Investing in the USA – Caveat Emptor (Buyers Beware)

Wednesday, 10 Apr 2013 07:48 AM

By Ashish Advani

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Wall Street hit another record high!

We have now become accustomed to seeing our 401(k)s or investment accounts forge higher and higher. We sit back like a Cheshire cat basking in the warm glow of being smart and investing on Wall Street.

I am reminded of the fable where the frog was boiled alive in the tub of water. The heat was turned up ever so slowly such that the frog never noticed the heat of the water reach the boiling point and was ultimately boiled alive.

I sense a serious level of complacency in the investors in America today. In a recent unscientific survey of informed and enlightened investors, we found that at least 75 percent of investors are investing in the United States or in U.S.-based investments.

To enhance our findings, I sat in on a few investment seminars just to see what kind of investments are being recommended by the so called “investment advisors” from the top 10 banks. And without fail, they all lead to U.S.-based investments in stocks and bonds. A few enlightened ones talk about some commodities but suggest stocks of commodity companies or paper-based commodity investments.

If you have been reading my missives, you know I am a big proponent of commodities. Paper-based commodities are a mere attempt at diversification. You see, if there is a market collapse, all clearing houses and banking centers will shut down or cease normal operations. In such cases, you will be out of luck trying to convert your commodity trades to cash.

Stocks and bonds have been in a strong correlation since the financial crisis. We have seen the best run in U.S. Treasurys in the history of U.S. Treasurys. We have seen Wall Street climb to its highest level ever. Yet, the pundits call for more room to run as the highs we have seen are not yet highs considering inflation. So as usual, they are calling for more cash into stock markets.

We have a massive bubble in U.S. Treasurys. Even the bond king, Mohamed El-Erian of Pimco (the world’s largest bond fund by far), has called the bond market as being in bubble territory. So buying or holdings U.S. bonds is highly risky.

Back to Wall Street, we are seeing this incredible rally without the traditional volumes or the real rise in business activities. Businesses are not growing their top lines and enhancing productivity to eke out bottom-line gains. At some point this will have to stop, as workers only have that much to give.

Without structural reforms and real growth, I cannot see the stock market rally continue forever.

So if we should not invest in stocks, bonds or paper-based commodities, where should we turn?

Physical commodities have had a stalled rally for quite a while now. Gold was the anti- dollar for quite a while. But recently the Dollar Index (a basket of currencies vs. the U.S. dollar) has risen quite well, while gold has declined steadily.

Whether this is manipulation or not, gold has held its value over the past 5,000 years, and I am sure in these turbulent times, it will continue to maintain its track record. Sure, we may see gold decline a bit more or not. But for the long term, physical gold and silver will continue to garner attention as the fiat currencies and bubbly bond markets decline.

I strongly urge you to consider investing 20 percent of your investable capital in physical commodities or physical properties overseas.

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