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Published: August 12, 2010
I've never been an alarmist. I spend far
more time talking about promising investment opportunities than
spouting financial doom and gloom. But there's a real debt
crisis brewing in the United States, and turning a blind eye to
the problem won't make it go away.
An endless cycle
Years ago, I nearly sank my fishing boat when a huge wave
cascaded over the bow and water poured in. The added weight made
the boat ride a bit lower, which made it easier for the next
wave to crash in, which then added more weight... Without bilge
pumps and a sturdy bucket, I could have been up to my ears in
water and swimming in minutes.
Debt works in much the same way. You miss a credit card payment,
and interest rates are jacked up, which puts you deeper in the
hole, which hurts your credit standing and leads to more rate
hikes. It's a vicious cycle that can put cash-strapped borrowers
underwater faster than you can say "charge it."
The United States is still borrowing cheap. For now. But I think
it's only a matter of time before China and other foreign
lenders demand higher interest rates on their loans to the U.S.
government. The risks are becoming greater, and paltry Treasury
bills yielding around 3% are still well below normal.
According to the U.S. Treasury, our national debt is currently
at just over $13 trillion. Even with rates near record
lows, servicing the interest payments on the debt is still one
of the government's biggest annual expenses. In fact, we can't
cover them entirely -- let alone chip away at
principal. The Congressional Budget Office (CBO) has
projected that overdue interest payments will add $4.8
trillion to the national debt in the next decade alone.
Right now, we're staying afloat by issuing new debt to pay off
maturing debt. That's like using a Visa card to pay for your
MasterCard bill. But the amount we owe MasterCard is snowballing
larger by the hour -- and Visa is about to raise its rates.
What happens to investors then? Let's just say you'll want to
have some of your portfolio safely in a life raft before it's
too late.
A sure-fire way to beat inflation
For starters, the first place I'd look to protect my money is in
commodities. When
inflation hits, prices for everything from food to medicine
to cars will increase and erode the purchasing power of your
hard-earned dollars. So, why not convert those dollars into
something that will rise with the tide?
One of the surest, time-tested axioms is that inflation weakens
the dollar. And a weak dollar strengthens the appeal of gold and
oil -- particularly in the eyes of foreign investors. That's
because many commodities and precious metals like crude oil and
gold are denominated in dollars -- meaning their value will
increase as the
greenback crumbles.
If you'll recall the last time the dollar took a serious tumble,
crude oil shot to record levels above $150 a barrel. And anyone
who lived through the stagflation of the 1970s is acutely aware
of the miserable environment it can create for investors. But
those were great times for commodities.
We could be headed down that road again…
A well-rounded play
Instead of recommending a single energy or
commodity stock, I'm telling my
StreetAuthority Market Advisor readers to keep their eye
on funds like the Jefferies Global Commodity Equity (NYSE: CRBQ) ETF. There are others out there, but I like
this one in particular.
This fund has a global, 150-stock portfolio providing plenty of
exposure to energy and precious metals through holdings like
ConocoPhillips (NYSE: COP) and Goldcorp (NYSE: GG), as
well other top holdings that will benefit from inflation, like
fertilizer giant Potash (NYSE: POT) and farm equipment
maker Deere (NYSE: DE). But that's just the beginning. There are
also natural gas, silver, coal, copper, nickel and aluminum
plays in the portfolio as well.
Action to Take --> Only time
will tell whether we can dig ourselves out from this debt hole
before it buries us. Even then, we won't escape unscathed.
In the meantime, a clicking global
economy will lend further support to commodities. CRBQ was
launched last September, so this fund is a relatively new
option. But I think the timing is fortuitous. The more checks
Congress writes, the brighter the outlook for this well-rounded
fund.
-- Nathan Slaughter
Editor
StreetAuthority Market Advisor, The ETF
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