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James Quinn has held financial positions with a retailer, homebuilder and university in his 29 year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a... More
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  • WARNING - YOU MUST READ THIS 82 comments
    Mar 13, 2010 9:34 AM
    Doug Casey never pulls his punches. This might be the most important thing you read this year. Please try to comprehend how dire our situation is. This is not theory. This is not about some issue that is decades away. This could happen tomorrow. Are you prepared?

     

    Doug Casey on Surviving Financial Apocalypse Now

    (Interviewed by Louis James, Editor, International Speculator)

    L: Doug, last time we spoke, you said quite a bit about debt, in the context of your expectation that the euro is on its way out. At the end of that conversation, you mentioned, of course, that the problem is not limited to Greece, nor the eurozone. America as a country has become a world-class debtor, and many Americans seem to think a maxed-out credit card is a reason to get a higher credit limit, not to economize. It’s like a global epidemic. Let’s talk about debt.

    Doug: Sure. This is a story that’s going to end very badly for a lot of people. I’ve said this before, in many different ways, but I think it’s worth saying again, because most people just don’t grok it…

    L: Grok. From the Martian word for “drink” and “understand.” In Heinlein’s novels, water was a critical element of Martian culture – makes sense, for a desert planet. When you grok knowledge, as when you drink water, you don’t just hold it in your mouth and spit it out. You take it into yourself, it goes into your blood, and eventually into every cell in your body; it becomes part of you. This is heavy-duty understanding… Sorry for jumping in with the spontaneous lecture. I just suspect many readers will not know the term.

    Doug: Or put another way, in the negative case, most people just don’t get what money really is – and what it isn’t. They take it as a given, as part of the cosmic firmament. But it’s not. A prime example of this is the mistaking of debt for money, a phenomenon David Galland pointed out in a Casey’s Daily Dispatch a few weeks ago. This is why the entire world’s monetary system today is headed for a disastrous failure. And this is absolutely inevitable. There’s no way around it.

    L: Why?

    Doug: Because you can’t use debt as money. As I’ve pointed out before, Aristotle, in the fourth century BC, was the first person to define what money is. And what is it? It’s a store of value and a medium of exchange.

    The paper we use today is a medium of exchange – it got that way because governments made it illegal not to accept it – but it’s not a good store of value. And it’s rapidly and radically becoming less of a store of value. What we use as money today is actually not money; it’s currency. Technically, that’s simply a word that indicates a government substitute for money.

    What does make for good money? Again, Aristotle gives us the answer. It’s something that has five characteristics: it’s durable and divisible, consistent and convenient, and has value in itself.

    L: Some of our readers who’ve studied Austrian economics challenged us on that last bit, last time we talked about gold, because, as the Austrians pointed out, value is subjective. But you don’t mean some sort of value that’s independent of people making value judgments. You mean that people value something that makes for good money, because of its innate qualities – not something “valued” because of government threats of force.

    Doug: Right. And for these reasons, gold is almost certainly the best thing to use for money. Not because I say so, nor because Aristotle said so, but because, over time, people have found it to be the most durable, divisible, consistent, convenient, and inherently valuable thing to use. Silver is also good, but it’s less durable because it corrodes. And less convenient, in that it takes about 60 times more of it – at the moment – to offer the same value as gold. Copper is the next traditional step down the ladder. 

    L: That, plus one reason that’s pertinent today but was not a problem in Aristotle’s world: gold can’t just be printed up on the arbitrary whims of those in power.

    Doug: That’s the big one. Using metals as money takes the whole matter out of the hands of the government and its bureaucrats.

    L: But we don’t use gold today…

    Doug: No, as per David’s example, it’s as though a bunch of friends without any real money started exchanging IOUs for money, and then after a while forgot that the IOUs were supposed to represent, and be redeemed in, real money.

    The problem with this is that, in the case of the IOUs between friends, paper is based solely on hope and trust. One can move away, or die, or turn dishonest, or become insolvent – many other things could happen. A guy stuck with a dead man’s IOU has nothing.

    With government IOUs, or currencies, it’s worse, because they can increase the number of IOUs in circulation without telling anyone – that’s what inflation is. Since the government creates the IOUs, it gets the benefit of spending them before the inflation they create raises prices, which is basically stealing from the people. And, of course, sometimes governments do “die,” leaving the holders stuck with nothing, just as with the IOUs between friends. In fact, it’s arguably far more likely that such problems will arise from trusting a government to print IOUs than from trusting a friend.

    L: Most people feel that they should do right by their friends – government’s don’t have friends, and most see their citizens as being property, like cattle, that require the state’s permission to do anything. Inflating the currency isn’t a crime in their view, just a tool for controlling the dumb masses. But it’s really taxation without representation.

    Doug: Sadly so. And since the institution of government is based on force, on compulsion, they feel they have every right to do what they want. They sanitize all types of criminality by saying it’s in “the national interest” or some such poppycock.

    L: Okay… but these currencies have worked for a very long time. Why are you right about this and the rest of the world wrong? Why is it inevitable that government currencies will fail?

    Doug: [Chuckles] Because governments are not living persons who care and can be motivated to do the right thing. They are collections of individuals – politicians and bureaucrats, not exactly the most desirable types – who pursue their own interests. Regardless of the rhetoric, their interests coincide with the public good only on occasion, like a broken clock being right twice a day. Even in the most enlightened times – even in the best of times – governments have huge incentives to spend more than they take in. These are not the best of times; the population has been trained for generations to expect subsidies and freebies as their due, without regard to who pays or how they will be paid.

    I’ll give you an example. When I was on the Phil Donahue Show, the day before the national elections in 1980, I was making the same philosophical points I am now. I explained how they, the taxpayers, would pay for all the goodies – like Social Security and unemployment compensation – that they wanted. A middle-aged guy in the audience asked: “Well, why can’t the government pay for these things?” And the rest of the audience roared approval.

    It was then that I first realized that resistance was futile and the situation was basically hopeless. And that someone who can seem perfectly sensible when he’s discussing sports, or the weather, or the state of the roads, was likely to be a moron when it came to economics. And that when he became part of a crowd, it was even worse: he might transform into an imbecile or even an idiot.

    Anyway, the dollar has existed for many years, even though it’s degraded over time – first with the creation of the Federal Reserve in 1913, then with the repudiation of domestic gold redeemability in 1933, then with the repudiation of international redeemability in 1971. Even though the government has created trillions of new ones, the dollar is still thought of as some kind of a cosmic standard. In point of fact, it’s no better than the Argentine peso and will have the same fate.

    These IOUs have a quite ephemeral reality and are far too easy to create – there’s literally no limit at this point. We don’t even have to actually print them anymore, they’re created by computer strokes – so it’s unrealistic to expect fiscal restraint on the part of any government over time. It’s just too tempting to spend money to make people feel richer than they really are, buying votes.

    L: Looking at the deficits and national debt, it certainly seems so.

    Doug: The national debt – when was the last time you heard any average person worry about the national debt? Americans have become so used to carrying huge loads of debt around – right out of college with student loans – that it doesn’t even occur to them that there could be any reason for concern over the national debt. It’s an abstraction, like the number of light years to the Andromeda Galaxy.

    People used to at least pay attention, though most would say, “It’s not a problem, we owe it to ourselves.” But that was always a delusion. Some people, organized in a club called the government, borrowed it from some other people. But now it’s even more dangerous, because the U.S. government owes it mostly to foreigners: the Chinese, the Japanese, the Taiwanese, and so forth. Americans, who at least theoretically have some interest in keeping the U.S. government straight, are tapped out. So it’s gone to borrow from other societies. And they won’t like it if they are left holding a bunch of worthless IOUs at the end of this experiment.

    As the world political situation continues to deteriorate towards something I think will vaguely resemble World War III, the chances are excellent that a U.S. government at the end of its financial rope will default, likely by radically devaluing its dollar. They’re way past thinking in millions. They don’t even think in billions anymore; they’re up to trillions. Soon Obama will have to ask the buffoon he appointed as a science advisor what comes after trillions. Those nice foreigners who gave Americans physical wealth in exchange for pieces of paper are going to find that, indeed, all they got was a bunch of paper. Maybe not even that, but just ledger entries representing pieces of paper.

