That Sinking Feeling

first_imgThe steady drumbeat of good news is getting infectious. The Dow Jones has rallied almost 40 percent from its bottom on March 9. The Federal Reserve expects the economy to pick up in the second half of this year. Homes sales rose 11% in June and corporate profits strengthened in the second quarter. Pres. Barack Obama has signaled signs of “green shoots” on the economic landscape. Alan Blinder, the former vice chairman of the Federal Reserve Board, recently pronounced in an op-ed in the Wall Street Journal, “The Economy Has Hit Bottom.” The Aug. 3 cover story in Newsweek went even further, declaring boldly, “The Recession is Over.”But before you get giddy, several economists caution that we may be witnessing a false lull before the storm, that the temporary economic boost is propelled by the nearly $1 trillion infusion of government bailout money to financial institutions and the economic stimulus package. They fear that we are on the verge of a double dip recession and that the second recession could be longer and deeper.  A handful of prominent investment and trend analysts and scholars are decidedly alarmist, even projecting a depression that will rival the Great Depression of 1929. Gerald Celente, founder of The Trends Research Institute, which the Los Angeles Times once described as the “Standard and Poors of Popular Culture,” forecasts “Food riots, tax protests, farmer rebellions, student revolts, squatter digins, homeless uprisings, tent cities, ghost malls, general strikes, bossnappings, kidnappings, industrial saboteurs, gang warfare, mob rule, terror” by 2012 in the latest edition of The Trends Journal.Truth is, economic forecasting is a hazardous business even in less rockier times. Federal Reserve Chairman Ben Bernanke recently quipped at a public town hall, “Economic forecasting makes weather forecasting look like physics.” These days many economic indicators are defying both logic and historical patterns. It is the reason why, despite many reassuring economic signals in recent weeks, national anxiety remains palpable.To gauge the view from the other side, Little India turned to Celente and three other prominent advocates of the counter intuitive perspective: investor advocate Martin Weiss, author of New York Times bestseller, The Ultimate Depression Survival Guide; economic forecaster Harry S. Dent, author of another New York Times bestseller The Great Depression Ahead; and Southern Methodist University economist Ravi Batra, author of The New Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos. Bull Turned BearHarry S DentA popular speaker on economic trends and a frequent commentator on TV shows and the financial press, Harry Dent is the unlikely author of the New York Times bestseller The Great Depression Ahead, after authoring The Great Boom Ahead in 1992, which he followed up with two other bullish bestsellers The Roaring 2000s and The Roaring 2000s Investor.Your 2008 book The Great Depression Ahead and subsequent newsletters predict another stock market crash that could cause the Dow to fall to 1800-3800 by next year. But many economists and officials in the Obama administration believe the economy is turning a corner. Do you think the U.S. economy is out of the woods yet?This is not a normal recession or stock crash. It represents the peaking of the massive Baby Boom generation around the developed world from Europe to North America and these affluent consumers will be predictably shifting from spending to saving over the next decade despite stimulus programs. In addition, we are seeing the peaking of perhaps the largest credit bubble in modern history that centered around an unprecedented bubble in housing and real estate, including emerging country cities from Mumbai to Shanghai to Dubai. Such credit bubbles take more like five years to deflate and sometimes longer.  Consumers and businesses are saturated with credit. Hence, stimulus programs will be short-lived as well. As the developed countries turn down again from 2010 onwards, exports in emerging countries will continue to fall and burst the massive emerging market bubbles from China to India to Brazil to Russia and beyond. We have seen a concerted worldwide boom and bubble from 2003 to 2007 that is being followed by a worldwide bubble burst and deleveraging from 2008 into 2012 or so.You are more bearish than many mainstream economists. What are you seeing that they aren’t?I was also one of the very most bullish economists from 1988 into recently due to the massive Baby Boom spending and information technology trends we have been tracking. We are more bearish now, as all of the key cycles we track are peaking and turning down in the coming years especially, and longer term into 2020-2023.We have seen major stock market and economic tops about every 40 years in the last century due to the demographic/generational trends with peak spending occurring around age 46 in developed countries. A 29-30-Year Commodity Cycle is also peaking and that hits the recently booming emerging countries from Southeast Asia to the Middle East to Latin America to Africa. Hence, the perfect storm of peaking demographics in the more affluent developed countries and a commodity and export bust in the emerging countries. Again, this is the most concerted worldwide bust in modern history.Do you still think that we are at risk of a depression?We forecast the next great depression to occur between 2008 and 2023 all the way back in our first book, The Great Boom Ahead, in 1992. We said back then and continue to say now that no amount of government stimulus will prevent this massive deleveraging of credit or the Baby Boom slowdown, any more than it did in Japan in the 1990s or in the U.S. in the 1930s or in Southeast Asia from late 1997 into early 2003. Such major financial crises typically take 3.5 to 8 years to work out, or around 5 years on average.This is not a normal recession or stock crash and the stimulus programs will be very short-lived in their impact as we will see one banking crisis after the next hit, from the growing prime and commercial real estate defaults in the U.S., to a lackluster recovery and further defaults on East European and real estate loans in Europe to the continued bubble burst in emerging countries from falling exports and real estate and stock prices. We don’t see coming out of the worst of this crisis globally until around late 2012 to early 2013, and we don’t see the next concerted global boom until 2020/2023 into 2035/2036.What do you project the unemployment rate will be at the end of 2009 and the end of 2010?We see unemployment in the U.S. bottoming between 10.5% and 11% in late 2009 — and that may paradoxically trigger another round of commercial and residential loan defaults even as the U.S. and other economies start to recover. By early to mid-2011 we see peak unemployment rates in the U.S. around 14% to 16%, and possibly higher.What do you project the Dow Jones average will be at the end of 2009 and the end of 2010?  We see the Dow peaking between 8,950 and as high as 11,300 between late July and early September of 2009 and then crashing again to as low as 1,800 to 3,800 by late 2010. Even in our book, The Great Depression Ahead, which was written by mid-2008 and published in late 2008, we predicted a bear market rally into the summer of 2009 based on predictable stimulus programs that would ultimately fail.When will housing prices bottom out?The real estate bubble started in 2000 in the U.S. (and most countries) when tech stocks crashed and investors switched rapidly to real estate speculation (and to commodities and emerging stocks markets as well). In the U.S., home prices would have to fall around 55% from the top at best or 65% at worst (1996 lows). In Japan, the housing bubble occurred from 1986 to 1991 and housing prices bottomed back at the 1986 levels or down around 63%, with commercial prices going much lower.We expect different markets in real estate to bottom between mid-2011 at the earliest for lower end starter homes; and then vacation homes around 2012-2014 and commercial real estate between early 2013 and early 2015. Larger trade-up homes or McMansions may be more stagnant off and on into the early 2020s. Anywhere in the world our guidelines of 1996-2000 prices are likely to be reasonably accurate.Do you think our money is safe in U.S. banks?It is hard to judge how far this banking crisis will go. There is much more leverage than in the 1930s crash, but the U.S. (and most other banking systems) are much more diversified with more government safeguards. But given the U.S. government and others providing so much stimulus and so many guarantees, how good will they be able to make on this in the end? Therefore, it is best to put your conservative money in an investment account (not a savings or checking account) in straight T-bill accounts.… It is hard to judge which banks are safe given the recent meltdown that few saw coming.