"Just before the First World War in 1913, the German mark, the British shilling, the French franc, and the Italian lira were all worth about the same... At the end of 1923... the mark was dead, one million-millionth of its former self. It had taken almost ten years to die".
Adam Fergusson, author of "When Money Dies"
One of my uncles grew up in Germany in the lead up to WWII. When he was a kid he remembers his parents, and neighbors going to the grocery store, with wheel barrows (yes wheel barrows) full of German Marks. This was not the powerful, German Mark you knew just prior to the advent of the current Euro dollar. It was the remnant of a once powerful, fiat currency, that lost most of its value after the allies (of the first world war) demanded war reparations from Germany. Of course, there was no way the Germans could repay this huge debt (sound familiar), so the printing presses were put into full use to try to "print" their way out of the debt. (again, sound familiar?)
After 10 years of that, there was an actual need for a wheel barrow to carry your grocery money in!
You see the people of the Weimar Republic had plenty of cash, but they were essentially dirt poor.
Cash had become a useless tool, the result of near sighted government inepttitude.
Another direct result of this disastrous policy, was the rise of Facism, Naziism and of Adolf Hitler, who wrapped himself in the German flag and rallied support by hammering his speeches with promises of refusing to pay any more debt and making Germany strong once again through his national socialist party or "Nazi" party.
It wasn't long after the demise of HItler that America, the strongest country still left standing, convinced many others to replace the gold in their foreign reserves with the almighty American dollar. Surely, such a strong currency would stand the test of time.
Since those days, (late 1940's) the U.S. dollar, as well as all other fiat currencies, have lost close to 90% of their purchasing power. In other words, if you stashed your cash in a mattress after the war (those who had any) you would now have about 10% of the purchasing power you originally stashed away.
Today, as the massive infusion of liquidity into the U.S. economy comes to a head, it is time to consider that the U.S. dollar is skidding down a very slippery slope. No, it won't be like the Weimar Republic, but if it loses even 50% of its value (in my view, the low end of probability) then your retirement fund is in jeopardy. Across the pond, the Euro may not survive at all.
You already are aware of the destructive government policies that emanated after the vultures of Wall Street picked over a self destructive, over-leveraged real estate market. It was a shady, over leveraged, derivative market and a banking system shot so full of holes, it resembles the pock marked buildings of Europe during the worst of the fighting. You have been hammered with the details for three years now.
The question is, and has to be: What are you doing about it?
Have you bought some physical gold, silver or platinum as a hedge? Do you own land that can grow food? Do you own land rich in minerals or precious metals? Do you own those mineral rights? Do you own property you can rent? Do you own oil? How about a piece of the future of energy; natural gas, lithium, wind solar and fuel cell technology? Do you own a small piece of the burgeoning mobile web business? Or, do you have a mattress full of cash?
If it is cash you are sitting on, in any form, but especially U.S. treasuries, European bonds, or muni bonds, then maybe you should consider something more solid, with an actual future.
Here are my favorites in the areas mentioned:
Suncor (NYSE:SU) has a portfolio of oil reserves from Canada to the Middle East, however it is in Canada, and in particular the Canadian Oil Sands that Suncor is a true heavy weight. There is a growing consensus that the oil sands will help power North America for the next 100 years. Cenovus (NYSE:CVE) also has key holdings in the oil sands and is moving ahead with state of the art technology. Exxon Mobile (XOM) is, well, Exxon Mobile! It is the big kahuna. Nuf said!
As the major fiat currencies of the world begin to flutter and fall over the next year, there will be a rush to own precious metals like physical gold, silver and platinum. Some will tell you these are in a bubble. I think they are currently half priced, if that.
I have a preference to hold physical gold instead of ETFs like the (NYSEARCA:GLD). Governments around the world are, at this writing, amassing more physical gold holdings for their foreign reserves. Recent moves in countries as diverse as China and Argentina keep gold firmly in the bull category. I also like gold miners in this environment, especially miners with lots of gold in the ground, little or no hedge book, increasing production and more than one mine.
Footnote: Fall is the traditional marriage season in India, where gold in a dowry is considered an absolute must. India buys tons of gold every fall.
Heavy weights in gold production Barrick (NYSE:ABX) ,Gold Corp (NYSE:GG) and Kinross Gold (NYSE:KGC) are three of the big fish in this small pond. (Small pond if you consider that all of the gold, currently above ground, if melted down, would barely fill two Olympic sized swimming pools - and that is after 6,000 years of digging.) These three all have good, low cost production, lots of gold in the ground, and good management.
