What Was Safe is Now Risky... and Vice-Versa
It is like the entire world flip-flopped 20 years ago.
Twenty years ago communism was still hanging on in the USSR and China still hadn't quite emerged from the Communist fog while the USA was still seen as a bastion of free markets.
Twenty years ago a prudent, conservative financial portfolio would include a mix of large US industrial and bank stocks and government and corporate bonds.
Segue to today and China and Russia, and many of the former Soviet states are, in many ways, more free market than the US. And the US, now, is much closer to being outright communist, with central control of banking, real estate (Fannie May & Freddie Mac), transportation (Amtrack, General Motors), the public education system and with its tentacles intertwined into every facet of American life with rules, regulations, subsidies and taxes.
A portfolio that worked very well for the last 20 years in US stocks and bonds has now gone from being very conservative to extremely risky.
This is never reported to the American people via their government mass media cabal but many of the largest players in the financial markets, including us here at The Dollar Vigilante, have stated, openly, that almost all large western nations will default on their debts and/or promises (Social Security etc) at some point in the near future.
Arnaud Mares, an Executive Director for Morgan Stanley in London stated in a research report this month that, "the question is not whether they (large advanced economies) will renege on their promises, but rather on which of their promises they will renege, and what form this default will take."
Just looking at the balance sheet of every major western country from the USA to the UK, France, Spain, Ireland and many more and it is plain-as-day obvious that there is no way they can ever repay their debts. And once interest rates begin to rise, which they will, they won't even be able to make interest payments on their debt.
Yet, the American sheeple, based on experience from the last 30 years are stampeding into what they think is the most conservative investment: US government bonds. Little do they know that this is now the riskiest "asset" on the planet.
The Bond Bubble
How do the public do it? It's almost magical the way that they do the exact wrong thing at the exact wrong moment.
Right when people should be fleeing US & other western sovereign debt they are all running headlong into the coming disaster.
After the stock market collapse in 2008 investors fled with what remaining funds they had into government bonds. In 2009 investors added a record $376 billion to bond fund holdings, up exponentially from 2008, when only $28 billion was invested into this sector.
The bond sector cooled for most of 2009 but it recently was near record highs yet again. Look at this chart of the 30 year US Treasury Bond price.
Sadly, the great majority of people are doing this as a reaction after losing a great portion of their net worth during the market collapse of 2008. Reacting intelligently, Americans began to save more following the crash of '08. The American saving rate climbed to a one-year high of 6.4% in June. Unfortunately, for them, looking back at the last 20 years of their experience, they assume that US government Treasury Bills are the safest place to be.
Little do they know they are about to lose the last bit of wealth they have remaining. And all they are doing, in the process, is lending their last vestiges of saved wealth to the government to be completely wasted.
Meanwhile, what was once described by John Maynard Keynes as a "barbarous relic" is shining brightly. Gold, today, hit an all-time record high and the average man on the street still owns zero physical gold.
Before this is all over everyone will know and understand that holding something of tangible value in their hand is much better than holding government debt paper certificates. It is only too bad that for the majority of people this understanding will only come once it is too late.