Where is the Global Economy Headed? The Worst Is Yet to Come
Economics / Global Economy May 05, 2011 - 01:38 AM GMTBy: Casey_Research
To be forewarned is to be forearmed.
Roy Furr: I'm writing today after spending the last three days in Boca Raton, Florida, attending The Next Few Years: A Casey Research Summit. If you're not already familiar, the purpose of this summit was to bring together many of the world's top economic and investing minds to share with us where they believe we're headed in the months and years ahead.
The cast of speakers was impressive, to say the least. They brought a variety of view points, an almost overwhelming amount of data and analysis, and a perspective on what the current world means for investors that would be hard to build on. Yet, with all this variety of thought and perspective, one central theme seemed to emerge.
If you're able to see the annihilation of your currency coming down the pike, and you take the right steps to protect your wealth, you can come out on the other side largely unscathed. Given the right investment strategy, you may even be able to grow your wealth significantly during this time.
While I knew this on some level coming into this event - I've been reading Casey Research's work for just a few months now, and this was the first of their events I've attended - I was given pause by Casey CEO Olivier Garret's welcoming remarks.
"While no one can predict the future with complete certainty," he said, "it should give you comfort to know that the faculty for this summit have in common that they correctly anticipated the trends now dominating the global landscape."
When you bring together 35 experts who each correctly predicted what's happened in recent years - while the mainstream media and those who followed it were thrust clueless into "the worst economic crisis since the Great Depression" - you have to think that if these 35 experts are in agreement about what lies ahead... it's worth listening. Even if what they're saying has painful implications.
So what's the consensus? What will The Next Few Years bring? Well, hold on to your hat.
The Worst Is Yet to Come
I'd like to share an important point Casey Research's Chief Economist Bud Conrad made to me as the summit was wrapping up.
Bud said that when Casey Research editors are among the most optimistic in the group, you have to wonder how serious the situation is getting.
After all, the Casey Research team is known for predicting well in advance the liquidity crisis that would play out in 2007 through 2009 and the continuing economic troubles that have resulted. They'd laid out the path of the previous crisis far prior to most folks ever hearing the word "subprime." They've long been talking about the decline of the dollar and even "the Greater Depression."
Yet Bud said this conference was perhaps the first he's aware of in which the guest experts were more pessimistic about our situation than Casey's resident experts.
I'll explain...
As the summit was wrapping up, a number of panelists were brought on stage to answer attendees' questions. One question in particular was, "On a scale of 1 to 10 - with 1 being, it all gets better from here, and 10 being the unthinkable - how bad do you think it can get?"
A number of attendees gave their votes and thoughts. And it was clear - the consensus was that our current situation of enormous sovereign debt and the associated race to debase the globe's currencies would get worse. Not to mention civil unrest in the Middle East and North Africa, and even Wisconsin. Or the fact that oil production seems to have peaked and is declining, even before production being taken offline due to the current conflicts.
The most optimistic of the experts on stage suggested we'd experience about a 5 - not too good, but also not too bad.
But what took attendees aback was when folks like professional economist, truth-digger and founder of Shadow Government Statistics John Williams predicted that we were approaching the top of the scale rapidly, and that the lid was about ready to blow on a pressure cooker of economic manipulation and deteriorating fundamentals.
The outlook was similarly negative from James G. Rickards, direct participant in many of the most significant financial events of the past 30 years, as well as the current senior managing director for market intelligence at Omnis.
And perhaps the most frightening picture was painted by John Robb, expert on guerilla warfare tactics and the new "open source" warfare - who not only concurred with the dire outlook but who also was quick to explain that should worse come to worst, we could actually see severe degradation of civilization as we know it.
And this was just what came after nearly three days of hard data, detailed explanation and vigorous debate revealed these scenarios as reasonable assessments of the situation.
The Fall of Fiat?
So what is it that's pushing us to the edge of disaster? To echo the sentiment with which Bud Conrad started his presentation Saturday morning, I wish I had a better story for you today.
For one, we're well on our way to a sovereign debt crisis. From the summit's first presenter to the last, there was nearly complete agreement that our current debt and deficit spending situation is flat-out unsustainable. And while some speakers believe hard-line austerity may be a way out of this without default or massive inflation, this is not a solution that will get any politician reelected, and thus it simply will not happen.
So deficits will continue and debts will grow. But as was suggested by Johns Hopkins University Professor of Applied Economic Steve H. Hanke, among others, our low interest rates cannot continue forever. And as our current, historically low interest rates move to a more normal level, our debt load becomes crippling.
So the Fed must remain in the market as the buyer of last resort on Treasuries, to ensure that even if they're not the actual buyer, their bid keeps bond yields within what they see as an acceptable range. And because this means more QE under one name or another - through the rollover of the existing balance sheet of the Fed, or political pressure applied to banks and friendly nations - the effect is eventual rampant inflation (in other words, continued and even accelerated destruction of the purchasing power of the fiat dollar, and the takedown of dollar-based savings with it).