Smaller players with great upside, good production and huge deposits include Sangold (OTC:SGRCF) and Brigus Gold (BRD) They are well positioned with lowering costs, good management and great properties holding millions of oz of proven reserves that may lay in the sites of some of the bigger fish. Their shares can still be had for only a few bucks (for now).
Nautilus Minerals (NUSMF.Pk) is a growning company in a brand new gold mining area, seabed mining, and has recently been granted huge swaths of undersea mineral deposits by several South Pacific governments. They are years ahead of the nearest competition in developing undersea mining equipment. They have some serious mining heavyweights as investors and the gold, silver, copper and cobalt reserves they are amassing is staggering. (This is a speculative stock but with immense upside potential.)
Eric Sprott of Sprott Asset Management unequivocally sees silver as this decade's play in the commodity sector, for a number of reasons, not the least of which is silvers traditional trading range of 1-16 gold to silver. Today it is trading in the range of 1-46. Sprott, like me, favors physical silver over ETFs such as the (NYSEARCA:SLV) however he recently started his own company's silver ETF while holding the physical silver for it at the Bank of Canada.
Talison Lithium of Australia. (OTC:TLTHF) is the largest "pure" lithium producer in the world with the largest and richest spodomen deposit in the world (Greenbushes Australia) and huge new brine properties in Chile (acquired when it swallowed junior Salares Lithium last year). It is the largest supplier of lithium carbonate into the lucrative Chinese market. It is ramping up production by 100% at this writing and has all production pre-sold to its 300 current customers. If Talison seeks a listing in New York over the next year, it could be a grand slam. More speculative plays in the space (with huge resources but no current production) include Western Lithium (WLCDF.PK) and Rodinia Lithium (OTC:RDNAF). Both are currently penny stocks with huge upside.
Larger players like Sociedad Quimica y Minera S.A (NYSE:SQM) of Chile produce lithium as a by product of their larger potash operations and help supply the burgeoning mobile web device industry. However, their preference for selling on the spot market instead of signing contracts is a real turn off for the electric and hybrid vehicle markets who need a constant supply for their industry.
Ballard Power Systems (NASDAQ:BLDP) is my pick here. Ballard is the market leader, with 20 years in the industry. Competitors (such as Plug Power) are often called baby Ballards as a number were spun off of this company which holds hundreds of original patents in the development of PEM fuel cells. They currently power buses in cities in North America and Europe, they are supplying 10,000 mobile units to the burgeoning mobile web industry of India, as well as several countries in Europe. They make fuel cell powered fork lifts, recently signed an agreement with Daimler of Germany in the development of FC vehicles and have a working fuel cell stack power plant currently powering a small town in Ohio as a pilot project. That stacking technology will one day allow Ballard to replace entire power plants, from small buildings up to and including large cities, that currently use much dirtier forms of energy. Their fuel cells can operate on pure hydrogen (no pollution at all) or Natural gas, which is now known to exist in vast pools under the United States.
Although, like other stocks, First Solar (NASDAQ:FSLR) has suffered pullbacks over the past year, this stock is a market leader with first mover advantage (in the larger scale solar field).
Canadian dollar, Australian dollar, and New Zealand dollar, are all considered resource currencies, which should do well in a hyper inflationary environment. Canada, in particular, is in good shape. The Swiss Franc is up over 14% this year against major currencies. Each of these countries is a small market by comparison to the major fiat currencies, however, taken as a whole, with cash spread around through all four, (and maybe even some Chinese RMB) the risk is laid off substantially.
The Eurozone and the United States will not fall as far as the Weimar Republic's D-mark did. That is not what I am saying here. What I am saying is that they will fall, and no one knows just how far. As these fiat currencies begin to slide further into the abyss, no one will be able to put a bottom on their value.
If the Germans, who own the strongest economy in the Eurozone, and the third largest economy in the world, suddenly tire of propping up deadbeat countries looking for hand outs and decide to abandon the Euro (a distinct possibility) then the Euro, as we know it, will slip into the trash bin of history as countries like Greece, Spain, Portugal and maybe Italy, revert to their original currencies and default on their debts. French banks as well as other European banks and by proxy, U.S. banks, will suffer huge losses. Many will not be left standing.
The United States is now so far in debt, it will never be able to pay it off, that is, without hyper-inflation. That subject alone will require many more articles than this.The sky is not falling (yet) but your savings and investments are in dire jeopardy going into 2012. You might wish to now do something to protect yourself.
Disclosure: I am long SU, CVE, BLDP, SGRCF.PK, BRD, NUSMF.PK, WLCDF.PK.