If you've never indulged in the guilty pleasure of leafing through the Weekly World News or any other supermarket tabloid that proclaims to have an exclusive on presidential summits with aliens and the return of Batboy, do yourself a favor next time while in an unusually long checkout line and skim one. The endorphins generated by the laughter will do you a world of good despite the dire predictions of Hopi Indian doomsday prophecy fulfillment.
As we look back on the past decade, affectionately referred to by the Yieldpig staff as "the Double Zeros," you'd think that the wackiest of the tabloids might actually be on to something. The 9/11 attacks followed by a far flung, costly, grinding war on terror, energy and commodity price bedlam, investment return malaise, and topping off the decade, financial meltdown and near disastrous collapse, might make some panicky types go long bottled water and ammunition. What do the "Twenty-Teens" have in store for us? Who knows? However, while we're not in the business of economic forecasting or prognostication, we thought it would be fun to put on the Great Karnak turban and take a stab at a couple of thoughts for the coming decade.
The European Union will become less unified or dissolve altogether.
That would mean the euro's role as a global currency player would diminish or disappear. Think about it, 27 different sovereign members which mean 27 different economies. The German economy is booming while the Bulgarian economy stinks on ice. This condition, syndrome, whatever you want to call it, is currently present. Keep in mind, the EU was formed during a period of unprecedented peace and prosperity
China is the new Japan.
If you came of age in the late 1970s and early 1908s, you'll remember the fear of Japan "taking over the world economically" and owning so much U.S. Government debt that it would cause chaos in financial markets when the Empire of The Sun decided to dump all of their Treasury securities.
We all know how that story ended. Overpaying for global assets, an elderly population outstripping the viable population and other challenges are facing China or are coming around the bend. According to DataStream International, Japan's percentage of capital spending investment as a percentage of gross domestic product peaked at 36% in 1973. China's has reached 41% recently. Like Mark Twain said, "History doesn't always repeat, but it can rhyme."
The U.S. Dollar will return to dominance as the premier global currency of choice.
If the euro weakens due to European instability, where else are you going to go? It sounds simplistic, but maybe that's because it is.
The U.S. Treasury will actually make money on the TARP trade.
Our government may be a bit too chummy with Goldman Sachs (GS) (which it probably is). But people typically ask for and get advice from their good friends. The Troubled Asset Relief Program concept is a trade, pure and simple. The government can borrow short term for free, basically (Treasury bills yielding 0%). It can invest that money and get a 5% to 9% yield depending on the investment with an option to convert to equity which will increase in value if the market goes up.
If the trade goes well, the government sells its stake, pays off the note, and pockets the difference which will, hopefully, be used to pay down the deficit or something frivolous like that. Plus, the government can prop up the banking system, so the game is rigged, but luckily it's rigged in the government's favor. The wild card, naturally, are interest rates. If the Federal Reserve can keep rates low and inflation isn't a problem, the TARP trade could work big time.
America finally will get and practice energy religion.
Thanks to conservation and alternatives, the United States will have some degree of energy independence. The result will be lower or steady oil prices. Less oil dependence and lower prices means declining revenue for oil producing states, many of whom, whether we like to say it or not, fund terrorism. Our strategy for winning the war on terror could be similar to the strategy used to win the Cold War: Bankrupt the enemy.
There you go. We've thrown our darts at the dart board. Call us naive. Call us Pollyannaish. Just don't call us late for supper.
This article was originally published December 29, 2009 on thestreet.com
Disclosure: "no positions"