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How to Make a Safe 32% Gain in a Monetary Crisis

By Porter Stansberry
Wednesday, September 21, 2011

Strange things can happen during a currency crisis.
By now, DailyWealth readers are familiar with my claim that we're not just headed for a currency crisis, we're in one right now. I don't see how anyone can look at the recent collapse of the American banking system, the implosion of Fannie Mae and Freddie Mac, the bankruptcy of Europe, and the skyrocketing price of gold, and deny this claim with a straight face.
Fortunately, strange things happen in a currency crisis... and some "strange" advice I've been giving is turning out to be incredibly profitable for those who listened.
I've been telling investors for years that if they are unable (or unwilling) to hedge their portfolios by shorting fraudulent or highly indebted companies, the best thing to do is split your savings between cash and gold. This is how I stated it in the February 2010 issue of my Investment Advisory...
The safest thing to do right now is to split your savings between short-term Treasurys and gold. That's the equivalent of a "cash" position, as the gold will hedge your dollar exposure and the short-term Treasurys will mitigate the volatility of gold.
You can do this through exchange-traded funds (ETFs). The Barclay's iShares 1-3 Year Treasury ETF is an easy way to own short-term Treasurys. The symbol is SHY. And GLD is the most liquid gold ETF. – Porter Stansberry's Investment Advisory, February 2010
Many investors can't get their heads around this idea... or understand why I published it. Cash and gold represent two totally different ideas to them.
But that's precisely why it's perfect advice for conservative investors. You want to own assets that can soar in value during a currency crisis (like gold), while maintaining a cash position to mitigate the volatility of gold.
With this strategy, you stay away from the danger present in the stock market right now. You stay "hedged" and even set yourself up to make large capital gains.
Don't think it's possible to profit with such a defensive portfolio? Think again... anyone who took me up on my advice in February last year has watched his portfolio climb 32%... while stocks in general have swung up and down with incredible volatility. As I expected, gold has skyrocketed... gaining 60%. Cash, which I track with shares of the short-term U.S. Treasury bond fund (SHY) has gained just under 3%.
You read that right: Investors in a safe, defensive "50% cash, 50% gold" portfolio have watched their portfolios grow 32%... without touching stocks.
As I've described in recent issues of my Investment Advisory, the risks to the global paper money system have never been greater. In less than one year, I fully expect to be writing about the financial collapse of Italy, just as we are writing about the collapse of Greece right now. But Italy's collapse will have much more serious effects on the financial system than Greece's...
Italy's near-term debt maturities dwarf Greece's. Italy must refinance $192 billion euro this year, followed by $168 billion euro next year, and then another $100 billion in 2013 – all while running a 3.9% of GDP annual deficit. Told by the International Monetary Fund to immediately balance its budget, the Italian political process seems paralyzed. When asked last month by the New York Times how Italy would finally balance its books, Mario Baldassarri, an M.I.T.-trained economist and the chairman of Italy's Senate Finance Committee, said, "Not even the Lord Almighty knows."
This is from the world's third-largest sovereign borrower. Italy's public debt is 1.7 trillion euro – seven times larger than Greece's public debt. The steep economic declines that doomed Greece to certain bankruptcy haven't hit Italy yet. But they will. And when they come, it will cause huge ripples across the stock and commodity markets. I expect gold to soar even higher.
That's why I continue to encourage investors who aren't comfortable hedging their long stock portfolios with short sales to simply go 50% cash and 50% gold. I expect the currency crisis not only to continue, but to escalate. This strategy will continue to protect (and even grow) your capital throughout the crisis.
Good investing,
Porter Stansberry

Further Reading:

"I believe Germany will leave the euro before the end of this year," Porter predicts, "triggering a massive devaluation in all the euro's remaining members." Find out why he says the next stage of the global monetary crisis has arrived.
"You will see lots of debates about what the coming currency crisis means," Porter wrote in February 2010. "But if you can simply understand this chart, you will grasp what's happening and how to protect yourself." Read more of his original argument for holding cash and gold here: The Most Important Chart in the World Right Now.

Market Notes


Despite the long-term tailwind Asia is enjoying, the region is now in a bear market. For proof, we check in with Hong Kong...
Regular DailyWealth readers are familiar with the big trend we've labeled "Asia up, the West not so much." Over the past 40 years, the rich Western world has cooked up an awful stew of unfunded entitlement programs, big government debts, and vast welfare programs. Most Asians are poor… and are working and saving like crazy to catch up to the rich Westerners they see on television. This produces a tailwind for Asian stock and property prices. But even the strongest uptrends experience busts from time to time...
To monitor what's happening in Asia – and China in particular – we like to watch Hong Kong. Hong Kong is a special region of China with solid regulatory structures and low taxes. It ranks in the top three financial centers in the world. We trust Hong Kong's numbers more than those coming from the mainland.
And judging by Hong Kong's numbers, we have to say Asia is closer to "bust" than "boom" (despite Indonesia's strong performance). As you can see in today's chart, the benchmark Hong Kong stock index just broke down to its lowest low in more than two years. Asia is in a bear market.

Hong Kong sinks: It's a bear market in Asia

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