… If you have an investment account with a bank or brokerage firm, they cannot raid that account to meet their reserve requirements or failing assets. But if you have a normal checking or savings account, they may not be able to meet your withdrawal demands if many others withdraw at the same time — hence, “a run on the banks.”It is also best to diversify in safe deposits around the world to diversify against currency risks in the U.S. and elsewhere. However, currently, our indicators suggest that the U.S. dollar is getting very oversold and the Euro and many other currencies are getting overbought. It is likely better to bet on the U.S. dollar for the coming months and against the Euro and Swiss Franc and Japanese Yen.What advice would you give people regarding their investments or retirement accounts?We advise selling stocks between late July and early September and selling non-essential real estate (especially investment and vacation homes) by this fall. Simply hold cash or safe investments until buying opportunities come between late 2010 and early 2013 in different sectors, or for several months ahead, more aggressive investors can invest in counter stock funds, like Short S&P 500, or in crisis hedges like gold, silver, oil and natural gas.What can individuals do to minimize their financial or employment risks?Keep your job and any reasonable interest loans. Create as much short term cash flow as possible in your job or in your business or outside interests. Cash, cash flow and credit will be key to taking advantage of “the greatest sale on financial assets of a lifetime.” Most people will see their assets, cash, cash flow and credit so compromised that they will be a loser, not a winner. Businesses need to see this as a “survival of the fittest” shake-out where even though your sales and profits may decline, as long as you survive and decline less than your competitors, you will win long term by gaining market share and assets at their expense.What do you think are the greatest risks to the U.S. and global economy at this time?The first major risk is rising defaults on prime residential and commercial real estate loans due to rising unemployment as a lagging indicator even though broader sectors of the U.S. and other economies are starting to recover in late 2009. Rising interest rates from the expected recovery and potential inflation risks from so much stimulus will also hurt the real estate recovery as mortgage rates go up, bringing affordability down.The second will be that Europe has its “subprime crisis” in East European loans and extreme real estate collapses in Spain, Ireland and Great Britain. The signs of recovery in Europe are not strong as in Asia and even in the U.S. Hence, Europe could also trigger the next wave of bank loan defaults that reverberate around the world banking system.Finally, we have broader geopolitical cycles of risk that have turned down from 2001 into around 2019, but have distinct sub-waves of terrorist and other events every 8.5 years that are set to peak again between late 2009 and mid- to late 2010 after the last major event in September of 2001. Many events ranging from a civil war in Iran, to Israel strikes on Iran, to failures in Afghanistan or Iraq, to a major terrorist strike in Europe or the U.S., to drug wars on the border of Mexico, to North Korea tensions, to India/Pakistan tensions, could disrupt world trade and oil prices.What political shifts do you foresee as a result of these economic forces?I see major shifts first towards growing economic and military power towards Asia (China first, then India more so), and away from Europe and Russia. The U.S. will be competing as the largest economy with China and India in the decades ahead. After globalization and trade contraction and that appears to fail at first, I see a greater move towards globalization in the next boom from the early 2020s into the 2030s and beyond. We also need to see credible global institutions emerge to deal with global trade agreements, global warming and terrorism, etc. We will also see more territorial and dictatorships fail after accelerating near term in many emerging countries. The growth in the coming decades will clearly be in the emerging countries and more clearly in Asia.Which countries do you think will emerge better positioned out of this recession?China will likely emerge stronger at first after 2010 or 2012, but India will be the greatest winner between 2020 and 2065 due to better demographics and rising urbanization. China (and broader East Asia, including Japan and South Korea) will age increasingly along with Europe and Russia and start to fade in the next boom.The broader boom will come at first in India and Southeast Asia and then expand back into other emerging countries (The Middle East, Latin America and Africa with more commodity exposure) in the next and likely very strong commodity boom cycle from the early 2020s into the late 2030s.North America will remerge in this next boom to a lesser degree, as will Australia and New Zealand. Europe, East Europe and Russia will lag increasingly due to aging demographics and slowing productivity. Russia will be a target for natural resource acquisition (and potential wars) by China and India. India is the single large country best positioned to boom in the coming decades, from 2012 into 2065 or so. Of the developed countries I would rate Australia first, then Canada, then the U.S.Morass of Bad Debt Martin WeissMartin Weiss, a financial market analyst, is head of Weiss Research Group and publisher of the Money and Markets newsletter. His April 2009 book The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income and Grow Wealthy Even In The Worst Of Times made the Wall Street Journal and New York Times bestsellers list.Many economists and officials in the Obama administration believe that things are turning around. The stock market has been rebounding. Do you still believe we are at risk of the depression your book The Ultimate Depression Survival Guide claims?  The government stimulus package, but also all the efforts of the Federal Reserve to pump money into the economy will have some effect and the impact they are having is to turn a bad situation into a less bad situation and that shift is perceived as good news and so if that transition is helping consumers to become more optimistic, it is helping to bring optimism to Wall Street and so temporarily you see a stabilization and that temporary stabilization will last several months, maybe into the year.But none of the steps that the government has taken have addressed the underlying causes of the crisis we are in today. By shoving the problems under the rug and tamping down the fears artificially, all the government is doing is prolonging the agony. We don’t feel the immediate pain as much as we would feel now, but that makes it worse for the next time the economy starts running down, which could be as soon as next yearWhy are mainstream economists going along? What are you seeing that they are not?Several things. Number one, we are seeing things from a bigger, longer perspective rather than 2-3 yrs. We are looking over many years, going back as far as the Great Depression. There are many matrix today that indicate that the situation today is fundamentally worse than it was at the time of the Great Depression, or early years of the Great Depression. For example, industrial production globally is declining at the same pace as it was in the first years of the Great Depression. Global trade has been declining at approximately double the pace of first 2-3 years of the Great Depression. Unemployment today is approximately equivalent to first 2-3 yrs of the Great Depression. More importantly, the debt, as a percentage of GDP today is several times larger than it was in 1929. That excludes the derivatives, which barely existed, didn’t exist, in the 1930s.There are many reasons to believe that this is a very serious situation. I don’t think typical economists look back as far. They look back as far as the last recession or last couple of recessions, so their time horizon, in our opinion, is too short sighted.The improvements we are seeing here are almost entirely driven by the government’s very unusual and unprecedented intervention in the economy. It is a very, very strong medicine It is what the doctors would call the big guns, very strong antibiotics for the economy and it has very serious, known side effects. The first obvious side effect is massive out of control budget deficit. The second side effect could be return of inflation, rising prices that got us in the mess in the first place.What do you project unemployment rate will be end of 2009 and end of 2010?The Obama government is projecting it will rise to about 10% or more. We don’t disagree with that.… At end of 2010, I would say that unemployment would be significantly above 10%. The peak unemployment in the Great Depression was over 24%. We don’t believe it is unreasonable to forecast as much as 16%. It’s hard to pin down the time. I don’t know if it is fair to say when exactly that peak would be reached.What would you project the Dow Jones to fall in 2009 and 2010?Dow Jones is obviously going higher at this time but we could expect before this crisis is over it could be as low as 5000. But we can’t pin a time to that. It’s difficult to say exactly when.What about housing?The same pattern. Housing may experience some continued improvement. Prices have come down substantially. That was one of the biggest problem, high prices. Most people see falling prices as part of the problem and we agree, but it is also part of the solution. Thanks to the falling prices in recent months we are seeing more demand coming into the market and we are seeing improvement in the housing market, which can continue for rest of year. However if we are right about interest rates going higher, that could be a coup de grace for the housing market.So one can’t really time any of this. What can someone who is looking at taking decisions do?It is hard to pin down time. Essentially advice is for remainder of the year to take advantage of the better prices and improvement to get your house and your financial health in order. Use this interlude between the first phase of the crisis and the next phase of the crisis as your opportunity to calmly and deliberately go about getting ready for the storm. This is a calm before the storm. Even if it lasts as much as a year, it does not change the fact that there is another storm coming.Use this opportunity to raise cash, reduce debt, move from high risk investments to low risk investments. Essentially, do all the things you wish you had done in 2007- 2008 before this past phase of the crisis.Is an individual’s money safe in U.S. banks, and does it matter as they are all protected by the FDIC?  