The world and the US are choking on debt - Richard Russell
As people continue to digest breaking news out of Greece and around the world, the Godfather of newsletter writers, 90-year-old Richard Russell, warns he hasn't seen anything like this in 65 years of dealing with markets?
Russell also shares his strategy for surviving the coming chaos.
Richard Russell: "Let’s be honest and say flat out that the world and the US are choking on debt. The only thing worse than unmanageable debt is debt that is compounding. The US debt, which can be measured in the trillions, is compounding at a low rate thanks to the Fed’s ZIRP policy. If the Fed raises rates, the US debt will compound at a higher rate, which will raise the total US debt by hundreds of billions of dollars.
Default, Bankruptcy, Ultimate Collapse And The Greatest Bear Market In History
The overriding trend in the world is now towards deleveraging and deflation. Ultimately, this must lead to default and bankruptcy. The current trend of compounding debt is unsustainable. And if it’s unmaintainable, it will lead to collapse, and perhaps the greatest bear market in history.
Here Is Russell's Strategy
That being the case, here’s my strategy: when all other assets are crushed in the coming bear market, silver and gold, which have no debt against them, will still represent wealth. Near the bottom of the next bear market, I will sell a portion of my silver and gold for dollars. With the dollars, I will buy a combination of three stocks: Berkshire Hathaway, Apple and Costco. This is my recommended plan.
As I said, the big picture in the world and the US is unsustainable debt that is compounding. I imagine the Treasury is talking to the Fed about the ultimate disaster that will result if the Fed raises rates. If someone faces an unsolvable problem, it’s not a problem, it’s a predicament. Debt destroys wealth.
Silver and gold are not symbols of wealth; they are wealth. All the gold ever mined in world history is still with us, some of it disguised in the form of jewelry. Unlike gold, silver is used up in industry. Billions of ounces of silver were owned by the US Treasury. That silver is gone, used up by industry or hoarded by investors.
I Haven't Seen Anything Like This In 65 Years Of Dealing With Markets
I’ve been dealing with markets for 65 years and I’ve never seen a situation like the present one. Ten years ago, I predicted that the operant word coming up would be “income.” I would now say that the operative word is “debt.” The world and the US are now caught in the jaws of debt. How we all handle the compounding debt situation will be the fascinating story of the next 20-50 years."