I had dinner this week with a couple of the smartest people I know in the realm of macro economic analysis and prognostication. By “smartest” I mean that what they have been willing to predict in the past has tended to come true (one called the ‘80s collapse of the Nikkei right on the button, and foresaw Japan’s ongoing troubles), so I tend to listen to them more than to others, particularly since I doubt the ability of most people to predict with any particular accuracy.
Both are extremely bearish about US prospects, for a variety of reasons – political misguidance, trillions in debt, the continued papering over of liabilities, rising baby-boom retirement and health costs coming, unemployment, etc. Both see the dollar in deep trouble, gold rising for now, and no recovery relief in sight. The question is when the “next crisis” will unfold, and in what form.
Michael Peskin of Hudson Pilot, formerly of Morgan Stanley, an expert in pension and asset systems, points to a system of incentives that has created a financial industrial complex composed of congressional oversight, public employee unions and a banking system that has a stranglehold on fiscal and tax policy.
Roger Cass, an independent analyst with an extraordinary track record for seeing when countries are about to hit walls (he homered on Japan when the world thought it had figured out its own economic miracle), says failure is written all over Obama’s health care and other domestic agenda. The current leadership is without a functional compass, even if it knew which direction to take and had the resolve to take it, which he is convinced that Obama & Co. do not.
Cass just issued a report to clients that warned, among other things:
- The world is entering stage four of an ongoing global financial crisis, unfolding next in Euro sovereign debt. Unemployment, slow growth and protests will mark Europe’s near term future as the situation worsens.
- Developing countries will not be able to offset slowdowns in Europe and the US, but will suffer as trade demand slows, so there is no global rescue in the emerging (BRIC) countries.
- China is operating a real estate “Ponzi scheme” and a collapse in prices has already begun. “Across China dozens of so- called ‘Fabric Cities’, ‘Electronic Cities’, and ‘High Technology Cities’, hybrids of department stores, factory outlets, and distribution centers specializing in the named products, have vacancy rates of 50% or higher, with investors demanding the return of their investments from local governments and developers. The process in which property values were driven ever higher by this Ponzi scheme of circular fraudulent transactions between local governments and corrupt bank loan officials and SOEs is now beginning to unwind.”
- We are about to go through a period of disinflation, but “…the massive stimulus programs and the eventual monetization of the accompanying record deficits by the U.S, European, Japanese, and Chinese governments to stave off financial collapse are setting the stage for a new round of rising global inflation, interest rates, and a weakening dollar.”
And he quoted Von Mises:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of a further credit expansion, or later as a final and total catastrophe of the currency system involved”.
- Ludwig von Mises
These are just a few outtakes of a scathing and distressing report that prompt the fair question: what to do?
Peskin believes deflation is coming, and inflation will follow, as does Cass. Both are negative about stock markets, with a few exceptions, and both are bullish on Canada, and gold. While this may not seem conventional wisdom, in my experience it is likely to turn out to be wisdom after all, so I would ignore it only at my own risk. For further insight, track these guys down and ask your own questions.