    It’s not just the Chinese and Japanese governments that are going to be unhappy. But hundreds of millions of individuals around the world – in places from Russia to the Congo, to Mexico, to Thailand – that have a trillion of the things under their mattresses, because they justifiably don’t trust their own government’s paper, are going to be even more unhappy with the U.S.

    This is big trouble. It’s not just another economic downturn when scores of millions find their life savings go “poof.” What we’re looking at is a cataclysm at some point soon. I hate to sound inflammatory, but I think the situation is much, much more explosive than it appears on the surface, much worse than you see on the TV news.

    L: That’s a frightening assessment. But World War III is a topic for another day. As dire as the scenario you paint may be, is it enough to cause currencies to stop functioning as means of exchange? So few people can even conceive of an alternative…

    Doug: They probably won’t stop functioning as means of exchange. At least not right away.

    Even during Germany’s infamous hyperinflation of the 1920s, or Zimbabwe’s more recent one, in which there were so many zeros after the ones on the bills you couldn’t even count them – people still used the governments’ paper currencies. They still used them! When I was last in Zim, three years ago, we already had to pay for gas with backpacks full of notes; most inconvenient. In the case of Germany, there were still ten- and twenty-mark gold coins available, if not exactly in circulation. People forget that the mark, the franc, the lire, the dollar all used to be names for a certain amount of gold.

    When World War I started, Germany went off the gold standard – it used to be about five marks equaled a dollar. By 1923 there were trillions to the dollar. Only the Germans who either kept those gold coins under a mattress or had foreign bank accounts still had liquid capital by 1923; everybody else was wiped out. So people didn’t spend their gold if they could avoid it.

    That’s what Gresham’s Law is all about. If there is a “legal tender” money – a paper money – floating around, you try to pay your obligations in it. You try to get rid of the hot potato. But you try to get paid in the good stuff and hold on to it. The Weimar inflation of Germany was an utter disaster for that country; it led to all kinds of nastiness.

    L: So many people think of Weimar Germany and Zimbabwe as aberrations from far lands, if they think about them at all. Interesting that Germany is at the heart of the euro now, facing Gresham’s Law again.

    Doug: It’s been true since at least the days of Rome. But I wonder if it won’t be much more serious this time. All the world’s major currencies are issued by governments of countries that are much more urbanized, with economies that rely mostly on services. In the U.S., the UK, the eurozone, and Japan – all of their currencies are in big trouble for various reasons, and there’s relatively little production of what you might call the basics.

    Back in the 1920s, or even a few years ago in Zimbabwe, half of the people still lived on farms, and a lot of people didn’t even have bank accounts, let alone credit cards and pension funds. The demise of the dollar and other paper currencies has got to be much, much more serious than these episodes in the past.

    L: Currency regime change hits the global reserve currency – it won’t be easy. Let me come at this a different way. As an advocate of hard money, you understand that inflation of the money supply leads to inflation in prices. If you have 1,000 gold coins in a small village, in the unlikely event that someone digs up enough gold top make 1,000 more gold coins, you now have twice as many coins chasing roughly the same goods, and so prices will go up. But we don’t live in a hard-money economy. We’re off the gold standard. We have fractional reserve banking, we have easy debt financing for individuals, businesses, and governments. So one new dollar gets multiplied and impacts the economy like multiple new dollars. But on the downside, if you have loss of confidence in what amounts to a bunch of currency derivatives, those get wiped out in large swaths, greatly reducing the multiplier effect.

    So, is it not possible that we could see the government’s unprecedented creation of trillions of new dollars in debt and currency compensated for by the obliteration of trillions in derivatives, and hence no price inflation?

    Doug: That’s a good point. It’s one of the many problems with a paper money system based on credit. All those dollars are created out of nothing – inflation. But when banks fail and bonds are defaulted on, you can get deflation. With a metal money, the money supply grows only about as fast as miners can mine more – which is usually about as fast as the real economy grows. So the value of the money tends to stay constant. Or even go up, in a gentle deflation. That’s a good thing, because it discourages debt and encourages saving. And saving is how either an individual or a society gets wealthy.

    But these government officials are now totally out of their depth. I remember in 2007, for once in his life since he became one of the nomenklatura, when Alan Greenspan actually said something clear and understandable. He was no longer chairman of the Fed and was, believe it or not, on the Daily Show, a comedy show. I thought John Stewart did an excellent job when he interviewed him. He asked Greenspan if he knew what the money supply really was – if he knew how big it was. Greenspan, quite candidly, said, “Well, we don’t really know.”

    L: I think I found a video of this while you were talking.

    Doug: There’s a titanic battle right now between the forces of inflation and deflation. When a big corporation like General Motors, or Fannie or Freddie, defaults on its debt, hundreds of billions of dollars disappear. Assets people thought they had and could have been converted into cash disappear. That’s deflationary. In a sound banking system, in which money is a commodity like gold, money can’t disappear. It can change ownership, but it can’t disappear. But in our current system, it can dry up and blow away as easily as it can be created.

    One major problem that stems from this is that some people benefit from government money creation and some don’t. Who gets to spend it first, when it’s most valued, and who gets stuck holding the Old Maid card when it vanishes? It’s usually the little guy – the middle-class guy – who gets hurt when this happens. And in the U.S., the middle class is contracting. The financial gyrations we’re going through are destroying the middle class, which naively believes that traditional American values still hold sway and that their government is honest. The lower class has long since lost any values, and the upper class is way too cynical and self-interested to really care. Most middle-class people will end up joining one or the other of these two classes, and that’ll be a moral disaster for the country.

    America used to be a place where class wasn’t really important, and you could move between classes easily – not at all like Europe or the Orient. But as the middle class gets squeezed, we’re likely to get class warfare between those on top and those on the bottom.

    L: One way to look at the inflation/deflation debate is that even if we do in fact have financial asset destruction – a kind of deflation – on a scale necessary to outdo the truly phenomenal amounts of money creation the U.S. and other governments are engaged in, the implied destruction is just as bad as hyperinflation. The number of banks and other financial institutions that would fail – and with so many people having 401Ks and online brokerage accounts, the number of people whose savings and pension plans would be wiped out – would be truly cataclysmic. That’s what it would take to balance the wanton inflation of the money supply we now see in progress. If that’s the cure, it, too, is deadly.

    Doug: I think that’s fair to say. Either way, it’s going to be really serious. As I pointed out a few minutes ago, when you have runaway inflation in a place like Zimbabwe, where most people are living on a subsistence level, people with gardens and chickens will get hurt, but they’ll still get by.  It’s not the same when the world’s wealthiest and most advanced economies are falling apart. Americans are going to see a serious drop in their standard of living, which they are completely unprepared for, and it’s going to be a disaster. They don’t have gardens and chickens to tide them over. There’s no way around it.

    L: Which brings us back to why. I mean, I’m sure many people can see the picture you’ve painted, but why is it inevitable?

    Doug: Because the U.S. government and others like it are between a rock and a hard place. It is simply not a politically acceptable option to step back and let the market correct the gross misallocations and distortions the government has imposed on the economy. They must “do something” – even if they know full well it’s the wrong thing. And “doing something” means spending without raising taxes too much, because they know too much of that will slam the coffin on the economy they are trying to resuscitate. Spending on “stimuli” to “fix” the economy – direct spending on bribes to voters, like extending unemployment “benefits” to years and offering them “free” health care, etc… the way things are structured, the government must spend. Not spending is unthinkable.

    There are only two ways to pay for that. They can borrow, which they can only do if they raise interest rates enough to make their bonds attractive, and that, too, would pull the plug on what you so colorfully called the “iron lung economy.” And they can print money, which they can do with some impunity, hoping the bill won’t come due until some other poor fool is in office – but that destroys the dollar sooner or later.

