The End of America?

Are you ready for "riots in the streets, arrests on an unprecedented scale, and martial law?"

Me neither.

But if you've watched Porter Stansberry's "The End of America" video, you might be nervous that this scenario is just around the corner.

Some of the points he makes are valid, though others are clearly hyperbole. My column today will help you sort through which is which, and offer some investment ideas to profit if a pullback does come.

"An even bigger crisis is lurking"
Stansberry's core argument is sound. He points out that the problems that devastated our financial system have not disappeared -- they've simply moved onto the U.S. balance sheet. And as most of us know, this balance sheet wasn't in the best shape to begin with.

However, because our country can pay its bills so long as it can continue printing money, and so long as the U.S. dollar remains the world's reserve currency, all is fine and dandy.

The crisis would come when the rest of the world refuses to accept payments in U.S. dollars, or refuses to pay for things like commodities with U.S. dollars. Stansberry asserts that this is already afoot, and there's some truth to this belief -- although it's not quite as dire as he would like you to believe.

Yes, there are talks of a "global reserve currency," and big U.S. debtholders like China are diversifying away from Treasury bonds. But it's hard to make the case that the U.S. dollar will disappear as the world's reserve currency within the next few months to a year, as Stansberry predicts.

Even so, you can profit
Even if the rioting and looting don't actually come about, another market downturn could still arrive. Thus, you should begin to think of how to protect your portfolio, and profit from any pullback.

Although Stansberry won't reveal all his suggestions for free -- he's trying to sell subscriptions, after all -- I was able to reverse-engineer a few of his recommendations.

One of his favorite investments to protect you and your family is to purchase a working farm. While the dreamer in me agrees (it's my long-term goal to retire as a hobby farmer), and to a certain degree this does make sense, I think this investment is outside the realm of most investors.

He also recommends that investors buy gold and silver. It's clear he's partial to gold coins and physical precious metals, as opposed to the SPDR Gold Trust (NYSE: GLD  ) and the iShares Silver Trust (NYSE: SLV  ) .

Unfortunately, physical assets are much harder to sell -- meaning that even if they offer a form of protection, it's impossible to make money if you can't find a buyer, or if you have to pay a commodity broker a hefty commission.

One alternative to ballast is to purchase financially sound, dividend-paying large caps. Many of these actually increased dividend payouts over the recent downturn. I'm reasonably confident that some could do the same through another downturn.

Here are five companies I would look into that either maintained or raised their dividends through the last downturn:

Company

Market Cap

Current Dividend Yield

5-Year Compounded Annual Growth Rate of Dividends

Yum! Brands (NYSE: YUM  ) $25.1 billion 1.9% 33.1%
Texas Instruments (NYSE: TXN  ) $38.7 billion 1.6% 35.4%
UnitedHealth Group (NYSE: UNH  ) $52.2 billion 1.4% 75.5%
McDonald's (NYSE: MCD  ) $83.7 billion 3% 28.2%
IBM (NYSE: IBM  ) $199.5 billion 1.8% 26.6%

Data from Capital IQ, a division of Standard & Poor's.

Another tactic he advises
The final strategy Stansberry recommends seems to be an options strategy. Based on various quotes he provides, I'm pretty sure he's advocating selling put options.

He touts this strategy as an easy way to pocket 100% gains over and over again without ever touching a stock -- which is technically possible. However, there are risks that he glosses past.

By writing puts, you get paid a premium for agreeing to buy the underlying stock if it falls below a certain level by a given date. You can probably guess where the problem lies -- if the stock falls drastically below the agreed-upon price, you can get wiped out.

This doesn't mean you should dismiss writing puts altogether. But it does mean that you should be judicious about which companies' stocks you write puts on.

Even Motley Fool options experts Jeff Fischer and Jim Gillies admit that selling puts can be a great way "to seed a portfolio." With the right trades, it can be a lucrative way to add a steady stream of income to your portfolio. It's also a great way to secure lower prices for stocks you find attractive.

To learn more about this strategy -- along with other options strategies that could make sense for you right now -- I urge you to check out a new video series and options trading guide Jeff Fischer and Jim Gillies just released. For a limited time, both are completely free. And it's easy enough for beginners, yet full of information so that even more advanced options traders would benefit. Simply drop your email address in the box below for more information.

Adam J. Wiederman owns no shares of the companies mentioned above. The Motley Fool owns shares of Yum! Brands, UnitedHealth Group, Texas Instruments, and International Business Machines. Motley Fool newsletter services have recommended buying shares of McDonald's and UnitedHealth Group. Motley Fool newsletter services have recommended creating a diagonal call position in UnitedHealth Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 09, 2011, at 6:46 PM, rfaramir wrote:

    "physical assets are much harder to sell -- meaning that even if they offer a form of protection, it's impossible to make money if you can't find a buyer"

    This is beside the point, though. You aren't trying to "make money" by buying and later selling gold, you are exchanging a currency that is becoming worthless for one that will become very valuable. If the current 'money' disappears, the physical assets (gold and silver) *become* the next money. You don't *sell* them, you hope to one day *spend* them.

