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Silver is better than gold.
In fact, it's poised to be the "Greatest Trade Ever."
I know that's a big statement. I'm certain that it grabbed your attention. Perhaps you're even considering arguments that would shoot it down.
But I know what I'm saying. And here's the proof.
by Sean Hyman
Imagine losing 14% of your wealth overnight – doing absolutely nothing at all.
You didn't invest in the wrong stock. Buy the wrong piece of real estate. Or gamble on the wrong outcome.
You just went to sleep…
And now your $300,000 bank account is worth $258,000 (and there's nothing the FDIC can do to help you). Your small business you grew from nothing to a million dollars is worth $860,000.
In fact, everything you own is worth 14% less. And everything you buy from now on – including food, clothes, or anything else – costs 14% more.
Sound impossible? It's not. It already happened – in the United Kingdom.
It was 1967, and the U.K. was facing the same pressures that the United States faces now. I'm sure if you told the Brits of that time that they could lose wealth like that – they wouldn't have believed you either.
But then it happened…
No one really called the United Kingdom a dying empire at the time. But it was. The U.K. started losing its imperial status in the 1940s.
The British pound officially lost its status as the world's reserve currency just after World War II.
Before that, the pound had served as the world's reserve currency for 150 years! But after battling two world wars, the Brits lost that privilege to the United States.
It took a little over 20 years, but the British pound finally hit rock bottom.
So the British government decided to "help" the locals by devaluing the British pound 14%. Overnight, the Brits lost 14% of their wealth, with no way to get it back.
That's eerily similar to what the U.S. Federal Reserve is doing to us right now, by keeping the dollar's value depressed with 0% interest rates and quantitative easing.
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Telecom Corp. of New Zealand (NYSE ADR: NZT) is the classic example of a dividend trap. The stock has a hefty payout and it's been on a tear over the past year – but if you dig a little deeper, it's easy to see that the company's fundamentals are deteriorating.
That means you can't rely on its payout anymore than you can rely on Greek bonds.
This makes Telecom Corp. of New Zealand a "Hold" – at least until a needed pullback gives investors a chance to add more shares.
No doubt, uncertainty is the operative word in developed markets. The debt-ceiling debate in Washington came to an unsatisfactory conclusion that did little to alleviate the U.S. debt burden. Meanwhile, the bail out of the bail out of Greece has left Western investors with virtually no European alternatives for fixed-income investments.
That's why I've been looking around the world for higher-yielding, lower-risk investments. Truly, the yields on some stocks these days actually remind me of the old bond yields of yesteryear.
And at first glance New Zealand Telecom looks like it fits the bill. The stock has a forward annual dividend yield of 4.1%, and it's up 50% in the past year – compared to an 11% increase for the Standard & Poor's 500 Index.
But in this case, a closer look at the company reveals the following:
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by Shah Gilani
On Aug. 11, 2010, the Dow Jones Industrial Average plunged 265 points, or 2.5%.
This Tuesday – almost exactly one year later – the Dow dropped … 265 points.
Those carbon-copy stock-market sell-offs weren't a coincidence. – as yesterday's (Thursday's) 512-point drop and further weakness will prove.
Although the Dow is more than 700 points higher than it was at this time a year ago, U.S. stock prices are currently following virtually the same trading pattern that they did in 2010: Last year and again so far this year the early-year gains came to a halt in May, and the markets then fell through August.
But here's where the story gets scary.
Last year, the U.S. Federal Reserve halted the stock market's summer swoon by opting for a second round of quantitative easing – an initiative most of us refer to as "QE2."
A year later, even after a week heavy with stock-market sell-offs, there's no guarantee we'll see another Fed rescue mission. And this time around, without a massive injection of quantitative easing – the much-ballyhooed QE3 – it could finally be all over for the stock market.
Stocks have endured a real beating in recent days – yesterday's stock market sell-off was the worst one-day plunge in U.S. stock prices since December 2008.
When the Dow plunged 265 points on Tuesday, it was because of an unexpectedly large drop in the Institute for Supply Management's (ISM) Purchasing Manager's Index (PMI). The 265-point August 2010 sell-off was precipitated by the U.S. Federal Reserve's negative outlook on the American economy.
