Could these Assets Save You from the Approaching Financial Crisis?

You’re going to read a lot about the ‘fiscal cliff’ over the next few days. But not in Markets and Money. We could care less. Full speed ahead and over the cliff we go, we say! It would be the best solution for everyone.

The last-minute deal between the President and the Senate has exactly $1 in spending cuts for every $41 in new taxes, according to the Congressional Budget Office. In its current form, the deal raises $620 billion in taxes while cutting around $15 billion in spending over ten years. Yet according to the CBO, the net effect of the deal, over ten years, is $4 trillion added to the total US debt.

You don’t get a $16 trillion national debt like America has because you’re taxing too little. You get it because you’re spending too much and because people have come to expect more from the government than it can deliver without creating ruinous debts. No one wants to acknowledge this fact in America, or anywhere really, but it’s true.

In any event, the Republican party controls the US House of Representatives and they may amend the Senate’s bill and send it back to that chamber for further consideration. Or they may capitulate like a bunch of whipped dogs. Either way, the US debt is bound to go up. A genuine financial crisis remains the likeliest outcome.

Can you count on gold to save you from a dollar crisis? Well, Australians may not care so much. The weaker the US dollar gets, the better it seems for the Aussie. And the stronger the Australian dollar, the harder it is for the gold price to rise in Aussie dollar terms. In US dollar terms, by the way, gold was up 7.1% in 2012. That makes twelve years in a row of higher annual prices. That’s gold’s longest winning streak since the 1920s.

A strong Australian dollar is not all good news, of course. Australian manufacturing activity fell for the 10th month in a row, according to a private survey. Not a single one of the sub-sectors in the index showed signs of expansion. It’s getting harder to make things in Australia profitably.

During one of our trips to South Africa this year, we spoke to a platinum and palladium analyst who assured us that despite the bad news in the US, the global auto industry was doing just fine. On the heels of that conversation – and after discovering a projected supply deficit for palladium in 2013 – we recommended an Aussie listed producer of platinum group metals. It’s a high risk punt on a speculative idea, but it’s up 47% since we tipped it.

Tomorrow, the famous ‘lead bonus’ of Broken Hill, and a look at the deflationary prophecies of John Exter. Until then.


Dan Denning
for Markets and Money

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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