    Everything we’ve seen shows that they are doing what is predictable for politicians, since they can appear to be “doing something” with the consequences left to the future: they are destroying the dollar.

    The U.S. government is going to be running trillion-dollar deficits as far as the eye can see. Again, they can’t borrow it while keeping interest rates low, so they are going to sell their bonds to themselves, which is to say the Federal Reserve, and inflation is going to explode. There simply is no painless choice, and it’s very close to being totally out of control.

    L: What about the apparent recovery of the economy? You dissed “green shoots” in one of our conversations last year, but they seem to be growing more numerous.

    Doug: That’s because the government bribed people with that ridiculous “cash for clunkers” program. They gave people $8,000 to buy houses. They are hiring three times as many people to do the census as last time, and the population is not three times as large. And many more bribes. But that’s going to come to an end, and it’s going to get much more grim than it was in the fall of 2008.

    L: And this financial apocalypse now, as we termed it last week, is the natural endgame of using fiat currencies instead of real money – this is why you can’t use debt as money.

    Doug: That’s why you don’t use debt – IOUs – for money. And those people who are complacent about this, those who read these words and know we’re right but take no action because they can’t believe things will get that bad in America, are going to be very unhappy in the near future.

    Readers should do something now, while we’re still in the eye of the storm, while there’s a small cyclical improvement happening, and when most of boobus americanus thinks happy days are here again.

    Not only do we have to go through the other side of this storm, but then there’s an even bigger hurricane after that. This is just the beginning of the troubles ahead. Take action now.

    L: Financial self-defense 101 – that’s what we teach Casey Research subscribers. But let’s walk through some of the generalities here. Reasonable actions to take would include: buying gold, diversifying assets offshore, and… would you still recommend going to cash with inflation on the way?

    Doug: Here’s an easy way to remember it: I would liquidate, consolidate, speculate, and create.

    Liquidate: Get rid of any assets you have that might have been favored by the old economy but are likely to be blown away by the new one. That would include speculative real estate holdings in formerly hot markets. Maybe even sell your house, if you can, and rent instead. Or, for sure if you keep your house, get a big mortgage at a fixed low rate that will probably be inflated out of existence. And get rid of your houseful of stuff – the junk filling your basement, your attic, that storage unit you’re renting – anything you don’t really need. Turn it into cash.

    Consolidate: Cut your expenses to the bone and consolidate your assets. The best way to do that is to buy gold and silver in cash form (coins) and put them away as savings. The other critical element is getting a major portion of your assets offshore.

    Speculate: With the government creating bubbles through its mammoth spending programs, and other bubbles popping, like the collapse of more major corporations, take chances on winning big on bets placed on these trends. It’s possible in such volatile times to make a lot of money, just as you do for subscribers to the International Speculator, and Marin does for the Energy Report.

    Create: In the coming years, the world is likely to change as radically as it did entering the industrial revolution. This is going to be a really major change, economically, politically, technologically, demographically, socially, militarily – the whole ball of wax. This is a good time to look around and ask yourself, not, “Who will give me a job?” but, “What goods and services can I provide that people will need in the future and pay me for?” What worked during the late Long Boom won’t work – in order to create, you’re going to have to think creatively.

    L: I guess I won’t be working on a business plan to become a personal trainer.

    Doug: [Laughs] Nor is becoming a barista a good plan for personal survival at this point.

    L: Seriously, I’ve listened to you, Doug. As you know, I’ve decided to buy a lot in your Estancia de Cafayate project in Argentina, I’m consolidating, liquidating, and creating – and speculating, that’s what I breathe, drink, and eat. Thus far, it’s made a huge, positive difference in my life. I sincerely hope our readers are doing or will do the same.

    Doug: I know you are. I just wish everyone was as quick a study.

    L: Thanks boss. Until next time.

    Doug: Talk to you soon.

    Just as Louis is following Doug’s advice, you should follow his. It’s not a coincidence that in 2009, International Speculator subscribers made average gains of 160% on junior mining stocks – in the midst of an economic meltdown. Learn more about how Louis manages to pick the best of the best companies to bring about those gains – click here for more info.

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Comments (82)
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  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    Thank God i know how to grow my own food, have enough firewood to last forever, and tons of ammo! And, having just re-read the constitution of our country, we are not even close to "doomsday". we have started down that path, but to that end, we are years away and many many mistakes away.

     

    I obvously could be wrong, and one of the best things i ever learned was to prepare for the fact that i will be wrong often.
    13 Mar 2010, 01:36 PM Reply Like
  • ArtfulDodger
    , contributor
    Comments (2419) | Send Message
     
    You speak well, lover. Good points all the way `round.
    13 Mar 2010, 06:26 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    The more such articles I read on SA, the better I sleep at night with my current investment portfolio. When I start reading articles telling me how great everything is, then, I'll be genuinely concerned.
    13 Mar 2010, 07:19 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » Sleep tight. It is easier than thinking.
    13 Mar 2010, 07:29 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    As soon as I see "Armageddon" and "Apocalypse" I know that the usual extremists are at work, preaching to their legions of true believers. "The world really will end this time, just trust us."

     

    It's amazing how many people genuinely believe it must be "different this time." It's a recurrent form of generational hubris, in fact, where each new generation believes that only they are experiencing world events, never before occasioned, and, this time, for sure, they must be insurmountable. History, time, human events, human commerce -- it's all a continuum, and it isn't going to suddenly or radically change, despite the boisterous alarmist claims.

     

    Those that promote this kind of radicalism are either ignorant of the history or choose to ignore it. Those that don't make measured judgments with history as a context and invest judiciously, rather than with emotional alarmism, will be the true victims of recent events.
    13 Mar 2010, 07:45 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » It's like you typed that bullshit out of book. Have you ever examined the cycles of history, professor? Or do you believe that history is linear? Your type of thinker was blind sided in 1861. Your type of thinker was blind sided in 1929. You will be blind sided again. Time to open your eyes and try thinking. Good luck in your comfortable shell. Enjoy your delusion of safety and security. Sleep well thinking your portfolio is safe and sound.
    13 Mar 2010, 08:29 PM Reply Like
  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    I can see railing against a recovery right now - to keep people safe, but why rail so hard for a complete meltdown??? This kind of passion for failure makes me wonder your motives...
    13 Mar 2010, 08:36 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » Here is what I do. I read the opinions of people I respect as not being shills. Just about every writer on SA is an investment shill. I prefer contrarians. The investment community is fully invested. They were fully invested in late 2007 too.

     

    Have you read the article? Are there facts stated by Mr. Casey that you take issue with? I notice that no one ever makes a case with facts when I post articles like this one.

     

    I would love to debate someone who actually presented a case for being bullish at this point. This site is filled with blowhards who are trying to sell their stories.

     

    I'm not in the investment business, so I got nothing to sell.
    13 Mar 2010, 08:49 PM Reply Like
  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    Well James,

     

    If you would have started at the top of this thread, you would see where I stand. I did read the article, and take no issue with the facts you have presented. I will say my only reasons for being bullish are:

     

    1) the persistence, intelligence, and resilience of Americans

     

    2) our constitution

     

    3) a loving God (that should have been first - too lazy to change this post)

     

    4) gridlock at the midterms, and decent president after that? (short term, market wont like gridlock)

     

    Now please realize my time frame is down the road ten or twenty years for all the current bugs to work themselves out (less political involvement means quicker recovery). I am young, and I have time, and I don't think the end is near - however I am prepared if it is!

     

    I definitely appreciate the article, and agree in the short term things will probably be rocky - my only point to you is that it might be better for you to stipulate that this is not what you "want", you are kind of coming across that way. Mostly in your comments, and not your article; the article was very straightforward.
    13 Mar 2010, 09:04 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I do not want bad times. I think you would appreciate some of the articles I've written based on Strauss & Howe's Fourth Turning book. They make a strong case for history being cyclical. We have entered the Crisis portion of the cycle. It will likely last 20 years and will possibly change our society forever. The three previous Crisis periods in US history were the American Revolution, Civil War, and Great Depression/World War II. Here is a link to my article.

