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An update to the End of America...

Written by Subject: Gold and Silver
As longtime readers know, I often use Friday's Digest to introduce you to new techniques and strategies you're unlikely to learn about anywhere else. I've written extensively about why I believe most investors should focus on investing in corporate bonds... why selling stocks short will make your portfolio safer (not riskier)... and why selling puts can be the only real way to make a lot of money without taking any risk at all.

This week, I want to give you something I know will be far more valuable than just learning about another strategy. I want to give you a key update on what I call the "End of America."

When I talk about The End of America, I don't mean the end of our political union (although I won't rule that out). I'm talking about the end of the U.S. dollar as the world's reserve currency. Most people think that's unlikely to occur. But it's already happening, and a complete collapse of the dollar is now inevitable.

This is the most important financial problem you will ever face. And I want you to know exactly how this crisis will unfold, so you can completely protect yourself. Save this Digest. Print out a copy. Put it somewhere where you'll see it. Keep reminding yourself that this process is underway... and that you have to prepare NOW.

Why do you need to take steps now? Why not just wait and see what happens? Two reasons...

First, when you look at the numbers, you can see the problems we face will not be solved by any normal or legitimate means. How do I know this? Just consider this one fact: Even if federal tax revenue were doubled, we would still have an annual deficit.

I've got to be making that up, right? Surely that can't be true, right? It's true. Income tax receipts are roughly $900 billion a year. Corporate taxes are roughly $200 billion annually. That's $1.1 trillion in tax revenue. Our current government expenditure is $3.5 trillion. Even if you doubled tax revenue, we would still be facing a $1.4 trillion deficit.

"Wait a minute," you say. "How can that be? Doesn't the mainstream media report that our deficit is only around $1 trillion per year right now?" Yes, that's what they report. But that's because the government counts all $850 billion of payroll taxes (Medicare and Social Security) as current income. It's not. Those taxes are supposed to be funding the future liabilities of those programs, but we're spending all that money now. If a private corporation did the same thing, its executives would all go to jail.

Second, you have to act now because when the situation finally turns, it will happen suddenly. If our government suddenly finds itself unable to sell bonds at a reasonable price, the rule of law will evaporate overnight.

This will happen at some point. The only question is when. You don't have to believe me. Listen to what congressman Ron Paul said in an interview with our friends at Casey Research:
They are going to have currency controls and exchange controls and limit the amount of money you can take overseas... the description of a free country is one where you can leave with your money when you please. That is going to get harder and harder.
Yes, Ron Paul is a libertarian. But he has also been in Congress (off and on) since the 1970s, and he is now the chairman of the Joint Finance Committee. He knows more than almost anyone else about the true financial condition of the government. He is giving you a clear warning. What are you going to do about it?

Most people will do nothing. They will continue to assume tomorrow is likely to be pretty much the same. Sure, we might have some tough times... but this will pass. Nothing serious is going to happen.

If you feel this way, that's fine. But ask yourself these questions:
How high will gold have to get before you think something is seriously wrong?
How high will silver have to get?
How many banks will the FDIC have to close before you consider the dollar to be unsafe?
How many municipalities will have to go under before you think there's a crisis?
How European states will have to leave the euro before you begin to doubt the stability of the world's paper currencies?
How high will agriculture prices have to go before you see that a global food panic is underway?
I suggest you write down the answers to these questions now. Because almost no matter what you answered, you'll get to that point soon.

So how will it happen? That's what people keep asking me. My answer is: The collapse of the global fiat money system is already under way. Gold has gone up for 10 straight years. Gold is the counterbalance to fiat (paper) money. For 10 years in a row, investors around the world have been favoring gold. This trend is going to continue, and it will not stop until serious actions are taken to put a floor under the value of the world's major paper currencies: the euro, dollar, and yen. And that can't happen because the governments backing these three currencies are all bankrupt. The euro will die first. Just look at the numbers...

