Saturday, May 1, 2010
"Who's gonna get screwed?" Rick Rule posed this question at the Stansberry & Associates Editors Conference in St. Michaels, Maryland... only his language wasn't so tame.
He was discussing the sorry state of the U.S. economy. The U.S. has on-balance-sheet liabilities of roughly $12 trillion. We have off-balance-sheet liabilities of closer to $60 trillion. Our states are running huge budget deficits. Pensions are severely underfunded – Rick's example was San Diego, whose pension contribution shortfall is $1.2 billion.
Then, you've got the overstretched individual. And we're trying to solve this problem of debt with more debt. Between entitled individuals, U.S. bondholders, and the producers, someone will get screwed.
Rick actually says all of them will. And the theme of the End of America will be "strong and enduring." Now, you need to know how to protect yourself.
"Things are going to be so bad, they're going to be even worse than I think." These words came from none other than the great Doug Casey.
Doug followed Rick's bearish presentation with an even more bearish one. Doug says everything is expensive. He doesn't want to buy real estate or stocks. He wants gold, and recently bought a bunch. But he's not happy about it because gold has increased by four or five times in the past 10 years. Other than gold, Doug doesn't want to hold commodities. He doesn't want to hold U.S. dollars.
Doug says the only "lock cinch" trade is shorting bonds. He says it's a triple threat on your capital. Bonds prices fall when interest rates rise, and interest rates are going "to the moon." Bonds are also a bet on the creditworthiness of the issuers. And from the government on down, their creditworthiness is in doubt.
Finally, bonds are denominated in currencies. And every currency in the world will eventually reach its intrinsic value... zero. To see our favorite short bond trade, check out the January 2010 issue of PSIA.
On the long side, Doug says he's putting his money with Rick Rule and Marin Katusa, an energy analyst who works for Casey Research, writing the Casey Energy Report. Doug thinks a super bubble is coming in junior mining stocks. And when they soar, they don't double. They increase by 50 or 100 times.
Doug also said the most important investment advice he could ever give is to diversify politically. Get your money out of the country. Explore second citizenships and passports. Look at foreign real estate. Don't wait.
After a couple other speakers this morning, I presented my best investing ideas...
One I'm working on for the next issue of Extreme Value is a company that sells for less than $5 a share... but has $55 a share in cash and NYSE-traded stocks on its balance sheet.
On March 1, this little company paid out a 17% special "tax-deferred dividend." By the end of the year, I expect it to pay out another, similar dividend representing about 27% of the current share price.
My readers know the stock well... though it's never appeared once in Extreme Value. Its business is in a state of decline and will certainly disappear one day. But you don't need to worry about that because it sold off its main business some months ago for $25 million.
When you buy this little stock today, about 95% of what you're getting is cash and NYSE-traded stocks. That's about as safe and liquid as it gets. But there's excellent potential for the stock to rise 60% or more by the end of the year, no matter what the overall market does. That's because the special "dividends" it's paying out now could easily push the share price higher.
In fact, the company's management chose to pay these special "tax-deferred dividends" with one goal in mind: Create shareholder value. The only way to do that is to make the stock price go up, up, up.
For access to Extreme Value and my upcoming research on this one-of-a-kind "tax-deferred dividend" payer, click here.
During the Editors Conference, I never got a chance to chime in on the issue of inflation. I'd like to go on record predicting the precise month, day, and year when the big inflation will hit: two years ago this September.
That's right. Two years ago. Between September 3, 2008, and December 31, 2008, the monetary base of the United States rose from less than $895 billion to more than $2.218 trillion, a 148% rise. Inflation is already here.
The only reason you don't yet see the familiar symptoms of inflation is the banking system's collateral is still getting written down. As long as all the homes and commercial real estate continue to go bust, you might not see obvious signs of severe inflation. Whenever that process stops, you'll see the prices of things you buy every day rise faster than they've risen since the hyperinflations of the early years of the republic.
Date Range:4/22/2010 to 4/29/2010
Date Range:4/22/2010 to 4/29/2010