    People whoo "made money" measured in Hungarian pengos, Zimbabwe third-series dollars, or Weimar papiermarks did not really "make money", after all, did they? Their unit of account (in their bank account) lost purchasing power (all but about a small fraction--think billionth--of its former power), and purchasing power is what you want when you "make money".

  • Report this Comment On June 09, 2011, at 7:38 PM, asdfk123 wrote:

    “You don’t *sell* them, you hope to one day *spend* them.

    This is a great point. Converting dollars to metals is like converting dollars to euros. The only difference is metals are not commonly used for daily transactions. Generally speaking, people perform the conversion with the belief they’ll retain purchasing power as their primary currency is being debased at a rate less than they can collect interest.

    The concept of *selling* the metals back for profit is an irony. The metals have no earnings; they’re money. Converting the metals at a later date might allow you to buy more dollars, but those dollars likely will buy less.

    Metals will always retain some level of purchasing power. This has been proven over the course of human history.

    I agree with the author though. If you’re looking for an investment, high quality dividend paying companies is a good way to go while riding out a recession.

  • Report this Comment On June 10, 2011, at 1:32 AM, Risky88 wrote:

    To much greed in the United States

    Eventually things will get so bad

    The real American Revolution will come.

  • Report this Comment On June 10, 2011, at 6:31 AM, dbtheonly wrote:

    First off, I'd like to point out that claims of disaster, hyper-inflation, & ruin have been around since at least the early 1980's. Usually tied to extreme right-wing politics. One grows suspicious when the the pitch runs something like, "The Dollar will soon be worthless, but send a bunch of them to me & I'll tell you what to do about it."

    @Geldej,

    Greed is the basis of the Capitalistic system. The author/theologian C.S. Lewis wrote that the Jewish, Christian, & Moslem religions all condemn the lending of money at interest. Lending money at interest is the basis of our economic system.

    Lewis decided to drop the issue.

  • Report this Comment On June 14, 2011, at 5:23 AM, DDHv wrote:

    RE: working farm. A working backyard garden, or even container garden is within almost anyone's reach. Our biggest ROI has come from our backyard garden, just keep it small enough that you can eat it all. For city dwellers, read "Fresh food from small spaces." by R. J. Ruppenthal. This apartment dweller supplies a large amount of his own food.

    Note that this is inflation proof also. There is some labor required.

  • Report this Comment On June 15, 2011, at 2:57 PM, Risky88 wrote:

    I will straight up tell you that capitalsm does not work

    look at all the uninsured that die or go bankrupt from not having healthcare

    even better yet

    2008 so called crisis

    yeah its workin all right

    I see history and the reasons there were revolutions especially violent ones and only see the united states repeating it

  • Report this Comment On June 22, 2011, at 3:42 AM, ducky106 wrote:

    I agree Stansberry's predictions are a bit excessive, but we laughed at Peter Schiff back in 2005, too..

    Physical gold & silver bullion (in Eagles, Maple Leafs, etc.) are easy to sell. Most coin dealers will buy them on the spot. They all work from mostly the same price list. Any reputable dealer will buy back whatever they sell you at a pretty standard price with small commissions (about 3-5%). If you can't find a good dealer in your city, go to goldsilver.com.

    The advantage of buying physical bullion is, unlike most commodities, you can hold them in the palm of your hand and store them indefinitely. Physical gold is also one of the few financial assets that you can hold outside the financial system and is not exposed to Wall Street shenanigans.

    The old rule of thumb is to put 5-10% of your portfolio in gold and hope you never need it.

  • Report this Comment On July 13, 2011, at 3:27 PM, jion wrote:

    what is the proof for end of usa

  • Report this Comment On July 28, 2011, at 3:32 AM, kalele wrote:

    To Geldei -

    Capitalism works, as long as everyone has the same training/education in Capitalism. Unfortunately, most of our schools don't teach for Capitalism, they teach to make employees. Certainly, running/owning your own business is not for everyone, but also, luckily in America, anyone can begin their own business and become successful. The way I see it, if we could create more entreprenuers in America, rather than creating employees who are dependent on employers, we would all be better off.

    All the best to you.

  • Report this Comment On October 17, 2011, at 8:04 PM, ehwhatever wrote:

    "riots in the streets". check

    arrests on an unprecedented scale. check.

    martial law... still waiting.

  • Report this Comment On November 09, 2011, at 11:02 AM, Lurker345 wrote:

    "Are you ready for "riots in the streets, arrests on an unprecedented scale, and martial law?"

    Have you seen the Occupy movements since writing those words?

  • Report this Comment On February 16, 2012, at 10:59 AM, StansberryCS112 wrote:

    If you have any questions about Stansberry and Associates, please do not hesitate to call customer service at 1-888-261-2693. We would be happy to assist you. We are open Monday – Friday 9-5 EST.

  • Report this Comment On October 11, 2013, at 3:03 PM, BUYLead wrote:

    You should be buying the best metal of all, LEAD in the form of bullets. With LEAD you can get gold, silver, food, clothes, more lead, pretty much anything you need. The prices just keep going up, especially after any collapse of any system, LEAD always retains its value. There is always a very convincing argument for LEAD should you need to have a discussion when obtaining any needed items.

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