I think it matters. Even if the FDIC reimburses you for your deposit, it does not guarantee you can get the same rate that you were promised. The FDIC does not guarantee that you will continue to have revolving credit agreements with the bank if a bank fails. FDIC is clear about this. They are clear that more banks will fail. In fact they are predicting that quite a few additional banks are going to fail. The FDIC is clear that they are not giving any guarantee except returning your principal, the money you have in your account, up to a maximum of $250,000. With that in mind, there are three things you can do:• Make sure you keep your deposits comfortably under the $250,000 limit;• Make sure you are doing business with a strong bank that is strong in its own right, independent of the FDIC. It is good practice to do business with strong business partners;• For some portion of your money it makes sense to bypass the banking system entirely. Open an account directly with U.S. Treasury Department. Their yields are quite low right now, but that’s the price you pay for absolute safety. The treasury bills have certain advantages over a bank. The first advantage is there is no one between you and your money. You have a direct account with the treasury and direct guarantee of the treasury. The second advantage is that there is no limit on the guarantee.What is your advice for investment and retirement accounts?Well, I would recommend that you keep your 401(k) accounts; there are tax advantages in that. But I would use the next several months, if the market continues to improve, to move from higher risk investments to lower risk investments. I do not believe long term that stocks will continue to be a viable savings vehicle. They are investment and speculative vehicles, but it is a mischaracterization to say that they are good vehicles for long term savings and recent history proves that. You are much better off for savings vehicles in your 401(k) or IRAs to use more conservative investments, such as money markets, bonds, types of instrumentsWhat can individual do to minimize their employment risks or other financial risks?The primary step is, as I see it, is to build a cash nest of your own, an emergency rainy day fund to protect yourself against future loss of income, either because of losing your job or other problems that may affect the economy. Unfortunately as far as job security is concerned, there aren’t many safe havens. If the unemployment is surging it seems to be doing so across the board, including government and central government. So it is difficult to say at this time to go to this industry or that industry.What do you think are the greatest risks to the US economy in the global economy at this time that could make things much worse?Right now things have stabilized temporarily. But looking forward, the biggest risk is going to be rising interest rates on U.S. long and medium term securities, which could drive mortgage rates up, borrowings rates up for consumers, which would have a very negative impact on the market again.I would say we would see things deteriorate again next year and then continue on for several years and the reason is that I would have hoped we could have gotten it over with sooner and get it behind us, liquidate some of our bad assets, bad debts and move on. But unfortunately that is not what is happening. They are papering over the crisis and effectively prolonging the agony. So instead of a quick and deep crisis that helps pave the way for a true and healthy recovery, we are seeing artificial attempts to stem the crisis, stop the crisis and it is only going to prolong the agony in the long term.What do you anticipate will be the long term effects of this global crisis? Do you also anticipate political and global shifts?We are witnessing a millennium shift, a power shift from West to East. So, if you look at the global economy, it is pretty obvious that Europe and North America are at best going to experience slow, sluggish, interrupted growth whereas the Indian subcontinent and East Asia are experiencing more rapid growth.The key long term factor is that North America and Europe are now bogged down in a morass of bad debt all the way from the household to the federal government level, whereas China, India, Brazil and some other countries, actually have much lower debt level and larger cash surpluses. So financially speaking from the household level to the federal government level these countries are sounder financially.It used to be the other way round. It used to be that United States had all the capital and these countries were heavily reliant on the U.S. and maybe Japan and Western Europe for capital. It has turned upside down. It is hard to believe that countries like Brazil, China, and to some degree India, have become America’s greatest creditors. Even Brazil has a very big stake in U.S. Treasuries.Apart from these countries, do you see other countries that might be better positioned?I believe some of the other countries in addition to Brazil, China and India, such as Indonesia, Malaysia and South Korea, will benefit. Interestingly Indonesia and Malaysia have a sounder financial situation today because of some Muslim-Islamic oriented traditions and restrictions on debt and interest, which may sound antiquated and feudal, but in practice it has helped them to be more conservative financially and fiscally. So right now, for example, Malaysia and Indonesia are doing better than Thailand and Philippines and other non-Muslim countries.If these economic conditions continue to get worse can you see a political backlash that affects immigrant already in the U.S.?I hope not, but unfortunately my hopes don’t necessarily translate into government actions. We have seen in the past certain segments of society that scapegoat immigrants, use bad time as an opportunity to look at the economy as zero sum game. It is very short sighted, but unfortunately a pretty large minority of Americans respond that way. We see the same thing in Europe where we’ve seen rise in anti-immigration politics of the right. Their message tends to have more resonance with the public when unemployment is high.That is unfortunately fact of life. Under the Obama administration, given the political climate we are in today, I don’t think it will be a serious concern. I believe that especially in a deflation, depression, the political practice that ultimately prevails is the trend to shared sacrifice and the recognition that we all are in this together, we all have to step up and bite the bullet together. I believe that trend will prevail.Depression by Year-endRavi BatraRavi Batra, professor of economics at the Southern Methodist University in Dallas, built his reputation with startling economic forecasts, most notably his inaccurate forecast of The Great Depression of 1990 and the more recent accurate prediction of the 2001 meltdown in Crash of the Millennium. His latest book, The New Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos, released in 2006 speaks to the current economic implosion.In your latest book The New Golden Age, you are quite pessimistic about the prospects for the U.S. economy. But many economists and officials in the Obama administration believe the economy is turning a corner. Do you think the U.S. economy is out of the woods yet?There is some improvement in the economy because of the inventory cycle, as retailers cut back on orders in the past because of falling demand. Now they are restocking, which is temporary. There is no fundamental improvement or change, and once inventories have been replenished, production will fall again.You have been more bearish than many mainstream economists. Why so and what are you seeing that they are not?  Mainstream economists, strangely enough, don’t look at supply and demand. If they did they would not be so optimistic. Here’s a bird’s eye view of my theory.A healthy economy requires that there is a balance between supply and demand.… Without this balance, there is either high unemployment or high inflation. The main source of supply is labor productivity, whereas the main source of demand is the real wage, or people’s purchasing power. When productivity rises, production or supply goes up and when the real wage increases, consumer spending, and hence investment spending, go up.… If the real wage fails to grow as fast as productivity, then over time, a wage-productivity gap develops and supply is greater than demand.…There is another way through which demand can be raised — new debt. It is an artificial way, and cannot be used forever, but it can postpone the problem for a long time, while the potential economic imbalance builds and cumulates. From 1981 on, U.S. budget deficits, with former Fed Chairman Alan Greenspan advising Pres. Ronald Reagan, grew apace. Economists called it fiscal policy, but in reality it was a debt-creating policy. This is how the supply-demand balance was maintained in the presence of the rising wage gap. Thus, for a while, economic balance occurs….A time comes when people run out of good collateral and lenders become wary of new loans. A banking crisis is then inevitable, and this crisis cannot be resolved just by doling out money to the banks. Our government has been doing precisely the wrong thing since 2007. The economists are confused between the cause and effect.The ongoing banking meltdown is the effect, not the cause of the slump. Rewarding the banks with trillions is to treat the symptom and ignore the real cause, which is the rising wage gap. Until that cause is removed by following policies that raise wages to catch up with sky-high productivity, we are not going to come out of our recession.Do you think the administration is being overly optimistic in its economic projections?Excessive debt is the cause of our crisis, which cannot end by creating more debt. Until employment starts to rise, recession continues, and the administration economists have miscalculated the effect of the government stimulus on employment.Do you still think that we are at risk of a depression?  In The New Golden Age, I predicted that economic chaos would begin in 2007 with a housing meltdown in the United States, followed by a banking crisis and share price declines in 2008 and 2009. I now foresee that this crisis would last at least till 2010, and possibly longer. This is because conventional economists still do not understand the nasty economic effects of the wage-productivity gap, which has grown enormously all over the world. If the doctor does not diagnose the sickness properly, the patient has to suffer for a long time.