Top-Three Investment Threats & Opportunities for 2011
Source: James West, Midas Letter (1/11/11)
"Gold is either in a huge bubble or on the verge of collapse."
Ten days into the new year, there has rarely been a time when market commentators have been so thoroughly polarized in terms of prospects for the immediate future. While the range of optimism to pessimism is exactly as broad as ever, the camps are crowded at either extreme of the scale with the middle viewpoint, moderate and/or ambiguous, virtually uninhabited.
In the happy smiling optimist's camp, the crisis is over. The stock market is poised for huge gains, the missing recoveries in housing and jobs are right around the corner, the sovereign debt issue is over and the euro remains intact. China's growth continues to support the whole global enterprise and is indestructible.
In the basement regions of gloom and doom, the euro will go bust as the sovereign debt crises spread and flames rage unchecked through the matchstick superstructure of the flimsy euro currency zone. Energy prices will soar, crippling economic growth and recovery in G7–G20 economies and the American dollar as a viable currency will itself fall apart in a disintegration caused by the sheer excess of its swollen volume. Or it will become the hated only viable choice as every other currency becomes too risky.
Gold is either in a huge bubble on the verge of collapse, as are silver, copper and platinum, or the monetary metals are in for continued strength and price appreciation as the resumption of widespread economic recession and dollar-driven hyperinflation kneecaps growth prospects and credit markets freeze again. The regulatory reforms that seemed inevitable at the close of 2010, such as position limits in the commodities futures markets, actually become a loosening of the nearly non-existent regulations in a perverse Orwellian twist of fate. Wall Street continues to gush paper profits and ethereal Dow and S&P numbers scale new heights as the fake money begets more fake money through derivatives position cellular expansion.
Does one cash out of the stock market in anticipation of the coming collapse, or load up on commodities and the companies that explore for and produce them? Or, do we abandon commodities for technology and financial stocks that will be the beneficiaries if a real recovery materializes? If we do cash out, which cash should we denominate our hide out in—dollars, yuan, yen, euros. . .or gold, silver, platinum and palladium?
Charting a course through this tempestuous investment sea is going to be tough. But, as usual, opportunities will abound for those armed with clear vision and thinking. The risks and threats must be prepared for as if they were inevitable because the odds are slim that none of them will manifest themselves as major losses for the ill-advised. Following is our list of top threats and the best defenses:
Major Threat #1: Sovereign Debt Contagion
Portugal's cost of borrowing soared to new highs last week (+7%), as did the cost of insuring its debt. By some estimates, nearly 80% of the ~1 trillion euros in sovereign debt in the eurozone will require restructured financing. Greece and Ireland are now paying out 80% of their export revenue as foreign debt. Italy is much closer to collapse than most observers realize, and Spain and Portugal are sure candidates for bailouts.
This means even higher debt costs for these countries and, likely as not, these costs in and of themselves will undermine repayment ability. It all adds up to a deterioration in confidence among investors, which will drive markets lower as investment dries up and money sits on the sidelines in safe haven assets. The question is, what constitutes a safe haven asset now?
It has emerged as a great paradox of the 21st century that the most poorly managed and overabundant currency has become a safe-haven currency. The U.S. dollar—supported only by the Fed writing checks to Treasury issuing bonds to the Fed sham—should be the first currency up for revaluation in the coming year. But that's unlikely to happen. As the most ubiquitous unit of foreign reserve holdings, nobody wants to see the dollar devalued. And so everybody keeps supporting the dollar by buying T-bills in a Mexican standoff circle-jerk that will embarrass future historians.
For now, however, the illusion is the truth. So, if things go to hell in a hand basket, the worst currency may become the best safe haven.
Best Defense: Buy Gold and Silver
FORGET the U.S. dollar. It may indeed be safe haven in the short term—at least optically. That's what the U.S. Treasury—United States Federal Reserve, JP Morgan and Goldman Sachs, who are collectively the operators of the largest Joint Venture Criminal Enterprise ever to evolve in the history of humanity—want you to believe. You think Madoff was the biggest Ponzi scheme and real estate was the biggest bubble to burst? The U.S.-dollar fraud in progress will be both the largest Ponzi scheme in recorded history, the biggest sovereign default in history and the largest bubble ever to burst.
Quantitative easing, stimulus, bailouts and emergency lending are all synonymous with counterfeiting that is the continued epidemic of U.S. dollar manufacturing. This is the new language of the ubiquitous cartel, which is jointly setting us up for a thorough dousing when the levee breaks.
Gold and silver, as the real monetary reserve currencies of choice, will continue to appreciate in direct proportion to the exponential growth of the ersatz monetary base.
Major Threat #2: Chinese Growth Fades
When the perception of value in a given commodity becomes both hysterically inflated and shared by everyone from fund managers to taxi drivers, it's a sure sign the commodity in question is on the verge of collapse. No, I am not talking about gold. I'm talking about China. Though China is no more a mere commodity than is gold, it has evolved since the collapse of the euro and U.S. economies to become the salvation, by virtue of its appetite for industrial commodities, as the world's sole economic hero. And heroes are commodities in the metaphysical realm wherein confidence exists.
China's growth story is so well known that even illiterate goat herders in Darfur know that the genocide inflicted upon them is a result of China's interest in hydrocarbons under the lands upon which their goats graze. China is proud of the fact that more than a million Chinese are at work in the resource and infrastructure industries in Africa. It claims the economic moral high ground and glosses over the theft of natural resource legacy that is actually underway there.
