"When was the last time you invested in something that you knew wouldn't make money?" That seemingly odd question was posed in a New York Times article last Tuesday.
But investing with no hope of any return was exactly what thousands of otherwise sane but scared investors were doing this week.
In the market equivalent of what The Times called "shoveling cash under the mattress," hordes of bond buyers were eager to park their money in what they apparently consider to be one of the world's safest investments -- United States government debt! Indeed they were so eager for a perceived safe haven that they agreed to accept a zero percent rate of return.
"The last time this happened was the Great Depression, when people were willing to accept no return on their money, or possibly even a negative return," said Edward Yardeni, an independent analyst. "If people are just protecting the cash they have, it's not a good sign."
Sign of Very Hard Times
The experts say this is a sobering signal that in these troubled economic times, when many have lost huge amounts on stocks, bonds and real estate, making an investment that offers supposed security, but no gain, is seen as somehow coming out ahead. They claim that this extremely cautious approach reflects concerns that a global recession could deepen in 2009 and continue to jeopardize all types of investments for the foreseeable future.
Perhaps so, but my question is this: How can these supposedly "cautious" investors possibly think that the bankrupt United States government is a safe place to invest?
Granted, this week's bond sales involved $30 billion worth of short-term securities that mature in just four weeks. Being optimistic, one probably can assume that the U.S. government will not suffer a financial collapse within the next month. But who knows when that inevitable day of reckoning will arrive?
Learn from History
Doesn't anyone remember 1923 and the hyperinflation of Germany's Weimar Republic? Or the decade-long collapse of the Japanese economy in the 1990s? Read history. The first recorded major bear market took place before the United States was born. It started in 1720 with the crash of the London stock market, better known as the "South Seas Bubble" and its effects lasted for decades.
But ignoring history, this week the demand for U.S. Treasuries was so great, even with no promise of a return, that the government could have sold four times $30 billion based on requests.
What was it that P.T. Barnum said about the steady birthrate of suckers?
Sucking Sound
Borrowing by the U.S. Treasury already has ballooned since the Congress approved the $700 billion financial rescue plan, and the federal budget deficit is expected to swell further, possibly to $1 trillion both this year and next, as auto makers, plus everybody and his brother, demands still more bailouts. "That sucking sound is all the world's capital going into the U.S. Treasury market," Mr. Yardeni said.
But, trying to apply a little logic, can't we reasonably predict that, at some point, American and other investors will no longer see as "safe" bonds issued by a bankrupt government with a faltering currency, an enormous budget deficit and national debt and a policy of irrationally throwing billions, even trillions, in paper money at every problem?
Real Safety Offshore
Let me suggest that, before the run on the U.S. government starts, if you really are concerned about the protection of your cash and assets, you'll do far better to:
1) immediately open an offshore bank account in a sound financial institution unsullied by the U.S. sub prime mess (say in Switzerland, Liechtenstein, Panama or Singapore);
2) use your offshore account to covert faltering dollars into stronger currencies, such as the Swiss franc;
3) use your account to invest in precious metals and other hard assets located outside the United States.
A Safe Banking Guide for You
The Sovereign Society always has made it our policy to provide an international banking guide exclusively for our members.
Drawing on years of experience, we have contacts with selected banks in jurisdictions where friendly governments support the needs of foreign investors, banking institutions that provide services investors require. You can be sure that each of these banks are financially stable, offer modern faculties and services and possess the understanding to serve an international clientele effectively. These banks are safe and with liquidity ratings well above the international minimums set by the Bank for International Settlements in Basel, Switzerland.
Yes, there is an economic crisis that makes some people act irrationally, buying bonds that pay no interest.
But if your concern is for true safety of your cash and assets, you should protect yourself by joining the unique organization that, for more than a decade, has shown the way for sound offshore banking, prudent investing and real financial peace of mind -- and that is the Sovereign Society.
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