… Our recession will soon turn into a depression, possibly by the end of the year.What do you project the unemployment rate will be at the end of 2009 and the end of 2010?The unemployment rate at the end of 2009 will exceed 10% and could go as high as 15% by the end of 2010.What do you project the Dow Jones average will be at the end of 2009 and the end of 2010?Most likely around 6,000.When do you expect housing prices to bottom out?Perhaps next year.Do you think our money is safe in U.S. banks?Banks are safe, because they have the backing of the Federal Reserve, which can print as much money as it wants.What advice would you give people regarding their investments or retirement accounts?Buy gold ETFs, such as GLD, and sell monthly options on them.What can individuals do to minimize their financial or employment risks?People should save as much money as they can. Those still employed should not try to move to another job, because they could lose their seniority and be the first to be fired in the future. Small businesses should not expand and not offer goods on credit, etc.What do you think are the greatest risks to the U.S. and global economy at this time?  Goldman Sachs and the like are the biggest risk to the global economy. They are back to their shenanigans of the past, which through speculation raised the price of oil to new records. They are doing this again, but this time with the help of taxpayer’s money.What do you think are the biggest miscalculations of Obama’s economic team?Obama’s team like Bush’s is focusing on Wall Street and the banks, and is unaware of the true cause of the economic debacle. It thinks that government spending can replace private spending, which has plummeted. And it is trying to protect the status quo, which means business as usual for big business.The president lost a great opportunity when the Dow was at 6,500, because he could have then taken on the speculative machine of giant financial firms and broken them into smaller companies. Now it is too late, because the Dow has jumped and he has to wait until another crash hits the nation. But he will soon get another opportunity, as the Dow is likely to crash soon.What do you think are the long term effects of the current global crisis?The long term effects are great. The world is moving toward a golden age, which, for the first time in history, will eliminate poverty all over the globe.Which countries do you think will emerge better positioned out of this recession?The United States will remain the world economic leader, except that the globe will become poor until the rule of money evaporates. Then we will see unprecedented prosperity.Still Got Two EyesGerald CelenteTrends analyst Gerald Celente, founder of The Trends Research Institute and publisher of The Trends Journal, built his reputation by accurately predicting the 1987 stock market crash, the 1997 Asian economic crisis and the “Panic of ’08.” He has attracted both attention and ire in recent months with his increasingly dire projections, which he titled as “Obamageddon.”In the latest The Trends Journal you make very dire predictions of tent cities, food riots and tax rebellion by 2012. Do you still envisage conditions will be as bad as you were projecting?  Economists now predicting recovery are the same people that were saying recession wasn’t here even when we were in recession. Go back to the campaign in 2008, they didn’t start talking about the recession until the Fall of 2008 even though the recession began in December 2007.These are the same people talking about green shoots a couple of months ago and as you go back to the beginning of the year, they said we would be in recovery by second quarter of 2009. The Obama administration, which began with a stimulus package, had estimated that without the stimulus package, unemployment in 2009 would be at 8%. We had a stimulus package and unemployment is at 9.5%. They had also said that they would create by mid-year 600,000 jobs and we lost 2.5 million. At best, at best, they saved 150,000. All their forecasts are wrong. There is nothing they have forecast economically that has come to pass.But the improving signs of bank profits and new financial earnings reports, don’t give you hope?Let’s look at the bank reports. We know that hundreds of billions of dollars of taxpayer money has been given to the banks and they refuse (this is like fiction), to tell the people (the taxpayer) who gave them money, where the money went, how they are spending it.If you gave me, as they gave Goldman Sachs, $13 billion to cover losses with AIG — 100% coverage of losses — converting Goldman Sachs for from a brokerage firm to a bank holding company, giving them access to $10 billion, plus all the loans and benefits they are giving them at discount prices, could you show a profit? These are profits that are pumped up by bailouts, rescue packages and stimulus plans. Yesterday the market went up because Caterpillar showed better earnings than they had thought, or rather losses less severe. They are not better off; their profits are off 66%. Who in the real world wouldn’t call that depression level results? I would consider that atrocious. What you didn’t have a 77% decline? Oh, you only lost one arm and a leg, but you still got your two eyes and the use of one leg!You have said this bailout bubble can be more lethal than the earlier bubbles. Can you explain?In The Trends Journal in 2004 we predicted the great recession. We noticed it would happen. It was very easy to see that after the dot com crash in March 2000, rather than letting Wall Street take its $5 trillion worth of speculative losses that were built up by the dot com boom, the Federal Reserve began to lower the interest rates to 46 year lows. They created this borrow and spend mentality that was unprecedented in American history.You want to buy a new house, borrow on your old one; with your new equity loan, you can build that new addition, go on a vacation, buy a new car, send your kids to school, go on a shopping spree. Your house is a piggy bank.So housing as an asset became artificially inflated by the availability of historically cheap money rather than letting the bubble burst. With the bailout bubble, they have added $13 trillion worth of phantom money.This isn’t real money, it is phantom money printed out of thin air, based on nothing, backed by nothing. So they are creating a bubble, but when this financial/real estate bubble bursts, it is worse than the dot com bubble, because now government has an equity position in these companies, and they have government executive powers and management controls. This is unheard of in American history. This used to be the entrepreneurial empire of the world, that so much of the world respected and revered as the capital of entrepreneurism. No more.You developed a fair amount of credibility in the media with your previously accurate predictions. But some of the things you are saying sound shrill. Do you really believe it will be as extreme as you are saying or are you trying to pierce through the clutter of the positive blather?Not at all. We take what they are saying to be extreme. How could people believe these people when everything they said is wrong. If you can show me they are right here, I’ll say fine, we’re only humans, we all make mistakes. But we can say with all certainty, and we say it over and over again, you cannot print phantom money out of thin air based on nothing, backed by nothing without destroying the economy. Look at Brazil, India, China, Russia, the BRIC countries, they all talk now about another reserve currency.But when you say food riots, tent cities and tax rebellions?  Tax rebellions, let’s take that. Go back to 2007, we wrote about tax revolts when George Bush was president. We saw this coming. Current events inform future trends. They are squeezing the people at every level. Look at what is happening in California. Tax rebellion is already happening. They are trying to downplay them when tea parties and tax protests happen. This hasn’t happened in America before in my lifetime. And now they are commonplace. They happened in April and again on the 4th of July. This is just the beginning. Food riots, oh yes. When people get hungry, when they have nothing to eat, you are going to see a lot of ugly scenes happen in America.What would you project the unemployment rate to be at end of 2009 and end of 2010?It will probably be heading towards 11% by end 2009 and by 2010 it could well be into 12-13%.Where would you project the Dow Jones?We don’t know. The Dow Jones is a different game. It can go in any kind of direction. When you go to the Great Depression, you saw the Dow Jones improving. It is not an economic indicator, it is a casino.When do you expect housing prices to bottom out?It could be many years. It could be a decade. There are two buying seasons in America, Spring and Fall, period, paragraph. Spring buying season was a bust and Fall does not look any better. It is very dismal for the future.Do you think our money is safe in U.S. banks?We don’t give investment advice. I tell you what I do. I am a big believer in gold and I think Indians like gold. I hedge my money. In my business I need cash, so I spread it between euros and dollars, knowing that if euros go up, dollars go down, so I have parity. That is the investment strategy for right now, it is not to take risk, it’s wealth preservation….We are looking at mid August for some dire economic news. In the event there is dire economic news, there are more financial collapses, there is a probability that they may call a bank holiday. It is not unprecedented, it has been done in America before, Pres. Franklin Roosevelt did it .… So are banks safe? It is not a question, are banks safe; it is a question, will they call a bank holiday, which they have done before? If they do, you will be restricted on how much money you can get out. They have done it in Argentina and other countries. Yes, you can get your money out, it’s FDIC insured. You just can’t get it out all at once and it may be devalued.What do you do with your investments and retirement accounts?I don’t have any. My investments are in the property and real estate I own. My retirement is all in gold.What can people do to minimize their employment and other financial risks?This whole mentality, this American mantra to shop until you drop, what kind of sick thinking is that? The businesses that we believe are going to make it in this new climate are going to be ones that accentuate quality — less is more. In our study, the very best company that we see are the ones whose profits are down between 25-30%, that’s the best. The worst are down 70% .