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How to Handle Your Income Portfolio in the Coming Debt Crisis

By Dan Ferris, editor, The 12% Letter
Saturday, April 30, 2011

On April 18, the stock market was rocked by another Wall Street fraud.
As you may have heard, Standard & Poor's (S&P) – the credit "watchdog" of Wall Street – recently announced it now has a "negative outlook" on the long-term credit rating of the United States government.
The story hit the market like a sledgehammer, causing the S&P 500 to fall as much as 2% that day. It dominated the financial news headlines on the Internet, TV, and radio. It was a moment of panic.
Longtime DailyWealth readers, at least, shouldn't have joined the herd. We've known these problems were coming for years. And we know how simple it is to put together a portfolio that can withstand all sorts of government boondoggles and Wall Street nonsense. More on that in a moment...
First, let's look at the history and facts of conventional credit rating agencies like S&P... These are the same "watchdogs" who placed a pristine "triple-A" rating on loads of fraudulent mortgage bonds back in 2007... right before the bonds were revealed to be the worst kind of junk.
Also keep in mind: S&P's announcement changed nothing. The bottom line is the ratings agency still gives the United States the highest possible credit rating. It did the same thing it always does – publish a bunch of meaningless words.
Credit ratings are report cards that grade a country or company's ability to repay its debts. S&P's announcement means it's now thinking about giving the United States a lower grade sometime in the future... But it's taking no action now. That's it. That's what freaked everyone out. Big deal, right?
Don't get me wrong... Standard & Poor's should doubt the debt-paying ability of the United States. But the announcement was meaningless because it's way too little, way too late. S&P should have sounded the alarm and downgraded the U.S. government's debt long ago.
That's exactly what Dagong Global Credit Rating Company did last November. Dagong is one of China's largest credit rating agencies. When the Fed announced it would print money and buy Treasury bonds last November, Dagong knew this was bad for investors and acted swiftly. It immediately lowered the U.S.'s credit rating from double-A to A+. Dagong also said it would maintain a negative outlook. So it expects to lower the U.S.'s credit score again.
In other words, the second-largest holder of U.S. Treasury securities, China, is about to leave the party. The Chinese have hundreds of billions of dollars at stake. Their ratings agency has little choice but to understand the truth about the United States' debt-paying ability, which it says is getting worse right now... and will keep getting worse in the future.
But Wall Street's "watchdog" still has the United States at triple-A, the highest possible rating, and gave just a 33% chance it would downgrade the U.S. within two years. That's the best it could do. Pathetic! China 1, S&P 0.
S&P does a bad job because it has little incentive to do a good job. It's not a group of investors. It has nothing at stake. It completely screwed up during the financial crisis, yet it's still in business... just like all the other Wall Street crooks.
S&P's word isn't worth spit. Anyone who thought the S&P's announcement was big news is just like S&P – late to the party.
The advice you hear on television... the stories you read in the newspaper... and the "tips" you get from your broker or financial advisor are almost sure to be wrong and biased. Most everyone in the financial business, S&P included, has a vested interest in folks not actually knowing what's going on.
That's why you need to get a good portion of your money outside the system. Quit relying on the government and Wall Street to tell you what to do. Protect your wealth by
holding plenty of cash and owning gold.
Income investors should avoid government bonds... and go for safe, "sleep at night" income ideas like World Dominating Dividend Growers.
Both these ideas will protect you from the U.S. government's disastrous debt binge: Gold gets you out of the dollar, and the planet's best income investments will protect you from inflation.
Good investing,
Dan Ferris

Further Reading:

"Buying these elite dividend machines at the right price should be the primary goal of stock investors," Dan says. "It's what investors must live and breathe more than any other priority until the sideways market is over, many years in the future."
Find the stocks he's talking about here:

Market Notes


You can file today's idea in the "potential crisis ahead" file...
One of the biggest fears of the world's bureaucrats and dictators is a severe spike in food prices. History teaches us people will suffer through all kinds of injustices, wars, and boondoggles... as long as their food is cheap.
As we've detailed in the past, one of the foundations of the global food system is the massive annual crop of calorie-dense, nutrient-lite corn that comes from the Midwest. Now here's the potential crisis...
The Midwest has been hit with torrential rains and floods this month... which happens to be the optimum time to plant a corn crop in the Untied States. Farmers can't get into the fields to plant. Now consider that corn inventories are near record lows and global demand is surging.
This mix of low supplies, tight demand, and crappy weather has sent corn to a record high... higher than even the speculative 2008 peak that caused riots around the world. If the bad corn weather persists this year, corn is going much higher... and people around the world will riot like crazy over expensive food.

Bad news for dictators: Corn surges to a record high

Stat of the week


Increase in the price of corn in the past 12 months. Get ready to read about food riots.

In The Daily Crux

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