Why China (Still) Has A Big Financial Edge On The United States

A common theme you hear in financial and mainstream media is how China's economy is slowing down. I believe this theme is being promoted to make American investors feel better about our struggling economy.

That's why reality TV is popular nowadays. When you watch the adventures of Honey Boo-Boo, Mama June or other reality stars - and see how messed up their lives are - you don't feel so bad about your life, even if things aren't going well.

We hear that China is overbought, overbuilt and has lent too much money to commercial borrowers. Given certain media reports, these premises are probably true.

You may have seen the 60 Minutes report on China's "ghost cities," where large developments were built that didn't have any commercial or residential tenants. Obviously, these kind of projects were designed to provide jobs for workers and stimulate economic activity. Not to provide returns for investors.

Even with this and other internal challenges that China faces, it still has a big advantage over the United States in one key area: Debt. There's a Bible verse that says, "The borrower is servant to the lender." To refresh your memory, China is the lender and the United States is the borrower of about $1 trillion in Treasury debt (officially).

While China may have a lot of internal debt that companies and individuals owe lenders, it's the largest holder of external debt of any nation on earth. The U.S. owes the most external debt to foreign investors of any country in the world.

While the Federal Reserve used this borrowing to stimulate the US economy, and consumers bought a lot of Chinese-made electronic and other goods... the Chinese did something much wiser with their money: They bought assets - and a lot of them. All around the world, but especially in the US. And there seems to be no end in sight for these Chinese asset purchases.

In September of 2013 a Chinese company bought Smithfield Foods, the largest pork producer in the United States, for a reported $4.7 billion. The following month another Chinese company bought one of the best commercial buildings in New York City - One Chase Manhattan Plaza - for $725 million.

Chinese are also one of the biggest foreign buyers of real estate in Los Angeles, New York City, and even Detroit.

But the largest and most noticeable asset the Chinese have bought is physical gold. According to Jim Rickards' recent Twitter post, Russia is buying hundreds of tons of gold... the Chinese are buying thousands of tons of the barbarous relic.... while most Americans could care less. Rickards adds, "Someone's right, someone's wrong."

In case you haven't figured it out, boobus Americanus who buys high-priced real estate, big screen TVs and smart-phones isn't right. These manipulated, depressed prices for physical gold and silver won't last forever. Go to your local coin or metals dealer, Amagi Metals or Colorado Gold and get as much gold and silver bullion as you can reasonably afford.

We're starting to see a shift in demand from financial paper assets to the tangible variety. It's only going to accelerate in the months and years to come. Don't get left behind, position at least part of your finances wisely and take action today.

Time to Bail On Gold & Silver? Not So Fast...

Friday and Monday were one of the worst trading days for gold and silver in many years. You've probably heard and read from mainstream financial media that gold's best days are behind it. I don't quite agree with that notion, even though major technical damage has been done.

As I've said before, I don't claim to be a great short-term trader. However... I've called long-term trends months (and even years) before they came to pass. In early 2008 I bought put options on Fannie Mae and Freddie Mac, because I didn't see any financial statements for the past three quarters. My options expired worthless in February and April, but my long-term hunch was proven correct when both entities went into federal receivership (bankruptcy) in September 2008.

I also wrote a Guest Commentary for PrudentBear.com in 2004 calling the residential real estate bust 3-4 years early. I'm not saying this to brag or pat myself on the back - only as proof that I know what I'm talking about.

Why do I believe that gold and silver still have a bright future? The fundamentals that carried both metals higher the past 12 years are still in play - and have deteriorated further in that time frame. The Eurozone is proven to be an economic disaster with several member nations effectively bankrupt. The United States government is also bankrupt, but the Federal Reserve has kicked the printing presses into overdrive to try to keep the economic party going.

Throughout history, all government-sponsored fiat currencies have failed - while gold has remained a store of value for thousands of years. All currencies around the world are the fiat variety, and China has accumulated several thousand TONS of the "barbarous relic" (while selling out of its dollar holdings) to make the Yuan at least partially gold-backed - and have it be the world's future reserve currency in the future.