…The other thing to consider is, why are you sending your child to college for an MBA, or a degree in communications, journalism, art, history? As an economist what is going to be the return on the investment? The college industrial complex is going to be one of the major economic collapses in the United States. They are producing students, retraining people for jobs that don’t exist. So unless you are in specialty fields in high tech, health, engineering, alternative fuels, or smart areas that have more productive usage of resources, outside of those fields, the soft arts are going to be losers.This country was built not on a mantra of shop until you drop. It was called Yankee frugality: use it up, wear it out, make it do, do without. Those are the kinds of things that need to be considered again.At this stage what do you think are the greatest risks to the U.S. and the global economy?The greatest risk on the economic end is the collapse of the U.S. dollar. That is the greatest risk that we see, because America has the ability to destroy the global financial system with these unprecedented bailouts, stimulus and rescue packages. Whoever heard of this before? They are jeopardizing the global economy. It is not saving it, it is jeopardizing it.Are there other disruptive forces as well?We are only looking at economic issues. Back in 2001, President Bush’s popularity rating was as low as President Obama’s is now. It was declining rapidly. I even remember word for word, because I was writing about it, what the American media were talking about. There was this Congressman Gary Condit and his aide, a young girl Chandra Levy, who was missing, and shark attacks. That was the news, that is all they were talking about in the summer of 2001 and Bush was off on vacation in Crawford, Tex., for months as America was still suffering from the fallout of the dotcom bubble burst.Then all of a sudden on Sept. 11 the whole game changed. The war on terror began and Bush’s popularity skyrocketed. The same thing can happen here. Any wild card could happen and change the game at a minute’s notice and deflect people’s attention away from an economic policy failure, an economic policy that is doomed to fail.Do you envisage that as conditions worsen, immigrants could face a backlash?I don’t care what country it is, immigration is going to be a major issue because there is not going to be enough wealth to go around under the current system.Do you know that the anti-marijuana laws in America grew mostly out of the Great Depression and they blamed the Mexican immigrants for all the heinous crime. They trumped up the problem and blamed it on the immigrants. They made it an immigrant issue, which had absolutely no foundation at all, either the danger of smoking marijuana or the problem being caused by the Mexicans. But they blamed it on the Mexican immigrants and it was used as a pretext to have very severe anti immigrant laws in place and they were of course also blaming them for undercutting the economy. So these trends are old. It’s just a new time and a new phase.Do you think either political party could have made a difference?No, it is like watching the World Wrestling Federation. They pretend to be arch-enemies on the stage. After the cameras go off, they do their deals together. There is very little difference between the two parties. Related Itemslast_img

first_imgThe steady drumbeat of good news is getting infectious. The Dow Jones has rallied almost 40 percent from its bottom on March 9. The Federal Reserve expects the economy to pick up in the second half of this year. Homes sales rose 11% in June and corporate profits strengthened in the second quarter. Pres. Barack Obama has signaled signs of “green shoots” on the economic landscape. Alan Blinder, the former vice chairman of the Federal Reserve Board, recently pronounced in an op-ed in the Wall Street Journal, “The Economy Has Hit Bottom.” The Aug. 3 cover story in Newsweek went even further, declaring boldly, “The Recession is Over.”But before you get giddy, several economists caution that we may be witnessing a false lull before the storm, that the temporary economic boost is propelled by the nearly $1 trillion infusion of government bailout money to financial institutions and the economic stimulus package. They fear that we are on the verge of a double dip recession and that the second recession could be longer and deeper.  A handful of prominent investment and trend analysts and scholars are decidedly alarmist, even projecting a depression that will rival the Great Depression of 1929. Gerald Celente, founder of The Trends Research Institute, which the Los Angeles Times once described as the “Standard and Poors of Popular Culture,” forecasts “Food riots, tax protests, farmer rebellions, student revolts, squatter digins, homeless uprisings, tent cities, ghost malls, general strikes, bossnappings, kidnappings, industrial saboteurs, gang warfare, mob rule, terror” by 2012 in the latest edition of The Trends Journal.Truth is, economic forecasting is a hazardous business even in less rockier times. Federal Reserve Chairman Ben Bernanke recently quipped at a public town hall, “Economic forecasting makes weather forecasting look like physics.” These days many economic indicators are defying both logic and historical patterns. It is the reason why, despite many reassuring economic signals in recent weeks, national anxiety remains palpable.To gauge the view from the other side, Little India turned to Celente and three other prominent advocates of the counter intuitive perspective: investor advocate Martin Weiss, author of New York Times bestseller, The Ultimate Depression Survival Guide; economic forecaster Harry S. Dent, author of another New York Times bestseller The Great Depression Ahead; and Southern Methodist University economist Ravi Batra, author of The New Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos. Bull Turned BearHarry S DentA popular speaker on economic trends and a frequent commentator on TV shows and the financial press, Harry Dent is the unlikely author of the New York Times bestseller The Great Depression Ahead, after authoring The Great Boom Ahead in 1992, which he followed up with two other bullish bestsellers The Roaring 2000s and The Roaring 2000s Investor.Your 2008 book The Great Depression Ahead and subsequent newsletters predict another stock market crash that could cause the Dow to fall to 1800-3800 by next year. But many economists and officials in the Obama administration believe the economy is turning a corner. Do you think the U.S. economy is out of the woods yet?This is not a normal recession or stock crash. It represents the peaking of the massive Baby Boom generation around the developed world from Europe to North America and these affluent consumers will be predictably shifting from spending to saving over the next decade despite stimulus programs. In addition, we are seeing the peaking of perhaps the largest credit bubble in modern history that centered around an unprecedented bubble in housing and real estate, including emerging country cities from Mumbai to Shanghai to Dubai. Such credit bubbles take more like five years to deflate and sometimes longer.  Consumers and businesses are saturated with credit. Hence, stimulus programs will be short-lived as well. As the developed countries turn down again from 2010 onwards, exports in emerging countries will continue to fall and burst the massive emerging market bubbles from China to India to Brazil to Russia and beyond. We have seen a concerted worldwide boom and bubble from 2003 to 2007 that is being followed by a worldwide bubble burst and deleveraging from 2008 into 2012 or so.You are more bearish than many mainstream economists. What are you seeing that they aren’t?I was also one of the very most bullish economists from 1988 into recently due to the massive Baby Boom spending and information technology trends we have been tracking. We are more bearish now, as all of the key cycles we track are peaking and turning down in the coming years especially, and longer term into 2020-2023.We have seen major stock market and economic tops about every 40 years in the last century due to the demographic/generational trends with peak spending occurring around age 46 in developed countries. A 29-30-Year Commodity Cycle is also peaking and that hits the recently booming emerging countries from Southeast Asia to the Middle East to Latin America to Africa. Hence, the perfect storm of peaking demographics in the more affluent developed countries and a commodity and export bust in the emerging countries. Again, this is the most concerted worldwide bust in modern history.Do you still think that we are at risk of a depression?We forecast the next great depression to occur between 2008 and 2023 all the way back in our first book, The Great Boom Ahead, in 1992. We said back then and continue to say now that no amount of government stimulus will prevent this massive deleveraging of credit or the Baby Boom slowdown, any more than it did in Japan in the 1990s or in the U.S. in the 1930s or in Southeast Asia from late 1997 into early 2003. Such major financial crises typically take 3.5 to 8 years to work out, or around 5 years on average.This is not a normal recession or stock crash and the stimulus programs will be very short-lived in their impact as we will see one banking crisis after the next hit, from the growing prime and commercial real estate defaults in the U.S., to a lackluster recovery and further defaults on East European and real estate loans in Europe to the continued bubble burst in emerging countries from falling exports and real estate and stock prices. We don’t see coming out of the worst of this crisis globally until around late 2012 to early 2013, and we don’t see the next concerted global boom until 2020/2023 into 2035/2036.What do you project the unemployment rate will be at the end of 2009 and the end of 2010?We see unemployment in the U.S. bottoming between 10.5% and 11% in late 2009 — and that may paradoxically trigger another round of commercial and residential loan defaults even as the U.S. and other economies start to recover. By early to mid-2011 we see peak unemployment rates in the U.S. around 14% to 16%, and possibly higher.What do you project the Dow Jones average will be at the end of 2009 and the end of 2010?  