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The
phrase “Greater Depression” was coined by Doug Casey a decade or so back as a way of describing the economic crisis he
foresaw as inevitable, and which is now materializing.
Because
I think it is important for every organization to constantly challenge its
own assumptions, I’ve long acted as something of a devil’s
advocate here at Casey Research. By constantly pushing our analysts to
revisit their assumptions and calculations, it is my firm intention for us to
spot the fork in the road that indicates it is time to shift strategies away
from investments designed to do well in the face of a currency debasement and
to something else.
Being
attentive to that fork in the road is hugely important, because even though
we urge our subscribers not to overdo their exposure to inflation hedges, we
recognize that many do. Many a good person had their clocks cleaned in the
early 1980s solely because they had become overly enamored of their precious
metals – so much so that they stopped thinking of them as an asset
class and began thinking of them more in the terms one might associate with
an amorous dinner date. Thus these investors were utterly unprepared when
said date stood up and broke a dinner plate over their heads.
With
that brief setup, I want to make our views clear: While we correctly
anticipated the recent correction in precious metals, this correction is but
a blip in a secular bull market that is very much intact.
Doug
Casey has often said that the unfolding crisis is going to be even worse than
he expects (which is saying something), and the longer the rest of us at
Casey Research study the tea leaves, it is hard to disagree that the Greater
Depression is still ahead.
Consider:
- The eurozone is growing increasingly desperate.
Watching the heads of Europe dither and debate over further bailouts to
the unhappy Greeks and other troubled PIIGS – before ultimately
reaching back into the pockets of the equally unhappy citizens in
Germany and the decreasing number of still-functioning economies in the eurozone – reminds me of a down-on-his-luck
blackjack player. He’s mortgaged his home to play the game but is
now down to his last chips. He doesn’t want to risk his remaining
resources but has no choice, because to walk away now will mean taking
up residence in a cardboard box. And so, reluctantly, he shoves across
another pile. The problem is that the game is rigged – and not in
his favor. As the PIIGS start to default and either leave the eurozone entirely or are shunted off into some sort
of sidecar organization, there will be great volatility in the euro and
in the European markets.
- The
U.S. debt situation is far worse than anyone in Washington is willing to
admit. We keep hearing calls for more, not less debt
creation. But if people would stop kidding themselves and tally up all
the many demands the U.S. government has against it, the actual
debt-to-GDP ratio rises to something on the order of 400% – and even
that is likely understating things. The fundamental flaws in the U.S.
monetary system – flaws that have given license to the bureaucrats
to smash the limousine of state straight into a wall – have
required a remaking every 20 to 30 years or so. The problem is that
there is pretty much nothing else that can be done to save the status
quo at this point, and so the monetary system is likely to collapse.
That means big changes ahead, including – or perhaps starting with
– a poisonous ratcheting up of interest rates.
- China’s
miracle mirage. While having aspects of a free market, the hard
truth is that China is run as a command economy by a cadre of communist
holdovers. This is apparent in the cities that have been built for no
purpose other than creating jobs and boosting GDP. It is also apparent
in the growing inflation in China – the inevitable knock-on of the
government’s decision to yank on the levers of money creation
harder than any other nation at the onset of the Greater Depression. Meanwhile,
signs of social unrest crop up here and there. Though so far they have
been swiftly put down, there is no question that the ruling elite has to walk a very fine line. If the Chinese economy
stumbles seriously, all bets are off. That we are talking about the world’s
second-largest economy means this is not of small consequence.
- Japan
is essentially offline. Reports from friends in Japan
– including one who was initially skeptical about the scale of the
problems at Fukushima – have now changed in tone by 180 degrees.
You can almost feel the growing sense of desperation as the already
massively indebted nation begins to slide toward an abyss. There is
little standing in the way of the world’s third-largest
economy’s slide.
- The
Middle East is in flames. This, too, is far from settled.
As usual, the U.S. government has been hopping here and there in an
attempt to maintain its influence, but at this point pretty much
everything is up for grabs. The odds of the U.S. retaining the same
level of influence in the region that it has enjoyed over the last
century are slim to none, especially now that even the Saudis are
shipping more of their oil to China than to the U.S. Again, big changes
are ahead.
I’m
convinced that nearly everything about today’s world is going to change
over the coming decade… much of it for the worse.
But
that doesn’t mean that people – you – can’t come
through this in more or less good shape, just as our parents and grandparents
made it intact through the last Great Depression. Pay attention and take action,
and you’ll do far, far better than most.
Some
investment ideas…
First
and foremost, protect yourself against the collapse of the U.S. monetary
system. It is not as simple as ducking into the nearest coin store and
loading up, though that should certainly be one part of your strategy.
Between now and the endgame that leads into what we can only hope will be a
new money based on something tangible, there will periodically be
opportunities to make big moves with your portfolio.
I
could give you a big pitch for our precious-metals-oriented services here,
but won’t. I will say, however, that if you are new to the sector, do
yourself a favor and sign up for our three-month no-risk trial to BIG GOLD –
and do it today, so you can begin bottom fishing.
As
Doug also likes to say, you should do whatever you want in this world, as
long as you are willing to accept the consequences. If you are willing to risk
going down with the ship, then do nothing.
Some
other investible ideas…
* Everyday essentials. Energy is the classic essential.
Sure, energy use and prices will ebb and flow with the economy, but
ultimately everyone uses energy every day, and the people in emerging markets
want to use a lot more of it. Carefully thought-out investments in energy, ideally
bought on the dips, belong in everyone’s long-term portfolio.
* Breakthroughs to a brighter future. Throughout modern
history, companies that make significant technological advances transcend bad
economic times. Do you think that the company that finds a cure for a common
variety of cancer will be weighed down, even by a stock market crash? Hardly.
In cautious amounts, these sorts of potential breakthrough stocks belong in
your portfolio.
* Investing in the inevitable. A ton of charts
and data point to just how unusual and unsustainable today's low, low U.S.
interest rates are. When these sorts of baseline trends eventually change
direction, they tend to move in the new direction for years, and even
decades. No one can pick the bottom, but anyone who is paying even a little
attention can and should be getting positioned to profit from a sea change in
U.S. interest rates while they still can.
* One foot over the border. History has shown
that having even one foot over the border can make the difference between
losing everything and coming out just fine. Internationalizing your assets is
not always easy or convenient, but that doesn't make it any less urgent that
you do so.
As
for crisis investments, no one has been focused on that longer or better than
Doug Casey and the team here.
The
bottom line is that while the scale of the crisis is beginning to become more
widely apparent, and reading and thinking about it
can become fatiguing for those of us who have been on this story from the
beginning, the base case for a Greater Depression is fully intact. We need to
gird our loins and continue to take active measures to prepare – with
the caveat that even in this base case, there are prudent measures you can
take to ensure that not all your eggs are in one basket.
[Gold and silver are still the best
protection for any portfolio… especially now that China and other
countries are getting ready to dump the U.S. dollar. Read more on how
dangerous the situation is, and how you can come out ahead – free
report here.]
David Galland
Managing
Editor, Casey Research
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