US Debt 25 Trillion and Counting. How to Protect Yourself.

The United States is 25 trillion dollars in debt. It collects around 3.2 trillion dollars in tax revenue every year and spends 6.2 trillion dollars every year. The spending continues to go up and all the while the US is paying interest on its debt. Instead of hoarding dollars you should consider some of these other stores of value.

The US dollar is one of the strongest currencies out there, backed by the strongest military and economy the world has ever seen. That being said it is not in the interest of the United States government to have the US dollar increase in value, especially because it owes so much in the form of Treasury bonds and notes. Thankfully most debt is internal – meaning the debt is held by US entities and the Federal Reserve, however there is a lot of debt owned by foreign countries as well. This makes inflation FAVORABLE for multiple reasons – the amount owed to others decreases in real value and economic growth occurs when people use their money to make a higher return than inflation and the interest rates.

If the Federal Reserve were to increase interest rates it would strengthen the US dollar, going against the interests I mentioned above.

This is fine, you just need to know where to put your money so you aren’t affected as much by it.

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One Percentage Point Cut in Benchmark Rate, Now at 0% – 0.25%

What Happened?

Today the Federal Reserve announced it will cut the benchmark rate to between 0% and 0.25%. On top of this, the Federal Reserve has said it will proceed with $700 billion in asset purchases (quantitative easing)

This is an important milestone in that the only additional tools the Federal Reserve now has to curb further depression in the stock market and slowing of the economy due to Coronavirus is to either:

  1. Push the benchmark rate into negative territory
  2. Introduce additional quantitative easing

Focusing in on this change only, and not the other stimulus the Federal government is pursuing, indicates that there is a large amount of fear about the economy.

What should you do now based on these changes?

Refinance

If you have an existing home loan chances are very high at this point you will be able to refinance your loan for a lower interest rate (more than 1% of your current rate) which would make it financially worth the closing costs.

Figure out to do with your cash

0% benchmark rates and increased government spending through stimulus measures means your cash is at risk of devaluation.

Commodities

Consider investing in alternative forms of wealth including gold, silver, platinum, palladium, rhodium, and consider diversifying with some cryptocurrencies such as bitcoin or etherium. Last time quantitative easing was introduced and implemented gold prices more than doubled from $800/oz in 2009 to over $1800/oz in 2011. Today gold stands at $1544/oz. Gold isn’t so much a way to make huge returns rather a way to store value, but a tool nonetheless. Silver went from $10/oz to over $45/oz in 2011. Same concept applies except silver is more volatile, less expensive, and more abundant. Also silver oxidizes, unlike gold.

Equities

Consider investing in companies that can weather a Coronavirus instigated economic adjustment that are on discount after our stock market rout of the past few weeks. Don’t dump all your cash into the market immediately, but start moving money over time and pick up some bargains. Anyone who used this strategy in 2009 would be looking good today. Be careful of companies in high risk industries in the current environment. Casinos, resorts, cruise, and travel companies come to mind as high risk investments. Secondary companies that could share some of that risk include airplane manufacturers, and restaurant franchises that aren’t tuned for home delivery, and theater companies.

The no-brainer at this point is the refinance. Others are optional, and carry risk.

Buying Lasting Presents Which Appreciate in Value

Buying Gifts that Retain or Increase in Value

If you’ve ever watched the 1964 rendition of Rudolf the Red Nosed Reindeer you’ll know who Yukon Cornelius is. He’s the most famous prospector in the north, searching for silver and gold. That being said, he never finds any.

Don’t be like Yukon, buy your relatives gifts that appreciate in value! Silver coins are a nice gift because they are affordable and have a decent upside potential – and look nice!

Legos hold their value well if you don’t open the box! Video games depreciate fairly quickly, and clothes are basically worthless after they are used. Gift cards are worse than cash in that they usually have an expiration and can get lost or forgotten about. Stocks are not easy to buy for kids these days because you have to open accounts and deal with a lot of overhead in getting started. Bonds are boring.

