Justin's note: Doug Casey says we’re in a financial bubble of historic proportions. The “Greater Depression” is long overdue, and it’s now more important than ever to put your money in the right assets. Below, Doug explains how to prepare…and shares eight specific speculations to consider today…
By Doug Casey
It’s a good idea to keep the Big Picture in mind, even while going about business as usual. Here’s a very brief overview, going from 30,000 feet right down into the trenches.
My view of the economy has always been long term—perhaps overly so. The Ascent of Man started about 14,000 years ago at the end of the last Ice Age; it’s going to continue for two reasons: First, not only have science and technology been compounding at an accelerating rate since Day One. But there are now more scientists and engineers alive than have lived in all previous history combined. That will likely remain true for some time to come. Second, much like a squirrel that knows winter is coming, the average human is genetically programmed to produce more than he consumes and tries to save the difference. That builds capital. So the world naturally tends to get richer.
Meanwhile, the biotech revolution—just one of a half-dozen areas where technology is advancing at the rate of Moore’s Law—may allow you to live a very long time. Things look very rosy on some fronts.
On the other hand, Western Civilization has been in decline since about 1913, and its descent is accelerating. The US peaked relative to other countries in the mid-‘50s, started declining in the early ‘70s, and is now moving into an existential crisis. So maybe the long term isn’t so rosy after all. The rising tides that have floated all ships for the past few centuries appear to be going out.
Even though that’s the case, and Western Civilization is sinking, we’re in a financial bubble of historic proportions. Far bigger than the bubble that burst in 1929. And because every State in the world is vastly more powerful than it was in those days, and the public has learned to demand far more from them, the Greater Depression will be far worse, far different, and far longer lasting than the unpleasantness of 1929-1946.
The bad news? The Greater Depression is long overdue. The good news? We’ll get to find out the details quite soon, and get to live in even more interesting times.
Keep the analogy I’ve made about an economic hurricane in mind. We entered the leading edge of the storm in 2007, went through it in ‘08 and ‘09, and have been in the eye since 2010. Governments have papered over the problem by reducing interest rates, creating boatloads of new credit and debt, and bailing out financial dinosaurs. But as we go into the trailing edge those gimmicks have been exhausted. The whole system will have a complete reset.
What should you do now to prepare for this eventuality—assuming you accept my reasoning (which is explained in detail in past issues)? Let me sum it up in the briefest, broadest way possible.
Here’s the general situation with what can be considered the six main asset classes. All of them have significant risks today. I don’t say that as a wishy-washy disclaimer. I say it because the whole financial and economic edifice is built on quicksand. There are very serious systemic risks. I’m not talking about minor fluctuations, or a passing bear market in one thing or another.
Bonds—The biggest bubble in financial history. A triple threat to your capital—interest rate risk, credit risk, and currency risk. The great bull market that started in the early ‘80s is over. Bonds are now the worst single place for your capital. Get out now.
Stocks—Quite overpriced but—if only due to the trillions of new currency units being created worldwide—they’re likely going higher for at least a while. Since they represent real wealth and production, a much better choice for capital than bonds. But the possibility of a major meltdown exists. Exercise extreme caution.
Real Estate—It’s been very good to me for many years. But I believe the great post-WW2 property boom is over. This asset class is floating on a sea of debt. Property taxes can only rise as governments go bust. And demographics are solidly against it. Houses are not investments; they’re costly depreciating consumer goods.
Commodities—They’ve been in steep decline since the last peak, in 2011. But because of all the new currency creation, and the fact most are selling at very close to the cost of production, I suspect the next major move is up—barring a deflationary credit collapse.
Gold—Its current price is reasonable, and it’s going to be a big beneficiary of the next financial panic. You can keep buying coins (and selected gold shares) with confidence.
Cash—Most banks are illiquid, and many are bankrupt. Which makes it dangerous to keep cash in them. Governments, meanwhile, are trying to eliminate the use of physical cash. And what you do hold onto—in or out of banks—is being eroded by significant inflation. This is a huge problem that’s not often discussed.
There’s going to be much less stability of any kind—political, social, economic or financial—in the years to come.
With that in mind, here are a few thoughts on specific investments and speculations. Casey Report editor EB Tucker and I have commented on some already in past issues of The Casey Report. Most of the following are high potential speculations. I’m involved in most personally. In today’s world, “investment” is increasingly risky. Speculation is becoming increasingly necessary.
Cryptocurrencies—As I pointed out in a promotional video I did about a year ago, cryptos are perhaps the biggest thing since the Internet itself. I didn’t feel I had the technical knowledge to recommend Bitcoin or any of its many hundreds of relatives. But I’m personally digging into them. It’s no longer early days. The market is bubbly, like Internet stocks in, say, 1998. The bubble, however, has far further to expand, because the technology is very young and very important. Cryptos are not strictly within the context of The Casey Report. But my colleague Teeka Tiwari covers them extensively in his newsletter, The Palm Beach Letter.
Marijuana Stocks—Pot is going to become a big business in the years to come as this useful plant is commercialized in many different ways. Nick Giambruno covers opportunities in Crisis Investing.
Uranium—This metal is the cheapest of commodities, and probably the most politically sensitive because of widespread “green” agitation against nuclear power. There’s a lot to this story that the average person is entirely unaware of, however. It’s now selling for far below its average cost of production, which can’t continue—unless 20% of US power production is shut down.
Greek and Cypriot stocks—Nick and I did a study on Cyprus in 2013. Since then, that market has doubled. But it’s still very cheap, as is Greece, which is probably the most hated market in the world. These markets are both down something like 95%. That should automatically get your attention.
Shipping stocks—A horrible performing industry, with many bankruptcies, and most stocks down over 90%. The industry is currently unprofitable—but it’s extremely necessary. Would you care to buy straw hats in the winter?
Commodities—See previous comments.
Puts—With low interest rates, many overpriced stocks, and a bull market, puts are at about the lowest price and highest potential in history. Buying the right ones, about 18 months out, might offer returns of 10 to 100 to one. Protagonist Charles Knight in my novel Speculator shows how these returns are possible.
Solar stocks have pretty well melted down with the price of energy in general. But this technology is the wave of the future. Now is a great time to look at them.
This list of do’s and don’ts might seem too general to offer a real edge in the markets. But, it’s far more important than fleeting details about the latest fad.
This is the fifth decade I’ve been actively investing. Through the ups and downs of many different markets one thing is clear. Being in the sectors that are rising, while they’re rising, is the key to consistently making money. Volatility is not necessarily your enemy; it can be your best friend.
Likewise sectors in decline, like bonds today for example, make it hard for even the brightest investor to consistently make money. So, stick with the winners.
With that in mind, keep your investment decisions focused on the big picture. You’ll avoid a lot of stress and over time probably make a lot more money.
Founder, Casey Research
Justin’s note: As Doug says, America is in the midst of a severe financial hurricane…and it will be far more serious than what we saw a decade ago. Most investors aren’t prepared for what’s coming. But Doug knows how to turn these types of situations into huge profits.
Doug’s forecasts helped investors prepare and profit from: the S&L blowup in the ’80s and ’90s, the 2001 tech stock collapse, the 2008 financial crisis, and now…Doug’s sounding the alarm about a catastrophic event.
Last week, we featured an essay on bitcoin’s latest “mainstream moment.” This is a big theme we’ve been sharing…and another reader would like to know how to get started:
How does one go about buying, selling and using bitcoins or any other cryptocurrency?
Our friends over at the Palm Beach Research Group are the unquestioned experts when it comes to buying bitcoin. They’ve provided us with this free guide that explains the first steps to take.