a week. I remember working at the library every weekend in high school and scooping ice cream 28-32 hours a week through college. I'm sure you have a similar story. It's not remarkable. It's normal. I never really thought it was a big deal. It's just how the world works... right?
Every now and then, my parents used to say: "It's not the land of giving around here. You gotta work." When they said "around here," they didn't just mean at our house.
There's a wider implication, too. My folks implied that if we don't all work for what we want, we'd be bad people. We'd be morally wrong if we refused to acknowledge what it takes to survive and thrive in the world. In short, it's morally wrong not to work (given a reasonable state of health and mental well-being, of course).
But things turned out to be different than what my now-80-something parents prepared me for. The world changed. And it had been headed in another direction for a long time... What direction is that?
If I were a sophisticated, Ivy League-educated economist or politician, perhaps I could explain it. All I know is financial, economic, and political geniuses seem to have figured out that work is for suckers like you and me...
Maybe we gotta work... but they don't. All they need is an inflation target and a central bank computer. All they gotta do is print. Printing money is now the root of human economic endeavor. That, according to the better-than-the-rest-of-us geniuses, is how the world really works.
That's what our Federal Reserve does. It prints. It has a 2% inflation target. (Why 2%? Why not 2.3%? Or 1.9%?)
The Fed prints money at the stroke of a key and buys U.S. Treasury debt with it. That, according to some, is how the world works. You and I can't understand how it keeps the economy going as our mere work and saving never could. It's a mystery, tended to by the priests of finance, which our crude, inadequate vocabulary of old-fashioned, simple-minded ideas will never be able to explain.
The Bank of Japan (BoJ) – the country's central bank – now says it, too, will target 2% inflation. It, too, will print money. It says it'll buy Japanese government bonds with printed money until inflation ticks up to hit that mark. Hard work and saving have taken another hit to the jaw.
Japanese Prime Minister Shinzo Abe, who's been stumping for more aggressive money printing, said with supreme irony, "Responsibility has been clarified." In other words... we shouldn't blame Abe and his bloated, bureaucratic government for Japan's moribund economy... that blame should go to the BoJ.
Targeting inflation by printing money is like trying to get a lion's attention by poking it with a stick. You'll get his attention... And you might even be eaten alive. The central banks pretend to have control over the economy. They tout inflation targets like they could ever hit them with any precision.
But all the central banks really do is cause the booms and busts they claim they're trying to prevent. They're trying to make everyone rich by making everyone poor (by degrading the currency and discouraging old-fashioned ideas, like work and saving).
So what do you do? What do you do when working and saving – the only way to actually get anything of value in this world – are under constant attack?
You do what my parents said to do. You let the political crooks run their crooked schemes. And you do your work and save your money.
But follow my parents' advice with a twist. When I say "save your money," I'm not talking about the stuff the Fed and the Bank of Japan are printing.
They're printing currency – dollars and yen.
They're not printing gold and silver.
They're not printing real estate.
They're not printing houses.
They're not printing wonderful businesses.
And they're not printing hydrocarbons ...
The market is a funny place, where you can feel stupid one minute and smart the next. Before we go to today's mailbag, check out the new 52-week highs of S&A stock picks below. (Markets were closed yesterday. Today's list reflects Friday's close prices.) It's as if we can do no wrong lately. It seems that every other day, a couple dozen of our picks are hitting new yearly highs. That's been happening for months now.
I think we do a great job, but we're not suddenly smarter than we were in 2011. Many of these stocks aren't terribly expensive and still have room to run... but there may come a day when they're too darned expensive. Then we'll see how smart we are. If we're truly smart, we'll recommend selling on that day. And if you're smart, you'll take our advice.
New 52-week highs (as of 1/18/13): Berkshire Hathaway (BRK), Guggenheim BulletShares High Yield Corporate Bond Fund (BSJF), iShares High Yield Corporate Bond Fund (HYG), iShares U.S. Insurance Fund (IAK), iShares Home Construction Fund (ITB), SPDR High Yield Bond Fund (JNK), Sprott Resources (SCP.TO), Sequoia Fund (SEQUX), ProShares Ultra S&P 500 Fund (SSO), Targa Resources (TRGP), Constellation Brands (STZ), Johnson & Johnson (JNJ), Automatic Data Processing (ADP), Monsanto (MON), RPM International (RPM), Ericsson (ERIC), 3M (MMM), Chicago Bridge & Iron (CBI), Hershey (HSY), American Financial Group (AFG), Navigators Group (NAVG), Travelers (TRV), Blackstone Group (BX), Kohlberg Kravis and Roberts (KKR), Becton-Dickinson (BDX), Medtronic (MDT), Southern Copper (SCCO), Enterprise Products Partners (EPD), Union Pacific (UNP), Government Properties Income Trust (GOV), and Emerson Electric (EMR).
A light day for the mailbag again. Haven't we done anything to anger you lately? Let us know here: feedback@stansberryresearch.com.
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Regards,