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The Great Lie That Will Bankrupt America

By Porter Stansberry
Wednesday, February 13, 2013

The world's markets are beginning to go haywire.
The world's money system – the scales upon which the world's market functions – is being deliberately destroyed. And so, the monetary signals that guide the markets – which are supposed to represent the supply and demand decisions of billions of people – have become distorted.
You can see the signs everywhere... You could see it in the equity markets a year ago. Never before had stocks been so tightly correlated to each other and to currencies, commodities, and bonds. Not everything should move in the same direction at once... but it did.
And you can see it now in the incredible bond bubble going on... Interest rates across all types of fixed-income products have never been so low. And junk bonds have never traded at such an average high price – a significant premium to par ($105).
And until recently... you could have seen it in the prices of gold and platinum. Over the past 25 years, gold has almost never traded for more than platinum. And yet, from September 2011 until just last month, it did. But both gold and silver have doubled against the dollar since 2008. Platinum was hard-pressed to keep up...
Any one of these examples, considered in isolation, seems harmless enough. But taken together, they clearly demonstrate that the markets are not working normally.
These weird situations in the markets are linked. They are all warning signs.
We believe the world's markets have gotten "out of whack." As a result, these aberrations will continue in size and scope until, at some point, they begin to seriously affect the world economy's ability to function.
You see, central banks are inflating the world's money supply at an unprecedented pace. Never before has the entire world's monetary system been completely untethered from both gold and real rates of interest. Monetary theorists believe these manipulations can deliver the benefits of free markets – wealth, abundance, a cornucopia of choices – without any of the costs: savings, investment, labor, and interest.
But we agree with Seth Klarman. The legendary value investor and head of the Baupost hedge fund described the situation like this in his annual letter: 
The short-term palliatives we are currently pursuing go against everything a long-term-oriented society should aspire to achieve. Today's policies encourage spending over savings, reward the profligate over the prudent, and support the failing at the expense of the successful. The antidote now being dispensed puts us squarely in uncharted territory in which the risks are outside the range of historical experience...
The distortions in the markets are the result of the deliberate manipulation of currency values around the world by central bankers. The central bankers are responding to their political masters' demands for easier money and cheaper credit. There is now, around the world, a widespread belief that the symbol of wealth (paper money) alone can deliver all the benefits of the market.
This is the great lie. It is the final modern delusion.
Watching this tragedy unfold around the world is horrifying. The Baupost letter reminded us of the studies of Edward Gibbon, the great British historian who chronicled the rise and fall of the first great Western civilization: 
In the end, more than freedom, they wanted security. They wanted a comfortable life and they lost it all – security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again.
Today... these words don't merely apply to my fellow Americans – a group of people I scarcely recognize anymore. They describe almost all of the free people living in the West.
The drive for freedom and a better life through hard work, saving, and independence has been replaced by a craven need for the illusion of security. Rather than trying to leave our children in possession of a better world – with more financial security – political leaders around the world now bicker about how to change the rules so that still more debt can be stacked upon their grandchildren. You can see the result in the chart below.
Government Debt Levels of the G7 Economies
This sea change in the culture of the West will have an appalling effect on our standard of living. The first changes are already being felt... real wages haven't risen in the U.S. since we left the gold standard in 1971. Much bigger declines are coming.
We believe the world's economy is now entering a kind of blind alley. By willfully abdicating the responsibilities of the markets – by monetizing our debts, by deliberately inflating our currencies, by bailing out failed companies, and by promising to deliver more benefits than can be afforded – the major economies of the West (including America's) have chosen the path of socialism.
We know there is no escape from this path, which will soon lead to massive dislocations, huge price increases, and poverty on a scale unseen during our lifetimes.
Sadly, the best way to protect yourself from this looming catastrophe is to benefit from the same policies that are causing it. That means making sure you have your wealth not in paper money, but in blue-chip businesses, productive real estate, and gold. Make sure you buy them before it's too late.
Good investing, 
Porter Stansberry 

Further Reading:

Last year, Porter put together a week-long series showing DailyWealth readers how to protect themselves from inflation.
"When people have tangible evidence that something has gone badly wrong with the economy, they begin to hedge against it." 
There's another excellent way to get out of paper dollars and into productive, "real" assets...
Porter believes we have an investment opportunity that only comes up every 20 years or so.
Thanks to the Fed's policies, you have a nearly risk-free way to make huge gains in this sector.
"This is the single-best way for stock investors to grow wealth, rather than lose it." 

Market Notes


Volatility is still low... and the DailyWealth "law of volatility" is still ready to strike.
Regular DailyWealth readers know there are few sure bets in the financial markets. There are few "this is the case, and it always will be" statements we're comfortable making. The market is too messy... too random... and too dynamic for those types of claims.
But one "this is the case, and always will be" statement we'll stick by is this: "Calm periods of rosy headlines and softly rising prices will always be interrupted by periods of wrenching volatility... and vice versa." That's just the way the world works.
For a picture of this "always the case, always will be" phenomenon, we present the past three years of the Volatility Index (the "VIX") – the most popular gauge of market volatility. When the VIX is low (around 15), it indicates investors have few worries and see blue skies ahead. When the VIX is high (above 30), it indicates panic and confusion.
In early 2010, investors were enjoying the good times of the market recovery. The calm was shattered by the flash crash (A). In mid-2011, investors were enjoying another calm period... which was shattered by the European debt crisis (B). As you can see in the lower right-hand corner of our chart, the VIX has returned to an extreme low. It's just a matter of time before a new problem catapults it higher.
– Brian Hunt
The Volatility Index (VIX) Sits at Multi-Year Lows

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