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Asian Stocks and Gold as Protection Against US Bond Market Collapse

Stock-Markets / Financial Crash Jul 18, 2008 - 02:41 AM GMT

By: Money_and_Markets

Larry Edelson writes: With all heck breaking loose in our economy — banks and mortgage companies failing, real estate prices still falling, GM, Ford, Chrysler and virtually the entire airline industry all but officially bankrupt — can you now see why I've been a staunch advocate of gold?

I'm sure you can, and if you've been following my recommendations, you should be very happy indeed.

But now is not the time to sit back and kick your feet up. I have never, in my thirty years studying the markets, seen the U.S. economy in such trouble and with myriad dangers lined up one right after another to rob you of your wealth.

So I'm going to get right to the bottom line and cover the major markets that I specialize in and give you my forecasts. Then, I'll tell you exactly what you can do to capitalize on these trends.

Let's start with ...

The U.S. Dollar: Headed for that Meltdown I've Been Warning You About

How can it not be? Other than a brief bounce here and there, the dollar is doomed.

There is simply no way the greenback can hold its already devastated value when ...

— The Fed is pumping out fiat money like there's no tomorrow.

— Real interest rates are negative and will likely remain that way for months, possibly years, to come.

— The Federal debt is approaching $10 trillion and contingent liabilities are soon headed north of $60 trillion.

— The trade deficit continues to remain deeply in the red and is bound to get worse because of soaring energy prices.

— Main Street, USA and foreign investors are beginning to wake up to Washington's manipulation of economic stats like the phony CPI figure.

— And the Fed is accepting all sorts of junk paper from banks, mortgage companies, investment banks, and soon, even failing hedge funds, to try and keep our financial system solvent.

Washington is willing to "paper over" all our country's problems with fiat money.

A long time ago, the dollar used to be backed by gold. For every dollar you had, you could walk up to the U.S Treasury and redeem that greenback for yellow metal.

Today, the dollar is backed only by "the full faith and credit of the U.S." Washington has not only fiscally mismanaged our economy, but now the government is papering over the errors, rampant abuse and speculation of people at the helm of companies like Fannie Mae and Freddie Mac and thousands of other banks and brokers.

Those institutions' errors, whether criminal or not, are appearing in all the defaults and junk paper in the financial system, and the Federal Reserve is accepting it all as collateral for dollars!

Can you see why savvy investors here and overseas are buying gold like crazy? Can you see why it's not far-fetched to expect gold to continue higher, ultimately reaching its inflation-adjusted price of $2,200 an ounce?

My publisher, Martin Weiss, says "this is it — this is the great money panic I've warned everyone about."

He's right. And in my opinion, anyone who doesn't own gold in this money panic environment has lost their marbles!

More on gold in a minute. First, let's talk about how ...

The Dow Jones Industrials Have Cracked the 11,000 level, and Are Headed Much Lower!

Forget all the Wall Street happy-talk about this quarter's supposedly good earnings in many sectors. Forget their drug-induced, commission-based rosy spiels and biases.

Dow starting to pierce critical 11,000 support level ...

Instead, tell them the Dow has already lost 78% of its purchasing power, and see what they have to say. They'll tell you you're nuts, but the truth is, as I have shown you repeatedly in past issues, the Dow is already down 78% ... in a giant stealth bear market, and now, the next phase has begun!

This is where the decline becomes visible to the naked eye ... and fear begins to set in.

Investors, both domestic and foreign, begin selling in droves, battering every rally attempt in the Dow, and ultimately pushing it down below 10,000 ... to 9,200, or perhaps even lower.

All the while, because of the weakening U.S. dollar — inflation rages higher ... commodity prices shoot to the moon ... and gold soars like an eagle.

Think only tech stocks, transportation stocks, small caps, and growth stocks are immune and it's just the Dow Industrials that will get killed?

Think again. Almost every publicly-traded stock is now on the chopping block. The key exceptions: Gold miners, energy shares and other select natural resource stocks.

Consider this: While the Dow, S&P 500 and Nasdaq are down double-digit percentages just since their peaks this year — gold shares are UP an average of 18% in the last 10 weeks!