Greece, Ireland, Spain, Portugal, and Italy have all made the same mistake. They responded to the collapse of real estate prices and debts by guaranteeing the private obligations of their banks with their country's treasury. (America is doing the same, by the way.) The problem is, the debts are vastly larger than the governments can afford to repay... far larger.

So for example, when Anglo Irish Bank failed, it announced it required $35 billion. That's equal to 25% of Ireland's GDP. And that's only one of Ireland's failed banks. Ireland will never be able to afford these obligations.

As a result, Germany, France, and the other euro nations have put together a bailout plan. All of the European treasuries will act to save any member state. Let's look at the numbers. Total debts owed to foreign investors in the so-called "PIIGS" countries are $2.6 trillion. The bailout package that's been assembled totals $1 trillion. That sounds pretty good... at first.

But Italy and Spain have pledged $130 billion to the bailout. Where will they get that money? Greece has pledged $12 billion. Ireland, $7 billion. Portugal, $11 billion. Only about half this money will ever be raised and almost all that can be raised will have to come from France and Germany. Sooner or later, the taxpayers in those countries will say "enough" and the whole thing will unravel.

It will happen suddenly. And very, very soon. Even if you pretend Europe can raise that size of a bailout fund, that figure simply isn't nearly large enough to bailout either Spain or Italy. And both are likely to suffer a default if either Greece or Ireland defaults. That's why interest rates in Ireland and Greece are back to crisis levels, despite the bail out promise. That's why the euro continues to fall. And that's why shorting the euro is one of 2011's sure bets.

Ironically, the worsening crisis in Europe will give our own dollar a bit of a reprieve this year. In a crisis, investors will prefer the liquidity of short-term Treasurys to any other asset, including gold and silver. Look at the precious metals markets this week...

The euro (FXE) fell almost 2% Wednesday. Silver (SLV) fell 7%. Gold (GLD) fell 4%. What went up? The U.S. dollar (UUP) rose 2%. Don't forget... in 2008, the dollar rallied tremendously. Gold and silver fell sharply. In a short-term panic, investors are still buying dollars, not gold or silver.

The collapse of the euro will cause all kinds of big problems this year and almost surely lead to a huge correction in commodities. Does that mean the U.S. dollar's problems are just a mirage? Nope. Sooner or later the U.S. will face a stark choice...

If we let the euro fail, it will result in terrible short-term consequences. So the Fed will crank up the presses yet again. Quantitative easing 3 will be another $1 trillion effort, this time focused on buying European sovereign debt. The Fed must become the lender of last resort not only for the U.S., but for the world. That's the last step before its eventual collapse. After that point, people will no longer flee to Treasurys when a crisis erupts. They will flee to gold.

What should you do about this? It's pretty simple. First, you should use the correction in silver and gold to stock up on physical bullion. Make sure you've got a year's living expenses (at least) in gold and silver bullion. Store a portion of it overseas.

If you can, buy some real estate overseas. Look into getting a resident's permit or, even better, a foreign passport. If leaving isn't an option for you, then use this year to build some safeguards for yourself here. It could be buying a local farm... or maybe just planting a garden... or digging a well... or installing a big propane tank. Store a bit of food. Stockpile medicines. Buy a gun. Get some ammunition. Imagine what it would be like for you if the dollar wouldn't buy anything. Imagine what would happen if the 43 million Americans on food stamps couldn't eat. Plan your affairs accordingly.

In regards to your portfolio, here's what I recommend, assuming you haven't done anything yet. First, research oil and gas companies. And research gold and silver companies. Research agricultural companies. You'll find this information in several of our publications, including my newsletter, Stansberry's Investment Advisory. Put together a wish list of companies that own the world's best trophy assets – food, energy, and sound money. Those are the key assets. There are others too, like transportation networks, refineries, key trans-shipment points. If the world's currencies collapse, what assets do you want to end up owning? That's the question to answer this year. Once you have made some good choices... wait. Wait? Yes. Wait.

