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Steve's note: Our longtime friend Doug Casey is one of the most original thinkers we know...
He shared his thoughts on the euro crisis this week in the most recent issue of Conversations with Casey. Below, you'll find his predictions and a couple ideas on how to prepare for... The Greatest Changes Since the Industrial RevolutionFrom
Monday, May 17, 2010
Louis James: Do you think Greece will default?
Doug Casey: First, you shouldn't talk about "Greece" like that. We're talking about the Greek government's debt. And my view is that not only will they default, but that they should default. Generations of future Greek taxpayers should not be turned into serfs in order to pay for the excess of today's Greek politicians. And the people who lent the Greek government all that money to do stupid things with should be punished for both their lack of foresight and their collusion with corruption.
And it would be doubly good if this happened, because it would greatly hamper the ability of the Greek government to borrow money in the future, which would limit how much it could spend on all the disastrously stupid things governments spend money on.
I'll go further and say that all of these struggling governments, including the U.S. government, should default on their debts and punish the people foolish enough to lend them money. The world would be a better place if governments around the globe were unable to borrow money.
L: Okay, that may be what should happen, but will it?
Doug: I think so, sooner or later, but only when those in government see no other options. Entirely apart from the fact the nation-state is on its way out. Remember, defaults won't destroy what capital there is in the world. Technologies, factories, farms, mines, and such will still exist. They will just change hands. Hopefully, that will transfer a lot of capital out of public hands and into private hands, where it belongs.
L: But the EU has just made it very clear that, like the U.S., they will do "whatever it takes" to hold their doomed house of cards together. It doesn't look like they will let Greece – sorry, the Greek government – or any other government default.
Doug: Well, these idiots can say whatever they want, but they really have only two choices; they either default and their currency units might maintain some integrity. Or they can print up more currency units, which will destroy their currency. I think that's what's most likely to happen. That's why I keep saying that the euro is a total dead duck – it doesn't have a prayer of surviving.
L: So, let's inch a little farther out on the limb and put a time frame on this. I realize that's tempting the fates, but what the heck – we've got your crystal ball out already, what does it tell you?
Doug: Okay, if only for its entertainment value, I'll say that within the next year, we will see things noticeably coming unglued. And they'll just keep getting worse and worse, until governments finally get out of the way of what must happen to set things right, painful as that will be.
And for that to happen, the lapdogs and cheerleaders in the media, and the people who listen to them, have got to stop looking to the government for solutions to the problem. People have got to stop looking for clever men who will do the "right things" to make everything better. The government can't solve the problem because the government is the problem. It needs to... go away.
L: I don't think I'll hold my breath waiting for the masses to realize that.
Doug: No. The average guy has been educated to think of the government as both a cornucopia and his friend. When actually, it's a black hole and his enemy. That's why I sound like such a pessimist – I'm not a gloomy person, but the necessary understanding of economic fundamentals simply isn't out there. What passes for economics in mainstream thinking is built on quicksand, totally fallacious premises that guarantee disaster.
The masses of desperate people who think things are getting better are only fooling themselves; things are getting worse, not better, no matter what rosy lenses the governments put over the TV cameras around the world.
I'm not predicting the end of the world, but I'm convinced that the changes developing now will not only be the biggest changes since the Great Depression, but will result in the greatest changes to society since the Industrial Revolution.
L: So what would be some signs that things are really starting to come unglued? When will it be time to seriously batten down the hatches, maybe head to Cafayate, Argentina or some other place you've selected to weather the rest of the storm?
Doug: Well within the next few years, we're going to see accelerating destruction of the dollar. It may not look that way compared to the euro, but that'll just be because the euro is circling down the same toilet even faster, as is the yen. But the euro's purchasing power will start dropping by 20 or 30 percent per year, and then we'll start to see what's happening in Greece now happening in the U.S.
By then, it will have happened in Spain and Ireland, and with most of its customers tightening their belts, it will hit China as well. Americans, who've become used to living above their means for decades are not going to like tightening their belts, and it's going to get very ugly.
I hate to sound apocalyptic, but the whole world shows every sign of being on an economic volcano that's rumbling.
L: We'll need a requiem for the ill-prepared. This will hopefully not include our readers. So let's talk about investment implications. You said once that you could see the currency crisis actually being good for stock prices, as people fleeing depreciating dollars look for someplace, anyplace to park their wealth...
Doug: Yes. Well, at least notionally, stock certificates represent ownership of real wealth. Companies create profit – capital – or they go out of existence. But the problem with betting on a general stock market rally in response to a dollar crisis is that a lot of company earnings could evaporate, along with the notion that owning their stock represents any sort of wealth. So, yes, there could be a panic into the stock market, but that could be very short-lived.
L: What might you see as a sign that stocks, in general, are a good buy?
Doug: Needless to say, I want to buy low and sell high. Historically, when the stock market bottoms, not just in the U.S., but everywhere in the world, dividend yields rise over six percent, up to as high as 15 percent. Book values drop to less than one. Price/Earnings ratios drop to less than six to one. By those parameters, the general equities markets are still grossly overpriced.
So, yes, we could see stock markets going higher. With governments all over the world creating trillions of currency units, they will undoubtedly ignite more bubbles. One of those bubbles could be in stocks in general – but I doubt it. Not while there's such obvious reason to be pessimistic about corporate earnings. My best guess will be no surprise to you; I think the most likely bubble, driven by fear and greed, will be in the precious metals...
***
Steve here... I like Doug because he is one of the few original thinkers out there... and he freely speaks his mind. He's been right, he's been wrong, but he's always had a thoughtful opinion. I'm not sure if things will turn out as dire as Doug predicts. But at DailyWealth, we agree it's prudent to hold a portion of your wealth in precious metals, just in case.
By the way, to stay up on Doug's latest thoughts, you can actually receive the excellent weekly Conversations With Casey e-mail for free, no strings attached. It's "required reading" around the office, and definitely worth your time. Sign up here.
Further Reading:
Steve shares some of Doug's concerns… As he wrote last month, "We're facing the potential death of the American Dream – the thought that if you work hard and try hard, you can be as successful as you want. We're quickly replacing the American Dream with the European Politician's Dream…" Get his take on the best way to protect yourself here: The Potential Death of the American Dream.
Late last year, Porter wrote: "Given the choice between earning less than 1% in the bank and buying gold at $1,100 per ounce, I'm buying gold." If you haven't made that choice yourself, don't miss his full argument, here: Don't Fool Yourself: America Is "Now a Communist Nation."
Market NotesNEW HIGHS OF NOTE LAST WEEK
Goldcorp (GG)... Big Gold breaks out
Barrick Gold (ABX)... Big Gold breaks out
Newmont Mining (NEM)... Big Gold breaks out
Silvercorp (SVM)... silver
Silver Wheaton (SLW)... silver
IBM (IBM)... Big Tech
Akamai Technology (AKAM)... networks
Netflix (NFLX)... movies at home
Baidu (BIDU)... the "Google of China"
Altria (MO)... the amazing tobacco dividends machine
Legg Mason (LM)... asset management
Chipotle (CMG)... tacos and burritos
Whole Foods (WFMI)... expensive groceries
iRobot (IRBT)... military and commercial robots
Hugoton Royalty (HRT)... natural gas trust
Gold, Silver
NEW LOWS OF NOTE LAST WEEK
Monsanto (MON)... even its customers hate it
Dean Foods (DF)... dairy
Dole Food (DOLE)... fruit
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