So next time your considering buying present buy a fancy silver coin! There are a variety of designs to choose from, including Star Wars designs, battleships, pirates, and dinosaurs for the young ones.

Coins can be cool!

Recommended Websites

1.  Modern Coin Mart

https://www.moderncoinmart.com/

I like Modern Coin Mart because they have a wide variety of coins to choose from. These range from historical to modern (like the dinosaur coin), and hail from a variety of countries. You can buy directly from their website (link above) or go through eBay and buy from their eBay store. If you buy from the eBay store they are usually quick to give positive ratings to buyers – if you don’t care about ratings it may make more sense to buy directly from their website.

2. APMEX

https://www.apmex.com/

APMEX is another great website for starting your coin or bullion collecting journey. I like how their bullion includes hand poured bars (like below).

hand poured 2oz silver bar

Palladium Overtakes Gold and Platinum

What is Palladium?

The least well known precious metal is now the most valuable. Everyone knows about gold, silver, and platinum – it’s about time everyone educated themselves on palladium!

  • As of December 13, 2019 Palladium trades at $1,954.06 per ounce, compared to gold at $1,478.12 and platinum at $931.15.
  • 10 years ago Palladium traded at $363 per ounce, gold was $1118 and platinum was $1435.

Palladium is precious metal used primarily in the creation of catalytic converters – which convert harmful gas emissions into CO2 and water vapor. Without catalytic converters the noxious fumes would be released directly by motor vehicles, greatly increasing pollution and cancer rates among urban dwellings.

Where does it come from?

Mined primarily in Russia and South Africa.

A major source of palladium for new items comes from recycling of old catalytic converters (seen below). Palladium is often mined along side nickel and platinum, and unfortunately thieves have resorted to stealing these off of cars for the valuable scrap value of the metal.

Most common use of palladium is in catalytic converters

Jewelry and coinage use palladium

 

Why is it getting expensive?

Supply and demand is pushing prices up. Palladium mines are located in Russia and South Africa, and are not increasing their output of the metal but demand continues to rise. This has made recycling of the converters a necessity, and the increased price should eventually make more mining economically feasible – yet this has not yet happened.

Plop onto this combination speculation and investors buying up the metal and you have a perfect formula for a great price boost.

How do I get in?

The Fastest way is to buy a palladium ETF in your stock portfolio. The major ETF is:

PALL (Aberdeen Standard Physical Palladium Shares ETF). Below is a one year chart:

PALL 1 year performance

Slower way to invest is buy palladium coins or bullion.

Palladium 1 oz bar

Mining Stocks for 2018

The Bingham Canyon Mine in Utah, USA

The following is a list of a few mining stocks to consider coming into 2018. Some investors are eyeing mining stocks as an unappreciated sector in the past few years, and are looking to diversify their portfolio from overpriced stocks to some bargains. I have reallocated some gains from 2017 into the first option below in anticipation for a gold price increase to follow the recent commodity price increases.  Please comment below if you have any other suggestions.

  1. Barrick Gold (Nasdaq: ABX)  – the largest gold mining company in the world.  With a PE Ratio (TTM) of only 7.00 trading at $14.00 this is a steal. The dividend is weak though, so the hope would be that the gold price rises or they can cut expenses and improve efficiency. This would probably be one of your best bets on gold prices. With the US dollar starting to decline against other currencies and commodity prices starting to rise this stock is essentially a bet on gold. The expected output of gold in 2017 is 5.3 million ounces and the expected output of copper is 420 million pounds. The size of the company means it is more likely to be able to weather an extended gold price trough. Another positive is that this company has not issued more shares for the past few years, meaning they are less likely to dilute the price. The drawback to this company is that is heavily dependant on gold and copper mining, so more or less betting on these two commodities. Today’s price is $14.00.
  2. GoldCorp (Nasdaq: GG) – another Canadian company, GoldCorp is essentially a smaller version of Barrick with a higher pricetag. GoldCorp estimates to mine 2.5 million ounces of gold in 2017 but claims to have plans to grow by 20% by 2021. If you want to invest in gold miners and want to spread across multiple companies, you can consider buying some of this stock. Today’s price is $13.22.
  3. BHP Billiton Limited (Nasdaq: BHP) – The world’s largest mining company. We aren’t talking gold – we are talking coal, iron, copper, potash, and petroleum. This company currently has a “average” P/E (TTM) ratio of 19, but boasts and excellent dividend of 1.72 or 4.1%. Today’s price is $42.30. Investing in this company is sort of like investing in the global economy, as the raw materials are used around the world. This company was hit by the economic slowdown of 2008, falling to $36, but then peaked in 2013 at over $94 per share. From 2011 to the end of 2015 the shares slowly slipped down to $22 per share but have since risen to their current price of $42.29.