We see the Dow peaking between 8,950 and as high as 11,300 between late July and early September of 2009 and then crashing again to as low as 1,800 to 3,800 by late 2010. Even in our book, The Great Depression Ahead, which was written by mid-2008 and published in late 2008, we predicted a bear market rally into the summer of 2009 based on predictable stimulus programs that would ultimately fail.When will housing prices bottom out?The real estate bubble started in 2000 in the U.S. (and most countries) when tech stocks crashed and investors switched rapidly to real estate speculation (and to commodities and emerging stocks markets as well). In the U.S., home prices would have to fall around 55% from the top at best or 65% at worst (1996 lows). In Japan, the housing bubble occurred from 1986 to 1991 and housing prices bottomed back at the 1986 levels or down around 63%, with commercial prices going much lower.We expect different markets in real estate to bottom between mid-2011 at the earliest for lower end starter homes; and then vacation homes around 2012-2014 and commercial real estate between early 2013 and early 2015. Larger trade-up homes or McMansions may be more stagnant off and on into the early 2020s. Anywhere in the world our guidelines of 1996-2000 prices are likely to be reasonably accurate.Do you think our money is safe in U.S. banks?It is hard to judge how far this banking crisis will go. There is much more leverage than in the 1930s crash, but the U.S. (and most other banking systems) are much more diversified with more government safeguards. But given the U.S. government and others providing so much stimulus and so many guarantees, how good will they be able to make on this in the end? Therefore, it is best to put your conservative money in an investment account (not a savings or checking account) in straight T-bill accounts.… It is hard to judge which banks are safe given the recent meltdown that few saw coming.… If you have an investment account with a bank or brokerage firm, they cannot raid that account to meet their reserve requirements or failing assets. But if you have a normal checking or savings account, they may not be able to meet your withdrawal demands if many others withdraw at the same time — hence, “a run on the banks.”It is also best to diversify in safe deposits around the world to diversify against currency risks in the U.S. and elsewhere. However, currently, our indicators suggest that the U.S. dollar is getting very oversold and the Euro and many other currencies are getting overbought. It is likely better to bet on the U.S. dollar for the coming months and against the Euro and Swiss Franc and Japanese Yen.What advice would you give people regarding their investments or retirement accounts?We advise selling stocks between late July and early September and selling non-essential real estate (especially investment and vacation homes) by this fall. Simply hold cash or safe investments until buying opportunities come between late 2010 and early 2013 in different sectors, or for several months ahead, more aggressive investors can invest in counter stock funds, like Short S&P 500, or in crisis hedges like gold, silver, oil and natural gas.What can individuals do to minimize their financial or employment risks?Keep your job and any reasonable interest loans. Create as much short term cash flow as possible in your job or in your business or outside interests. Cash, cash flow and credit will be key to taking advantage of “the greatest sale on financial assets of a lifetime.” Most people will see their assets, cash, cash flow and credit so compromised that they will be a loser, not a winner. Businesses need to see this as a “survival of the fittest” shake-out where even though your sales and profits may decline, as long as you survive and decline less than your competitors, you will win long term by gaining market share and assets at their expense.What do you think are the greatest risks to the U.S. and global economy at this time?The first major risk is rising defaults on prime residential and commercial real estate loans due to rising unemployment as a lagging indicator even though broader sectors of the U.S. and other economies are starting to recover in late 2009. Rising interest rates from the expected recovery and potential inflation risks from so much stimulus will also hurt the real estate recovery as mortgage rates go up, bringing affordability down.The second will be that Europe has its “subprime crisis” in East European loans and extreme real estate collapses in Spain, Ireland and Great Britain. The signs of recovery in Europe are not strong as in Asia and even in the U.S. Hence, Europe could also trigger the next wave of bank loan defaults that reverberate around the world banking system.Finally, we have broader geopolitical cycles of risk that have turned down from 2001 into around 2019, but have distinct sub-waves of terrorist and other events every 8.5 years that are set to peak again between late 2009 and mid- to late 2010 after the last major event in September of 2001. Many events ranging from a civil war in Iran, to Israel strikes on Iran, to failures in Afghanistan or Iraq, to a major terrorist strike in Europe or the U.S., to drug wars on the border of Mexico, to North Korea tensions, to India/Pakistan tensions, could disrupt world trade and oil prices.What political shifts do you foresee as a result of these economic forces?I see major shifts first towards growing economic and military power towards Asia (China first, then India more so), and away from Europe and Russia. The U.S. will be competing as the largest economy with China and India in the decades ahead. After globalization and trade contraction and that appears to fail at first, I see a greater move towards globalization in the next boom from the early 2020s into the 2030s and beyond. We also need to see credible global institutions emerge to deal with global trade agreements, global warming and terrorism, etc. We will also see more territorial and dictatorships fail after accelerating near term in many emerging countries. The growth in the coming decades will clearly be in the emerging countries and more clearly in Asia.Which countries do you think will emerge better positioned out of this recession?China will likely emerge stronger at first after 2010 or 2012, but India will be the greatest winner between 2020 and 2065 due to better demographics and rising urbanization. China (and broader East Asia, including Japan and South Korea) will age increasingly along with Europe and Russia and start to fade in the next boom.The broader boom will come at first in India and Southeast Asia and then expand back into other emerging countries (The Middle East, Latin America and Africa with more commodity exposure) in the next and likely very strong commodity boom cycle from the early 2020s into the late 2030s.North America will remerge in this next boom to a lesser degree, as will Australia and New Zealand. Europe, East Europe and Russia will lag increasingly due to aging demographics and slowing productivity. Russia will be a target for natural resource acquisition (and potential wars) by China and India. India is the single large country best positioned to boom in the coming decades, from 2012 into 2065 or so. Of the developed countries I would rate Australia first, then Canada, then the U.S.Morass of Bad Debt Martin WeissMartin Weiss, a financial market analyst, is head of Weiss Research Group and publisher of the Money and Markets newsletter. His April 2009 book The Ultimate Depression Survival Guide: Protect Your Savings, Boost Your Income and Grow Wealthy Even In The Worst Of Times made the Wall Street Journal and New York Times bestsellers list.Many economists and officials in the Obama administration believe that things are turning around. The stock market has been rebounding. Do you still believe we are at risk of the depression your book The Ultimate Depression Survival Guide claims?  The government stimulus package, but also all the efforts of the Federal Reserve to pump money into the economy will have some effect and the impact they are having is to turn a bad situation into a less bad situation and that shift is perceived as good news and so if that transition is helping consumers to become more optimistic, it is helping to bring optimism to Wall Street and so temporarily you see a stabilization and that temporary stabilization will last several months, maybe into the year.But none of the steps that the government has taken have addressed the underlying causes of the crisis we are in today. By shoving the problems under the rug and tamping down the fears artificially, all the government is doing is prolonging the agony. We don’t feel the immediate pain as much as we would feel now, but that makes it worse for the next time the economy starts running down, which could be as soon as next yearWhy are mainstream economists going along? What are you seeing that they are not?Several things. Number one, we are seeing things from a bigger, longer perspective rather than 2-3 yrs. We are looking over many years, going back as far as the Great Depression. There are many matrix today that indicate that the situation today is fundamentally worse than it was at the time of the Great Depression, or early years of the Great Depression. For example, industrial production globally is declining at the same pace as it was in the first years of the Great Depression. Global trade has been declining at approximately double the pace of first 2-3 years of the Great Depression. Unemployment today is approximately equivalent to first 2-3 yrs of the Great Depression. More importantly, the debt, as a percentage of GDP today is several times larger than it was in 1929. That excludes the derivatives, which barely existed, didn’t exist, in the 1930s.There are many reasons to believe that this is a very serious situation. I don’t think typical economists look back as far. They look back as far as the last recession or last couple of recessions, so their time horizon, in our opinion, is too short sighted.The improvements we are seeing here are almost entirely driven by the government’s very unusual and unprecedented intervention in the economy. It is a very, very strong medicine It is what the doctors would call the big guns, very strong antibiotics for the economy and it has very serious, known side effects. The first obvious side effect is massive out of control budget deficit. The second side effect could be return of inflation, rising prices that got us in the mess in the first place.What do you project unemployment rate will be end of 2009 and end of 2010?The Obama government is projecting it will rise to about 10% or more. We don’t disagree with that.