2013 What's in your portfolio?

By: James M. Carrillo
January 29, 2013

Stocks have rebounded back to pre-crash territory, the question beckons, now what? As the Capital One commercials ask, what's in your wallet? Or in this case, portfolio.

I have been in the investment industry for over 33 years now. I have been fortunate to have seen many events ahead of the curve and have made drastic, quick decisions based on what I deem to be common sense investing in protecting my family and customers. I analyze markets from Stocks and Bonds to Real Estate and Hard Assets.

The first thing I want to touch on is the supposition that stocks have rebounded to pre-crash levels. But have they? Truth is NO!

Just In 2008 alone 35 companies in the S&P 500 were replaced, meaning that 7% of the index turned over. This happens often when weaker performers are replaced with new stronger companies to prop up the index. This is not the same 500 or even close to the one that existed prior to 2007.

The Dow 30, the most widely followed index has had the following changes from 2008 and 2009 alone, Altria Group Incorporated and Honeywell International Inc. were replaced by Bank of America Corporation and Chevron Corporation, American International Group Inc. was replaced by Kraft Foods Inc. In 2009 Citigroup Inc. and General Motors Corporation were replaced by Cisco Systems, Inc. and The Travelers Companies, Inc. So in two short years, five of the 30 were replaced or nearly 20% of the companies that make up the Dow Jones Industrial. Tell an investor who owned or owns BofA stock, GM or AIG stock that the Dow has recovered and you will get an earful.

With some careful research looking for safety and return, I always try to look forward. Today I fully realize that the majority of money the Fed has been putting out there has been used by banks to prop up "buy" stocks instead of lending it, which is what the Fed wants the banks to do. Exactly what I stated back in my article after the crash entitled, "The Greatest Scam in History" http://www.swissamerica.com/article.php?art=10-2008/200810271128f.txt. What I see today is that very soon, banks will be forced to lend and it will now be up to the main street (you and me) to stay confident and keep buying. It's the only way to keep the market going up as the banks drain their monies from the stocks they purchased with the money the Fed gave them.

That being said, based on our financial condition, I decided to look at this as a two option choice. I looked at the bottom line of the investment and savings options. I simply ask that you take the labels off of these choices and pick one based on these facts. You really do only have two real choices on where to save today when it comes down to it. Forget if it's widgets, digits, companies, CDs, bonds, gold, cash etc. Given just these facts blindly, knowing nothing else, I want you to tell me where you would save or invest.

Your choices:

Company A - Has been established for thousands of years. Has no debt, no liabilities, cannot go bankrupt, was recently funded by over 4 trillion dollars and will be funded by at least 1 trillion a year for the foreseeable future. This is just by one Country, but all others Countries are making similar moves. Its growth has been 10%-25% a year for over a decade. It depends on no one. Its historical track record has consistently spoken for itself. All Countries covet it, but it is consistently being downplayed by Company B. Its stock cannot be diluted or multiplied. It is accepted all over the world.

Company B - Has been around in its current from since 1973 when Company A no longer backed its operations. It is now by all rights bankrupt. Has 16.5 trillion dollars in debt, needs to create 1 trillion dollars in debt every year just to survive. It is also buying back its own debt with money it doesn't have, like using the Mastercard to pay the Visa. Its largest supporters are now questioning its practices, BUT it will guarantee a 1-2% return annually. Or you can put it into other investment areas that depend on its solvency to try to get a higher return. It consistently downplays Company A's success because it needs investors to stick with it in order to survive. Its stock is being diluted and multiplied at the fastest clip in its short history. It is no longer accepted everywhere and many are asking for the solvent company A for payment.

Here is the growth of debt for Company B. Would you invest in this company?

US Debt level

Based on just those facts, which Company would you choose?

I Titled this "What's in your Portfolio?" playing off of Capital One's saying for a reason. Today, we have 16.5 trillion in U.S. dollar debt that is growing by 1 trillion a year. What if the US was a customer of Capital One? I would venture to guess that the answer would be '... nothing, the credit has been revoked'. That day of reckoning may be sooner than any of us want to even think about.

We all, based on trust alone, have all or the majority of our money invested in things that rely on the solvency of company B. I am sure you have figured out that company A is gold. Company B is all investment and savings done in anything based solely on the value of the U.S. dollar currency.

If given a choice would you build your foundation on company B, U.S. dollars? Based on the long term history of currencies, I will not because as can be clearly seen we are diluting it. This is a chart of the monetary base from the FED itself.

U.S. Money Created

adjusted monetary base

Note the money creation from 2009 forward. Just as I stated in my 2008 article, "As TRILLIONS of new dollars are created, your dollar buying power will lose even more value. People currently fleeing for safety are hoarding dollars. This literally is akin to jumping out of the frying pan, directly into the fire".

This is how much money is being created. Note the slow, steady slow growth when Company A (Gold) backed our currency through 1973. Then note the printing of dollars after we started printing based on the Full Faith and Credit of the United States. This is when its value began losing its buying power and it took more to buy less. What will this insanity eventually do to our buying power in the coming years?

As mentioned, they are currently using this freshly created money to purchase stocks and bonds, trying to restore the world's faith in it. It is very important to remember this is only backed only by the full faith and credit of a desperate government who is driving itself deeper into debt. Our debt is now above 100% of GDP.

gross federal debt

Our debt levels haven't been this high since World War II. It is important to note, however, that our currency was still backed by gold then. Today it is only the "Full Faith and Credit of the U.S. Government". Does it not make sense to add Company A, GOLD, to your holdings? I do not mean ETFs like GLD which do have debt and liabilities because they are derivatives only made to mimic the price of company A "Gold". They in fact can go bankrupt should the dollar eventually fail. Buy the actual asset itself, that has no debt or liabilities.

Other charts of Interest

Consumer Credit, does this look healthy?

total consumer credit

Central Banks are buying gold and dumping U.S. Dollars
Sources: http://www.globalresearch.ca/central-banks-are-acquiring-gold-dumping-us-dollars/22672 http://www.businessinsider.com/central-banks-gold-2012-8

central bank sales

Governments are buying gold! Why? They know the results of money creation. What's in your portfolio? May I suggest a good portion of solvent Company A, GOLD!

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