How to Avoid the Global Debt Debacle
World to Europe: Print More Money!
The news over the weekend sounds pretty good on the surface: Greece and Germany may be coming to their senses.
Greeks voted to stay in the European Union and avoid the hyper-inflation, depression, and all-out economic collapse that would have resulted from reintroduction of the drachma...
And Germany signaled that it might be able to ease the austerity demands that have helped push Greece into five straight years of recession.
At the same time, the Group of 20 nations (G20) says it's prepared to add more cash to the $430 billion rescue fund for Europe.
So there's more cash coming for Greece, which is very nearly bankrupt.
That's good, right?
Well, if it were just Greece that had money trouble, then sure, it's great news. Bail 'em out. Cut a big check. Drop cash from helicopters if you need to...
But it's not just Greece. It's Spain, too — and maybe Italy.
Hey, Europe! Print More Money!
China and Indonesia have both come out and demanded that Europe "reach an agreement on rigorous methods to manage the crisis."
Of course, we should not be fooled by what Indonesian President Susilo Bambang Yudhoyono means when he says "rigorous methods to manage the crisis."
"Rigorous methods" is code for "the EU needs to print money. Now."
Europe is the new kid on the global economic block. It's no surprise that EU leaders like Germany's Merkel still suffer under the naïve belief that the European currency means something, that it has some kind of intrinsic value.
Of course, it doesn't. Not in this crazy world economy where central banks willingly shovel more and more cash onto the debt bonfire.
Would You Lend Money to Spain?
Even as Greece elects a government that will bow to the EU's will in order to get more cash, the yield on Spanish 10-year bonds jumped above 7%. (For comparison's sake, U.S. 10-year bonds yield around 1.5%.)
Why the big difference?
Because there's little doubt that Uncle Sam will pay back the loan. Sure, the loan might get paid back with devalued U.S. dollars, fresh off the printing press... but the loan will get paid back.
There are no such assurances with Spain. And it's only because Spain can't print money.
It's the same story for Italy, as its 10-year yields climb above 6%.
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It contains full details on why dividends are an amazing tool for growing your wealth.
We've seen what happens when investors take a chance and buy European debt in order to get the big yield...
Remember MF Global? That company bought Greek bonds on the hope that they'd get the big yield payout.
It got bankruptcy instead, as Greece defaulted on its bonds.
Make no mistake; no matter what the financial news will tell you about austerity, or economic restructuring, or government guarantees... the European problem is about printing money.
The Fed's $2 Trillion Printing Plan
In the wee hours of this morning, at 4:13 a.m., Bloomberg ran a propaganda piece that will pave the way for the Fed's next big money drop.
No one's really paying attention to the newsflow at 4 in the morning. (Well, almost no one, which makes it a great time to start floating propaganda pieces.)
In this particular article, Morgan Stanley claims the world needs two trillion dollar bills.
Not bonds, not guarantees — the world needs the cash.
Even though Fed Chief Ben Bernanke has increased the supply of U.S. dollars by more than $2 trillion in just the last four years, it's not enough.
Why? Because central banks around the world have snapped up that cash to hold as reserves.
Clearly, these banks don't want to hold euros, because they don't know how long the euro will last.
They don't want to hold Japanese yen, either. And they can't hold Chinese yuan.
Morgan Stanley says private banks (not central banks) need two trillion in U.S. dollars to stabilize their cash reserves. And you can bet the Fed will comply and print the two trillion the world so desperately needs.
In fact, you should count on this happening.
The question now is what's the best bet to make?
Get Paid NOW
I expect most investors would be surprised to see it, but Real Estate Investment Trusts, or REITs, have been among the strongest stocks so far this year.
These stocks have no exposure to Europe at all. And the combination of large dividends and upside potential makes these stocks very attractive — especially in the current low-growth environment.
In fact, Canadian REITs are at a five-year high as office vacancies have dropped to just 8.2%...
Even better, office property values are expected to rise between 10% and 20% in Canada this year.
I've recommended an unknown Canadian REIT to my Wealth Advisory readers. It pays a 5.6% dividend and its revenues are rock-solid as it has long-term leases with some of the world's biggest retailers...
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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