… At end of 2010, I would say that unemployment would be significantly above 10%. The peak unemployment in the Great Depression was over 24%. We don’t believe it is unreasonable to forecast as much as 16%. It’s hard to pin down the time. I don’t know if it is fair to say when exactly that peak would be reached.What would you project the Dow Jones to fall in 2009 and 2010?Dow Jones is obviously going higher at this time but we could expect before this crisis is over it could be as low as 5000. But we can’t pin a time to that. It’s difficult to say exactly when.What about housing?The same pattern. Housing may experience some continued improvement. Prices have come down substantially. That was one of the biggest problem, high prices. Most people see falling prices as part of the problem and we agree, but it is also part of the solution. Thanks to the falling prices in recent months we are seeing more demand coming into the market and we are seeing improvement in the housing market, which can continue for rest of year. However if we are right about interest rates going higher, that could be a coup de grace for the housing market.So one can’t really time any of this. What can someone who is looking at taking decisions do?It is hard to pin down time. Essentially advice is for remainder of the year to take advantage of the better prices and improvement to get your house and your financial health in order. Use this interlude between the first phase of the crisis and the next phase of the crisis as your opportunity to calmly and deliberately go about getting ready for the storm. This is a calm before the storm. Even if it lasts as much as a year, it does not change the fact that there is another storm coming.Use this opportunity to raise cash, reduce debt, move from high risk investments to low risk investments. Essentially, do all the things you wish you had done in 2007- 2008 before this past phase of the crisis.Is an individual’s money safe in U.S. banks, and does it matter as they are all protected by the FDIC?  I think it matters. Even if the FDIC reimburses you for your deposit, it does not guarantee you can get the same rate that you were promised. The FDIC does not guarantee that you will continue to have revolving credit agreements with the bank if a bank fails. FDIC is clear about this. They are clear that more banks will fail. In fact they are predicting that quite a few additional banks are going to fail. The FDIC is clear that they are not giving any guarantee except returning your principal, the money you have in your account, up to a maximum of $250,000. With that in mind, there are three things you can do:• Make sure you keep your deposits comfortably under the $250,000 limit;• Make sure you are doing business with a strong bank that is strong in its own right, independent of the FDIC. It is good practice to do business with strong business partners;• For some portion of your money it makes sense to bypass the banking system entirely. Open an account directly with U.S. Treasury Department. Their yields are quite low right now, but that’s the price you pay for absolute safety. The treasury bills have certain advantages over a bank. The first advantage is there is no one between you and your money. You have a direct account with the treasury and direct guarantee of the treasury. The second advantage is that there is no limit on the guarantee.What is your advice for investment and retirement accounts?Well, I would recommend that you keep your 401(k) accounts; there are tax advantages in that. But I would use the next several months, if the market continues to improve, to move from higher risk investments to lower risk investments. I do not believe long term that stocks will continue to be a viable savings vehicle. They are investment and speculative vehicles, but it is a mischaracterization to say that they are good vehicles for long term savings and recent history proves that. You are much better off for savings vehicles in your 401(k) or IRAs to use more conservative investments, such as money markets, bonds, types of instrumentsWhat can individual do to minimize their employment risks or other financial risks?The primary step is, as I see it, is to build a cash nest of your own, an emergency rainy day fund to protect yourself against future loss of income, either because of losing your job or other problems that may affect the economy. Unfortunately as far as job security is concerned, there aren’t many safe havens. If the unemployment is surging it seems to be doing so across the board, including government and central government. So it is difficult to say at this time to go to this industry or that industry.What do you think are the greatest risks to the US economy in the global economy at this time that could make things much worse?Right now things have stabilized temporarily. But looking forward, the biggest risk is going to be rising interest rates on U.S. long and medium term securities, which could drive mortgage rates up, borrowings rates up for consumers, which would have a very negative impact on the market again.I would say we would see things deteriorate again next year and then continue on for several years and the reason is that I would have hoped we could have gotten it over with sooner and get it behind us, liquidate some of our bad assets, bad debts and move on. But unfortunately that is not what is happening. They are papering over the crisis and effectively prolonging the agony. So instead of a quick and deep crisis that helps pave the way for a true and healthy recovery, we are seeing artificial attempts to stem the crisis, stop the crisis and it is only going to prolong the agony in the long term.What do you anticipate will be the long term effects of this global crisis? Do you also anticipate political and global shifts?We are witnessing a millennium shift, a power shift from West to East. So, if you look at the global economy, it is pretty obvious that Europe and North America are at best going to experience slow, sluggish, interrupted growth whereas the Indian subcontinent and East Asia are experiencing more rapid growth.The key long term factor is that North America and Europe are now bogged down in a morass of bad debt all the way from the household to the federal government level, whereas China, India, Brazil and some other countries, actually have much lower debt level and larger cash surpluses. So financially speaking from the household level to the federal government level these countries are sounder financially.It used to be the other way round. It used to be that United States had all the capital and these countries were heavily reliant on the U.S. and maybe Japan and Western Europe for capital. It has turned upside down. It is hard to believe that countries like Brazil, China, and to some degree India, have become America’s greatest creditors. Even Brazil has a very big stake in U.S. Treasuries.Apart from these countries, do you see other countries that might be better positioned?I believe some of the other countries in addition to Brazil, China and India, such as Indonesia, Malaysia and South Korea, will benefit. Interestingly Indonesia and Malaysia have a sounder financial situation today because of some Muslim-Islamic oriented traditions and restrictions on debt and interest, which may sound antiquated and feudal, but in practice it has helped them to be more conservative financially and fiscally. So right now, for example, Malaysia and Indonesia are doing better than Thailand and Philippines and other non-Muslim countries.If these economic conditions continue to get worse can you see a political backlash that affects immigrant already in the U.S.?I hope not, but unfortunately my hopes don’t necessarily translate into government actions. We have seen in the past certain segments of society that scapegoat immigrants, use bad time as an opportunity to look at the economy as zero sum game. It is very short sighted, but unfortunately a pretty large minority of Americans respond that way. We see the same thing in Europe where we’ve seen rise in anti-immigration politics of the right. Their message tends to have more resonance with the public when unemployment is high.That is unfortunately fact of life. Under the Obama administration, given the political climate we are in today, I don’t think it will be a serious concern. I believe that especially in a deflation, depression, the political practice that ultimately prevails is the trend to shared sacrifice and the recognition that we all are in this together, we all have to step up and bite the bullet together. I believe that trend will prevail.Depression by Year-endRavi BatraRavi Batra, professor of economics at the Southern Methodist University in Dallas, built his reputation with startling economic forecasts, most notably his inaccurate forecast of The Great Depression of 1990 and the more recent accurate prediction of the 2001 meltdown in Crash of the Millennium. His latest book, The New Golden Age: The Coming Revolution Against Political Corruption and Economic Chaos, released in 2006 speaks to the current economic implosion.In your latest book The New Golden Age, you are quite pessimistic about the prospects for the U.S. economy. But many economists and officials in the Obama administration believe the economy is turning a corner. Do you think the U.S. economy is out of the woods yet?There is some improvement in the economy because of the inventory cycle, as retailers cut back on orders in the past because of falling demand. Now they are restocking, which is temporary. There is no fundamental improvement or change, and once inventories have been replenished, production will fall again.You have been more bearish than many mainstream economists. Why so and what are you seeing that they are not?  Mainstream economists, strangely enough, don’t look at supply and demand. If they did they would not be so optimistic. Here’s a bird’s eye view of my theory.A healthy economy requires that there is a balance between supply and demand.