But both the August sell-offs were preceded by strong run-ups in stock prices. Those run-ups weren't sparked by an improved economic outlook – which is how it usually works.
Instead, the bull market that powered U.S. stocks off their March 2009 bear-market lows was the result of the massive monetary stimulus put in place by Washington and the U.S. Federal Reserve.
The U.S. monetary stimulus – billions of dollars worth- went into banks and other financial institutions – and not into the economy.
That's why stocks have benefited – even in the face of an economy in which growth has been lackluster, if not downright flat.
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There was a lot of back-patting in Washington this week after U.S. President Barack Obama signed a debt-ceiling deal that he and members of Congress claim will reduce the national debt.
But here's the truth: This deal does nothing to reduce America's debt burden. In fact, the $14 trillion we owe now could every easily exceed $23 trillion by 2021.
That's a 62% increase.
It only takes a little bit of number crunching to see what I mean.
The deal brokered by Congress cuts spending by just $917 billion over a 10-year period, with a special congressional committee assigned to find another $1.5 trillion in deficit savings by late November.
Even if you round up, that $2.5 trillion in "savings" over a 10-year period is inconsequential when you consider that President Obama added nearly $4 trillion to the national debt in just a few short years in office.
How can you make any progress on the debt front when you're adding $4 billion in new liabilities every day?
And the story is even worse than that: According to the Congressional Budget Office (CBO), even the $2.5 trillion the government claims to be saving is quickly vaporized by inflation and lost economic output.
The CBO in January estimated that a 0.1% reduction in growth rates would increase the deficit by $310 billion over the next 10 years, while a 1% increase in inflation rate would increase the deficit by $867 billion.
The CBO projects the average growth rate from 2011 to 2016 will be 3.25%, and the non-partisan group has the average rate of inflation pegged at 1.55% over that same period.
However, growth in the first half of 2011was 0.8% and the personal consumption expenditures (PCE) inflation index – the type of inflation the CBO looks at – was 3.5%.
So let's do the math.
If growth and inflation statistics magically revert to CBO expectations – which would be a long shot considering how much they're already off – then the budget deficit over the next 10 years would rise by $928 billion. That alone is more than enough to wipe out the $917 billion of initial savings in the debt-ceiling bill.
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Last week, the Environmental Protection Agency (EPA) released a new series of proposals concerning the capture of emissions that are currently being released into the atmosphere during oil and gas drilling.
These emissions increase pollution and run the likelihood of creating a greater danger for the incidence of cancer.
The problem is hardly a new one.
Environmentalists have long argued that increasing the volume of drilling in a given location disproportionately raises the emission levels. The pollution effects tend to increase beyond a simple arithmetical aggregate of individual well results.
There is, in other words, a "triggering" effect on environmental dangers.
This is of concern in both oil and gas production, but the particular concern these days results from the development of shale gas sites. There, the combination of hydro-fracking and horizontal drilling has resulted in a greater concentration of drilling locations per pad, while frac fluid introduces a wide variety of chemicals into the process.
That has drawn the interest of the EPA.
For the first time, last Thursday (July 28), the agency actually proposed regulations. (The issuance just beat a court-mandated deadline.)
The new regulations target air emissions resulting from fracking, including standards for volatile organic compounds, sulfur dioxide, and air toxins related to oil and natural gas production or transmission.
The objective is to reduce volatile organic compounds released from fracked wells by 95%, and lower overall harmful emissions from the oil and gas industry by 25%. By volume, annual reduction targets are set at 3.4 million tons of methane, 540,000 tons of volatile organic compounds, and 38,000 tons of other toxins.
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While Standard & Poor's mulls over a U.S. credit rating downgrade, China's Dagong Global Credit Rating Co. wasted no time cutting its U.S. debt outlook, signaling Asia's lack of faith in the declining U.S. dollar.
Dagong yesterday (Wednesday) cut its U.S. credit rating to A from A+ with a "negative" outlook. The agency said the U.S. debt deal failed to correct the country's budget issues, and the $2.4 trillion debt-ceiling increase will further erode the country's ability to reduce debt in coming years.
