A Moment Of Clarity

In a rare opportunity to sit and enjoy the ambiance and view of the Bay with one of my favorite people, I met up with Fred at a local seafood shop. We finally had a chance to sit and talk about investing. Fred is a broker for a great company many of you would recognize by name. And as with most large brokerages, their policy is buy and hold for life. So I'm not giving away any trade secrets.

Fred, being the really great person that he is, has felt his clients pain as they have taken a beating in this last stock crash. I can see the concern he has for people he has known for years, clients as well as friends, and I can tell that my oft stated opinions on the direction of the markets and economy, don't sit well with him.
We discussed many things but I'm afraid I missed an opportunity to illustrate my concerns.
Fred asked me why I believed that the markets were going to crash again. Rather than explain my overall view, I pulled out just one of the many things that come together to complete "The Big Picture".

So Fred, here's what I should have said;
It all started a few years ago when I read a book by Harry S. Dent, The Next Great Bubble Boom Ahead. Mr. Dent, while not perfect, has been spooky accurate in his predictions. His research on demographics are incredibly insightful and it is not possible for me, to ignore the implications. One of his overarching concerns was the cycle of retiring Baby Boomers. The economic effects of this segment of the population have been, and continue to be, profound and they are impossible to deny. Mr Dent does an excellent job of explaining this. That's just one piece of the puzzle, and his book contains a multitude.

Another piece comes from my research into precious metals and as my regular readers know, the historical cycles are well established and we have been following those patterns perfectly.

Yet another chunk of evidence comes from the political climate that we are in and it seems as if, for years, our leaders have had no regard for the lessons of history and indeed seem to be rushing toward disaster with oblivious glee. If my aim was to destroy a country's financial health, I would do everything that these clowns have been doing for the last 20 years. Starting with "Read My Lips, , ," and culminating with "Hope and Change". And yes, I am including Alan Greenspan, Ben Bernanke Hank Paulson, Et all, on the list of big shoe, red nose and funny hat crowd.

And then there are the Kondratieff Wave theories. Without boring you to tears with the details, suffice to say that, when applied to the last 300 hundred years, these cycles have repeated themselves roughly every 50 years without fail. With the current downtrend looking to bottom in 2020. That's 10 years of decline before we can look toward expansion.

Just the one fact, that no country has ever devalued it's currency with successful financial results, in 4 thousand years, is enough to make me trade in my cash for tangible assets. But when you add in all the above and think about levels of Government debt, spending and revenue generation, and the ignorance of a population willing to embrace socialism, it is impossible for me to come to any other conclusion than this, we are facing the perfect storm.
I am constantly researching and for every positive economic argument I come up with, there are 5 counter arguments which negate it.
There is one intangible positive out there. and while it is impossible to quantify it is also impossible to ignore. That is the inventive, ingenious, stubborn, indomitable American spirit.
That's our wild card.
So while I can't ignore the gathering storm clouds, I still have some hope that we can sail around it. But I am continuing to rig for stormy weather.
So Fred, I hope that answers your question more precisely.
Will I be right about my dire predictions? For once in my life I would welcome being wrong and Lord, I hope I am.
With all that said, the portfolio I have put together should do well in a booming economy as well. I will continue to look for those assets that are in demand no matter what the economy does. People will always need to eat, they will always consume energy, they will always need clothing and shelter. And even in the worst of times they will always seek entertainment. Which brings me back to seeing Fred over looking the bay and sipping a glass of wine. Alcohol should be added to my portfolio. I'll find us a good one for next time.

Good Luck and Godspeed

JT