Mr. Market must be looking at the bond market the way an IMF chief eyes a chambermaid.... But first, let's look at what happened yesterday... Finally, a day when the Dow did not go down. Instead, it went up 75 points. Otherwise, oil rose above $100...the 10-year T-note yield rose to 299 basis points...and gold gained $4. A mixed, inconclusive day, in other words. But trying to keep up with the trends is a waste of time anyway. You get whipsawed and beaten up. Better to get ahead of the trend. Which ain't easy. Because you've got to figure out which direction the trend is headed. So....dear reader....what's going on? We asked you first! Here's a letter from one of our Family Office members: (1) If we redefined GDP to EXCLUDE all government spending, because it is all "recycled" earnings of the private sector, how does the whole question of recovery vs. recession/depression look? I suspect this is one way to reconcile the fact that the financial community says we are in recovery, but Main Street says the opposite. Seems like a good topic for the Daily Reckoning. (2) If all financial reporting were referenced to gold, rather than USD, how does the picture look? (Actually I know the general answer to this one; the economy looks AWFUL, and housing is back to pre-1990 levels.) I find it interesting that all the financial asset managers I've talked to REALLY don't like it when I ask "how is your performance relative to gold?". As to the first question, the answer is simple. Take out the feds -- who are redistributing wealth, not creating it -- and US GDP growth was about zero for the last decade. There. That's a trend. Here we are in the 21st century. With all that technology. And all that money. And all those sophisticated Wall Street geniuses allocating capital like nobody's business. And what do we get? Growth at about the same rate as during the Middle Ages. Remember how the latest communications technology was supposed to speed up growth? How could you have forgotten? Back in the ‘90s it was taken for granted that faster, better communications would make people smarter, more efficient and more productive. It was widely believed that the old ways of creating wealth -- by saving, learning, investing -- were obsolete. Because you didn't need savings. You could build on knowledge! No more trial and error. Mistakes were soooo 20th century! That's what they said. We knew it was nonsense. Imagine Napoleon's starving, freezing troops...trapped in Russia. Those that didn't freeze to death were shot to pieces by the Russkies. Imagine giving them the blueprint to a nuclear bomb. Or even the designs for an aeroplane. Or, give them an iPad! What good would it have done them? None! Every bit of information that is not useful is a burden. But most people didn't see it that way. They thought the communications revolution would speed up the rate of GDP growth and make us all rich. It didn't happen that way. The decade following the communications revolution was dry, desolate, and barren. Take out the feds' redistributed loot and the private sector registered approximately no growth at all. It was a complete bust. A failure. A flop. Go figure. More below... Famous investment research expert reveals the ONE REASON America's next huge collapse could be great news...for Americans. WORST CASE -- WAR War is the worst thing that can happen to an economy, but it's also the most likely thing at this point. When the going gets tough, the people in charge like to blame somebody else for the problem. That's compounded by the foolish -- but widely accepted -- notion that war is good for the economy and that, for instance, it pulled the U.S. out of the last depression. Like all wars, this one results in a complete stifling of civil and economic freedoms. If my second scenario is unpleasant, this alternative is grim. The big conflict has already been teed up -- the continuation of the Forever War between Islam and the West. I'll hazard the major situs will be Europe -- which has pretty much always been the case for wars in general for the last 2,000 years. Europe will be the worst place to be over the next two decades. And North America will be locked down like a police compound. China will have serious social turmoil as it is forced to reorient an export-driven economy catering to Europe and the U.S. As in the past, South America will be out of the conflict and in a position to benefit from it. India will also be a net beneficiary, largely uninvolved, and happy to watch their ex-colonial masters rope-a-dope themselves into poverty. People will always argue who really started it. Was it the Muslims when they poured out of Arabia in the 630s? Or was it the West when it invaded the Near East with the Crusades starting in 1099? Or was it the Muslims when the Turks took Constantinople in 1453 (although only 40 year later the Muslims would lose Grenada, in Spain, as the reconquista was completed) and then moved on to almost conquer Europe before being turned back at Vienna in 1683? Or is it more relevant just to look at recent history, starting at the beginning of the 19th century, when the West conquered and colonized every single Muslim country? Or the very recent past, when Muslims were counter-attacking, using a new military approach popularly called "terrorism"? My bottom line is that the next twenty years may be dominated by the Forever War that started in the 600s, being resumed in earnest. At least in Europe, it has the prospect of becoming a war of survival, much nastier than either WW1 or WW2. That resumption is being accelerated by what is going on in the Middle East now. The chances that the upheaval in the Arab world will just peter out and everyone will return to thestatus quo ante are about zero. It's a culture-wide affair, much as the revolutions in Eastern Europe were. Or, for that matter, the revolutions against Spain in South America at the beginning of the 19th century. The Arab revolutions are a good thing, in that they're getting rid of criminal regimes. Some will be replaced with equally repressive cliques, although manned with different criminals. I suspect a few might be more like the French Revolution of 1789; good