The saying goes that debt is the currency of slaves.
This makes slaves of most of us, but few more so than those in the US. We all know that the US is up to its ears in debt. The official figure for the national debt is $14 trillion, which is a ridiculous number however you cut it.
Call me sceptical, but I reckon the US government’s statistical department is full of it.
So, I prefer to listen to a former professional blackjack gambler from Vegas: Bill Gross. These days he is the famous MD of PIMCO, which successfully manages hundreds of billions of dollars worth of bonds.
Gross estimates the actual figure for US debt is more like $75 trillion.
This is a guy you want to listen to. He has made many fortunes for himself and his clients by carefully investing in bonds. Government bonds, municipal bonds, and corporate bonds – from the US and all over the world as well.
Recently he sold his entire holding of US treasuries. The simple reason is that the tide of inflation is rising – and that is the nemesis of the bond investor. What good is a 3% return if money is losing 4% of its purchasing power each year? To be honest, I’m surprised he stuck around as long as he did.
Again – you can chuck the government stat’s on inflation in the bin. You reckon Obama would get re-elected if the people knew the government was destroying 7% of their wealth each year? Real inflation is way, way higher than what the official statistics would have you believe.
I prefer to listen to John Williams at ShadowStats for the real story. By his calculations, US inflation is closing in on 7%. This certainly makes more sense to friends of mine over in the States who are running flat out just to stand still.
But don’t just listen to one source. Take in a few. And who could be watching it more closely than Wal-Mart, the budget convenience store to America. These guys make the skinniest margins on their goods but are profitable because they have so many shops. The CEO, Bill Simon warned this week that:
‘…rising inflation is about to become serious, and that Wal-Mart was seeing cost increases starting to come through at a pretty alarming rate.‘
When they sound the inflation alarm, you have to listen. We have been warning about this in the Markets and Money for ages, but it seems folks – we have arrived.
So what does Obama do?
There is talk of him raising the debt ceiling by 50% to $21 trillion.
Just stop reading for a second and take that in.
A 50 per cent raising of the debt ceiling?
If you aren’t yelling at your computer, then you’re not paying attention.
If this happens then we are witnessing the dollar’s end game. Time to buckle up.
It would enable shenanigans that make QE2 look like some light stretching before a marathon.
So what to do?
As with most of the economic problems in this world, the solution is precious metals.
Gold, silver, and platinum group metals.
That same saying that says ‘debt is the currency of slaves’ actually begins with ‘gold is the currency of kings, and silver is the currency of the free man’.
Never is that truer than now. As inflation gets a grip of the world’s largest economy, precious metals’ prices will soar.
The US-centric media doesn’t seem to have noticed however that China and India are in fact the biggest markets for precious metals. And inflation is already well underway there – thanks to years of importing inflation-infected US dollars. Chinese inflation is already up to 5.3%, and Indian inflation has just hit 8.7%.
As editor of Diggers and Drillers I’ve always recommended gold and silver. But in recent months I’ve made four more precious metals tips to increase exposure to half of the portfolio to precious metals positions. There’s more on the way too.
And I’m not the only one.
Bill Gross has recently launched an equities fund that has most of its $1.2 billion in gold positions.
Bill Gross…in gold?
This is the man who made his money in interest-bearing securities, and now he’s got a billion dollars in gold?
It’s a bit like finding out that your family GP is the biggest boozer of anyone you know. You know it makes sense – but it still comes as a bit of a shock.
Gold has been in a bull market for 10 years, and is basically a no-brainer. Buy gold bullion, buy good gold stocks, buy gold jewellery – just buy gold!
I think the faster returns are going to be made in silver though, if you don’t mind taking on some more risk. Silver’s performance was a bit slow for most of the last 10 years, but seems to be making up for lost time now.
The price is highly volatile as we have seen recently. The price may have fallen 33% in a month, but let’s not forget it is still up 100% in a year.
Why the steep rise? It is all down to the tight fundamentals of the market. Most estimates point to there being just 1.2 billion ounces of silver bullion available in the world. This makes it twice as rare as gold bullion.
So my question is then – why is silver not twice the price of gold?
I took a look at the fundamental of the silver market in a recent Diggers and Drillers newsletter. Once you see just how tight the market is, it is hard to see how silver will not make some spectacular gains in the next few years.
Why else would the owner of a servo charge just 20 cents a gallon for fuel? Providing the coins have silver in them that is…
How to turn hard profits into hard money
Having an idea of what it might do in the short term is extremely important. And that’s when having a seasoned technical trader sitting next to me comes in very handy indeed. Murray Dawes writes Slipstream Trader and has been calling the market’s recent movements to perfection. His advice helped me avoid tipping silver stocks at their peak, and instead waiting just a week to tip the silver at its recent low point. This is the way to make real profits.
Murray’s current view is that silver will spend a few months settling at this current level, and could even fall to $30 first.
Source: Slipstream Trader
This would be a good thing for the silver market. It helps shake out short-term speculators, form a solid base, and provide a good entry point for new investors before taking off again. And take off it will.
The press may be focused on what silver ETFs are doing, but should be focused on the physical silver being bought by the truck load by Indian and Chinese investors. Between the two countries there are 2.5 billion citizens all now looking for a way to protect their wealth from the inflation flooding into their bank accounts right now.
2.5 billion people wanting to invest in just 1.2 billion ounces of silver?
There is only one direction it will go in the next few years – and it’s not down.
Murray’s readers have been making good money from his calls, and I’ll keep calling on his 20 years of trading experience to help me pick the next good entry point into the precious metals markets.
It certainly looks as though the next month or two will be the last opportunity to take a decent position in silver or silver stocks.
After that the inflation-fuelled global demand meets the shortage of the metal, to power the next monster rally in silver.
Markets and Money Australia