Wait for a correction. It will come this year. Wait for a crisis to buy. It will come. Wait for signs of massive volatility, like when the volatility index (VIX) – a key measure of fear in the market – shoots above 40 or 50. Wait for junk bonds to yield 15 or 20 percentage points more than U.S. Treasurys. It will happen. Just be patient.

Then, go to your list of trophy assets/corporations. And get out of the U.S. dollar. By the time the big selloff in U.S. Treasurys has begun in earnest (let's say 18-24 months from now), you want to be 100% invested in gold and silver, high-quality short-term corporate debt, trophy equity, trophy real estate. But the key, as always, will be to move out of the dollar as it experiences the rare counter-cyclical rally – one of which is under way right now.

Who will guide you in these trades? Who has the most experience on my staff for making these kinds of precision moves? Dr. David Eifrig.

"Doc," as we call him, was a proprietary trader for Goldman Sachs and other top banks on Wall Street for more than a decade. Then, he went to med school. There isn't anyone smarter or more experienced available, perhaps anywhere. And you can get his expertise for a song. You don't have spend $100,000 on a hedge fund to use the same techniques. You just have to read Eifrig's trading service, Retirement Trader.

It's specifically designed to bring you Wall Street's most sophisticated trading techniques. Don't you wonder how Goldman Sachs makes money on every trade it makes? Doc can show you. That's why 13 of the 13 positions he closed last year were winners. Yes, that's right. He made his readers money on every trade he closed.

You may say to yourself, "I'm no trader. I'm an investor." And while that may normally work well for you, this year it won't. This year, you're going to have to deal with massive changes in the world's economies and markets. This year, you will have to be a trader to do well. And no one in the world is better to help you than Doc Eifrig. Try his service. It will make you money. But far more importantly, Doc will give you the tools and the knowledge you will need to prosper during this crisis. I would encourage everyone to read Doc's work... here.

New highs: Automatic Data Processing (ADP), ExxonMobil (XOM), EV Energy Partners (EVEP).

Some readers write in to criticize our views and tell us what to recommend... Send your meessages to feedback@stansberryresearch. com.

"You don't seem to get it. Our USA is in deep kaka with a vanishing middle class, big deficits and a deep recession. How we got here is water over the dam. It's now time to stop belly-aching and bite the bullet; no one wants to sacrifice, but we're at war with a global economy and its time to get back the American middle class. Where ten percent of Americans own 80 or 90 percent of this nation's income, where else will the revenue come from to get out of our funk?" – Paid-up subscriber Barton

Porter comment: Your suggestion the rich can (or will) pay for our government's profligate spending is naïve. In the first place, the rich can (and will) hide their income or leave the country. But even if they couldn't, it still won't work because (as I explained above) even if you double the tax revenues we'd still be running a deficit. The only way out is to seriously gut the costs of government and work hard to repay our debts. There's no chance that will happen in a country where 50% of the voting population doesn't pay any federal taxes.

"I read your latest PSIA this morning and was shocked and appalled by the recommendation. This rec is unconscionable. MON may in fact make money for your customers, but that is not the point... I hope you will fix this problem and tell everyone the truth. If you already know these things and don't care, I hope you rot in hell. Are we clear on that.

"I have been a Private Wealth subscriber for maybe 5 years. Normally, I would consider it to be unethical for me to ask for a refund after receiving all these newsletters. But if you don't stand up and tell the truth, maybe that's what I should do. You will never miss me as you have millions of subscribers and tons of money. Or to put it another way, I would rather die penniless than a millionaire because I invested in MON." – Paid up subscriber Gary Blazo

Porter comment: We've gotten plenty of e-mails like these. We disagree. We choose not to die penniless. We think it's our job to make sure our readers have the ability to make the same choice – to not die penniless. And while we would never wish hell on anyone, we also don't like being told what we should or shouldn't recommend.