     

    www.marketoracle.co.uk...
    13 Mar 2010, 09:16 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Your angry retorts don't change reality or history, at all. It just reflects your emotional attachment to error.

     

    You mention 1861 and 1929, as if they are somehow unique, and as life and investment didn't succeed them. Worse, neither event has the slightest thing to do with the current state of affairs. In particular, the causes of the amplification and duration of the Great Depression were radically opposite of today's situation, especially as regards the money supply. But, it's not necessary to understand those differences, apparently, just wave them in the air as a warning to all.

     

    And, funny thing, the loudest shouting of doom always succeeds negative historical events, like the recent economic reversal; it rarely precedes them in the bullish euphoric phase. And, of course, being, therefore, out of sync (lagging) events, the cries of doom are almost invariably wrong.

     

    So, I'll just keep believing my "bullshit," making investments and leave the predictions of doom to you, as you seem so dedicated to the cause.
    13 Mar 2010, 09:48 PM Reply Like
  • Jim Benham
    , contributor
    Comments (18) | Send Message
     
    Tack--From my perspective, the group which is most guilty of thinking it will be different this time is the FED. I certainly agree that the exact nature of the consequences of the coming financial mess is not knowable; however, what is knowable is that no nation or group of nations can continue indefinitely on the path which western economies have chosen for many decades. The bills, so to speak, are just beginning to arrive. The FED got it terribly wrong by thinking "it was different this time" during the last decade. Nothing they have done gives evidence that they have learned their lesson. Von Mises has not yet been proven incorrect. It certainly is not different this time. That is the problem.
    13 Mar 2010, 11:39 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I'm sure you are right. Stay on that bullish path. Good luck. I wouldn't want you to think and strain yourself.
    14 Mar 2010, 10:55 AM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    I've been right so far, which apparently is better than the track record of the doomsayers. You mistake "thinking" for being correct.

     

    One can make very smart investments in undervalued issues, generate above-average income and hedge for inflation and downsides, too, without having to entertain visions of disaster and take all-in-one-basket, one-sided, completely-undiversified extreme measures, based on very questionable predicted outcomes. Such behavior is no different, on the downside, than those fools that mortgaged their principal homes at the peak in 2006 to go out and buy "flippers."

     

    It's the exact same bahavior, just with reverse thinking. The outcomes will likely be similar for those doing it, too.
    14 Mar 2010, 11:08 AM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » Yes. You tell us how right you have been. I'm sure you avoided the 50% drop in 2008-2009, then got back in during March 2009. I've heard that story before. You are a renowned investor.

     

    You have not put forth any argument about the facts that Casey puts forth. I notice that those who spout happy talk never never provide facts to back up their bull.

     

    Show me you are more than a happy talker and pick Casey's argument apart. I'll be waiting. The sound of crickets.
    14 Mar 2010, 11:19 AM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Gold has been a hideous underperformer for decades, vastly underperforming the stock market, even after the recent gap up in gold price and significant decline in the market indices. Anybody who has bet on gold --and folks have been warning about the coming apocalypse for decades-- has gotten creamed, relatively.

     

    Also, Casey, and others misunderstand the concept of "debt" in a nationalistic, governmental sense. It's entire different than when a private business or individual loans makes a loan or assumes a debt. National debts --at least associated with ones own currency-- never have to be paid back, as long as GDP expands, and inflation only helps the matter. And, as the governments can add to money supplies, they can always cover the nominal value of their debt obligations, by definition.

     

    It's also why inflation is perpetual throughout world history, except for brief periods of economic contraction that accompany financial panics. The resumption of economies and of currency inflation, then proceeds anew. It's not going to suddenly stop, and everybody will huddle in a corner in the backyard with some gold nuggets.

     

    Commerce is a necessity, not a hobby. Man cannot live without food, housing, transport, clothing, etc., etc. Things just get repriced along the way, depending on how much paper is out there versus the supply of goods. Gold and other commodities suited to a barter economy will never regain form as a medium of exchange in today's world. Even paper currency may be on its last legs, as we go to an entirely virtual system of currency. In the end, it doesn't matter what the item used for a currency construct is; anything will get priced appropriately versus good and services, based on supply and demand.

     

    Also, pointing to the Argentina's or other similar nations that have gone bust is not illustrative because when a nation borrows outside its own currency, then, it cannot control monetary creation to pay its debts, or even the interest on those debts. And, they are wide open to having their currencies shorted to zero by CDS-happy shortsellers, making any refinancing of debts implausible.

     

    The foregoing is a principal reason why Greece won't default on debts, nor any other European economy. The lenders and borrowers both have control ovr the common currency, so the traders can't arbitrarily make some exchange rate between the two impossible. This means that the matter becomes one of an economic workout and not one controlled by currency traders.

     

    My main point is that it's simply dangerous to make investment choices based on apocalyptic visions, just as it was to lever up to but ten flippers because realty could only go higher. The world adjusts to all situations and normal commerce resumes. It is occurring as we speak, and the opportunity is to try to identify the areas that are undervalued and to hedge properly against adverse consequences, not dig a hole in the backyard.

     

    I doubt we agree, but that's fine. It makes the world go around.
    14 Mar 2010, 12:25 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » The stock market has returned less than 0% for the last twelve years. Meanwhile, gold has quadripled. Those are facts. The reason gold is rising is because the world is losing faith in the US dollar. When you print 1.6 trillion new dollars every year, they become less valuable. It is the law of supply and demand. The dollar has lost 97% of its purchasing power versus gold since 1913.

     

    Your nonchalance about our national debt assures me that I am right in my thinking. Based on Obama's own projections, the national debt will surpass $20 trillion by 2020. At 5%, we'd be paying $1 trillion in interest. At a more likely 10%, we'd be paying $2 trillion. You are very comfortable that all will be well.

     

    I do not proclaim Armageddon. I analyze the facts and come to logical conclusions. 95% of the country is in your boat. They don't want to understand the big picture. You have analyzed the situation and come to one conclusion. I've come to another.
    14 Mar 2010, 12:55 PM Reply Like
  • ArtfulDodger
    , contributor
    Comments (2419) | Send Message
     
    Tack, you make excellent points that I also try to make over and over to deaf ears: the nation was an entirely different one in the 1920s and 1930s.

     

    The comparison between the two, must therefore, be narrow, mainly to the extent of the monetary and fiscal policy.

     

    Nobody listens, though.
    15 Mar 2010, 01:49 AM Reply Like
  • ArtfulDodger
    , contributor
    Comments (2419) | Send Message
     
    Lover, I promise you that JQ has excellent motives, and God bless him for working so hard at what he does. But the people he reads are extreme cynics about everything and have been for years. I read them myself, but don't buy lines from people who were wrong for years (for the most part) and finally hit a home run in the latest blow out.

     

    When the uber-bears are finally right, the media peel them out like grapes falling into the winepress.

     

    However, I do agree with JQ that the Fed is a pyramid, and will come crashing down one day, perhaps the next time the nation dives as it did this time, when they pump fiat paper into the system trying to inflate us out of another debacle.

     

    Also, the negative comparison to ancient Rome and other classical nations that really don't exist today because of these things is accurate: troops stationed on numerous continents and in many nations and wars here and there, both costing the nation its gold and youth; a huge welfare state; open borders helping to build that welfare state; a lazy youth (the ancients had slaves; youth today have their parents pandering to their every desire).

     

    Each of those has been a recipe for diaster in the past; I see no reason for that to change this time. The difference is that I see it happening down the road a ways.

     

    JQ believes the blowout is imminent. And he is honest about his belief. I assure you of that!
    15 Mar 2010, 02:03 AM Reply Like
  • SandyEggo
    , contributor
    Comment (1) | Send Message
     
    History, time, human events, human commerce -- it's all a continuum, and it isn't going to suddenly or radically change

     

    This "radical change" that you assure us won't be taking place, is it anything like the 30 million who were slaughtered in Russia during the 20th century? Or the additional millions slaughtered in Europe as a significant portion of it was burned to the ground? Or the hyperinflation of Weimar Germany where a wheelbarrow full of money wasn't enough to purchase a loaf of bread? Or the mushroom clouds that were visited upon the inhabitants of Japan?

