bearfund

The Death of Stocks

Don't buy into the idea that paper money issued by central banks is suddenly a good store of value. It isn't. More and more of it will be printed and, if necessary, handed out for free by the Treasury, until prices and spending return to boom levels. Then, maybe, the central bankers will try to "drain" that "excess liquidity". But no one will want to lend it back to them unless they raise interest rates dramatically - and why should they if they can get an 8% yield on their money elsewhere with little risk? This is not unlike the situation in the late 70s, but with a huge difference: at that time, long-term rates were sky-high because no one wanted Treasuries after a long stretch of serious inflation. Today, long-term yields are extremely low. Any effort to raise rates and drain excess cash would invert the yield curve and set up the banks for more trouble. There is no way out of this. The money supply is expanding, and even if you aren't seeing that money circulate yet, by the time you do it will be too late to rein it in. Hyperinflation is baked into our future economic life.

The best way to avoid being caught up in it is to avoid the use of central bank paper as a store of value. The only real store of value is gold. The bankers' banker himself, J. P. Morgan, even said so, and Alan Greenspan agreed before his conversion to the dark side. About the only worse place to be than cash right now is Treasuries, and the more duration you have the worse off you will be.

I recommend that anyone who is not interested in stocks and corporate bonds today maintain a conservative portfolio consisting of 50% gold, 20% silver, 20% CHF, 5% AAA Munis, 25% dollars, and -20% Treasuries 2015 and later. This will give you plentiful liquidity, a modest yield, no meaningful risk of a margin call, and minimal exposure to the printing binge.

Once the collapse gets under way (it hasn't even begun), you will want to selectively invest your dollars before they become completely worthless. Start covering your shorts when yields reach 10%; I do not expect a default but it's difficult to guess how large players like the Chinese will react when they begin to understand the scope and scale of the printing, so you could easily hang onto half that position to see what happens. Remember, though, you aren't trying to create wealth with this strategy but preserve it, and a 10% profit is pretty small, so don't get greedy. I would suggest buying non-US gold miners with the remaining dollars. Do not under any circumstances buy US companies as their assets are likely to be nationalised and you will receive nothing of value for your investment. Above all else, be sure that your gold and silver holdings are well beyond the reach - preferably even the knowledge - of the gang of thugs known as the US government. This will also be a good time to dump the CHF; it will hold up better than dollars but is sure to take a fearful beating just the same. Unload the Munis if you can (recall that your losses were hedged out by gains shorting the lower-yielding Treasuries), then get out of Dodge. You should at this point have your wealth largely intact and consisting of 60% gold, 25% silver, 15% non-US miners. Find a nice place to retire, sell some the gold and silver for real estate, and invest some in companies well-positioned at the time to grow their business in the aftermath of the greatest economic collapse the world has ever known: the total destruction of the US dollar. Congratulations; you are a survivor.

Or you could be 90% in "cash" and queue up with everyone else in the bread line when the fiction of paper money crumbles. Your choice.