07/26/10 Paris, France – There are two major schools of thought on what is coming next…and two renegade, home-schools too. There are those who believe we have a recovery…though weak…that will continue and eventually bring the economy back to health. This is the line of the Obama Administration and most mainstream economists.
Then, there are those who think the recovery will not come as planned…and that the feds’ efforts to spur a recovery – along with strong demand from Asia and the emerging markets – will lead to higher levels of inflation, destroying the dollar and bonds. This is what Marc Faber expects. He urges listeners to avoid going too heavily into cash, since it might be the number one victim of inflation. Instead, you’ll do better in stocks and real estate, he says.
A third line of thinking is what Faber calls “hard core deflationism” – typified by Robert Prechter and Gary Shilling. They think the de-leveraging trend will be catastrophic – leading to outright deflation, taking the Dow down below 1,000, for example.
Then, there’s The Daily Reckoning line. You can call it “soft-core deflationism”:
1) There is no recovery; there won’t ever be a recovery
2) The de-leveraging period will be longer and harder than people expect…leading to spells of deflation and double…triple…dipping
3) The feds will fight it with every weapon available
4) However, they will not push the ‘nuclear button’ – wanton, reckless money printing – until the bond market cracks
5) It will not crack soon, because the feds are incompetent; they will not succeed in getting higher rates of inflation; at least, not soon.
6) The dollar will remain strong. Bonds will go up…for now…
7) The Dow will fall…but not below 1,000…probably not below 5,000
What does that mean for gold? Well, it means gold won’t do spectacularly well. It might decline…say, down to $850 or so.
Eventually, the bull market in gold will resume, however. You can’t keep a good metal down. Just don’t expect it to go up dramatically while the private sector is reducing its debts in an orderly fashion.
Does that mean you should sell your gold? We wouldn’t if we were you. Because something could go very wrong. Another big bank failure. A blow-up in China. It wouldn’t take much to cause a panic. Investors could turn to gold for security.
Or, maybe the feds will panic…and dump dollars from helicopters as Ben Bernanke threatened.
Besides, we could be wrong. Predictions are always difficult to get right. Especially when they’re about the future.
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
it really sounds as it is;
based on it prediction is almost perfect,
How about this scenario? We will have a global recovery without the U.S. as a participant. The dollar will drop and purchasing power for Americans, will diminish. Real wages for American workers, adjusted for inflation, will also continue to fall. Input costs for American firms will rise to compete with the growing global demand for commodites. Stagflation will haunt the United States for years to come. American business will finally get their cheap labour cost, but their economy will lay in ruin.
Stocks can go up, down, sideways and away.
Time to fasten my seat belt and hang on.
I highly recommend Krakondack blog post: wow! Finally somebody clearly explains what’s going on….Does anybody find any flaws in this blog/post? If you do, please post them here, as I am very curious to know.
http://krakondack.wordpress.com/2010/07/26/the-truth-about-money-inflation-and-deflation-part-i/
.
I wish to point out a bit of cognitive dissonance in the Daily Reckoning email of 7/26 entitled “Too Much Debt, Not Enough Oil”
In the first part, titled “The Troubling Truth About Future Oil Prices”, Bill says:
“We are flying over western Canada, on our way back to Paris. We already crossed the Rockies. Below us now is a patchwork of rectangles and squares. They are either light green…some more blue-green…or pale greenish yellow. Dotted with lakes and crossed by roads, the place looks flat and forlorn.
What do people do down there? They are farmers, of course. But do they live in those tiny boxes on the edges of the squares? And do they get in their pick-up trucks and drive somewhere? Where do they get supplies? Where do they go to restaurants and bars? We see no sign of any towns…just long lonesome roads leading as far in the distance as we can see.
There are no trees. No hills. No parks. No towns.
We’ve been flying for about half an hour over this section, at more than 500 miles per hour. Down below is an area still laid out in squares…but with no sign of any crops. It looks like a wasteland”.
For someone who is supposed to know about good investments, among which good agricultural land is one of the best, Bill Bonner looks to be woefully ignorant of the central breadbasket region of the world, and agricultural practices in general.
What on earth does he think these green rectangles are, but crops in various stages of growth (this being the middle of the summer and all)
I do not think I would take agricultural investing advice from him, given the mess he has made of his South American agricultural operations.
Since its now common sense the financial industry and their money managers “Are The Government ” does this mean sycopaths, making the best CEO’s afterall by their lack of fear and empathy for their fellow man ,will through competition with one another be the only type of Corporate ,political leader that can succeed in today’s New World Order race to the bottom the planet , economic and environmental sustainability be damned?
Have a great day!
Dro, thanks for the Krakondack link. Those articles were clear and covered the ground well.