Sir, like Jason, please allow me to welcome you to our little piece of the Internet. It's a pleasure to meet you....how it could affect all of us.......we are people who like to watch where the puck is going and get there before the next guy, so big picture discussion, in that light, is always welcome.
Pleased to meet you also, and my son is a great guy that I also turn to for advice at times.
As to where the puck is going, it is not going to a good place.
If I were to attempt to make specific projections with a time line, I would most certainly be wide of the mark. However, there are some generalities that I believe are likely.
Central banks will continue to print until there is some form of collapse. They are now coordinated in their efforts. It is pretty clear that the perma-growth model is not fiscally sustainable, and governments around the world will kick the can for as long as possible. The best and appropriate alternatives are not politically acceptable.
For years, I thought there would be some form of SHTF scenario, but I now believe that although possible, it is unlikely. Further, the central bankers of the world have already kicked the can down the road further than I expected with huge expansions of their balance sheets.
We may well at some point see riots in the streets as you have in Greece, but the social order has not broken down there - at least it has not at this point.
To understand where the puck is going, you have to clearly understand where it has been and where it is now.
There has been a huge debt bubble that is worldwide, and it has popped. It cannot be reinflated. All that can happen now, is for it to hopefully deflate gradually, in such a manner as for the entire system to keep functioning.
All money today is backed by debt. We have in the US and other countries of the world, debt based monetary systems.
Debt however has costs. It has creation costs, and carrying costs. The debt has reached such a level that we can no longer sustain practical costs of creating and servicing increased levels of debt. The current system in the US, is that of securitized or "bundled" debt. Basically, this can only overcome the original cost of creating (under the current system) if the product is misrepresented. A key to understanding our current situation is the fact that no systemic changes are being made. Nothing is being resolved. Instead of having too big to fail, we have bigger too big to fail.
Pretty much, governments of the world, at the national, state/province and local levels, along with many businesses, insurance companies, various parts of the financial sector, pension funds, institutional investors, etc. all base their projections for their budgets, revenues, etc. on increased growth.
Increased growth will not be there, any more than the unemployment statistics are realistic and true.
So, if you are unable to print money, governments increase taxes, and layoff in an attempt to get closer to balance - increased taxes diverts money from the private producing sector, layoffs have less workers putting money back into the economy and you have a downward spiral that only ends when all of the bad debt is completely cleared.
Greece cannot be saved. The people of Greece are not getting any of the money from the bailouts, the money is going to pay off noteholders. Portugal is next, Spain is probably too big to bail-out, Italy for sure – basically the Eurozone is close to falling apart. Hey, they are roughly equivalent to the US in GDP and population, it will affect the world financial sector and world economy depending on how and what happens there.
The levels of debt are quite high, too high for the debts to be paid.
Next up, in two or three years – Japan.
And if we don’t quit deficit spending in the US, the US die will be cast by the time Japan goes, we will already be so far gone that our default is inevitable, although it will be another several years before actual default occurs. Although not technically a default, printing enough to pay the US debt (which we have already started, by buying T’s) and hyperinflating the currency will essentially be a default for all practical purposes.
I have commented to my son, more than a couple of times – every thing you know, all of your adult experiences as relate to financial and work matters have been within a bubble. A bubble that cannot be reblown.
There is no good trade at the moment, that I am aware of. One really needs to be hedged and diversified. Right now we are looking at return of investment more than return on investment.
I have seen well reasoned cases to the effect that Bernanke in fact brought the equities markets down in order to drive money into Treasuries. Long term, however, equities may do better than other sectors because the markets should rise with printing.
I do think that the original post about producing land being a good thing to get into now or in the next several years may well be a good trade.
Gold should probably do well, but if you notice is headed down at the moment. I’m close to buying some but have not yet pulled the trigger.
My business is doing well and I hope to have some money that I need to put somewhere in the next several years. But, damned if I know where to put it.
Look at it this way, we're probably not going to know what the Eurozone is going to look like till 2015 or so, and Japan is going to be getting pretty interesting about then, and by that time it will likely be obvious to most that the US is in serious trouble.
So, while I cannot say exactly where within the above scenario that the puck is going, I can tell it is not a good place.