Check this out. He had quite the sense of humor ? making fun of a drooling, half-comatose vegetable only three days before he became one.
In other news, my recent hobby (okay fine, obsession), has been researching macroeconomics, investing, and paying close attention to prominent forecasters and their take on the future of the American and global socioeconomic system.
Understanding the ?big picture? has been something that I started to develop a keen interest in several years ago. Although I knew and understood only a tiny fraction of what I understand today, in the winter of 2007-2008, I did sit down with my family and gave them a stern warning that ‘things were about to get really weird. I urged them to make moves such as selling their houses and purchasing precious metals in anticipation of dollar devaluation. Turns out that selling the houses was genius. The timing on the metals was a little off. They bottomed in December of 2008, which happened to be the exact time that I finally jumped in. Silver, sweet silver, is up 50% or so on the year. May was the biggest up-month for silver in 22 years.
Stocks? Well, they broke even from January 1st for about 12 seconds before getting obliterated since the Friday before last (which was when I went all in shorting the market at 300% leverage ? to which I’d like to add an emphatic ?biaatch!). Anyway, in light of what my diagnosis for the economic future holds, I can’t sit around and shout about avoiding packaged food and munching plenty of butter when for so many, quality food is about to become out of reach.
1 in 10 Americans is now on food stamps. 1 out of 8 homes are in foreclosure. Using Clinton era calculations, unemployment now stands at 16.4% and is staring 20% by year’s end squarely in the eyes. And as many have heard, the strongest correlation with obesity, diabetes, early death, etc. is not how much steak you’ve eaten or how many cigarettes you’ve burned. Poverty, in the United States, is what links up with degenerative disease and obesity.
I won’t pretend that money has any direct link to health. The high-fiber content of the paper it’s printed on alone is enough to exacerbate any case of IBS. Wealth however, is associated with health because of better education, social unacceptability of junk food (grilled Halibut is rarely served with a side of Cheetos and Mountain Dew at a wealthy person’s party), and purchasing power that allows the upper class to dine on real food and even spend free time shopping for uber-quality foods at Farmer’s Markets.
Anyway, the picture isn’t pretty. This isn’t about positive and negative outlooks either. The bleak economic forecast is a diagnosis given when all the signs and symptoms are gathered together and analyzed. Anything and everything else is pure delusion, or hope ? which is often, admit it, a very foolish emotion (why hope that your home equity will improve when there’s no way in hell real estate will ever be priced anywhere near 2007 levels relative to median income? Only an idiot would ?hope? that prices would come back when they will not, and cannot, and had no business being in the stratosphere in the first place).
Anyway, let’s talk about it briefly, and then wrap it up with what I believe to be the best investment vehicles in the future ? whether you have $1,000 to invest, or $1,000,000.
The economic upchuck of 2008 was very simple and was a long time coming. That’s why people were able to forecast that it would happen and the precise manner in which it would come about all the way back to 2001. Basically, the American economy has blown goats for about 30 years. Instead of falling out of economic power, the United States instead tried to create asset bubbles to have a few last gasps of what seemed like prosperity. An asset bubble is like what we saw in real estate and every single commodity known to man over the past several years. I mean come on. Housing prices doubled while income scarcely moved an inch in the same time period. It was totally fake.
How it happened was painfully simple.
People borrow money to buy houses. To make housing prices increase, you merely have to increase the demand for houses faster than the supply. If people aren’t making enough money to outpace demand, then all you have to do is make borrowed money available to them at really low cost. To make it even easier, you can reduce lending standards so that people can put less money down and not even pay off principal amounts ? but pay interest only. So there we have it, the Federal Reserve, at a time when we had already lent out too much money and had too little savings and too much debt in the first place ? lowered interest rates to 46 year lows and reduced lending standards.
With that, more people could buy homes that couldn’t before. Lower interest meant lower monthly payments on top of not having to fork over much cash up front. This made home prices rise. When home prices were rising, it made lending people money for homes a safer-looking bet, despite the tiny amount of collateral. It also made owning a home more appealing. Heck, you could make money off of living in a house and doing nothing with a low monthly payment and next to nothing down. Put $10,000 down and make hundreds of thousands as your home price increases! Many people made 1,000% or more on their initial investment. Talk about a great investment opportunity ? if you sold in 2007 (like I did).