     

    I personally take great comfort in the fact that we Americans are exceptional people who needn't worry about such atrocities. This is, after all, GOD'S COUNTRY. And he is on our side. One need only look closely at our elected "leaders" to ascertain this. Their character, integrity, forthrightness . . The Lord has truly blessed this great nation.

     

    Yes, all is well, my fellow Americans.
    15 Mar 2010, 10:59 AM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I've been at war for 3 days. Where have you been?

     

    The site could be back today or tomorrow.
    15 Mar 2010, 11:06 AM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    Tack spends most of his time on micro data without enough attention to the macro history. I agree that this time it's not different. It's just that when macro history is fully taken into account, empires that have gone this route have always failed (see: Empire, Roman). This time its not different, cultural decay, moral decay, and fiscal profligacy have always been the formula for doom, and they always will.
    15 Mar 2010, 12:32 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Ahhh, but, as an avid reader of history, myself, I note that empires collapse over many scores, even hundreds of years. This is all far, far beyond my longevity, even if I believed it was the inevitable conclusion for America, which it certainly may well be.

     

    The difference is that most of the SA pessimism peddlers have their legions whipped into a frenzy, thinking that the world, as they know it, will end tmorrow morning, or, certainly, by 2012 , conveniently, like the movie of the same name. Making investment decisions on such hyperbolic negative, emotionally-charged thinking is a recipe for massive underperformance, or even outright failure.

     

    Look before you leap, unless, of course, you don't care where you land.
    15 Mar 2010, 01:05 PM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    Niall Ferguson just wrote an excellent article describing how empires actually decline quite quickly once a certain set of factors are in place. I won't recite Feguson's reasoning here, but I think what he is saying is that slow decline over "scores" of years eventually accelerates into a very rapid, even parabolic, decline. I also think that the internet will tend to speed up these natural processes.

     

    I don't want decline or collapse and I desperately want people to come to their senses and return to a legitimate economy instead of having to participate in the latest casino gambling scheme disguised as an "investment". I think gold is a complete pain in the a$$ to invest in and I hate it. That said, I literally just finished placing an order for some just before writing this comment. I would love to invest in something else but I'm tired of being fleeced.
    15 Mar 2010, 03:34 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Buying gold near its zenith exposes you to sizable losses, too. There's no guaranteed safety in gold, and it can decline with startling abruptness.

     

    Think you might find better hunting by looking for deeply-discounted issues and sectors, especially ones with attractive dividend and/or interest income. Even if you fear inflation, you can play along by buying floating-rate bond funds and collect attractive income, whether prices move or not.

     

    No matter what choices you make, stay diversified. I never violate one rule: no more than 5% of assets in any single investment....ever.

     

    Good luck.
    15 Mar 2010, 03:44 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I used part's of Ferguson's article in the article I'm writing. He thinks very clearly. I have a shipment on the way too.
    15 Mar 2010, 03:46 PM Reply Like
  • HenryDog
    , contributor
    Comment (1) | Send Message
     
    "Even paper currency may be on its last legs, as we go to an entirely virtual system of currency. In the end, it doesn't matter what the item used for a currency construct is; anything will get priced appropriately versus good and services, based on supply and demand."

     

    this is what most goldbugs are afraid of....and if they're left holding paper when the "new construct" is put into place do you think they'll be able to trade it in for the new virtual currency.....doubtful

     

    a transition period like this will likely lead to some civil disorder, it sure doesn't hurt to be prepared for Armageddon
    16 Mar 2010, 01:12 AM Reply Like
  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    I really think it is more important to be prepared if armageddon DOESNT happen. However, you can bet I will make sure i get my vacation time in before winter of 2012!
    16 Mar 2010, 01:20 AM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    I bought some gold (not nearly enough) when the price was below $500. Since then, my 401(k) has been a net loss while my gold has more than doubled. People with non-financial day-jobs just don't have the time to monitor this market, particularly since the "fundamentals" don't seem to have much bearing on the day to day price movements. Thus we're left with "buy and hold" as our only viable alternative and "buy and hold" has been a ticket to bankruptcy for 12 years. No thanks.
    16 Mar 2010, 10:26 AM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    Tack, personally I find it invigorating. The nonsense put forth by the lunatic fringe provides a good compass - as long as these guys still believe this fantasy then the market is safe.

     

    When has guy walking around with the "end is nigh" sign actually been right or even known anything.

     

    GL

     

    E
    16 Mar 2010, 08:53 PM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    You go right ahead and plow your money into the market, econdoc.

     

    I just hope other people are sensible enough to not listen to your stupidity.
    17 Mar 2010, 09:56 AM Reply Like
  • Jeremy Stephenson
    , contributor
    Comments (6) | Send Message
     
    I like an apocalyptic prediction as much as the next person, and you can' t fault the arguments, but the recommendations don't make sense to me.

     

    For example, "get a major portion of your assets offshore". Like where, exactly? Not the UK, Europe or Japan presumably. I have a major portion of my assets in South Africa, but its a pretty pass when you have to regard one of the world's crime hotspots as a safe haven.

     

    Also, "sell your house and rent instead". What? If its runaway inflation you expect, why the hell would you do that? I would max out some kind of fixed rate mortgage and use it to buy farmland for instance.

     

    Maybe its just me.
    14 Mar 2010, 12:36 AM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Apocalyptic visions are never coupled with sensible recommendations because none of it is based on sensible interpretations of reality in the first place.
    14 Mar 2010, 11:01 AM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I'm sure you conventional sensible plan will work out well. Good luck.
    14 Mar 2010, 11:21 AM Reply Like
  • Danny Furman
    , contributor
    Comments (1018) | Send Message
     
    Jim,
    I for one appreciate the dire tone you've taken on lately. When the DOW broke 9K I felt like a return to 8K was imminent. Still, I appreciate the idiots I share this country with and stayed 100% long til December. Valuations for US stocks are now at a more dangerous point than they were 2 years ago. We've proven this system doesn't work, yet the pumpers and believers are chanting louder than ever that the market can only go up from here (not that anyone has the audacity to pick a target higher than 12K).

     

    As simple as it may sound, my argument for "this time being different" is at least partially the internet. We can't keep the rules of the game a secret anymore and countries with the know-how or resources to be independent of us will find a way.

     

    Thanks for continuing to speak the truth to a public that obviously has little interest in it. Also, good luck with TBF, another situation in which your sanity seems to have created major disagreement.
    14 Mar 2010, 12:58 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » The strange thing is that 95% of Americans believe everything they are being told. It is sad. I hope to have TBP up in another day or two.
    14 Mar 2010, 01:13 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    You'll just have to cope with some other uncomfortable facts for your valuation analysis of the market;

     

    The current cashflow of the S&P500 is over 2.5 times that of ten years ago. Yet, the market indices are selling at 2/3 their levels of ten years back. Now, tell me that markets are dangerously overvalued.

     

    In fact, markets are undervalued, but it's only temporary, as monetary velocity is now impaired and vast sums of money lie occupied in bank deposits and bond funds. As the economy continues to recover, these funds will begin to shift more rapidly into equities and other economic activities and this will pressure the Fed to constrain liquidity, both by reeling in funds provided to banks and by gradually raising interest rates.

