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Where to Earn Safe, 4% Yields on Your CashBy
Friday, December 9, 2011
"This is the last safe country on Earth," I explained to our group in Miami this week. I was meeting with some of the most successful businessmen I know.
"I haven't heard anyone out there talking about this idea," I told them. "But this is a much more attractive cash investment than the U.S. dollar."
Here's the story...
In short, the U.S. government is in hock to its eyeballs... And Europe is in worse shape than the U.S. But according to the IMF, Australia will be net debt free by 2020.
While the U.S. government will stay busy printing money, the Australian government will stay busy cashing mining royalty checks with no end in sight...
You see, the Australian government owns the mineral and petroleum resources of Australia. (That's different from the U.S., where mineral rights can be privately owned.) And that makes Australia rich...
Australia is chock-full of commodities that are in demand all around the globe...
I remember standing in Iceland a couple years ago, staring at a massive aluminum smelter that was a few city blocks long. The raw bauxite was shipped in from Australia – as far across the planet as you could get. In short, the far corners of the world need bauxite... and Australia has it.
Aluminum is only a tiny part of the big story of Australia's commodity reserves...
Australia leads the world in "economically recoverable reserves" in many commodities... lead, zinc, uranium, nickel, and more. It ranks second in the world in economically recoverable reserves in gold, silver, copper, and more, according to the Australian Bureau of Statistics.
And then there's "China's Gold" – iron ore... the raw material in steel making. China needs it... Australia's got it.
"Where on earth is your money safe these days?" That is THE question. When you look at the debt trends, it's NOT safe in America. And it's NOT safe in Europe.
But the fact that the Australian government owns its resources, and it will be net debt free by 2020, makes Australia a safe country for your money. In a way, the nation's currency – the Australian dollar issued by the government – is solidly "backed" by the country's vast natural resources, owned by the government.
And the Australian dollar is paying you to own it. Right now, you earn next-to-nothing in interest on your money in the bank in U.S. dollars and euros. But in Australia, astoundingly, you earn 4.25% interest on your cash.
The major risk here is what happens to Australia if China crashes?
There's no mistaking the fact that the Australian dollar is highly correlated to commodity prices. Exports of iron and coal alone make up 39% of Australia's total merchandise exports. If China stops buying, Australia will take a big hit.
However, I think the Australian government is in better shape to handle a crisis than any country in the world. The typical government "tools" to fight back a crisis are to 1) borrow money and 2) cut interest rates.
With no debt and a very high (4.25%) deposit rate, Australia has plenty of room to do both today.
I could go on. But you get the idea...
For the long run, Australia's dollar is safe. And with high interest rates, it's good for the short-run, too.
As I told subscribers to my True Wealth letter last month, the simplest way for Americans to own Aussie dollars is through the CurrencyShares Australian Dollar Trust (NYSE: FXA). It's an exchange-traded fund you can buy through any U.S. broker. It currently pays a 4% dividend.
FXA has perfectly tracked the Australian dollar through its history, AND it's paid solid dividends along the way.
Australia might just be the last safe country on earth for your money. So consider Australia... and FXA... today.
Good investing,
Steve
Further Reading:
Earlier this year, Doc Eifrig wrote about another way to protect your wealth from the comfort of your living room. This opportunity "gets you exposure to rapidly growing emerging markets," he writes, "and still gives you plenty of 'sleep at night' peace of mind." Get the full story here: How to Easily Diversify Your Wealth Overseas... and Collect Super Safe Income.
Steve has a "one click" way to keep your money safe at home, too. This system has returned 500%-plus profits since 1998... and historically, has compounded wealth at 48% a year. Read more here.
Market NotesWANT DIVERSIFICATION? CONSIDER SMOKES AND GOLD Today, we offer an answer to the question many ask when presented with our "super-concentrated" portfolio warning. That question is, "How do I NOT own a super-concentrated portfolio?"
To recap our warning: Many investors take a position in commodities with the idea that they are "diversifying" their portfolios. And sometimes, it's a sound idea. But as we've pointed out many times, it's a dangerous idea right now. Stocks and commodities are moving in lockstep. So rather than owning diversified portfolios, many folks own "super-concentrated" portfolios.
Our chart below shows two alternatives folks can consider to gets some diversification. It plots the return of gold (blue line), stocks (black line), and a dividend powerhouse we often mention, cigarette-maker Altria (green line).
As you can see, gold and Altria aren't moving in lockstep with the broad market. Gold is marching to its own beat because it's "real money." And Altria is marching to its own beat because it's a boring "basics" business. Plus, its large and growing dividend yield (5.7% right now) acts as a magnet that tugs upward at the share price. Want diversification? Consider smokes and gold!
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