From Porter Stansberry in the S&A Digest:

Every weekend that goes by, we think, "OK. This Sunday will be the day they announce the Greek default... or Germany leaves the euro." But it hasn't happened yet. The longer it takes, the worse the crisis will get. Keep that in mind when you're trying to judge what to do next. And that's what I'd like us to focus on today.

What the world's governments must do is convince their creditors (and bank depositors) that there's no risk of inflation. They need to herd their financial liabilities into long-dated, fixed-coupon paper – the kind that gets wiped out during a period of raging inflation. That's what the Fed is doing right now with operation "twist." It's exchanging short-term debts for long-term ones. Once it's done this… once it has locked its creditors into long-term bonds with fixed coupons... it can inflate away and wipe out these debts (and its hapless creditors).

There's a perfect historical analogy. In 1946, Britain exchanged its 2 billion-pound World War I gold-backed 5% war bond (worth $739 billion in today's dollars) into a 3.5% sterling perpetual obligation... that was completely inflated away over the subsequent years. Our government will do the exact same thing...

To retain and grow your wealth, you need to do the exact opposite. You need to find long-term assets that do not have a fixed coupon. You need assets whose value will compound over time to far outpace the inevitable inflation. The best of these kinds of assets are operating companies with low capital requirements (companies with so-called "economic goodwill"). Longtime subscribers to my Stansberry's Investment Advisory may remember my December 2007 recommendation of Hershey as an example.

Next... during periods of panic, like the kind I believe we're building toward right now, you also need plenty of cash on hand to purchase the world's greatest "trophy" assets. I'm talking about the core material resources the world's economy will always need – stuff like oil, strategic metals, and critical infrastructure (rail systems, ports, communications networks, etc.). The trick to buying these assets via the stock market is that you've got to make sure you buy at a cheap price. And you have to be ready to sell because, over the long term, being an investor in asset-rich businesses will only produce marginal returns.

For my next issue, I'm putting together a list of the world's 20 greatest trophy assets. You want to buy these when they are down 75% from their recent peaks. And yes, you get the opportunity to make purchases like that every now and then... But you have to be ready, you have to be confident in your approach, and you have to act fast. The window to buy them opens and shuts quickly.

Let me show you one simple way to judge how much stress the world's economy and financial markets are enduring. The chart below compares ExxonMobil – the world's biggest oil company – with shares of Apache, one of the world's leading "alternative" technology oil companies...

Apache uses a smart business model. It takes proven resources from the majors and applies new technologies to increase the productivity of these aging assets. This chart highlights the gap between "new" oil and "old" oil.



When you compare these stocks over short periods of time (less than a year), they tend to track each other closely... But over longer stretches (say, five years), you'll notice Apache has generally done better. It's a smaller company capable of more rapid growth.

However… during periods like we're in right now, when investors shun risk... Apache's shares tend to collapse, because investors crave the relative safety of larger, more established stocks. Our goal over the next several months is to find and highlight lots of situations like these. We're going to build a great "buy" list stocked with dozens of the world's leading growth companies (like Apache) trading for 50%-75% less than their intrinsic value. Our opportunity is coming... But we must be patient. This euro crisis is going to get a lot worse before it gets better.

The corollary of a declining euro is a rising dollar. The U.S. dollar index has gained approximately 6% in the past month. Although the dollar has severe long-term problems, it is still the refuge of choice for large money managers when they decide to flee stocks and commodities. Our monetary mandarins will use this rush back into dollars to extend the average Treasury maturity from about 36 months to eight or 10 years.

But in the short term... the strength in the dollar is going to kill the stock market and the commodity markets. You can imagine this as a replay of 2007-2009... But it will be worse this time. You can see clearly that since the early 2009 market bottom, stocks and commodities have become joined at the hip... rising and falling at the same rate, in the same pattern. Statisticians would say they exhibit "high correlation."

The chart below shows this correlation. It plots the performance of the benchmark commodities index (black line) versus the performance of the benchmark S&P 500 index (blue line). They are moving in lockstep...

 

Nowadays, there's little difference between owning bank stocks, retail stocks, energy stocks, copper, corn, or semiconductor stocks. It's all become one huge "risk-on/risk-off" trade. In a "risk-on/risk-off" world, most people look at their retirement portfolios and think, "I'm diversified." Your financial analyst might agree. But many folks are simply holding huge, dangerous, leveraged bets that everything will be "just fine." They're going to get crushed.

That's why we've constantly told our subscribers not to go and borrow a bunch of money to leverage your portfolio – not even into gold and silver. What we're experiencing is a major collapse in the world's monetary system... This instability will likely continue for a long time... and it will get worse and worse and worse. The volatility will hurt the value of everything – even gold and silver. Gold has dropped from $1,900 per ounce to less than $1,650 in the past month. Silver has slid from $40 to $31 per ounce in a week.

Why aren't gold and silver performing better? When folks panic and sell stocks and commodities (like they're doing now), liquidity trumps all concerns. They sell everything in a mad dash for cash. Investors call up hedge funds and ask for their money back. Exchanges raise margin rates, which dictate the amount of leverage traders are allowed to use. In this environment, everything that can be sold to raise cash – including gold and silver – is dumped. You can cry and moan about the volatility... Or you can take advantage of it. We suggest the latter.

Crux Note: To access Porter's new issue as soon as it's published, click here.
 
More from Porter Stansberry:

Three terrible lies you need to know about gold

Porter Stansberry: Why stocks are plummeting now

Porter Stansberry: An update to my "End of America" warnings