John Williams' estimate has recently evolved from years to a matter of months before this inflation will accelerate dramatically.
But it won't be a straight line from here, many speakers believed.
In the near term, there's largely an agreement on increased volatility. For example, Greg Weldon, Editor of Metal Monitor, suggests we may see bond yields fall and the dollar rise short-term as the Fed brings QE2 to its expected conclusion, as it has announced. This, he suggested, could be seen by many as a vote of confidence from the Fed regarding the economy.
The only problem is, just about the only thing that appears to provide support to the stock market right now is QE, and so if equities begin to fall in the absence of QE, consumer confidence drops off. And that, in turn, leads to lower earnings and GDP. Which the Fed can't have, and so the printing presses start again.
The result: continued monetary inflation, followed by price inflation.
David Galland repeated his well-received assertion that the Fed, in the absence of severe spending cuts from Washington, is finding itself wedged firmly between a rock and a hard place. Even if in the near term the dollar shows some strength, a reentry into the markets by the Fed is likely to push the dollar to new lows... And at that point, the waterfall decline of the dollar as prudent investors seek tangible value will not only be imminent, but will be happening around us.
Doug Casey, in his usual tell-it-like-he-sees-it style, called the destruction of the dollar what it is - corruption - and suggested that this corruption is not confined to the U.S. In fact, we could be facing a world-changing shift that occurs in line with the destruction of multiple dominant fiat currencies... And while the end result may be a dramatic improvement, what happens between here and there could be very painful.
Just as an example, Porter Stansberry and Chris Whalen both called for a shakeout in the banking sector - so needless to say, if you're looking at record earnings and considering buying bank stocks, you may want to hold off.
The Good News
I apologize for sounding so dire. Truly, I do. But the experts who are certainly more qualified than I to make these bold assertions - and who have a track record to back up this qualification - are in complete agreement that things are going to get worse before they get better.
But is the news all bad?
Not at all. In fact, for those prepared, the crisis that continues to unfold, largely unnoticed by the mainstream media once again, harbors tremendous opportunity. As everything I've laid out above occurs, the massive wealth transfer to those who hold tangible assets will continue. This has been largely behind the rise in precious metals and commodities in recent months and years, including gold's 10-year winning streak.
And this transfer is likely to accelerate, by most estimates. The possible prices for gold and silver bandied about are frankly too high to be believable coming from me. But as a currency depreciates, of course, the numbers become worthless. Gold maintains its purchasing power - it is the dollar whose value changes, downward, and rapidly when the world wakes up to its continued and accelerated weakness.
Michael Maloney, author of the "Rich Dad" Guide to Investing in Gold and Silver, suggested to attendees (presenting swaths of data to back his claim up) that silver will do even better than gold relative to the dollar, even after its recent historic run-up.
Further, legendary speculator Rick Rule, along with Casey Chief Energy Investment Strategist Marin Katusa and Chief Metals Investment Strategist Louis James, presented some of their current favorite picks in the junior resource sector - a sector where the best few companies are set to outperform significantly on the rise of commodity prices and strong demand.
Also, Casey Research invited representatives of some of their top company picks from this sector to present their latest projects and news. There are opportunities in gold, silver, oil, gas, geothermal, and even today's "black sheep" uranium that may present enormous profit opportunities over the next few years.
Plus Alex Daley, senior technology editor, presented his favorite investable tech trends... Doug Casey, among others, expressed the opinion that if anything ensures we get to the end of the coming crisis and create a better life for ourselves on the other side, it will be tech. And the technologies Alex shared are just the types of investments that should continue to grow in value both independent of and alongside inflation, and that are likely to be in demand even in the severest of scenarios.
And of course, you don't learn how to avoid serious inflation - or the overreaching arm of a desperate and broke government - without learning how to take your assets offshore. Olivier Garret, Terry Coxon and Jeff Schneider shared the best legal ways - including alternative IRA trustee models and offshore trusts - for ensuring your wealth will be protected through whatever storm may come our way.
There was far more information presented at the summit than I could possibly cover in one short article - from how we got here, to where we actually are now and where we may be going, all the way through to the specific investment implications. But the takeaway was clear and precise.
The global economy is still suffering from the massive accumulation of debt that has been building for the past few decades - the same debt responsible for the 2008 crash, which has yet to be addressed in any meaningful way.
Despite the dire predictions of the faculty, I left the summit hopeful. There are simple and effective ways to protect myself from what's to come. And, despite turbulent markets ahead, there are plenty of opportunities for profit as well - great companies in well-positioned sectors that will benefit investors like me in spite of the potential crisis looming. And, most importantly, if we find ourselves in the much agreed-upon looming next leg down anytime soon, I'll be prepared to act and turn that crisis into an opportunity.
The Next Few Years: A Casey Research Summit sold out in just 27 days - faster than any previous Casey Research summit. If you were unable to join us, you still have a chance to listen in on all the faculty and corporate presentations plus Q&A sessions... Including the specific, actionable investment recommendations from the 35 world-class investing minds on our faculty. Click here for details.
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