With increased home values, people spent more of their actual dollar savings (their home equity was their savings account instead they figured), worked less or even quit their jobs to be real estate investors, agents, remodelers or builders, etc. This flooded the economy with tons of money. Income didn’t jump through the roof necessarily, but net worth sure did once you figured in all that leaping home equity.
There was quite a boom, and it touched every sector of the economy, every asset class, retail, and more. Everything was appearing to go up, up, up. People with bucks opened up businesses, companies expanded their operations, big malls sprung up, and companies upped forecasts and production.
But it was all simply based on one thing ? people thought they had a bunch of money. They thought that real estate prices would go up forever. They ignored that a spike in housing prices like that had no economic basis whatsoever, and was perhaps the most clearly defined bubble that has ever been blown. And she blew alright. Personal net worth dropped the equivalent of an entire year’s GDP last year. 2009 is shaping up to add to that total in a big way.
Now the government is intentionally trying to debase the currency to make the dollar amount attached to real estate and other assets stop their horrendous plunge and come back up again. There is no intention to fix the economy by making money via producing and selling things at a profit. Not even close. It’s laughable and sad ? trying to borrow and spend our way to prosperity. What a joke. They want another false wave of prosperity, which will sucker in more dopes that won’t sell in time ? or won’t notice that even though their house is going up in price, it is losing pace along with wages as the cost of everything else increases even faster.
Anyway, all those businesses that were built up around a fake boom must contract and shrivel. The malls that were built must become vacant. The real estate that is rented by retailers, soon-to-vanish, will obliterate more banks (commercial real estate is even more highly leveraged than residential real estate). The jobs that were created must vanish. Nearly every business, most of which are hanging on by a thread at the moment, must downsize ? and most will perish because they overinvested money in anticipation of continued growth. They won’t be able to cover their losses. If the government can manage to create one more bubble, it will be very short-lived and the crash will be immeasurably severe in comparison to what we just experienced.
Barring some kind of U.S.-born miracle invention/technological breakthrough, a positive outlook would be a crash similar to what the Soviet Union experienced. Anything painting a prettier picture is sheer hype.
That’s what happens when you live the good life with borrowed money (like maxing out your credit card despite not having a job). As a country, we now have almost 4 times the amount of liability and debt that we do income ? or GDP. To top that off, GDP is plummeting and debt burden is rapidly ascending. Medicare, social security, and Obama’s new genius idea for national healthcare are all noble ideas. It’s a noble idea for me to spend $1,000,000 on my credit card to give to charity ? but guess what? I can’t afford that. I don’t have that money. It’s not mine to spend.
But let’s say that I did borrow a million dollars and can’t pay it back. Let’s use something more tangible though. Let’s say I owe someone 10 apples but I only make 1 apple per year. Making 10 apples per year is totally impossible ? a laughable amount compared to my standard income of 1 apple. There’s no conceivable way I can ever pay 10 apples. I have 2 choices: I can either say, ‘sorry? and declare bankruptcy, or I can cut my one apple into 10 pieces and hand that over instead. The latter, is what the Federal Reserve is destined to do. We’ll pay all those bills, but in an underhanded way.
Ludwig Von Mises, the Weston A. Price of economics, built a foundation of truth that can never be tarnished. He knew that credit expansion was always doomed, that all economies that underwent credit expansion had to eventually deleverage, and that deleveraging could only occur in two ways ? mass bankruptcies and credit contraction or by stealth default via currency devaluation.
The latter technique will be the route taken, as has always been the case when any country has run into this problem.
In the long-term, there is absolutely no doubt that buying real things is the ultimate defense against inflation. Silver and gold are the most practical and accessible. The safest (boring!) way to invest in them is to take possession of the actual metal yourself. For practicality’s sake, gold is superior ? silver is heavy as hell if you buy a large dollar amount of it. If you buy coins, instead of bars, there is no capital gains tax, fyi.
Most people prefer ETF’s, exchange traded funds that track the price of gold and silver and are traded with the click of a button just like stocks. Most investors dig this because they can sell it at its peak, buy it up on the ?dips,? and make greater profits on the ride up. ETF’s are not considered a sure thing by any means though.
Gold ETF ? ?GLD?
Silver ETF ? ?SLV?