China's growth began when the strong-dollar policy of the U.S., combined with higher U.S. wages, instigated large-scale export of manufacturing jobs from the U.S. to China. China's brutal treatment of the vast majority of its citizens ensured that the ultra-low wages and subsequent subsistence standard of living that accompanied them could be counted on to remain stable. To this day, affordable housing and food is the greatest issue confronting middle-class Chinese citizens.
Despite this, the cost of labor is rising drastically as is the cost of real estate. Nike and Adidas have moved manufacturing operations to Indonesia, and the diminishing competitiveness of China's labor force that must be the result of a decade of prosperity will continue to chip away at the nation's manufacturing base in 2011. Foxconn, which manufactures the bulk of Apple's gadgets, saw labor costs rise 20% last year.
Analysts like to point out that even if China's growth were to ease, the country's appetite for raw materials will continue to drive many export-based economies. Therefore, the likelihood of serious economic contraction remains low. But that is a dangerous, sweeping generalization. The point at which markets turn from growth stories to collapses happens invisibly and in seconds. It is not decided by any one collective institution, corporation or government, but rather when the data that drive the decision-making process at these entities indicates it's time to stop investing. Increasingly, the transformation from buyers to sellers to dumpers is determined on the algorithmic level.
China's ferocious growth could easily become an unprecedented nuclear meltdown if a few of the corrosive factors present in any supercharged economy were to align coincidentally to trigger negative investment decisions on a large scale. I think that moment is inevitable. I don't yet know if it's going to happen in 2011 but if China goes, the rest of the world economy goes with it. The only island of calm will be Latin America, which, though relatively poor compared to the rest of the major economic zones, is a nearly perfect self-contained economy.
Best Defense: Buy Gold and Silver
When—not if—China's growth reverses and its massive human juggernaut is forced to turn and feed upon itself, the economies of Europe, Asia and North America will be yanked into a collective freefall. Massive capital concentrations (multibillion-dollar investment funds, mutual funds, hedge funds, sovereign wealth funds, private wealth trusts, etc.) will rush into the U.S. dollar, propping it up at first, but gold and silver will be the ultimate beneficiaries of China's flop. If the U.S. is forced into economic contraction on a grand scale again (depression), we now know the only response the criminals running the U.S. Treasury are capable of is more dollar printing. Dilution upon dilution spells appreciation upon appreciation for gold and silver.
Major Threat #3: The Global Recession Becomes the Global Depression
This, many will argue, has already happened. The trillion-plus dollars made from a few trees and barrels of ink have created numerical sums that are supposed to represent a recovering global economy. The numbers, however, are misleading. Other astronomical sums that are glossed over, misreported and misinterpreted include the continuing glut of houses, automobiles, buildings, ships and household gadgets.
Few new jobs are being created in the United States or Europe. Official unemployment hovers around 10%, while unofficially—and, therefore, more believably—the figure is closer to 20%. People in the U.S., Spain, Ireland, United Kingdom, Iceland, Portugal and now Italy are getting booted out of their homes as banks hustle to evict the residents of their assets before citizen revolt forces legislative protection.
Yet governments and their wet-brained economists continue to coo soothingly into the equally retarded press ears that dutifully parrot the blatantly fraudulent yet desirable and reassuring facts and figures into an anesthetized public's consciousness.
The incremental consequence of our continuing and willful self delusion is nothing but deadly and tragic. The American public, obsessed with the idea of blaming someone else, point to Sarah Palin who is only the figurehead for the American Ignorance Movement that dominates the political atmosphere in the U.S.
Jared Loughner—the illiterate and mentally tangled gunman who, motivated by confused political ideas, killed six people—is not the result of a 'charged political atmosphere' but of an atmosphere of deceit, collusion and fraud. More of the same is coming. The religious lunatics will call it the wrath of God and the equally deranged anarchists will call it nature's inevitable outcome.
The kids will keep smoking dope and crack, shooting heroin and dropping ecstasy because there's no leadership and no options and nothing better to do. Education is merely a branch of the financial services' cerebral laundry brigade, and kids like Loughner feel empowered by the suited fraudsters and hypocrites who surround him. Hope is fading, and violence—the essence of change—is unleashed.
Best Defense: Buy Gold and Silver and Move to Peru or Canada
It is utterly astounding how real borders have become. Once only representative of lines on a map dividing political territories, countries neighboring one another have become psychological barriers. The U.S. freaks are nowhere in evidence in Canada, where a mellow and good natured can-do (change the name to Canado?) conservatism enables responsible fiscal management, racial equality and a robust and balanced economy. If things really go sideways in the U.S. and the violence building and erupting locally spreads, the only salvation for Canada will be that most Americans won't know in which direction it lies. The now farcical physical fence keeping Mexicans out in the south, and the electronic fence in the north designed to have the same effect on Canadians, will need to be re-engineered to keep Americans in. It will be a just dessert, in the eyes of the world, for America to become a third-world penal colony for the originators of the financial Armageddon presently unfolding.
A nice stash of gold and silver, a stout canon and a few tasers should be all that a good Canadian, Peruvian, Brazilian, Australian, Kiwi, Swiss or German—or any of the other peaceful and responsible countries'—citizens need. We'll watch football and drink beer and make a boatload of dough buying junior mining companies, while the U.S., England, China, the Middle East and Africa tear each other to shreds. Then, we'll clean up the mess, rebuild the economy and launch a new standard of global trade—pegged to gold and silver.
In conclusion, I feel compelled to apologize to the many millions of perfectly reasonable Americans who are my friends, relatives and subscribers, for any offense you may feel. I'm not referring, in the above sense of the word 'American,' to you.
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