Profiting From the Worst Case Scenario
Thursday, October 23rd, 2008
By Michael Lombardi, MBA for Profit Confidential
Yesterday, I talked about “The Worst Case Scenario” for the U.S. economy — American interest rates rising to protect the supremacy of the U.S. dollar — and how this concept is already playing out for another smaller country in Europe. Hungary raised its official benchmark interest rate three percentage points on Tuesday to shore up its floundering currency. Could the U.S. be next?
Okay, so it’s a long shot even thinking about the U.S. Dollar collapsing in value while it sits today at a two-year high against other major world currencies. But worse has happened. Oil was at $140.00 a barrel a few months ago and analysts at the biggest rokerage houses on Wall Street were calling for oil to go to $200.00 a barrel ($66.75 as of yesterday’s close). And who would have thought the bust in the U.S. housing market would bring down Wall Street and threaten credit markets around the world? In the global economy we have today, events unfold very quickly.
As foreign investor concern mounts over the vast debt the U.S. Is issuing and accumulating, foreigners could become wary of buying American bonds. This will result in the American dollar starting to fall viciously against other world currencies. The U.S. could then be forced to raise interest rates to attract foreigners back to its debt securities. This is “The Worst Case Scenario” I talked about on Wednesday.
At this point, you are likely saying, “Great, that’s all I need…to see my investments go down even further” (traditionally stocks go down when interest rates go up). But there is a silver — or should I say a golden — lining in all this.
The price of gold bullion has been attacked this past month for two reasons. Firstly, the flight to the U.S. dollar has taken the shine off gold. I believe this will be short-lived. A rally in the value of a currency that is backed by ever-increasing debt cannot be sustained. Once the shine comes off the U.S. dollar, higher interest rates or not, my opinion is that gold will become the next “currency” alternative.
Secondly, gold bullion is being ravaged by the deflationary times we are experiencing today. This morning, gold bullion is down to $707.00 U.S. per ounce. Yes, the price of gold tends to move higher during inflationary periods and lower during deflationary periods. But we must keep in mind that, at a certain point,
consistent deflation will erode all currencies while causing political, social and economic upheaval — what you can call “The Best Scenario for Gold Bullion.”
In my humble opinion, the bull market in gold bullion and quality gold stocks is far from over. In fact, I think it’s just getting started.
Next Post: Hang Tight — The Bloodletting Isn’t Over
Previous Post: One of Our Fave Picks Defying the Dismal Market
Tags: bull market, gold, U.S. dollar, U.S. economy
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
