By Porter Stansberry in the S&A Digest:

I told them what they didn't want to hear this morning: Our government is bankrupt, the dollar won't last another decade, and stocks have gotten far too expensive, given the risks to the currency. I'm hosting close to 250 people today at The Sanctuary, a beautiful, new five-star hotel on Kiawah Island, near Charleston, South Carolina. This is our seventh annual conference. And believe it or not, more than a few people here today have been to every Alliance conference - including last year's in Hong Kong.

We've invited a handful of our best contacts to join us here today and give a presentation to our best subscribers. One of the big topics: Should we expect inflation or deflation going forward?

My answer: Inflation, but really, it doesn't matter. The real interest rates on U.S. Treasury securities are negative right now. So who in his right mind would lend to the U.S. government - at 3% or less - when the feds are taking over the economy, running $2 trillion annual deficits, and using accounting so bad it would embarrass the Chinese? Nobody. That's not even mentioning the fact that the government is printing up bank reserves, doubling the monetary base in the last year.

As a result, nobody will want to hold dollars, via U.S. bonds, stocks, or real estate. And that means higher prices are coming for imported, hard-money goods (like gold and oil) and lower stock prices (lower price-to-earnings and price-to-book ratios).

At last year's Alliance conference, I urged folks to buy stocks - vehemently... It was the most bullish I've been in my entire life. Now, I'm telling people I've never been more bearish. Have I lost my mind? Am I really this neurotic? Nope. When the facts change, I change my mind. I never thought we'd see the government running $2 trillion deficits, taking over health care, owning all the banks, etc. - and see stocks trading at more than 25 times earnings.

The stock market seems to believe the government can solve all of our problems with fiat currency and bureaucratic mandate. My bet is, it doesn't work... at least, not for long. And given the choice between T-bills yielding less than 1% and buying gold at $1,100 per ounce, I'm voting with the Indian central bank: I'm buying gold.

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