4 Moves Every U.S. Investor Should Make

Tony Sagami

The jockeying for 2012 votes has already started, and you’re going to hear a lot about raising the debt ceiling as well as reducing the staggering amount of debt that our country is in hock for.

Do you think the U.S. government can eventually pay off its $14-trillion national debt? Ha! Dream on.

Since the 2008 financial crisis, the knuckleheads in Congress and the Federal Reserve Bank have spent and printed trillions of dollars.

Moreover, the Federal Reserve has kept interest rates at essentially zero and spent more than $2 trillion to buy back our own debt through QE1 and QE2.

Our annual deficit is now close to $2 trillion. Our national debt is closing in on $15 trillion. Our country’s unfunded liabilities plus national debt is close to $100 trillion. And our debt-to-GDP ratio is roughly 90%.

Laundry List of Big-Name Skeptics

Does all that sound a wee bit financially insane to you? Hey, a lot of smart investment professionals think so too.

  • Legendary Wall Street investor Stanley Druckenmiller called QE2 a fraud: “There is a phony buyer of $19 billion per week of Treasury Bonds.” The phony buyer he refers to is the U.S. government.
  • Outspoken guru Jim Rogers said he plans to short sell U.S. bonds with both hands and thinks you should too: “If any of you have bonds, I would urge you to go home and sell them. If any of you are bond portfolio managers, I would get another job if I were you, I would think about becoming a farmer.”

Hey, my father was a vegetable farmer, and I doubt that anybody on Wall Street could have kept up with him.

  • Lastly, municipal bond expert Meredith Whitney, called “one of the 50 most powerful women in business” by Fortune magazine, sees the United States in financial ruin with 50 to 100 cities defaulting on their debt in the next year.

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The Chinese Think We Are Nuts Too

A Chinese ratings agency said QE2 is “an obvious trend of depreciating the U.S. dollar” and “entirely encroaches on the interests of the creditors.”

Our own data from the Treasury Department shows that China, for the fifth straight month, cut its Treasury holdings in March by $9.2 billion to $1.14 trillion. That follows a $600 million dump in February.

Tell Us What You Really Think!

In April, Standard & Poor’s lowered its long-term outlook on U.S. debt from “stable” to “negative,” which prompted Zhang Jianhua, the head of research at the People’s Bank of China, to speculate that concerns that the heavily indebted U.S. government could default on its debt and drive U.S. interest rates higher.

Last month Yu Yongding, an adviser to the Chinese central bank, said China should stop buying Treasuries because the United States could default.

Financial reality is catching up to the United States, and our government’s Ponzi scheme of printing fake money to pay real bills is about to collapse.

What does all this mean to you as an investor?

#1 Minimize the amount of dollar-denominated assets you own. I’m talking about U.S. stocks, U.S. bonds, and U.S. real estate. Most of us can’t do anything about our homes, but we can shift some dollar-denominated financial assets into financial assets of strong, growing economies such as Brazil, Australia, Singapore, India, and China.

I favor China and the following ETFs could do well:

iShares FTSE/Xinhua China 25 Index (FXI): Seeks to track the performance of the FTSE/Xinhua China 25 index. This index consists of the largest 25 Chinese companies listed on the Hong Kong Stock Exchange.

PowerShares Golden Dragon Halter USX China (PGJ): Seeks results that correspond to the returns of the Halter USX China index. This index consists of 103 Chinese companies whose common stock is publicly traded in the United States. The index uses a formula that prevents the largest market-cap companies from becoming too large a component of the index.

Image: theatlantic.com

SPDR S&P China (GXC): Seeks to replicate the total return performance of the S&P/Citigroup BMI China index. This index consists of the largest 342 companies that are publicly traded and domiciled in China.

#2 Dump long-term bonds. A weak dollar and inflation begets higher interest rates. I believe the worst investment you can own over the next few years is long-term bonds. If you own any bonds or bond funds with a maturity longer than five years … dump ‘em!

If you want to profit from rising interest rates and are an aggressive investor, you should consider investing in inverse bonds funds. There are bond funds that make money when interest rates rise, such as Rydex Juno (RYJUX) and ProFunds Rising Rates (RRPIX).

#3 Load up on natural resource assets. The most obvious inflation hedge is gold, but don’t forget about assets such as oil, rare earth metals, poultry, cotton, cement, timber, copper, natural gas, wheat, potash, and even water.

Hard assets are one of the few asset classes that could thrive as the dollar declines and inflation accelerates. Hard assets companies, such as China National Offshore Oil Corporation (NYSE: CEO), Yanzhou Coal (NYSE: YZC), Sino Forest (TRE.TO) and BHP Billiton (NYSE: BHP), are worth taking a look at.

#4 Carry a stash of cash. In February, I instructed my Asia Stock Alert subscribers to reduce equity allocation and build up a safety net of sleep-at-night cash. You should do the same.

My favorite parking place is the Merck Hard Currency fund (MERKX), which invests in the short-term AAA debt of the world’s economies with the strongest economies and monetary policies. This fund is essentially a non-dollar money market fund with very low volatility.

As always, you need to do your homework and decide whether any of the securities I talked about in this column are appropriate for your personal situation and financial goals.

Lastly, since timing is everything when it comes to investing, you should wait for these securities to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

Best wishes,

Tony

P.S. If you are looking for more specific buy/sell recommendations on my favorite Asian stocks, please consider a subscription to my Asia Stock Alert for only $199 a year. I think it may be the best investment you’ll ever make.