riddance to the old regime, but then came Robespierre. And after him Napoleon. Regardless of how the tumult plays out in any particular country, the erstwhile docile collaborators with Europe and the U.S. are being elbowed aside, and the regimes that replace them are going to accommodate the vast public constituency for hostility toward the West, if only for the sake of internal political advantage. The war is not going to be fought with conventional armies. First of all because the Islamic world doesn't have any that would last more than a day or two against a Western army. But also because a Western army is useless against an amorphous mass of millions of people. So what will the conflict be like? Amorphous and disjointed, chaotic and without fixed fronts. Millions of Muslims are in Europe -- Pakistanis in the UK, Turks in Germany, North Africans in France, Indonesians in Holland. Europe's destructive conquest of the world has come back to bite. These people will approach majority status over the next 20 years, both because they reproduce at several times the rate of the Europeans and because they're not being absorbed. And because, now, millions and millions more are going to arrive as boat people. The natives aren't going to like it, for lots of reasons. And the outcome will likely resemble what always happens when large numbers of unwelcome foreigners invade a territory: violence. One consequence of the war, and especially of the collapse of the regime in Arabia (in 2031 it's no longer called Saudi Arabia, because the ruling Saud family -- at least the ones who couldn't get to their jets in time -- has been massacred) is a cut-off of oil until the U.S. invades. I hate to overemphasize oil, but the world still runs on it. When something does happen in Arabia, you can count on a disruption in the shipment of oil. And absolutely count on active U.S. intervention. A prolonged guerrilla war, similar to those in Iraq, Afghanistan, Libya and other Arab countries will follow. But there won't be any cover story about ousting a bad guy or bringing democracy to the oppressed. It will be pretty obvious to everybody that, from the West's point of view, it will start out simply to answer the question: What's our oil doing under their sand? But from the Muslim's point of view, it will be a different question: How can we rid ourselves of these aggressive infidels once and for all? Then the West will rephrase their question to: These people want to kill us! How can we stop them once and for all? You may be thinking that the U.S. can't lose a war because it has a large and extremely high-tech military. All those expensive toys can be useful from time to time; they can win lots of small battles. But they're basically useless for winning the next generation of warfare, as useless as cavalry in WW1, battleships in WW2, tanks in Vietnam or nuclear missiles today. What? Nuclear missiles obsolete? Of course. They're expensive, clunky, and the enemy can tell exactly where they came from. A plane, or a boat, or a truck -- or a FedEx package -- is a much neater delivery system. And there will be plenty of nuclear devices to deliver. If they're within the grasp of tiny countries like Israel and North Korea, they're within the grasp of anyone. In fact, the centerpieces of today's military are well on their way to the scrapheap or to museum displays. There may well be a few aircraft carriers, nuclear missiles, B-2 bombers, F-22 fighters, and the like around in 20 years. But they'll be oddities reserved for special purposes, like typewriters. Laser, electronic and robotic weapons will have replaced those using gunpowder, and they'll be readily available to anyone (an accelerant in the collapse of the nation-state). The military's reliance on centralization and on computer power will prove an Achilles heel; a gang of teenage hackers (not only the best kind, but the most common kind) can devastate a military for pure sport. Conquest of wealth or territory will be pointless; that's one thing even the Soviets suspected in the ‘80s, when they still had the power to invade Western Europe. It's now nothing like in the old days, when a successful war yielded lots of gold, cattle and slaves. This lack of an economic return will obviate one reason for a military. The hollowing-out of nation-states will obviate another; governments will find they just don't have either the financial means or the popular support for serious military establishments. The military, as the cutting edge of the nation-state, is in serious decline. Conflict between groups will still exist, of course, but it will be more informal, more the kind of thing that a Mafia or an Al-Qaeda might conduct. The growth of private military contractors, like Blackwater (now Xe), which only need be paid when in use, is indicative. A BASIC PLAN Sorry I can't do any better than a best-case scenario that just isn't very rosy -- at least over the near term. And there's a high likelihood of the worst-case scenario. There will probably be some overlapping elements from all three, if I'm on the right track. From an economic point of view, I see only two things as being predictable: One, that many people will always produce more than they consume and save the difference; this will create capital, which is critical for not only a higher standard of living, but for the advancement of technology. Two, that since there are currently more scientists and engineers alive than have lived in all previous history combined, technology will keep advancing; technology is the major force to advance the general standard of living. So that's essentially why I'm an optimist. Let's just hope the savers aren't wiped out, and the scientists don't do too much government work. The most sensible plan for the next 20 years is to plan to survive. The days of "He who dies with the most toys wins," and of two whole generations living way above their means, are over. 20 years isn't forever. Think of it like a bear market, when the best thing to do is take your chips off the table, grab some books and retire to the beach for a year -- except that this is going to be a lot longer and more serious. Nonetheless, I