Two U.S. credit rating agencies, Moody's Investors Service (NYSE: MCO) and Fitch Ratings Inc., affirmed the country's top-tier AAA credit rating Tuesday – although both did issue a "negative" outlook, meaning the country could face a downgrade in a year or two.
But China acted much more swiftly. The U.S. credit rating downgrade puts the country several notches below the agency's top rating, on the same creditworthiness level as Spain, Estonia and South Africa.
The move underscores how foreign lenders to the United States have become increasingly reluctant to maintain their current levels of exposure to U.S. bonds.
Foreign leaders like People's Bank of China Governor Zhou Xiaochuan and Russian Prime Minister Vladimir Putin have harshly criticized the United States for failing to control its finances.
Putin said Monday that the United States was "leeching on the world economy," and questioned the dollar's status as the world's reserve currency.
"They are living like parasites off the global economy and their monopoly of the U.S. dollar," said Putin. "If over there (in America) there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities … There should be other reserve currencies."
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Although two U.S. credit rating agencies have affirmed the country's top-tier AAA credit rating, both are maintaining a "negative" outlook on U.S. federal debt – making it clear this week's congressional debt-ceiling deal failed to bring about the deep-government-spending cuts the market was looking for.
After Congress on Tuesday approved a debt deal that would raise the country's debt limit by as much as $2.4 trillion, Moody's Investors Service (NYSE: MCO) and Fitch Ratings Inc. confirmed the United States' top-tier AAA credit rating – but gave it a "negative" outlook.
A "negative" outlook means the rating could be downgraded in the next year or two.
But the debt-ceiling saga isn't over: Standard & Poor's – which has taken the hardest line, stating there's a 50% chance it would slash the U.S. credit rating – has yet to deliver its decision.
All three of the rating firms – S&P, Moody's and Fitch – had warned that a downgrade was possible. S&P said it would downgrade the credit rating by one level if Congress didn't slash spending by at least $4 trillion over 10 years.
Congressional leaders yesterday (Tuesday) finally settled on a debt deal, but the ineffective compromise is not enough to prevent a blow to the U.S. markets and the dollar – meaning it's time to preserve your wealth with large-cap dividend stocks.
While the coming period of market uncertainty could be a great opportunity for rational investors to explore newly created investing options, there must also be a focus on wealth preservation.
To that end, Money Morning Contributing Editor Shah Gilani joined FoxBusiness' "Varney & Co." programTuesday to explain why the debt-ceiling deal's weakness makes defensive investing with large-cap dividend stocks imperative.
"The sideshow may be over, but there's no agreement on paring down our debt," said Gilani. "The problem isn't going to be fixed by just cutting spending."
Indeed, investors remain exposed to the fragile U.S. economy and volatile financial markets.
"To be safe in these uncertain times I like a simple well-rounded and ‘tight' portfolio," said Gilani. "I like the new stuff, but in times like these I also like to be defensive – better safe than sorry."
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The circus known as the debt-ceiling debate may have left town – at least for the time being – but there's still one sad clown left standing squarely in the center of the ring.
I'm talking about U.S. Federal Reserve Chairman Ben S. Bernanke – otherwise known as "Helicopter Ben."
Bernanke got the nickname "Helicopter Ben" from a speech in 2002, in which he announced that deflation was a real worry (this was just when house prices were taking off) and that one possible solution would be to fly around the country dropping $100 bills from helicopters.
Strange as it sounds, that might actually have been a better approach than the one he ended up taking.
Small towns in the Midwest and the working poor of such downtrodden urban environments as Cleveland and Detroit could certainly use a visit from the kindly flying Santa Claus. At least those Americans would have put the money to good use.
But so far, Bernanke's helicopter has only hovered over Wall Street, and his generosity has had a negative effect on the U.S. economy as a result.
His first two rounds of quantitative easing had three major consequences:
In fact, the only thing Bernanke's policies have managed to suppress is economic growth.
U.S. gross domestic product (GDP) increased by just 1.3% in the second quarter – an indication that an already wobbly economic recovery could tip completely over in the second half of the year.
But if you think that means we'll get a reprieve from Helicopter Ben's razor-sharp rotors, you're wrong. To the contrary, he's gearing up for another flyover – a third round of Treasury purchases (QE3).
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