Stocks are falling fast. Panic is spreading. Confusion reigns.
But I’ve got to tell you, I recently made one of the biggest investments of my life. Let me explain...
You see, I’m often in the same position as you are: What’s a buy? Where should I put my money now? Where can I get a decent return?
Even as the head of a financial research publishing house, it’s still tough to find new, original, and most important, profitable investment ideas. But this one was an easy one to make.
Over the last few months, I’ve been recruiting a new analyst to the Angel Publishing team. The entire process has taken (literally) years. The first time I met him, he had just returned from a research junket few of us could only dream of...
He started off in Oslo, Norway. He had caught wind of an early-stage search engine company with a few dozen employees. The way he explained it, this outfit sounded like Google 10 years ago. From there he was off to Northern Russia to an area so environmentally devastated by former Soviet Union industrial policies, they don’t allow average “tourists” anywhere near it.
After that, he traveled to Moscow for a few meetings. While in Moscow, he received a coveted invitation to the world’s most exclusive billionaire's club. "How exclusive? What's a billionaire’s club?" you ask. ABC News says the club is only accessible to the “seriously rich, seriously connected, or fabulously beautiful.” (If you asked him, he’d probably tell you he’s all three.)
From there, he flew to the Adriatic for a private meeting with the Minister of Economy, a number of senators, and other top government officials in Albania (yes, Albania!). A few days later, he was traversing mountains near the disputed, war-torn borders of Kosovo.
Sounds like an over-the-top, highly expensive excursion, right?
I thought the same thing. But I followed his “crazy” ideas pretty closely. Needless to say, I was completely blown away...
The tech company he visited in Oslo turned out to be set on breaking Google’s Internet dominance. Shortly after he found them, the company was bought out by Microsoft; a year or so after that, Microsoft announced it was going to head-to-head with Google when it unveiled Bing. At the time, this was huge news. But it wasn’t much of a surprise to those who put the pieces of the puzzle together years before anyone else.
And it didn’t stop there. In Russia, while knocking back bottles of champagne with oligarchs and super models, he was tipped off to the most fertile farmland in the world. At the time he discovered “black earth” soil, you could buy it for a tenth of what it costs today. Now hedge funds and big institutional investors are scouring the world for farmland and paying obscene prices.
In Albania, he found a tiny oil company with, as he understated, “potential.” That company was Bankers Petroleum (TSX: BNK). It was 49 cents per share at the time he was there. It recently hit a high of $9.92 per share.
He’s good… really good.
And when I heard he was passing through Angel’s hometown headquarters of Baltimore, I asked him if he could stop by. He agreed.
Since then, I’ve taken him out to numerous dinners. I’ve watched him run up my bar tab to levels my wife is going to make me pay dearly for. And I’ve even had him down to my beach house, which I rarely let anyone other than my family and I stay in...
It was all worth it, though, because I’m happy to inform you I’ve got him.
But it wasn’t cheap. I won’t get into specifics, but when all is said and done, it’s probably the biggest investment I’ve made in years.
Frankly, I have to warn you: He can be more than a bit brash, irreverent, and sometimes a downright jerk. You may love him or hate him. But you’re definitely going to want to listen to him.
Read on below for his take on the U.S. debt downgrade, where he sees the markets headed from here, and why now is actually a great time to be investing.
Honestly, I don’t think it will take you long to see why I chased this guy until he agreed to write for Angel — and why it’s probably going to pay off exceptionally well for all of us.
To your wealth,
Brian Hicks, Publisher
Forget the Debt Crisis, Start Buying These Now
The downgrade of U.S. debt over the weekend is nothing more than a distraction.
Standard & Poor’s, one of the Big Three ratings agencies, is rarely ahead of the curve.
Ratings agencies have earned abysmal track records in recent years. They missed the housing bubble. Up until a few months ago, they had Irish debt as “investment grade.” To go back even farther, they didn’t cut Enron’s debt to “junk” status until a few weeks before the largest accounting fraud in history went bankrupt...
On top of that, the ratings agencies are quite liberal with their top ratings.
The chart below from the Financial Times shows how the more debt that has been issued, the greater share of debt gets rated AAA:
It’s the equivalent of your credit score going up the more you borrow. In other words, it's complete nonsense.
As a result of all this, the ratings agencies have no credibility. They’re only still in existence because of government protection.
So a downgrade from AAA to AA+ from the S&P really isn’t much to get worried about in the short term. But the herd will do what it does regardless of the facts. And the only thing you and I can do is bide our time, wait for the overreaction to pass, and get ready to take the opposite side of their trade.
There is, however, something to get extremely worried about right now. And the crisis-hopping media, ongoing political theater, and other events are merely a distraction from it.
This emerging trend is so large and going to last so long, you will get caught up in it. In fact, you are already in it.
As a result of it, fortunes will be made and lost. The majority of assets will be transferred from the many to the few.
The only question is Which side do you want to be on?
Read on to see how it’s all going to play out — and what you need to do about it right now.