     

    In the end, it's a very simple equation of supply and demand. There will be more currencies floating around the world as we recover than were circulating during the last boom, so the nominal prices of everything, as measured in those currencies --share prices included-- will be higher.
    14 Mar 2010, 01:14 PM Reply Like
  • Danny Furman
    , contributor
    Comments (1018) | Send Message
     
    Do you use 5 year averages to calculate your numbers like the rest of the "pretty picture painters?" Newsflash: Billy the pizza delivery guy doesn't have a 6 figure line of credit anymore.
    14 Mar 2010, 01:18 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » You assume things will progress conventionally as they always have. You assume foreigners will cooperate because they have no other choice but to buy our debt. The level of debt matters. A USD is a piece of paper. It only has value because others trust the US and believe they are running their fiscal ship well. The Fed wants inflation because it reduces our debt. Foreigners know they are getting screwed. It will surprise the pundits when the confidence game collapses. We are now in the eye of the storm. Enjoy it while it lasts.
    14 Mar 2010, 02:01 PM Reply Like
  • Jim Benham
    , contributor
    Comments (18) | Send Message
     
    Tack--Ten years ago we were in the middle of the greatest financial asset bubble the world had ever seen. P/E ratios will most likely not return (a least not for long) to such unrealistic levels unless an especially virulent inflation returns with a vengeance. I think the real challenge today is trying to figure out how the unprecedented battle between very strong deflationary forces and unprecedented stimulus, traditionally inflationary, unfolds. I personally believe most of the optimism is misplaced. While many economists recognize the danger which a 7 or 8% 30 year conventional mortgage rate will do to the so-called "stabilized" U.S. housing market, I think they greatly underestimate the negative impact of gasoline at $3.50 per gallon on the remainder of the domestic economy.
    14 Mar 2010, 02:24 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    We're not having any 7-8% inflation or interest rates anytime soon unless the economy suddenly starts roaring. Massive inflation cannot be stimulated without a demand-supply problem.

     

    Occasionally, some folks reference the late '70's as a "stagflation" model, which they think could recur now. The problem is that the situation then was radically different than now. Then, we had the artificial impact of the Arab oil embargo, coupled with the delayed-demand effects of Nixon's misguided wage-and-price controls, so a deluge of pent-up demand hit the markets at a time when supplies had been constrained from a recession.

     

    Now, the world is awash in supply, even after the various cutbacks of this downturn, so it is less susceptible to demand swings. The supply side of the equation is also now much more responsive to changes in demand than in the '70's, so it can respond more quickly to elevation in demand. Lastly, there's no artificial force in play, as regards oil prices, although one might argue that that can always occur, but is near impossible to plan for. Even gasoline at $3.50 would be a nonevent, as it's hovering at $3 now.

     

    If there's a risk, it's not the Fed side of the money supply that the bank's are now sitting on because the Fed can reel that back in by changing the terms. The risk is misguided "stimulus" packages from political hacks because there do little to add genuine jobs, add no products, but flood the market will capital that's near impossible to retrieve. That said, the effects of such spending don't seem likely to generate immediate inflationary effects unless monetary velocity increases substantially, which would imply a strongly recovering economy.
    14 Mar 2010, 02:43 PM Reply Like
  • ArtfulDodger
    , contributor
    Comments (2419) | Send Message
     
    DF, you may be discounting what most stock investors are betting on at this point: that low interest rates will boost future earnings, which will catch up with stock prices.

     

    Did you discount that? Wondering.

     

    Another thing is this: the vast hordes of money in the system right now. Where else is it going besides equities?

     

    Don't get me wrong; I'm no raging bull as I was in late 2008 and early 2009, but I'm still invested.
    15 Mar 2010, 01:45 AM Reply Like
  • Danny Furman
    , contributor
    Comments (1018) | Send Message
     
    How do you think we got past Dow 8500?
    16 Mar 2010, 08:51 AM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » An inflationary or deflationary scenario would be bad for the financial markets. A positive scenario for the financial markets requires the Federal Reserve to manage the transition from massive stimulus to normality perfectly. Has the Fed ever done anything perfectly? Bernanke thought we had a strong balanced housing market in 2005. He never saw the 2008 financial collapse coming. He will not manage this transition well. That is a lock.
    14 Mar 2010, 02:52 PM Reply Like
  • Sig
    , contributor
    Comments (2) | Send Message
     
    "Also, Casey, and others misunderstand the concept of "debt" in a nationalistic, governmental sense. It's entire different than when a private business or individual loans makes a loan or assumes a debt. National debts --at least associated with ones own currency-- never have to be paid back, as long as GDP expands, and inflation only helps the matter. And, as the governments can add to money supplies, they can always cover the nominal value of their debt obligations, by definition."

     

    I absolutely love the premise; Sovereign debt doesn't matter. It never has to be repaid and when you need to roll it over, you just create the money supply to do it.

     

    You have got to be kidding. No consequences? No limits? It's not "default", if you make debt payments and pay your obligations in constantly devalued dollars?
    14 Mar 2010, 03:22 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    That's precisely what's been going on for hundreds of years. Couldn't have said it better.

     

    There is no fixed-size pie. Economies and debts can expand forever, just like the universe. As long as the former expands --and that's virtually assured because world populations are ever expanding, along with their needs-- then, underlying debt can expand, too.
    14 Mar 2010, 03:40 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » Are you saying that that it is virtually assured that worldwide GDP will rise because population is increasing? Do you think worldwide GDP rose between 1929 and 1945? Do you think US GDP rose from 1860 and 1865? How about during the Dark Ages? How about on the downward slope of the Roman Empire.

     

    Have you factored in potential war? Have you factored in peak cheap oil? You are thinking linearly. Read my Armageddon article and let me know what you think.

     

    www.marketoracle.co.uk...
    14 Mar 2010, 03:58 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    If you wish to plan your investment existence predicated on the next civil or world war, please go right ahead. I certainly won't object nor will it have widespread repercussions unless it becomes the next tulip mania.

     

    Except for short dislocations, yes, GDP expands almost incessantly. And, as for the contention that debt, as a percentage of GDP, will bury us, now, I would refer you to the following:

     

    en.wikipedia.org/wiki/...

     

    and ask, why didn't world spin off its axis in 1945 and come to an end right there? Trends reverse, they don't just continue hyperbolically off the charts, but that's what doomsayers always seem keen to believe.

     

    The combination of a recovering economy, coupled with various forces, political and otherwise, will constrain debt expansion, and the curve will flatten and/or decline, once again.

     

    We're obviously not going to reach concurrence on this subject, so believers in the end of commerce, as we know it, can make their choices and those that reject these extremist views can make other judgments.
    14 Mar 2010, 05:16 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » In 1945, the United States was left as the only unscathed country on earth. Europe, Russia and Japan were destroyed. How did we grow out of our debt? Manufacturing accounted for 30% of our GDP. We produced and sold to the world. We had huge trade surpluses. We had a strong dollar.

     

    Today manufacturing makes up 11% of GDP, finance accounts for 22% of GDP, we have huge trade deficits, and consumer spending using debt accounts for 67% of GDP. How exactly do you think the US will grow out of our debt? We only know how to borrow and spend. Maybe Wall Street will invent a new derivative to save us.
    14 Mar 2010, 06:17 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    The U.S. remains the world's #1 exporter, no doubt much to the amazement of the doomsayers. that this must surprise some falls right in line with an expression I see repeated in SA over and over again: "the U.S. doesn't make anything anymore." It sounds swell; it's just not true.

     

    Money from all over the world still floods to the U.S. market, both in the form of debt and equity because those foolish investors still see conditions here as favorable for achieving economic success. Nobody makes them invest here or buy U.S. government bonds; they do it of their own free will.

     

    I am going to close this long and interesting discussion by saying that I am not arguing against the idea that massively increasing government debt, ad infinitum, is a bad idea. I am saying that economic forces have a way of bringing things back into balance, and the world (nor U.S.) isn't going to end this time, or anytime soon. Those that reject this moderate notion can plan accordingly.
    14 Mar 2010, 06:36 PM Reply Like
  • Jim Baruch
    , contributor
    Comments (306) | Send Message
     
    Tack,

     

    Where is there a good breakdown of data on what we export and to where; how much of it is raw materials, natural resources, raw farm products, versus manufactured products. I woulld to review this data and make my own decisions.
    20 Sep 2010, 11:17 AM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Jim:

     

    I don't follow that detail, but suggest, perhaps, that you begin with:

     

    en.wikipedia.org/wiki/...
    20 Sep 2010, 01:51 PM Reply Like
  • Sig
    , contributor
    Comments (2) | Send Message
     
    "That's precisely what's been going on for hundreds of years. Couldn't have said it better. "

     

    You do know that the current money and debt system is only about 40 years old, right? Nixon closed the gold window in 1971.

