Tuesday, December 28, 2010

Get ready for the economic shit-storm...

Energy, agriculture, gold and silver bullion - protectors from the coming crisis

Porter Stansberry is bracing himself and his clients for a bumpy ride for equities in the New Year, and recommends utmost caution and conservatism for investors in 2011. Gold Report interview

PS: I believe we are at the end of the line of those policies. And that's why we've had to begin to fund our fiscal deficits with just printing paper. That's what quantitative easing is. I think we're at a real crisis point, where for the first time ever America's creditors are beginning to abandon the dollar. You see that in two ways. Number one, for the first time since the early 1970s, central banks are now net buyers of gold again. Number two is the huge move down in the bond market that you've seen just really recently since the last round of quantitative easing began in the U.S. This is a really big change.

TGR: And an important one.

PS: It certainly is, and right now we have a situation where the muni bond market in the U.S. is crashing. Muni bonds are falling 2% or 3% every week. These bonds shouldn't decline at all. People have long thought of the muni bond market as the safest place in the bond market for retirees' money. Well, now it's in freefall. Normally, if you took money out of the muni bond market, you'd put it in the Treasury bond market. That's the only thing that's even safer. But both markets now are in decline. People are selling both muni bonds and Treasury bonds at the same time. That's a sign of a major problem in the fixed income markets. And, because the U.S. bond markets are the largest securities markets in the world, that means we're in the midst of a major, major financial crisis. I don't really think people realize it yet.

TGR: Are you referring to the general population?

PS: When I talk to people, when I talk to news commentators, when I do interviews, when I talk to investors, when I go to investment conferences, when I talk to very well-known hedge fund managers. . .all of these people have some idea that things are going wrong. Lots of them say they're worried about being on the verge of a big crisis. I think we're in one. So, I ask them, rhetorically, what do they have to see in the markets before they realize the crisis is underway?

How high does the price of gold have to go? How far do Treasury bonds and muni bonds have to fall? How far does the dollar have to decline on a trade-weighted basis? How high does unemployment have to go? How big do the fiscal deficits have to grow? They don't have any answers to those questions because all of the thresholds have been violated already. Two years ago, no one would've thought it possible for the muni bond market and the Treasury bond market to both fall as much as they have fallen in the last six weeks at the same time. That just didn't happen ever before.

TGR: So if we've passed all those thresholds, why doesn't the general media say we're in a crisis?

PS: Even though the currency markets and the bond markets are vastly larger, the stock market hasn't cracked open yet, and for whatever reason, the major media focus is almost entirely on the stock market. Until stocks fall 20% or so, the media won't panic. But God help you if you're still long on stocks when the nightly news begins to feature the core financial problems we face.

TGR: You've been advising people to get into so-called "real asset classes" such as agriculture, gold, silver, various forms of energy. But won't all stocks be worthless in an economic catastrophe and global hyperinflation?

PS: Stocks actually can be a very good hedge against inflation, and short of hyperinflation, stocks will have the ability to increase their dividends to match the rise in prices. Now I say short of hyperinflation; if we get to real hyperinflation all that's off the table and you're exactly right.

So what we're doing now is buying what we think are the best hedges against inflation-energy, agriculture and hard money-silver and gold bullion. We're also selling short lots of stocks that are overly in debt or are obsolete, such as newspapers or hard drive companies. Earlier this year, I told people that if they aren't willing to short stocks to hedge their portfolios they should only be in cash and gold, and they shouldn't own any stocks...

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