What Was Safe is Now Risky... and Vice-Versa

By: Jeff Berwick | Tue, Sep 14, 2010
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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.

30 year US Treasury Bond Price Chart

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.



Jeff Berwick

Author: Jeff Berwick

Jeff Berwick
Chief Editor
The Dollar Vigilante

Jeff Berwick

Anarcho-Capitalist. Libertarian. Freedom fighter against mankind's two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world's freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.

Jeff's background in the financial markets dates back to his founding of Canada's largest financial website, Stockhouse.com, in 1994. In the late '90s the company expanded worldwide into 8 different countries and had 250 employees and a market capitalization of $240 million USD at the peak of the "tech bubble". To this day more than a million investors use Stockhouse.com for investment information every month.

Jeff was the CEO from 1994 until 2002 when he sold the company and still continued on as a director afterwards until 2007. Afterwards, Berwick went forth to live on and travel the world by sailboat but after one year of sailing his boat sank in a storm off the coast of El Salvador. After being saved clinging to his surfboard with nothing but a pair of surfing shorts left of all his material possessions he decided to "live nowhere" and travel the world as spontaneously as possible with one overarching goal: See and understand the world with his own eyes, not through the lens of the media.

He went on to visit nearly 100 countries over four years and did and saw things that no education could ever teach. He met and spoke with a plethora of amazing people, from self-made billionaires to some of the brightest minds in finance - as well as entrepreneurs from a broad range of backgrounds and locations from tech companies in southern China to resource developers in Mongolia, Thailand, Russia and Chile. He also read everything he could find on how the world really works... politically and financially. A pursuit he continues to this day.

He expatriated, long ago from his country of birth, Canada, and considers himself a citizen of the world. He has lived in numerous locales since including Los Angeles, Hong Kong, Bangkok and currently lives in Acapulco, Mexico and is building a home in Cafayate, Argentina. In essence, everything he writes about here for TDV he has done or is doing.

As well, during his travels, both real and virtual (through the internet), he met some amazing people who have a similar shared vision of what is currently going on in the world and enticed them to come aboard TDV and provide their own brand of analysis.

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