     

    I'd love to hear about other examples that have survived "hundreds of years".

     

    This time is no different all right. Governments and fiat money systems always fail when debt levels get excessive. You are the one expecting a wildly unusual resolution to this debacle. Namely, that people will retain confidence in the currency and continue to lend ever increasing amounts to Uncle Sam - despite all reason. There is absolutely no precedent for it in history.
    14 Mar 2010, 05:37 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    I'll never convince you because you're obviously wedded to gold as the indicator of all value on earth, but, the reality is that gold is irrelevant, and it became irrelevant the moment that governments decided to use coinage and paper for ease of commerce (notwithstanding supposed gold reserves), and populations globally accepted that idea. Now, it's even been extended to the one's and zero's of the digital age, whereby wealth is determined by what blinking lights show up on your screen, rather than what paper is in your pocket. I will argue adamantly that the world isn't going to chuck all this and go back to some medieval barter relic.

     

    Because, in fact, commerce has been measured for centuries --yes, centuries, not your forty years-- in paper currencies, the gradually, continual inflationary aspects of that change are well documented. It really doesn't matter if the entire world expands its monetary supply continually because it will all be priced against hard goods relatively. And, the U.S. isn't the only nation expanding its supplies, either, so we just have worldwide repricing and some alterations in exchange rates, depending on the relative degree of monetary expansion in each case.

     

    The apocalyptic notion that a few folks holding some yellow metal will all take over the world must be appealing to some, I guess, but it's just not going to occur. Gold will be priced for typical supply-demand considerations, like any other commodity, and maybe not as attractively as more useful ones.
    14 Mar 2010, 05:50 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » Have you ever seen a $1 trillion Zimbabwe bill? Have you ever seen the pictures of Germans pushing a wheelbarrow full of Marks to buy a loaf of bread in 1922?

     

    Keep the faith.
    14 Mar 2010, 06:21 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    If you think economic and financial conditions in pre-war Germany or present Zimbabwe parallel our situation, now, then, it is far beyond me to correct your lack of grasp of historical facts.
    14 Mar 2010, 06:39 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I grasp the facts quite well. Denying the facts is not a plan.
    14 Mar 2010, 06:56 PM Reply Like
  • Jim Benham
    , contributor
    Comments (18) | Send Message
     
    If what Tack says is true, someone should tell the Greeks there is no reason to strike or riot to maintain their overindulgence. Likewise, the Chinese need to know they can continue to subsidize our lifestyles while happily being paid back loans in devalued dollars. After the world understands that all is well, Tack should immediately be considered for the next Nobel Prize in economics!
    14 Mar 2010, 05:48 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    I only report what's happened cyclically for hundreds of years. Inflation is perpetual, economic cycles are perpetual. It's the this-time-it's-different crowd that's postulating some break in hundreds of years of continuity. I'm just reciting history.

     

    It's you guys who will all be up for the Nobel Prize, if your predictions of doom take shape (of course, you won't be able to afford to get to Sweden to collect it, a damn shame.).
    14 Mar 2010, 06:04 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » You are wrong about inflation. The US had deflation during the 1800's when the country experienced the greatest leap forward in history. Inflation has only existed in a substantial degree since 1913.
    14 Mar 2010, 07:01 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Yes, there was deflation, but that didn't concur with greatest gains, i.e., economic growth.

     

    You may wish to check Table 1 (eh.net/encyclopedia/ar...) before asserting that the largest real gains (GDP per capita) in the country's history occurred during the 1800's. Perhaps, surprisingly to some, they occurred just recently.
    14 Mar 2010, 07:36 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I don't rely on wikipedia for my analysis. I do it myself. I know you prefer data, so you can read this at your leisure and learn something about the 1800s in the US.

     

    www.marketoracle.co.uk...
    14 Mar 2010, 08:01 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Happy to read all, but is the implication that the data I provided is either incorect or fudged? Just checking.

     

    It clearly supports that productivity advances of modern times have greatly expanded output and quality of life, which is in accord with many articles I have read over the years.
    14 Mar 2010, 08:50 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » I notice the chart ends in 1998. I'd love to see the figure from 1998 until 2009. I do have serious concerns about the GDP figures as calculated since the 1980's. Greenspan and other government lackeys have systematically adjusted inflation to make it lower. Lower CPI leads to higher GDP. Here is a more accurate assessment of GDP.

     

    www.shadowstats.com/al...
    14 Mar 2010, 09:08 PM Reply Like
  • Danny Furman
    , contributor
    Comments (1018) | Send Message
     
    ^This comment proves a complete disconnect from reality
    16 Mar 2010, 08:54 AM Reply Like
  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    Tack = guy i will hire as salesman

     

    James = guy i will hire as project manager

     

    sorry, i could not resist... i'll let you get back to your war.
    14 Mar 2010, 07:09 PM Reply Like
  • DDPearson
    , contributor
    Comments (37) | Send Message
     
    I studied this back in the 1980's (after 30 years I hope I am remembering it correctly) and realized that there has been seven times in recorded (written) history that a FIAT currency has been used. It has failed the previous six times, we are the seventh. So I asked a wise man (my Father, who has been in finance all his years) if we were better and smarter, that we might avoid the downfalls of a FIAT currency. He said something to this effect; No, the character of man is not better. FIAT currencies makes it easy to expand the power of a few people and you know the phrase. Power corrupts; absolute power corrupts absolutely. The character of man hasn't really changed over the centuries.

     

    I was slightly concerned about the possible failure many years ago. Now I look back at those problems and realize how small they were compared to what we face today.

     

    I believe these problems can still be fixed, but not with our current leadership (all three legislative branches). Congress has proven (to me) that they know how to kick the can (of problems) down the road. I am sure they will continue to kick the can for many more years. I do understand that a FIAT currency has value as long as the one receiving it has confidence that it has value. When the confidence breaks, the currency breaks.

     

    I like to compare the FIAT currency to a Con Mans confidence game. As long as the Con Man has the confidence of his victim, the Con Man continues. When the Con Man losses the confidence of his victim, the game is over.
    15 Mar 2010, 09:35 AM Reply Like
  • buyitcheap
    , contributor
    Comments (1901) | Send Message
     
    Let's suppose the fertilizer hits the fan and those "stuck" in funds in 401ks 403bs etc can't diversify into hard assets or vehicles buying hard assets- GLD, SLV etc. would those plan sponsors be liable as fiduciaries for failing to provide such investment options?
    15 Mar 2010, 02:55 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » Legally no.

     

    Legalities will not keep the mobs from stringing up bankers from lamposts when the SHTF.

     

    What the IRS plane dude did will seem like a walk in the park.
    15 Mar 2010, 03:05 PM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    I think there are too many people out there who have been burned too many times after listening to people like "Tack." People with day jobs don't have the time to sit around reading the tea leaves to figure out when the big market moves are going to happen. The markets are stacked against the small investor. There is an entire generation of people who haven't made stinking dime in the stock market ( more accurately, made X dimes only to later lose X+2000 dimes). I'm done being a sucker.
    15 Mar 2010, 04:22 PM Reply Like
  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    Well, Gaffer, Broker's need to make a living too! No offense meant toward Tack at all, in fact I appreciate the balanced optimism he provides. I am personally more prone to skeptisism, and the good thing about being burned is that you learn to make sure you undersand what you are doing with your money and investments. How stupid is it to blindly trust someone with your money? I think many people end up getting what they deserve.
    16 Mar 2010, 08:59 AM Reply Like
  • Danny Furman
    , contributor
    Comments (1018) | Send Message
     
    Actually brokers don't need to make a living. This middle man economy is riddled with an inflationary supply-demand chain.
    16 Mar 2010, 09:06 AM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    The problem is, Loverboy, this casino we call the "economy" leaves non-financial people almost no choice but to trust other people to manage our money. We can either die a slow death in CD's at .25% or "invest" in companies that are cooking their books and being robbed by their executives or buy bonds from governments that already have more debt than they could ever possibly pay back. What's not to like about this!!