It Can Be Just That Simple
The current financial scene is actually really simple... much simpler than most want to (or are capable of) making it out to be.
If you’ve spent some time with the history books, you’ll be well-versed on a single concept that will dominate the financial world for the next few years, probably even longer...
You see, we’ve entered an era of financial repression.
The concept has only recently started gaining attention. And it should. It will be the dominant theme driving markets, the economy, and your financial future.
It’s a simple concept, really. But it’s absolutely critical to understand what it is doing and will continue to do to your financial well being.
As defined by Harvard Professor Kenneth Rogoff:
Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.
It’s not new. The world has been through it many times before. The United States alone has undergone lengthy periods of financial oppression every time the government ran up a massive amount of debt.
It happened after the Civil War, WWI, and WWII. After all those massive run-ups of debt, inflation surged to above 50% per year, economics went into sharp recessions, and a few emerged from it all with massive fortunes.
Here’s how it works...
The dominant and most destructive trend behind all financial repressions is negative real interest rates. Official inflation could be 18% like the late 1970s, or just one or two percent like it is today. As long as interest rates are below the rate of inflation, the real (after inflation) rate is negative.
The impact of negative real rates is massive. Negative real rates lead to flat or declining real GDP growth. They’ll lead to steady — potentially very high — inflation. They’ll make returns on income-producing assets fall to near zero.
Negative real interest rates are the foundation of financial repression. The initial stages of it are here, the rest are coming, and it’s going to get worse.
But that’s not necessarily bad for stocks, bonds, gold, or other financial assets...
From the Many to the Few
The critical part of financial repression is you have to understand where it ends. Historically, the end result has always been a transfer of ownership of assets from the many to the few.
The many will be wiped out; years of poor economic growth, inflation, and limited investment opportunities will destroy savings and nest eggs.
The few will be exceptionally wealthy. I fully intend to be one of the few — and hope you do, too. This is how we can do it...
Best Buys in Era of Financial Repression
This era of financial repression will not be much different from the many of the past. Negative real interest rates will have a massive impact on the world economy and your portfolio.
But there are many ways to safely protect and grow your wealth through it all.
The table below shows the performance of many asset classes during the last period of negative real interest rates.
You’ll see many of the quickly-gaining-popularity stalwarts are there. Gold, silver, farmland, and timberland are some of the hottest investments in the world right now. And it’s all because of negative real interest rates.
There are, however, some that are still lagging. And those are the ones to buy more aggressively now.
When “Safe” is Risky and “Risky” is Safe
Take Venture Capital (VC), specifically.
I know what you’re thinking... Businesses are going under everywhere. Circuit City, Borders, Blockbuster, and dozens of others have gone belly-up.
That’s what most investors are thinking. And it’s why most of them are looking for safety, regardless of how risky “safe” has become.
This is a period where people are looking for safety. No one really knows what’s going on. They’re confused. They want safety (at least perceived safety), and they’re willing to pay a high price for it.
Why else do U.S. Treasuries yield 2% over 10 years and most savings accounts pay less than 1%?
A few investors, on the other hand, see the real opportunities...
VC is the riskiest investment you can make. Most VC opportunities are money pits. Most of them fail miserably and take investors’ money down with them. The small few that do pay off, pay off big.
Times like now — when most investors want “safety” of getting their investments inflated away and essentially guaranteeing a negative return — VC opportunities are their best. Entrepreneurs and the smallest companies are running bare bones operations and developing only the best of the best business ideas.
Meanwhile, most VC funds are still buried in their past investments. The luckiest of VC funds — those which are able to attract capital in this environment — often pump new capital into their old VC investments just to support them.
The end result of all this is VC capital is far more limited now than it has been in decades. Upstarts must compete more aggressively for funding. They have to hand over a much bigger piece of the pie to VC investors. Since VC investors have a greater stake at the start, their rewards are that much bigger.
That’s why VC may seem a terrible idea at first glance. History bears out VC is no different than any other investment class. The best returns come when there are the least amount of investors doing it.
Surviving the Era of Financial Repression
At the end of the day, we’re in an era of financial repression.
So as investors, the dominant themes will be negative real interest rates, increased government involvement in the economy, reduced access to capital for businesses and consumers, slow GDP growth or worse, and a global economy that jumps from panic to panic for years — if not decades — to come.
Get prepared. Get a plan together. Mentally be ready for every type of market... The last few days are a perfect example.
If you take these simple steps now, focus on the assets that do best in an era of financial repression, and buy when they’re temporarily out of favor, you’ll definitely be in position to be one of the “few” after all this global debt mess has been defaulted and inflated away (which it will!).
The current market swings — regardless of how severe they may feel — will eventually be viewed by history as nothing more than speed bumps on the road of the long, costly, and enormously profitable road of financial repression...
Finally, as for being seriously rich, seriously connected, or fabulously beautiful?
All I can say now is two out of three ain’t bad. After this era has run its course, though, we can expect to be three for three.
Analyst, Wealth Daily