The
Greater Depression Is Upon Us
by
David Galland
Casey
Research
Recently
by David Galland: The
Road to Perdition
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.
July 15, 2011
David Galland
is the managing editor of Casey
Research.
Copyright
© 2011 Casey
Research
|