Remember... our job is to make our subscribers money. Monsanto has gone nearly straight up since we recommended it last month, from $61 to $71, a monthly gain of 16%. We would have preferred a "thank you."

A Farewell to Old Man Becker

Old Man Becker died on a hot day last July. He was 95.

Longtime subscribers will recognize the name. I've written about Becker from time to time – because he was a real American. He was also my neighbor. He lived on a big spread of ground, more than 100 acres. He'd bought it a long time ago – 1961. He was a farmer of sorts. He'd planted pear and apple trees and made enough to pay his taxes every year, but not much more. "I was so green," he said, "I made every mistake in the book when I was starting out..."

It was far more land than a 90-year-old could maintain. And so the place had become overgrown and, truth be told, looked abandoned. "After my wife fell in '96 I couldn't keep up with all of this land and take care of her. So I had the pear trees and the apples trees cut down and just had to let the place kinda take care of itself."

After his wife passed on, Becker tried to sell his land to Beazer Homes. The ground was worth millions. It sits in the middle of some of the priciest suburbs in Maryland. His neighbors sued to keep his land from being sold. So Becker lived alone, on 100 acres, cash poor but land rich. He cut his own grass right up until the end, riding his tractor in the heat every summer.

I'd take him BBQ every now and then, after I'd smoke a big brisket or prepare a bunch of chickens. He was always grateful, but he never asked me for anything – not even to help him move something every now and then. He was just that sort of man. He told me he didn't get married until he'd gotten a raise to $0.48 an hour at the GM plant before the war.

And yes, like many men of his generation he served in World War II. But he was no hero. He never cared one way or the other about the Nazis or the "Nips," as he called the Japanese. But he did care about his wife. "I was A1 and they made me go. I said, 'Honey, I'm sorry, but you're going to have to get a job.'" After being in the Navy, he decided he'd never let another man tell him what to do.

So Becker opened his own small convenience store in downtown Baltimore, near Howard Street, which, at that time, was the most posh shopping district outside New York City. This was the golden age of Baltimore's department stores: Hochschild-Kohn, Hutzler's, Stewart's, Hecht-May. There was even a Christmas parade each year.

But it wasn't long before politics caught up with Becker once again. Ten years after his store opened, desegregation and the civil rights movement led to a vast change in the politics and the demographics of urban Baltimore. As retribution for years of discrimination, public housing projects were built in the center of the wealthiest Jewish neighborhoods of Baltimore's west side, like Bolton Hill. Crime soared. And one by one, the department stores moved out to the suburbs. Today, Howard Street is a ghetto, lined with abandoned buildings. Becker saw the writing on the wall and sold out in the early '60s.

Becker liked my hunting dog, Ruby. When I would take her out walking on the farm, he'd come out for a chat and give Ruby a cookie. One day in about mid-2008, he walked up and told me:
Porter, I think I'm going to sell my gold. I bought it, like you said I should, a few years ago... and man it has gone up so much, that was a great call. But I really could use some income now. Fannie and Freddie are offering a new round of preferred stock that's paying a big dividend. I don't think the government will let the offer fail, because all of the community banks are buying it. If the government lets Fannie and Freddie collapse, every community bank in Maryland will go under.
Becker was right about the banks. They owned lots of Fannie and Freddie paper, and they bought plenty of its last preferred offering. And he was right about the government not allowing Freddie and Fannie to fail. The government has guaranteed all of their debts and has pledged a n unlimited amount of money toward paying off these bad debts – an obligation I predict will eventually exceed $1 trillion.

But unfortunately, Becker was wrong to ever trust the government. It didn't rescue the preferred shareholders. When Fed Chair Ben Bernanke and Treasury Secretary Henry Paulson stood before Congress and said Fannie and Freddie were well capitalized, they lied. As a result, Becker was wiped out. And so were a lot of community banks. Now, 860 banks are on the FDIC's "troubled" list and nearly all of them owned Fannie and Freddie preferred stock.