The Chinese (and most Asians) are long-term thinkers, and they want to make sure the Yuan remains the world's new reserve currency for as long as possible. Shanghai and Dubai have gold exchanges, and China encourages their citizens to buy as much gold as possible. Russia has also bought thousands of tons of gold for its reserves.

I don't know how long it'll take gold and silver to reach their 2011 highs, and frankly I don't care. They're tangible assets that will always have some value in both inflationary and deflationary times. They're an insurance policy against government and central bank stupidity. I trust the metals more than I trust bankers, bureaucrats or Wall Street stock jockeys pimping annuities, stocks or mutual funds.

SNL Obama-Hu skit speaks volumes about US debt problem

I was at a friend's house Saturday night, talking about business and life when SNL came on the TV. I don't watch much television, so we took a break from the conversation and watched one of the skits.

I remember SNL from the 70s and 80s when Bill Murray, John Belushi, Dan Akroyd and Eddie Murphy were cast members. Maybe it was because I was growing up and didn't pay that much attention to politics, but I never remembered SNL being really political.

However, I was taken aback when I saw this skit that showed Chinese Prime Minister Jintao Hu accusing President Obama of being a liar and trying to screw him and his country with the enormous debt that the United States owes China.

It was funny when the actor playing Prime Minister Hu said: "Why you not kiss me before you do sex to me?"

If Saturday Night Live realizes the American debt problem is this big and virtually unmanageable, I'm pretty sure that China and every other nation-state on the planet understands this as well. Under George W. Bush, it was apparent that the federal government had no intention of being fiscally responsible or getting close to a balanced budget.

Under President Obama, it's doubly apparent that the political inmates (Republican, Democrat and Tea Partiers alike) are running the asylum and want to do what's politically in their self-interest, instead of what's in the best interest of American citizens.

Even if Benny and the Feds don't "officially" implement QE3, it looks certain they'll continue to print large sums of money to try and inflate their way out of this debt problem and keep the economic party going as long as possible. Based on this SNL skit, it looks like the credit/debt/currency keg is just about dry - and the party's almost over.

Got gold and silver?

The Future of Gold and the "China Put"

Lot of people have takes on the short-term price action in gold and silver. Some say it'll go up, some say it'll correct back down - good arguments are made on both sides.

My focus is on the longer-term fundamentals and trends, and I've been good at predicting them the past several years. Here's the economic scenario America faces:

We're heavily indebted and won't be able to grow our economy enough to pay off our national debt and unfunded liabilities, like Social Security and Medicaid. So the federal government and Federal Reserve (which really isn't federal) have decided to crank up the printing presses and try and inflate our way out of this mess.

The problem is that it devalues the purchasing power of US Dollars, and the wealth of Americans who save and invest in US Dollars. Foreign companies and governments holding large quantities of dollar-denominated debt (like U.S. Treasuries) want to get out of this type of debt so their wealth doesn't decline either.

China is the world's largest holder of US Treasuries, and is now a net seller of Treasuries instead of a net buyer. And last September, the Chinese government recommended to its one billion citizens to invest in gold and silver.

With this kind of strong demand for gold and silver, this makes me even more bullish on the longer-term prospects of precious metals. That's on top of my bullishness because of absolutely insane monetary policy from our Federal Reserve. Put options allow you the right to sell a stock or product at a given price, on or before an agreed-upon time. This eliminates the downside risk if the stock or commodity you've purchased goes down in value.

When a country with the population and increasing wealth of China is focused on buying gold and silver, that's the biggest put option on the planet today with the least downside risk. Now - can the price of gold go down in the short-term? Absolutely.

We could see another round of deleveraging like we did in the fall of 2008 - where investors were hit with margin calls, and needed to sell everything possible to raise cash for short-term obligations. Eventually, investors in America and around the world will turn away from financial paper assets, and look to invest more in tangible assets such as gold and silver.

It's not a guarantee that they will "always" go up in value. However, tangible assets always hold some value - and have never gone down to zero throughout the history of the world. And with the kind of demand that China has for precious metals, I believe that these so-called "barbarous relics" are among the safest places you can invest your wealth in the turbulent times we live in.