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
. 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
. The Congressional Budget Office (CBO) has projected that overdue
interest payments will add
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
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
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
stock, I'm telling my
StreetAuthority Market Advisor
readers to keep their eye on funds like the
Jefferies Global Commodity Equity (
ETF . There are others out there, but I like this one in
This fund has a global, 150-stock portfolio providing plenty of
exposure to energy and precious metals through holdings like
, as well other top holdings that will benefit from inflation, like
and farm equipment maker
. But that's just the beginning. There are also natural gas,
silver, coal, copper, nickel and aluminum plays in the portfolio as
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
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
Nathan Slaughter's previous experience includes tenures at
AXA/Equitable Advisors and Morgan Keegan. In addition, he's
earned Series 6, 7, 63, & 65 certifications. Read more...
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.