In the end, the results of the recent mid-term elections won’t matter one iota.
So, instead of harping on them, I’d like to show you how four warnings that I previously told you about are coming true. Then, I’ll tell you what this means for your gold and oil investments.
For several years, Wall Street has been insisting that “Corporate America is healthy,” “inflation is benign,” and “low interest rates are here to stay.” And, for a while, there was some room for debate about whether they were right.
But now, we’re seeing an outpouring of new evidence indicating that the economy’s strength is merely skin deep, that its foundation is weak and crumbling …
Warning #1:
Federal deficits continue to skyrocket higher.
Washington would have you believe that the budget deficit narrowed to $248 billion in the fiscal year just ended September 30, down from the record $413 billion for fiscal 2005.
But that’s baloney because the Federal budget deficit is as hokey as Enron’s books were. The real measure of what Washington is spending shows up in the annual gross total national debt — the difference between receipts and expenditures. When expenditures exceed receipts, you have a deficit that adds to the total national debt.
Well, guess what? Over the fiscal year, that deficit was close to $600 billion … making the total national debt $8.5 trillion.
It wouldn’t be so bad if the average American had some savings to offset the public debt. But that’s not the case. The national savings rate is hovering at historical lows, with the average American family having zero in cash savings and spending more each month than they earn.
Between our massive national debt and the financially bankrupt typical American household, there isn’t much hope for a strong economy. I expect the economy to stall, but it won’t be the usual slowdown. Here’s why …
Warning #2:
The Fed will print money like mad,
And inflation will accelerate.
There’s not a single politician in Washington who would opt for an economic slowdown over growth under any circumstances — Democrats and Republicans alike.
As a result, even though the economy will slow sharply in the months ahead, inflation will accelerate higher with a vengeance. New signs of this are everywhere …
Indeed, what the government calls “core inflation” — which excludes food and energy — has just hit a 10-year high. And this is a measure that acts as if you don’t breathe, drive anywhere, or eat!
Important: The inflation that’s building momentum now is being driven by forces that are more powerful and more sustainable than anything we’ve seen in decades.
First and foremost, it’s being driven by Washington’s desire to avoid an economic slowdown by rampant, wanton government money printing.
The best evidence: The government’s current measure of the broad money supply is surging at an annual rate of nearly 4%.
That might not sound like much, but it’s enough to virtually lock-in a minimum inflation rate of 4% — without taking into effect price increases that are occurring in areas like oil and other natural resources. When you add in these double-digit price gains, it’s easy to see how the inflation rate can jump to 6% … 7% … even 8%.
Next will come wage inflation. We’re not seeing this yet, but it’s coming. October’s meek productivity growth and jump in labor costs of 5.3% (the biggest jump in 16 years) are your signposts.
So, add wage inflation into the mix, and I would not be surprised if we see inflation between 8% and 10% down the road, despite a slowing economy.
The big squeeze that I’ve been warning you about — a slowing economy, plummeting real incomes, and accelerating inflation — will then be in full swing. And yet, most of Wall Street still doesn’t get it.
Warning #3:
Expect a disaster in the Treasury bond market.
In just the past week, the price of the 30-year benchmark Treasury bond swooned by two full points.
What’s driving the uncertainty? Fears of another round of inflation, the kind I just told you about. Look, bond investors are not dumb. They know all too well that:
America’s debt and deficit troubles are virtually insurmountable …
America’s leaders have continually reneged on their many promises to deal with these troubles …
Now, to try and get out of the mess, America’s monetary authorities will flood the economy with paper dollars …
And this money printing, along with huge demand for natural resources from economies like India and China, equals a powder keg for inflation.
This is basic. You don’t need a Ph.D. in economics or a sophisticated model to grasp it. And it’s just as easy to see the other big consequence …
Warning #4:
The U.S. dollar is still weak.
I think the U.S. dollar is about to hit the crapper. Here’s why:
There is no way the dollar can strengthen against major currencies like the euro, the Swiss franc, or the Japanese yen when the U.S. economy is so laden with debts, both public and private.
There is no way the dollar can strengthen when interest rates in this country are not nearly high enough to give the U.S. an interest-rate advantage on the global playing field.
There is no way the dollar can strengthen when foreign investors see Washington as a profligate spender that’s tied down in Iraq, Afghanistan, perhaps even Iran, for years to come.
So, despite a tiny rally here and there, the U.S. dollar is headed into an abyss. And that will create a vicious cycle of even more inflation.
Here’s the good news …
Everything I Just Told You About
Is Bullish for Natural Resources
Right now, gold has given me its first weekly buy signal since its correction started unfolding this summer. That’s very bullish news.
I expect gold to climb as high as $740 by the end of this year … just two short months from now! Gold stocks will also explode higher.
Oil also looks like it’s getting ready to move higher again. I expect you’ll see it near $70 a barrel by the end of the year. Oil shares should see substantial upside, too.
Consider taking these steps …
First, keep most of your money safe. Anything that’s not invested in my recommended sectors might be best put in a money market fund, preferably a Treasury-only money market fund. My favorites include:
- American Century Capital Preservation Fund (CPFXX)(800-345-2021)
- Dreyfus 100% U.S. Treasury Money Market Fund (DUSXX) (800-645-6561)
- Fidelity U.S. Treasury Money Market Fund (FDLXX) (800-544-6666)
- USGI U.S. Treasury Securities Cash Fund (USTXX) (800-873-8637)
- Vanguard Treasury Money Market Fund (VMPXX) (877-662-7447)
- Weiss Treasury Only Money Fund (WEOXX) (800-430-9617)
Second, hold your core gold positions. This includes gold bullion, gold shares, and gold mutual funds such as the Tocqueville Gold Fund (TGLDX). (By the way, last week I inadvertently gave you the wrong ticker symbol for DWS Gold & Precious Metals Fund — the correct symbol is SCGDX.)
Third, get ready for a whole new round of great buying opportunities. If you’re a Real Wealth Report subscriber, be on the lookout for specific instructions.
Best wishes,
Larry
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Monica Lewman-Garcia, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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