Something else you need to know ...

I Think the Next Huge Collapse Will Happen in the U.S. Bond Markets

For the life of me, I can't understand why anyone would want to own U.S. corporate, municipal — or even Treasury — bonds right now.

Don't get me wrong. I am just as patriotic as you are. But as I noted above, the Federal Reserve is now backing our dollars — and by implication so is the U.S. Treasury — with all sorts of junk paper. And on top of it all, also as I noted above, the Fed is printing fiat money like crazy, keeping real interest rates negative, and more.

This is a disaster in the making for the U.S. bond markets. Soon, investors could dump U.S. Treasury bonds like crazy ... realizing that they are far from a "safe" investment. Bond prices would collapse ... and these investors would flock in droves to the only true safe form of preserving wealth — gold — pushing the yellow metal even higher.

Despite All This, Asian Economies Remain Robust!

Again, please don't interpret my forecasts as being unpatriotic. But let's face it: The U.S. economy is in deep doo-doo and things are going to get worse before they get better.

Yet Asian economies are still cooking, and offer excellent profit opportunities.

Consider the following. While the U.S. economy is now contracting (and at the same time experiencing inflation) ...

— China is still growing at about 10%

— India is growing near 9%

— Hong Kong and Malaysia, are both growing at 7.1%

— And South Asia, in general, is growing at an average rate of almost 7%

Yes, Asian stock markets have taken a beating, especially earlier this year. But let's not forget that they are merely giving back some of the triple-digit gains they experienced in the last three years.

For instance, China's Shanghai A market is off 45.8% in 2008, but it's still up 182% since its low in June 2005.

Bear market in China? No. Consolidation, retracement? Yes. Buying opportunity? I sure think it is!

Here Are the Two Steps You Should Consider Right Now

Step #1. If you don't already own gold, I strongly suggest you buy some now.

Don't worry about a $10 pullback. Or even a $100 pullback. Buy gold for the long-term and protect your paper dollars pronto.

As I suggested in my column two weeks ago , seriously consider allocating 20% of your net worth to gold investments. You might want to put half in pure gold investments, and the other half in mining shares.

To review, my favorite gold investment vehicles are ...

1.) The SPDR Gold Trust (GLD) — This exchange-traded fund owns physical gold on your behalf, but without the storage hassles. Each share of the GLD equals 1/10 of an ounce of gold.

2.) The Tocqueville Gold Fund (TGLDX) — I consider this one of the very best gold funds around. No front-end charges, and its expense ratio is about 1.43%. Minimum initial investment: $1,000.

3.) U.S. Global Investors World Precious Minerals Fund (UNWPX) — The fund's five-year annualized return is a hefty 34.57%. Again, it has no front end charges, and has a low expense ratio of just 0.99%. The minimum initial investment: $5,000.

4.) Gold Mining Shares — Consider buying the Market Vectors Gold Miners Index ETF (GDX), an Exchange Traded Fund that holds a basket of the top gold miners. Or, for specific buy and sell signals and my individual stock picks in gold — and other natural resources — consider subscribing to my Real Wealth Report .

Step #2: Consider Buying or Adding to your China and Asia investments.

Some ways to do that ...

The iShares FTSE/Xinhua China 25 Index (FXI) : This ETF invests at least 90% of its assets in the securities of the FTSE China 25 index and is a great overall play on China.

The First Trust ISE Chindia Index Fund (FNI) : Seeks out the best returns from companies in China and India in the following industries: Oil and gas, software, telecommunications, banks, Internet and mining.

U.S. Global Investors China Regional Opportunity Fund (USCOX): This mutual fund invests at least 80% of its money in the China region, from Mainland China to Hong Kong, Taiwan and more.

Lastly, be sure to stay tuned to Moneyandmarkets.com! My colleagues and I will keep you way ahead of the crowd, avoiding disasters ... protecting your money ... and helping you profit!

Best wishes,

Larry

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

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Comments

Carl Young 19 Jul 08, 16:38

non ferrous metal Dear Sir: What is your opinion of the trend in non ferrous metal.. ie. copper, nickel, etc Thank you Carl Young