Wed, Apr 13, 2011|Sean Goldsmith

We're lacking a 'credible strategy'...

In one of the more obvious statements in recent memory, the International Monetary Fund (IMF) said the U.S. lacks a "credible strategy" to handle its mounting debt problem. Considering our government nearly shut down over a meager $38 billion in budget cuts, we agree. But the IMF isn't worried about the U.S. for its own sake... At around 17%, our country is the largest contributor to the IMF – the slush fund used to rescue ailing nations. And if we can't get our finances in order, what are the chances the IMF will still exist?

Yesterday, we noted Goldman Sachs' bearish call on commodities. Today, Bank of America Merrill Lynch predicted a 30% chance of Brent crude could hit $160 a barrel in 2011. "Commodity prices should move broadly higher in 2011 on robust economic growth in emerging markets, despite relatively weaker growth in developed markets," said Sabine Schels, a commodity strategist at BoA Merrill Lynch in London.

Given the turmoil in the Middle East and North Africa, Schels said we could see higher prices over the next two months. "With oil demand expanding rapidly and Libya production down by at least 1 million barrels per day, we forecast [the] Brent crude oil price to average $122 a barrel in the second quarter," she said, "and believe prices could briefly break through $140 in the next three months."

Regardless how oil moves in the short term, "hoarding" is the best and safest way to play oil. Hoarding is simply buying companies that control the world's largest and cheapest oil and natural gas deposits. In his latest issue, S&A natural resource specialist Matt Badiali outlined his reasons for hoarding...

We're collecting our share of the world's "trophy" resource deposits. These trophies will soar in value if the U.S. dollar continues to fall apart... In addition, growing and energy-hungry "Chindia" (China and India) desperately needs these resources. Finally, these trophies are located in safe districts, not war zones. They are safe harbors in a world full of risk.

To learn how to buy 12.7 million acres of gas-rich North American land and the world's largest and safest crude oil deposit – what Badiali calls "the greatest prize of North America" – (featured in the January and February issues of his S&A Resource Report, respectively), click here...

We wrote it, did you buy it?

In January 1975, gold traded for $175 per ounce. The price of a one-ounce chocolate bar was $0.15. Today, the price of gold is roughly $1,100 per ounce, an increase of 603%. A one-ounce chocolate bar goes for about $1.15, an increase of 633%. Either asset would have protected you against the Federal Reserve. However, chocolate bars – at least their retail price – have slightly outperformed gold for the period.

Now consider this... The world's top chocolate-bar maker has vastly outperformed gold – and nearly every other possible investment. Buying shares of Hershey (NYSE: HSY) would have earned you more than 7,000% on your money from 1980 until today – better than 15% per year, assuming you re-invested the dividends.

Hershey stock is one of the best ways to protect yourself from inflation because it owns a tremendous amount of what Buffett calls "economic goodwill." This secret asset allows the company to be incredibly capital-efficient, which means as prices for its chocolate go up, more and more of the money ends up in the hands of shareholders. – Porter Stansberry, December 2009, Stansberry's Investment Advisory

Porter originally recommended Hershey in his December 2007 issue (and re-recommended it in December 2009, when he thought Buffett might purchase the company). Demand for chocolate is steady, the company's brand name is strong, and it enjoys the power to raise prices with inflation (as evidenced by his historical study above). And at today's price, the company has a healthy 2.5% yield. (Hershey has increased its dividend twice since we purchased it... and will certainly raise it again.) Since the original recommendation, subscribers are up nearly 50%.

And while chocolate bars may have outperformed gold, you're making money holding either. According to GFMS – one of the most well-respected precious metal consulting companies – it's not time to sell. GFMS believes gold prices will average $1,455 an ounce this year and trade in a range of $1,319 to $1,620 an ounce. GFMS Executive Chairman Philip Klapwijk thinks we've already seen gold's low for the year (after prices neared $1,300 in January). "Overall, we would not be surprised, therefore, to see gold break through $1,600 before the end of the year," Klapwijk said.

You might be hesitant to buy gold at current prices. You shouldn't be. The only question you should ask yourself is would you rather own gold, which has increased in value every year for 10 years, or dollars, which are spiraling to doom. Do you think our government will cut spending and balance the budget? Or will it simply continue a boom/bust cycle fueled by printing money? Our bet is on the latter.

End of America Watch

John Taylor, the founder of currency-trading hedge fund FX Concepts, isn't betting on the dollar. He believes we'll be in a recession by the end of the year. The three reasons Taylor states are "QE2 will end, Republicans are running the House, and the price of gas is heading up." Taylor doesn't think we'll see QE3 until the government realizes we're in a recession again (an opinion he shares with our own Jeff Clark).

On the euro, Taylor says it deserves to be at $1.45 because rates are higher in Europe. However, that tightening will eventually lead to a recession. Taylor says the euro will eventually dissolve. There's too much of a discrepancy between rates in the stronger and weaker European countries, which eventually must be addressed.

Taylor is buying the Turkish lira. He said Turkey will raise rates, its economy is growing, and it's outside of the euro-zone. He's also bullish on oil. He says oil is just up in terms of the dollar. It terms of stronger currencies, it isn't up that much...

For example, below is a six-year chart of oil priced in Canadian dollars. Aside from the extraordinary spike and crash in 2008, oil has generally trended sideways in terms of the strong Canadian dollar.

To see the End of America video that started it all, click here...

Also, to read an exclusive interview with Porter Stansberry explaining how to protect yourself from the End of America, click here...

To sign up to receive the latest information about our Project to Restore America, click here.

New 52-week highs (as of 4/12/11): Hershey (HSY) and Altria (MO).

Finally... someone who isn't opposed to paying for our work. Did you get your money's worth from us? Let us know at feedback@stansberryresearch.com.

"I'm a recent Private Wealth subscriber (joined about two weeks ago). I haven't yet made any investments based on your and your fellow analysts' advice. However, I've been reading a number of the reports contained in my subscription and I must say that the coverage appears to be excellent and very unlike those I've read in the past (and I've read plenty of them). These folks have done in-depth review of their recommendations. I like the fact that many of them have actually visited the sites of the recommended companies, talked with their managements, etc. I'm looking forward to implementing some these recommendations in the near future.

"As to the gentleman who asked to receive your advice 'free' before subscribing, it reminded me of the time I was trying to buy my first house with a wife and young son. I couldn't afford the down payment on my $575 per month salary so I was forced to borrow the money from my parents. Three years later I was in a position to pay back the loan. My Dad said, it's OK son, you don't have to pay the interest. My response: No, dammit, I'm paying back every cent and proceeded to write a check for the full amount. A lesson I've followed ever since. It would be good if we all hated to be in debt, including our governments.

"Sorry for being so verbose, but there is no free lunch." – Paid-up subscriber Bryan H.

Regards,

Sean Goldsmith

Baltimore, Maryland

April 13, 2011

We're lacking a 'credible strategy'... Merrill predicts $160 oil... Why 'hoarding' is still the best plan... Chocolate or gold?... $1,600 gold this year... What one currency expert is buying...