expect my fundamental optimism to get through it undamaged, as should yours. For one thing, the long-term trend is favorable. Mankind has risen from subsistence and living in caves as little as 12,000 years ago, to reaching for the stars today -- and the rate of progress has been accelerating. Why should that stop now? But, as I mentioned earlier, thinking too far in the future is perhaps pointless. So what should you do now? The essential advice remains the same: * Own gold and silver. At Casey Research, we've made a lot of money on them -- and they're no longer cheap -- but they're going higher, simply for lack of alternatives. Look at them as you would cash. * Produce more than you consume, and save the difference. This is no longer the time for promiscuous, conspicuous consumption. * Be alert for speculations. Some markets will collapse (for instance, I wouldn't want to own a McMansion in the suburbs or a "collectible" car). Other markets will likely turn into manias, benefiting from trillions of new currency units (I suspect mining stocks will be one of them). * Diversify your assets (and yourself) politically and geographically. As big a risk as the markets will be, your government is an even bigger one. And, incidentally, we're going to be looking carefully at the stock markets in the Arab world. It's too early to buy. But there's a time and a price for everything. Doug Casey, Hear more investment advice from Doug and the Casey team, as well as 35 renowned experts who gathered at the recent Casey Summit in Boca Raton. Get your Double-Dip Crisis Bundle today -- the full Summit CD set with more than 20 hours of audio recordings PLUS one year ofThe Casey Report at a huge discount. Details here. What Are the 3 Easy Steps to Epic Penny Stock Payouts? But think what he could have accomplished if he had had email! And Shakespeare...with all those plays and sonnets. How much better they would have been if he had had a Wikipedia to check his facts! Diderot laboring on his Encyclopedia...Gibbon on his Decline and Fall...Euclid with his funny triangles. What a pity! If they'd only had Internet they would have been so productive. The communications revolution was a dud. Except for the communications industry. The latest reports tell us that American children are now spending 13 hours a day with electronic devices. They are watching TV, texting, phoning, interneting, or otherwise engaged with something that runs on electricity. What do you think? Are they smarter? Are they more productive? Do they know more? Ha ha..... We don't think so. More likely, they are wasting their time. The communications revolution is part of the reason real GDP growth stopped in 2000. Like TV, electronic communications may be a net negative to civilization. *** Here's another thought for you. In answer to the other part of our reader's question, above, if you were to adjust prices to gold you would discover that everything is down...and down sharply. Housing has lost about 87% of its value (we're doing this in our head). Stocks are down about 80%. Bonds are down too...but not quite as much. Oil? About even. The last decade has been a time of deflation. Everything has gone down in gold terms. Gold is real money. So, in terms of real money...everything else is losing value. What would cause that? Maybe the US really is following in Japan's footsteps. After a big boom, we have a big bust. The bust in Japan has already lasted 20 years. Ours has lasted only 10. But maybe it will go on for 10 more. Well, here's where it gets interesting. Remember what a piece of work Mr. Market is? By nature, he aims to do as much damage to investors as possible. That's why he got them all in stocks by 1999...and gave them 10 years of nothing. What would he do now to cause the maximum losses? It's hard to know. Everyone we know expects higher inflation rates. And yet, actions speak louder than words. For 30 years bonds have gone up as inflation rates have come down. And now, look at the aforementioned yield on Treasury debt. Lend money to the feds for 10 years and you get only 299 basis points of interest. And this despite the fact that the feds themselves reported CPI of more than 5% in the first quarter of this year! Mr. Market must be looking at the bond market the way an IMF chief eyes a chambermaid. But wait. He's in no hurry. Right now, there are a lot of people who expect higher inflation. They know how it works. The Fed increases the base money supply. It's just a matter of time before inflation rates rise, right? If we were Mr. Market, we'd take our time. We'd let the Great Correction continue to grind down inflation expectations. We'd let the 10-year yield fall again...perhaps further than anyone expects. Maybe we'd take a whack at gold too...just to make our point. Then, maybe 10 years from now, when the inflation watchers have finally put down their field glasses...and the Johnny-come-lately gold buyers had given up... ...then, we'd smash them all. Regards, Bill Bonner,The Daily Reckoning U.S. Edition Home . Archives . Unsubscribe The Daily Reckoning | Friday, June 10, 2011 Now That's a Trend A zero growth story and 20th Century mistakes...
Bill Bonner, reporting from Baltimore, Maryland...Bill Bonner NEWSFLASH: It's Too Late to "Save America" -- That's Good News For You The Daily Reckoning Presents Our Economic Future:
From Best to Worst Case
[Today, Doug rounds out his Economic Future essay from yesterday. If you missed Part I of Doug's piece, in which he outlines his best- and medium-case scenarios for the next couple of decades, you can catch it here.]Doug Casey
for The Daily Reckoning
New penny stock guide for retirement wealth boosts, college funds, and play money windfalls reveals 3 easy steps for chances at penny stock gains.And now over to Bill Bonner with the rest of today's Reckoning
from Baltimore, MD...Shakespeare's iPad Is all this technology really making us richer?
Poor Jefferson. He learned Indian languages. He studied plants. He was a superb architect. He kept up a lively correspondence with hundreds of people. He invented things.Bill Bonner
for The Daily Reckoning
Friday, 10 June 2011
Posted by Britannia Radio at 21:35