I keep getting subscriber emails asking me what good it is to buy stocks when the United States dollar will soon be destroyed, taking the value of most equities with it. This question is a better one now than it’s ever been in my lifetime.
I remember many years ago, in the 1980s and early 1990s, when I started investing on my own. Back then, I often read arguments by various gold bugs and libertarian-leaning economists about how the U.S. dollar was on a path to total destruction. Even then, I was often reminded that all fiat currencies meet the same fate and that the dollar would be no different.
Fast-forward a few years to 1997 when I started communicating that same message for a living. Though I remained more concerned with other things, I kept revisiting this message. I kept thinking the Fed’s actions would have dire financial consequences for all of us… but for about 10 years, nothing apocalyptic happened. Every time it looked like the end was finally nigh and the day of economic, political and financial reckoning was upon us, the Fed would ease, the market would rebound and away we went on another bullish tear.
But at long last, it seems as though we’ve finally arrived at the point of no return. Anyone who lends the U.S. government a penny at this point is simply suicidal.
And you don’t have to guess about this, either. Listen to the market. It’s trying hard to tell you something very important…
More than once I’ve said late 2008 was the blow-off top of a multi-decade bull market in Treasury bonds. That’s still correct, as interest rates continue to make higher highs and higher lows. Treasury bond prices move opposite to interest rates. So they’re making lower highs and soon, I expect, even lower lows.
Thirty-year U.S. Treasury bonds were yielding as little as 3 percent in late 2008. Today, they’re yielding over 4.5 percent—an enormous move. If interest rates double in the next year or two, it won’t surprise me a bit.
Big moves down in U.S. Treasury bond prices aren’t supposed to happen. You’re not supposed to think of Treasury bonds as risky. They’re where you go when you’re afraid of risk.
It’s not just the Federal government in trouble. The iShares S&P National Municipal bond fund has collapsed. Every time it looks like it’s rebounding, it bounces to a lower step. Its recent 52-week low is 10 percent below its 52-week high. That’s an enormous move for municipal bonds.
That kind of drop isn’t supposed to happen to municipal bonds. All my life, muni bonds were the second safest investment in the world, next to U.S. Treasury debt. Now, they’re loaded with risk and everybody either knows it, or is starting to get wind of it.
Finally, after years of believing the collapse of the U.S. dollar, though inevitable, was apparently far in the future… it’s here.
The crisis so many people have thought and written about for so many years has finally arrived on our doorstep. It’s no longer appropriate to say we’re worried about the world our children or grandchildren will inherit. We need to be worried about ourselves.
Like any good demon, the destruction of the U.S. dollar has arrived with a smile on his face, in the form of an ebullient stock market. The S&P 500 has rallied 75 percent since early 2009.
Focused, as usual, on the rearview mirror, investors are way too bullish according to every stock market sentiment indicator I’ve seen. The American Association of Individual Investors Sentiment Survey, the Investors Intelligence survey of newsletters, Ned Davis Research’s Crowd Sentiment Poll… they all point in the same direction: The great horde of individual stock market dabblers is in a hypnotic trance, deliriously happy in its belief that stocks can and will rise to the moon. The Fed is selling pure B.S., and the herd is buying it.
At the risk of seeming callous or unconcerned for my fellow man (the poor sod), this is the stuff of which Opportunity (with a capital "O") is made. The first bet is one we’ve encouraged you to make dozens of times…
Gold, the anti-dollar, has been telling us for 10 straight years that the crisis is coming. Gold was around $252 an ounce in the summer of 1999. It’s now around $1,400. Gold is up fivefold against the U.S. dollar. That’s not a great statement of confidence in the world’s reserve currency. And it’s important that we continue to pay attention to it. It’s something you should notice—and something the government, the Fed, CNBC and Wall Street hope you don’t notice.
Buy gold. Hold it. Caress it. Love it. Hide it. But don’t sell it.
With the (allegedly) safest bonds in the world crashing, stocks clearly overvalued, and gold near new all-time highs, it’s not hard to figure out what to do. Own gold and silver bullion. Own natural resource stocks. Hold plenty of cash and sell fairly valued and overvalued stocks.
The market is telling you tough times are here. Stick with my advice and you’ll protect yourself and even profit while others lose… and wonder what the heck is going on.
Editor, Extreme Value
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