     

    How can one "learn to understand what you are doing with your money and investments" when you have no access to the real information? I have no way to tell when massive naked shorting is going to happen, or what the off-balance sheet liabilies are, or when flash trading is occurring, or when a bear raid is going to happen. I know more that most laymen, but I feel like a cork in the ocean when trying to "invest" in this environment. I definitely believe that the system is intentionally opaque to allow me to be separated from my money at the gaming table, er, market.
    16 Mar 2010, 10:38 AM Reply Like
  • Loverboy
    , contributor
    Comments (644) | Send Message
     
    Gaffer - I completely understand! There is access to real information, find a rich person and ask him how he did it! take notes, impliment a little bit of it, then repeat until you are rich.

     

    I think I got my first customer today - the deal i made him was I get full control for 20 years of his money, guaranteed him even money return, and i get all the commission i think i deserve on any upside - he said great. The reason this guy agreed is that he knows a couple things about me - that i know how to make money, and that i am trustworthy.

     

    Maybe try this - interview 4 or 5 "broker's" and ask them in the phone interview, before you even waste time meeting with them, what thier net worth is - if they say they would never tell you that, hang up. I don't want anyone helping me with my money that does not know how to do it themself, for themself. I actually ended up not finding anyone impressive, so i am doing it myself.

     

    Another important thing about me, is that i make my money in my business, and am ultra conservative with it after i have made it - if there is any risk of a complete loss, i don't take it. I only invest in what i understand, and when i have no question that it is a good deal (good deal means to me will it be worth more in 10 or more years). I know how to read a balance sheet and follow my gut.

     

    Even if (when) i was just earning a paycheck, i felt the same way. Really it is all about what allows you to sleep at night - if it is with your cash as your pillow, just do that!
    17 Mar 2010, 01:55 AM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    Loverboy, the problem remains that the markets are fundamentally broken. Dividend yields are abyssmal, which means you can't buy a good stock, hold it, and collect your dividend checks. You have to rely entirely on the existence of a "greater fool" and active trading to make any money. For at least ten years, the market traders have been like pirates waiting for the monthly spanish galleon of fresh 401(K) money to come rolling in for the plunder. As a result, dollar cost averaging has been a zero sum game. It's like everything else in this economy, why do the hard work of creating and producing when you can just pocket the dumb money that comes rolling in every month. Good brokers operate the same way. Yeah, they're good at what they do, but their fees will drain the lion's share of your gains leaving you no better off than you were before. The whole system just feels like a cattle chute leading me to the slaughter.
    17 Mar 2010, 10:34 AM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    Apparently, you don't investigate far and wide enough.

     

    This depressed market offers some of the best yield-for-value relationships that have been seen in years. There are too-many-to-name preferred shares, debt issues, ETF's, BDC's, REITs, etc., all offering sizable yields that have been paid, even increased throughout the recent market travails. Many offer sizable upside potential, as well as above-average current income.

     

    Spend time researching with a good screening program. You'll reach different conclusions.
    17 Mar 2010, 10:52 AM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    I don't think I will reach a different conclusion. What you say about the market contains truth, but it still depends entirely on active trading and the existence of the greater fool. Somebody is always left holding the bag when the party ends, and if it's you left with the bag, it can wipe out all your gains from your good trades. Yield to "value" is a tough play when "value" is bouncing around all over the place and is largely disconnected from the fundamentals. I don't consider 4% to be a "sizeable yield" given the level of risk involved. Somewhat higher yields, if you can find them, can be easily wiped out by relatively small share price changes.
    17 Mar 2010, 12:04 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    If you understand how to assess fundamental values, then, you will not be wiped out by volatility unless you foolishly sell off on dips or bottoms, as I suspect too many did in the last panic. Over time, value asserts itself, as Warren Buffet has proven time and again. The secret is to buy things that have solid records of maintaining their payouts, and just wait. I can assure you there are numerous choices well beyond 4% yields, presently.

     

    Endless pessimism about the future or reasons to be invested are simply self defeating.
    17 Mar 2010, 12:42 PM Reply Like
  • Gaffer2
    , contributor
    Comments (11) | Send Message
     
    Tack, Judging by your older comments on SA, your endless optimism seems much more dangerous.

     

    In February of 2008 you touted IndyMac as a "bargain." Its now bankrupt. You have also sung the praises of now-bankrupt CIT. You praised Fannie Mae for having a $9 billion positive cash flow. You liked CapitalSource (down 50%). You said the housing market doomsayers were exagerating the extent of housing market problems with cherry picked data and that the "slump" would be over by 2009. You've even sung the praises of alt-A mortgage CDO's - arguing that the private equity firms that were buying them knew what they were doing. You appear to have never met a market you didn't love. Too bad I can't find any of your comments from pre-2008. I'd love to see them: "GM is a sure thing!! buy, buy buy!!!" "Subprime loans will never affect the overall market! buy, buy, buy!!!" "Lehman Bros. will hit $800! buy, buy, buy!!"
    17 Mar 2010, 04:16 PM Reply Like
  • James Quinn
    , contributor
    Comments (1016) | Send Message
     
    Author’s reply » If it walks like a duck, looks like a duck, and quacks like a duck, it is probably a duck.
    17 Mar 2010, 05:02 PM Reply Like
  • Tack
    , contributor
    Comments (14313) | Send Message
     
    I, like many who focus in the financials, underestimated the fury that would result from the perfect storm of RMBS syndications, coupled with CDS, mark-to-market, naked shorting, etc. What seemed like numerous bottoms were mere waystations. Fortunately, consistent with my philosophy, I did some hedging, too, so some of that damage was ameliorated on the way down.

     

    Perhaps, unlike many critics of the banks and believers in the current doom, who don't seem to understand why we're not back at SPX 666, I strongly believe that the greatest part of the reason for the magnitude of the panic was due, especially, to the trading gamesmanship that was offered by CDS and unregulated short selling. Sure, it could happen again, absent changes, but, for now, many of those same shorts are now very long financial institutions. And, data is improving.

     

    As you may have noted, since you scoured my posts, I also bet heavily on the debt and preferred shares of beaten-to-death, but quality, financials, more or less near the bottom. This wasn't done entirely because I was brilliant and prescient; it was done because I thought that there had to be a bottom somewhere, and many of those issues had nowhere else to go, except bankruptcy, but that seemed unlikely. As I live on investment income, the yields were overly attractive, and I thought the risks worth bearing, in the circumstances. It was very difficult to make some of those buys, at the time, but I did it.

     

    The way one wins in the market over time is to embrace risk, where it makes sense. There's far more money to be made with some risk than to hunker down safely. In fact, sometimes "safe" isn't safe at all (see Treasuries). It's important, though, to set rules for allocations and hedging, so that adverse events can be sustained without ruination.

     

    I've done very well over the years and will offer, for what it's worth to others, that in my own case I've done much better when I attack perceived opportunities than when I shy away from risk or play too much defense. I'm not saying this approach will work for everyone, but it's worked for me, as the years of bruises and bounces have demonstrated to me that there's always an opportunity somewhere, and the upside multiples have outweighed the dips.

     

    Again, good luck to each.
    17 Mar 2010, 05:23 PM Reply Like
  • Dopamine
    , contributor
    Comments (363) | Send Message
     
    Tack, I followed your comments to this article.
    I love the article and the advice and agree with all those long words starting with A.
    There is every reason to stock up on Gold.
    There is no good reason not to.
    There is every reason to stock up on ammo andor food...
    There is every reason to reajust your employment future.
    Sell all the useless stuff....some very good advice.
    Cut back and save ...Great Interveiw.. love it.
    17 Mar 2010, 02:49 PM Reply Like
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