 

 

Trump Stocks VS Hillary Stocks

At this point it’s safe to say that unless something extraordinary happens either we will get a Donald Trump or Hillary Clinton presidency. While I could spend volumes discussing the economic implications of either win, at this point its more important to figure out what companies will benefit or lose from each presidency so you can take a gamble or get out before its too late.

Coal/Oil

Its safe to say that fossil fuel companies would continue to get hammered under a Clinton presidency. If Clinton is anything like Obama, we should see a few more coal stocks go bankrupt like Peabody Energy (Formerly PBU) and Arch Coal (Formerly ACI). Surviving coal companies include Cloud Peak Energy (NYSE:CLD), Westmoreland Coal Company (NASDAQ:WLB), and Alliance Resource Partners, L.P. (NASDAQ:ARLP). Oil companies face regulatory difficulties under a Clinton presidency, but most should be able to survive as oil maintains current price levels. The coal industry in my opinion is a bad investment at this time due to the very cheap price of steel and the lower demand from China and the United States.

Defense

One area that will most likely benefit from a Trump presidency is the defense manufacturing companies. Companies which would produce items for the military and navy include General Dynamics (NYSE:GD), BAE Systems PLC (LON: BA), and and array of other companies. You can also invest in Mutual Funds iShares Dow Jones US Aerospace & Def (ITA) or Fidelity® Select Defense & Aerospace Portfolio (FSDAX). Over the past year ITA has returned 18% and FSDAX has yielded 14%.

Healthcare

While I’m tempted to say the healthcare industry would continue well under a Democratic president, I can’t say for sure given the very cutthroat price increases which have made them a popular industry to attack from both Democrats and Republicans. If the Democrats end up further building up Obamacare it’s quite likely the pharmaceutical industry will be volatile. The TPP agreement pushed by Obama and Clinton will make people in 3rd world countries have to pay more for medicine, which may end up furthering profits in this sector. Time will tell. I’m not going to put any recommendations here.

Gold / Silver

If you’re a gold or silver investor, then the past year has been very kind to you. Especially if you’re into gold and silver mining stocks. Helca Mining company (NYSE:HL) surged 215% YTD and almost 200% in the past year, from under $2 to $6. Barrick Gold Corporation (NYSE:ABX), Goldcorp Inc. (NYSE:GG), and Silver Wheaton Corp. (NYSE:SLW) are all big players in this market. This is one of my favorite industries to make huge profits from moderate changes in base precious metal prices. It’s hard for me to say which candidate will cause these to go up further, it’s more dependant on the Federal Reserve interest rate policy and inflation. However based on the campaign talk It seems like a Clinton presidency would be better for precious metals. It’s always a good idea to have these as part of your portfolio to some degree.

Real Estate

Donald Trump made most of his money off of real estate – it’s always good to include this in your mix of assets. As the world population expands real estate will most likely continue to climb regardless of who makes president. A recession could certainly hit prices, but only temporarily.

Conclusion

I’d get out of coal, first of all. I’d put money into defense stocks as they should outperform the market under either presidency. I’d allocate some money into precious metal if only for an insurance policy on the dollar. I’d get some cash out of this frothy market and wait for the market to tumble before the election before strategically investing in under-priced high return on equity stocks.