Your thoughts on “4 Moves Every U.S. Investor Should Make”

  1. Tony,
    I am at THE Crossroads. I am considering converting a major portion of my standby cash into FXF, FXC, or maybe into FXA. I agree the dollar is DOA, but W, D. C. will continue to screw around until some midnight hour in the future, and catch most honest hard-working citizens literally with their shorts down (or off). At that point, it is too damn late. I do like Australia, Canada an Brazil, and still believe in the track record of the Swiss. But, the issue for me is the extent of collateral damage that will result when the house of cards blows up like 22 in Las Vegas.

    I have bought gold, silver and precious metals for over 20 years; hopefully this will be protective, if not lucrative.
    But, I do not trust the US government and esp. the US Congress. They will do anything to protect themselves, Wall Street, esp GS, and sit back while the lambs get slaughtered.

    Further, I spent 30 plus years in the oil and gas business, and understand the Middle East w/regards to production and reserves. The RESERVE FIGURES ARE BALD-FACED LIES, and were manipulated back in the 1980’s to satisfy each OPEC members production wishes. And all the hype about Canadian oil sands, better said tar sands, and the savior called the Bakken in the Northern part of US, is leading the public to the guillotine. Why can’t someone see that the decline curves for shale production are horrendous. Any Petroleum Engineer will tell you the gas is less viscous than oil, and has ~ 25 % the resistance to flow as does oil. Thus, gas flow should hold up better than oil, neither is good. So, whether you frac the damn stuff in 20 + stages or not, these things drop off the cliff from initial production. Just look at some of the cumulative (or just annual) production by some of the more successful producers in the Bakken and divide it by the number of wells producing to get a rough idea of the daily production rates. Are you surprised ??

    Also, Washington is nothing more than about re-election, and getting something out of lobbyists for their own personal benefit. The cliff is near, and the sheep herd is just steps away from the precipice.

    I would appreciate your dropping me a ine; if I am full of crap, so say. I plead for someone to prove me wrong.

    Look at some of Matt Simmons, Colin Campbell, and Ken Deffreys published books.

    Feel like a lone wolf. I see what’s happening, but don’t see many good avenues to pursue. Scariest time in my financial life.

    S

  2. Does your recommendation to get rid of bonds apply to 30 year T-Notes?

    Bill Rous

  3. there is no way that the world economy will continue to stand up as a alternative in the face of a USA Default , these countries will disappear from the FREE market because the Free markets will disappear and those Investment accounts will mean nothing to them because they are just paper to them because they , the BRIC nations you all are Invested in with your paper money will be worthless to them so you will not be able to maintain your paper investment with them allowing you to hold their Intrinsic resources . You would be smart to Invest those Paper notes into something you can feel in the Palm of your hand , and might not be confiscated when the default happens . This is not a paper traded game any longer , it will all boil down to holding tangible assets in your hands , and if you are allowed to hold them of they be rolled over to a collective , whether that be a worldwide collective of Independent nation collective system that will be the fundamental that develops out of the International default

  4. You list Sino Forest ( tre-t ) as a stock to look at. What are your thoughts now with the 3/4 price drop and fraud investigations. Is it a real buy or a real loser as I hold a bunch.

  5. Tony:
    You make the same error that other columnists do. You include the Fed in the same sentence as Congress. The Fed is merely trying to deal with a huge debt created by Congress and the greedy investment banks.. It is an impossible problem to solve and the Fed is trying to soften the blow. If they had not kept the money supply high, we would have seen another recession and a huge unemployment figure.
    The problem must be addressed by the Congress and the President. Currently there seems to be a great gap between them. The President’s plan for 2012 is at least two trillion too high and he believes that can be taken care of by raising taxes on the rich. Who said he was an intelligent man?

  6. Merkx is a good fund but invests in some euro countries. T Rowe Price has a brand new emerging countries currency fund PRELX. Look into that, it includes Brazilian real. Everbank has foreign currency CDs. If you can get to NYC, Bank of China can open a yuan account for you.(Bring 3 forms of ID)

  7. I agree with Owens, I’v had it with China, I think in many cases we’re being played as suckers, ……if a U S company played the same tricks as China Companies they’d be in court and out of business, …….I do still own BIDU, but am watching it, Blake

  8. Dear Mr. Sagami,
    FYI, I checked the China ETF recommendations on Weiss Watchdog. The highest rated was the SPDR fund with a C-. The other two ETFs had ratings of D- and E, almost the lowest possible. How are we to trust these recommendations when your own company’s system rates them so low? Also, BHP Billiton, a major stock which has done well this year, wasn’t available on the Watchdog service. Thanks for sharing your opinions.
    Donna

  9. For your rule #1: How can we as US citizens and 401k holdings purchase stock denominated in foreign currency? OR, are you only saying that we should purchase foreign assets such as the foreign ETF’s you mentioned but denominated in US currency?

  10. Dear Mr. Sagami,

    I get the separate letter from yourself, Larry and Sean and I have tried to be patient, but your focus on China, China, China to the exclusion of the rest of Asia is aggravating. What of India? Not only is the Indian middle class richer than the Chinese middle class, but the Indian economy is more open, and only getting more so. The Indian companies that I have been watching are less prone to fraud (come on, hiring white foreigners to lie about being your CEO?) and while they have their problems, I’m more inclined to trust the numbers they put out. Can you please just once do a issue focussing on Indonesia, India, Vietnam and Thailand? Or is China the only country in Asia?

    The Red Rat Thanks You,

    Quantella Owens

  11. what about those of us that have a 401k with our company and the choices are terrible? we only have a single foreign fund, should i put my money in there instead of the money market fund? Everything else is u.s. stock fund.

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