Warning! Fiscal Hurricane Approaching! Is Your Portfolio Secure? Part 3
In previous articles entitled "The Ominous Warnings and Dire Predictions of World's Financial Experts - Parts 1-6", submitted by Lorimer Wilson, one of my original subscribers and myself, we learned what was probably in store for us short-term and in the next few years. These experts used words like 'Economic Armageddon', "Financial Apocalypse', 'Financial Disaster', 'Financial Train Wreck', 'Deep Funk', 'Great Disruption', 'Category 6 Fiscal Storm', 'Economic Earthquake', 'Serious Collapse', 'God-Awful Fiscal Storm', 'Debt-Driven Meltdown', 'Major Upheaval', 'Demographic Tsunami', 'Rude Awakening', 'Economic Pain', ' Systemic Banking Crisis', 'An Accident Waiting to Happen', etc. to describe what we are in for. It begs the question "How should we position are assets given the dire predictions of these imminent economists and analysts who are all much of the same mind as to what may well be in store for the U.S and, indeed, the global economy very soon?" As we can see from the current financial markets in the United States and many in the world, markets are starting to unravel. Again, we have compiled a detailed and comprehensive summary of what many of these very same individuals, and others, have to say. It is so extensive and informative we have taken the liberty to divide it into 4 parts.
Warning! Fiscal Hurricane Approaching! Is Your Portfolio Secure? Part 3
by Dudley Baker and Lorimer Wilson
Axel Merk, President of Merk Investments LLC and Manager of the Merk Hard Currency Fund, says "we see the fundamentals of the dollar deteriorating further and also believe that dollar sentiment is turning more negative. As such, we see an increasing number of investors taking steps to diversify out of the dollar 'just in case'. Precious metals may provide some refuge and we believe investors should consider adding a basket of hard currency element to their portfolio."
Richard Russell, publisher of Dow Theory Letters, says "there's now too much of almost everything, except oil, being produced. This is basically and fundamentally deflationary. The central banks know this, and to offset these deflationary forces the central banks have resorted to what they do best - creating oceans of paper money. How do we protect ourselves against this ocean of ultimately worthless paper? We do it by trading in a portion of our paper - our 'fantasy money'- for real money, for real wealth. That 'real wealth' is called gold and silver. I'd put 15% in gold, coins or GLD, the exchange traded fund. I'd put 25% of what's left in two-year T-notes and the rest in six-month T-notes."
Tony Allison, a Registered Representative at Puplava Securities, believes that "the result of the frenzy of money creation will lead to higher inflation, perhaps hyperinflation. In our opinion the sectors that will best weather the storm that is approaching will be natural resources - energy, commodities, base metals, precious metals - utilities, food and water stocks, as well as stable, high dividend-paying companies."
Bill Bonner of The Daily Reckoning and author of 'Empire of Debt,' says "Preserving capital is paramount and in a deflationary environment having assets in cash, gold (Editor's Note: and I would also think silver and other precious metals, mining company shares and ideally some mining company warrants of 3+ years duration) and various types of hedge equity funds is the way to go."
Thom Calandra, the founding editor and former Chief Commentator of CBS MarketWatch and author of the book 'CBS Marketwatch Stories Behind the Numbers: How America Made a Fortune and Lost Its Shirt', said " Americans must believe in cash i.e. such vehicles as money market funds; treasury bills; short term certificates of deposit. Sure, they will hardly break after commissions, fees, taxes and inflation but they won't LOSE money the way one is sure to do in stocks given the current investment environment. And having considerable cash on hand puts one in the enviable position of being able to buy stocks when they have no where to go buy up and being out of harms way in the interim."
Marc Faber, former managing Director of Drexel Burnham Lambert (HK) Ltd., editor of the 'Gloom Boom & Doom Report' and author of 'Tomorrows Gold,' maintains "that gold and other precious metals will continue to out-perform financial assets. Since 2000, gold has risen at a much faster clip than the Dow Jones and I would expect this out-performance to continue for the next few years until 'gold currency' holders will be able to buy one Dow Jones with just one ounce of gold. Now you may think that I have become insane but I am convinced that the US Fed's monetary policies will lead to exponentially widening wealth inequity and impoverish the majority of US households, which will then lead to social strife, protectionism, war, and the breakdown of the capitalist system. Therefore, rather than to buy US stocks, I suggest to invest in gold."
Larry MacDonald, publisher of 'Market Trends' for Money Sense Magazine and MoneySense.ca, reports that "Investments selling far below their historical average are to be invested in, those selling far above are to be avoided or sold. It is buying low and selling high for long-term investors. That being the case, it is time to be wary of overweighting growth/cyclical stocks and to seek shelter in defensive stocks, bonds and cash. The more adventurous might even consider short selling U.S. bank stocks because their earnings, in particular, get squeezed by inverted yield rates - rates on their deposits rise relative to their lending rates. For real estate investors, caution might be in order. For stock market investors comfortable with short selling, it suggests shorting U.S. homebuilding stocks. It also suggests going short on retail stocks as the wealth effect from rising property values is reined in and consumer spending dampens."
Roger Weigand, a commodity trader, says "No economy has ever in history been able to withstand the magnitude of the mess we have today. How can we protect ourselves? Take some serious simple steps preparing for the inevitable:
1. Transfer your money to a Swiss bank account
2. Buy Goldgrams from Jim Turk's bank on the internet with cash backed by gold in
3. Conversely, sell your positions in the stock market. Richard, Russell, who is highly respected for his views, expects the Dow and Gold to cross at 3,000. Independent of his view, I compiled some long range charts and oddly came up with 2960 without knowing of Mr. Russell's number. This could be a coincidence, but I doubt it."
Paul Mylchreest, an Investment Analyst with Cheuvreux, in the January 2006 Sector Report on Metals and Mining reports that "Gold and precious metals are the only asset class that should perform well in either an inflationary or deflationary scenario. As such, gold and gold mining stocks (Editors Note: and their warrants) are poised for an unprecedented rise in prices and profile. We are raising our mid-cycle gold price estimate to USD900/oz (by 2008 in fairly steady increments) and see the possibility of a spike to USD2000, or higher if the US economy enters a phase of either deflation or rapidly rising inflation (hyperinflation?) and confidence in paper currencies in general declines."
David Vaughn, publisher of Gold Letter Inc., in a January, 2006 article reports that " you should be considering gold as an investment today because portfolios that contain gold are generally more robust and better able to cope with market uncertainties than those that don't. Adding gold to a portfolio introduces an entirely different asset class. Gold is unusual because it is both a commodity and a monetary asset. It is an 'effective diversifier' because its performance tends to move independently of other investments and key economic indicators. Even a small allocation of gold has been proven to significantly improve the consistency of portfolio performance during both stable and unstable financial periods."
Zach Fross, an investment analyst for the Explosive Speculations Investment Newsletter, says "Not only can we investors protect our wealth against the dollar and other fiat currencies by buying gold bullion, but we can take an offensive position by buying shares (Editor's Note: and warrants) of a gold mining company. This leverages the investor's investment (Editor's Note: and with warrants even more so) and as the effects of monetary inflation become more severe, the portfolio becomes increasingly more aggressive.
It is recommend investors strategically position themselves in a wide variety of assets including precious metals, mining shares and long-term warrants. We are currently seeing, most of the hedge positions mentioned are also declining with the down draft in our financial markets. Timing is always important, but we anticipate a decoupling of the precious metals, mining shares, etc and suggest looking for buying opportunities. Nothing like taking what the experts say to heart and investing accordingly.