You might also consider ETF’s for oil (USO ? on it’s way down right now though, be careful) and especially natural gas (UNG), the price of which is still absurdly low and destined to go higher eventually.
Other people like buying gold and silver mining company stocks. This can work out quite well, but when the stock market is going down in general, prices can stay somewhat suppressed. There’s no doubt that if the stock market goes up while inflation ignites (which will happen someday, although don’t look for it in the near future), the biggest gains will be had in mining stocks. Some of my favorites during the recent rally have been: TLR, HL, CDE, PZG, BAA, AGT, TMGOF, NG, and a handful of others. They are all cheap and highly volatile ? just like I like ?em.
You can also buy options futures, which is a little more complex, but if and when inflation is really raging, options will bring home some serious bacon ? 500% gains per contract (dude, bacon would be the best type of money ever!).
You can also buy bullion (bars), have it stored so that you don’t have to yourself, with big companies like Monex. They charge a bunch, are considered unsafe as many claim they don’t actually have all the metal that they claim to have, but you can certainly rake in some big dollaz if you do some 300% leverage when you are quite sure that the price is headed up. Don’t be too stubborn about selling once you’ve made some gains though. I just got burned recently on that one.
When it comes to stocks, there’s only a couple you really need to know about if you ask me. When the market is going up, like in the recent stock market rally from March 9th until the Friday before last, there is no better buy than ?FAS,? a leveraged ETF. It saw increases of over 400% while the market jumped 40%.
When the market is headed down, which I believed the short-term peak was reached the Friday before last, ?FAZ,? an anti-market ETF is quite robust, as is ?SRS,? an ETF that shorts real estate (bets against it). You can almost count on 10% gains for every 200 points the market drops. I’m expecting FAZ to at least triple between now and the time the market retests the March lows of DOW 6500-ish, which I believe it will by August. Just be quick to get in and get out. These are all about timing and you can totally lose your ass if you start to get swept up in the excitement.
Anyway, I apologize in some regard to the die-hard nutrition geeks that wander by Bloggie-Style. This is probably not what you bargained for. But good health and good food on Maslow’s Hierarchy of Needs, surprisingly, comes in behind money. Why? Because money is the ticket for most of us to purchase good food, take stress-relieving vacations or at least not work 3 jobs to make ends meet, stress out about whether or not you’ll be able to feed your family, and have spare time to do this kind of independent thinking.
I’m far from being the almighty on investment advice, and I certainly can’t openly state that you should take any kind of investment advice from me ? which obviously carries incalculable risks, but if the interest is there, and the desire to protect and even increase your personal wealth lurks within you, then take action. Get in the friggin? game!
If I’m wrong about all this, then what do you have to worry about? It means the economy has come roaring back, there are jobs-a-plenty, the stock market is going up, and anyone with a love of what money can do and a decent head on their shoulders can find a way to support themselves amply. Even if you lost some dough, getting it back would be easy. But if the shizzle really starts to sizzle, you better be prepared, because once that wealth is lost it will be harder than ever to regain it. Being prepared isn’t negative, it’s smart. It’s fun, confidence-boosting, and empowering.
Just remember, when inflation finally does hit in a year or two, no amount of stored up money will be safe. The money might not be going anywhere, but the purchasing power of that money can evaporate as if someone is throwing it in a bag, wad by wad.
Be careful, be smart, take action ? and maybe you can keep that modern day luxury of health pursuance going even in the worst of times. That’s what I plan to do.
And before you write me off as a dumbass, consider that Saturday night I was asked where I would put a million dollars on Monday if someone gave it to me. I said, I would use every penny to buy as much FAZ as I could get my hands on. FAZ was up 15.5% on Monday, which would have brought in $150,500 in a single day.
If you’re looking for an investment guru, I recommend Marc Faber above all others. He seems to be the only big time investor that really understands the big picture, the long-term, and can even make accurate short-term predictions.
Austrian-school economists that base their theories on Ludwig Von Mises are pretty badass too, and include guys like Peter Schiff, Ron Paul, and Thomas Woods. Max Keiser is certainly the man too. His site is an excellent news source on what’s really going on.
P.S. ? My political views? complete condescension and ridicule for both as if each side represents an ass cheek, or in the words of renowned Trends Forecaster Gerald Celente? ?I’m a political atheist. If you have a strong party affiliation, I wish you the best in thinking your way out of it.