It took me a long time to decide whether or not I would tell you about what happened to Old Man Becker. I don't mean to speak for him. He surely wouldn't think there was anything special or useful about his story.

But... I see things a lot differently.

From the moment I met him, I thought Becker was a living metaphor. He represented the real America. He was just a simple, hard-working man who was content to be left alone. Meanwhile, at almost every turn in his life, the government actively sought to destroy him. It sent him to war. It wiped out his neighborhood and destroyed his business. It took away his property (by not allowing him to sell it). And finally it wiped out his savings by making wholly fraudulent statements about the financial condition of America's largest financial institution in the midst of a share sale.

People often look at me "sideways" when I tell them about how the government has attacked me and my business. They assume I must be guilty of something... or maybe more than a few somethings. They laugh at me behind my back when I call our tax code and the government's budget deficit immoral. They ask my wife if I'm feeling OK when I talk about the importance of having assets overseas or the risks of government confiscation.

If you doubt my analysis about what's going to happen in this country over the next five years as our government goes bankrupt... if you think I'm paranoid or delusional... just think about this: If our government would abuse a 90-year-old War World II veteran as badly as it did Mr. Becker, what do you think it'll do to you when its back is against the wall?


These people are completely without scruples or limitation. They control the world's most powerful armies and technologies. And they're dead broke. They're depending on a mirage – that a piece of paper has lasting value. And as this lie is laid bare, they will do whatever it takes to maintain their power.

None of this, by the way, is unusual. It is always what happens when empires go bust.

The problem is, most Americans have no idea that our Republic died in 1913. They don't know that our government is broke. And they don't believe that the government would lie to them.

They are in big trouble.


Porter Stansberry
Miami Beach, Florida
January 7, 2011

Stansberry & Associates Top 10 Open Recommendations

Stock Symbol Buy Date Total Return Pub Editor
Paramount Gold & Silver Corp PZG 4/14/2009 400.00% Phase I Sjuggerud
Northern Dynasty Minerals NAK 3/2/2009 238.28% Resource Rpt. Badiali
EnCana ECA 5/14/2004 187.61% Extreme Value Ferris
Rite Aid 8.5% 767754BU7 2/6/2009 177.78% True Income Williams
Exelon EXC 10/8/2002 143.35% PSIA Stansberry
Alexander & Baldwin ALEX 10/11/2002 128.68% Extreme Value Ferris
Auex Ventures Inc XAU-T 10/28/2009 128.62% Phase I Badiali
Amerigas Partners APU 2/22/2005 117.50% The 12% Letter Dyson
Enterprise Products Partners EPD 10/15/2008 113.38% The 12% Letter Dyson
Icahn Enterprises IEP 6/10/2004 108.46% Extreme Value Ferris

Top 10 Totals
3 Extreme ValueFerris
2 The 12% LetterDyson
1 Phase ISjuggerud
1 Resource Rpt.Badiali
1 True IncomeWilliams
1 PSIAStansberry
1 Phase IBadiali

Stansberry & Associates Hall of Fame

Investment Sym Held Gain Pub Editor
Seabridge Gold SA 4 years, 73 days 995% Sjug Conf. Sjuggerud
JDS Uniphase JDSU 1 year, 266 days 592% PSIA Stansberry
ATAC Resources ATC 313 days 542% Phase 1 Badiali
Jinshan Gold Mines JIN.TO 290 days 339% Resource Rpt. Badiali
Medis Tech MDTL 4 years, 110 days 333% Diligence Ferris
ID Biomedical IDBE 5 years, 38 days 331% Diligence Lashmet
Texas Instr. TXN 270 days 301% PSIA Stansberry
MS63 Saint-Gaudens
5 years, 242 days 273% True Wealth Sjuggerud
Cree Inc. CREE 206 days 271% PSIA Stansberry
KHD Humboldt Wedag KHD 6 years, 7 months, 22 days 268% Extreme Value Ferris