… Without this balance, there is either high unemployment or high inflation. The main source of supply is labor productivity, whereas the main source of demand is the real wage, or people’s purchasing power. When productivity rises, production or supply goes up and when the real wage increases, consumer spending, and hence investment spending, go up.… If the real wage fails to grow as fast as productivity, then over time, a wage-productivity gap develops and supply is greater than demand.…There is another way through which demand can be raised — new debt. It is an artificial way, and cannot be used forever, but it can postpone the problem for a long time, while the potential economic imbalance builds and cumulates. From 1981 on, U.S. budget deficits, with former Fed Chairman Alan Greenspan advising Pres. Ronald Reagan, grew apace. Economists called it fiscal policy, but in reality it was a debt-creating policy. This is how the supply-demand balance was maintained in the presence of the rising wage gap. Thus, for a while, economic balance occurs….A time comes when people run out of good collateral and lenders become wary of new loans. A banking crisis is then inevitable, and this crisis cannot be resolved just by doling out money to the banks. Our government has been doing precisely the wrong thing since 2007. The economists are confused between the cause and effect.The ongoing banking meltdown is the effect, not the cause of the slump. Rewarding the banks with trillions is to treat the symptom and ignore the real cause, which is the rising wage gap. Until that cause is removed by following policies that raise wages to catch up with sky-high productivity, we are not going to come out of our recession.Do you think the administration is being overly optimistic in its economic projections?Excessive debt is the cause of our crisis, which cannot end by creating more debt. Until employment starts to rise, recession continues, and the administration economists have miscalculated the effect of the government stimulus on employment.Do you still think that we are at risk of a depression?  In The New Golden Age, I predicted that economic chaos would begin in 2007 with a housing meltdown in the United States, followed by a banking crisis and share price declines in 2008 and 2009. I now foresee that this crisis would last at least till 2010, and possibly longer. This is because conventional economists still do not understand the nasty economic effects of the wage-productivity gap, which has grown enormously all over the world. If the doctor does not diagnose the sickness properly, the patient has to suffer for a long time.… Our recession will soon turn into a depression, possibly by the end of the year.What do you project the unemployment rate will be at the end of 2009 and the end of 2010?The unemployment rate at the end of 2009 will exceed 10% and could go as high as 15% by the end of 2010.What do you project the Dow Jones average will be at the end of 2009 and the end of 2010?Most likely around 6,000.When do you expect housing prices to bottom out?Perhaps next year.Do you think our money is safe in U.S. banks?Banks are safe, because they have the backing of the Federal Reserve, which can print as much money as it wants.What advice would you give people regarding their investments or retirement accounts?Buy gold ETFs, such as GLD, and sell monthly options on them.What can individuals do to minimize their financial or employment risks?People should save as much money as they can. Those still employed should not try to move to another job, because they could lose their seniority and be the first to be fired in the future. Small businesses should not expand and not offer goods on credit, etc.What do you think are the greatest risks to the U.S. and global economy at this time?  Goldman Sachs and the like are the biggest risk to the global economy. They are back to their shenanigans of the past, which through speculation raised the price of oil to new records. They are doing this again, but this time with the help of taxpayer’s money.What do you think are the biggest miscalculations of Obama’s economic team?Obama’s team like Bush’s is focusing on Wall Street and the banks, and is unaware of the true cause of the economic debacle. It thinks that government spending can replace private spending, which has plummeted. And it is trying to protect the status quo, which means business as usual for big business.The president lost a great opportunity when the Dow was at 6,500, because he could have then taken on the speculative machine of giant financial firms and broken them into smaller companies. Now it is too late, because the Dow has jumped and he has to wait until another crash hits the nation. But he will soon get another opportunity, as the Dow is likely to crash soon.What do you think are the long term effects of the current global crisis?The long term effects are great. The world is moving toward a golden age, which, for the first time in history, will eliminate poverty all over the globe.Which countries do you think will emerge better positioned out of this recession?The United States will remain the world economic leader, except that the globe will become poor until the rule of money evaporates. Then we will see unprecedented prosperity.Still Got Two EyesGerald CelenteTrends analyst Gerald Celente, founder of The Trends Research Institute and publisher of The Trends Journal, built his reputation by accurately predicting the 1987 stock market crash, the 1997 Asian economic crisis and the “Panic of ’08.” He has attracted both attention and ire in recent months with his increasingly dire projections, which he titled as “Obamageddon.”In the latest The Trends Journal you make very dire predictions of tent cities, food riots and tax rebellion by 2012. Do you still envisage conditions will be as bad as you were projecting?  Economists now predicting recovery are the same people that were saying recession wasn’t here even when we were in recession. Go back to the campaign in 2008, they didn’t start talking about the recession until the Fall of 2008 even though the recession began in December 2007.These are the same people talking about green shoots a couple of months ago and as you go back to the beginning of the year, they said we would be in recovery by second quarter of 2009. The Obama administration, which began with a stimulus package, had estimated that without the stimulus package, unemployment in 2009 would be at 8%. We had a stimulus package and unemployment is at 9.5%. They had also said that they would create by mid-year 600,000 jobs and we lost 2.5 million. At best, at best, they saved 150,000. All their forecasts are wrong. There is nothing they have forecast economically that has come to pass.But the improving signs of bank profits and new financial earnings reports, don’t give you hope?Let’s look at the bank reports. We know that hundreds of billions of dollars of taxpayer money has been given to the banks and they refuse (this is like fiction), to tell the people (the taxpayer) who gave them money, where the money went, how they are spending it.If you gave me, as they gave Goldman Sachs, $13 billion to cover losses with AIG — 100% coverage of losses — converting Goldman Sachs for from a brokerage firm to a bank holding company, giving them access to $10 billion, plus all the loans and benefits they are giving them at discount prices, could you show a profit? These are profits that are pumped up by bailouts, rescue packages and stimulus plans. Yesterday the market went up because Caterpillar showed better earnings than they had thought, or rather losses less severe. They are not better off; their profits are off 66%. Who in the real world wouldn’t call that depression level results? I would consider that atrocious. What you didn’t have a 77% decline? Oh, you only lost one arm and a leg, but you still got your two eyes and the use of one leg!You have said this bailout bubble can be more lethal than the earlier bubbles. Can you explain?In The Trends Journal in 2004 we predicted the great recession. We noticed it would happen. It was very easy to see that after the dot com crash in March 2000, rather than letting Wall Street take its $5 trillion worth of speculative losses that were built up by the dot com boom, the Federal Reserve began to lower the interest rates to 46 year lows. They created this borrow and spend mentality that was unprecedented in American history.You want to buy a new house, borrow on your old one; with your new equity loan, you can build that new addition, go on a vacation, buy a new car, send your kids to school, go on a shopping spree. Your house is a piggy bank.So housing as an asset became artificially inflated by the availability of historically cheap money rather than letting the bubble burst. With the bailout bubble, they have added $13 trillion worth of phantom money.This isn’t real money, it is phantom money printed out of thin air, based on nothing, backed by nothing. So they are creating a bubble, but when this financial/real estate bubble bursts, it is worse than the dot com bubble, because now government has an equity position in these companies, and they have government executive powers and management controls. This is unheard of in American history. This used to be the entrepreneurial empire of the world, that so much of the world respected and revered as the capital of entrepreneurism. No more.You developed a fair amount of credibility in the media with your previously accurate predictions. But some of the things you are saying sound shrill. Do you really believe it will be as extreme as you are saying or are you trying to pierce through the clutter of the positive blather?Not at all. We take what they are saying to be extreme. How could people believe these people when everything they said is wrong. If you can show me they are right here, I’ll say fine, we’re only humans, we all make mistakes. But we can say with all certainty, and we say it over and over again, you cannot print phantom money out of thin air based on nothing, backed by nothing without destroying the economy. Look at Brazil, India, China, Russia, the BRIC countries, they all talk now about another reserve currency.But when you say food riots, tent cities and tax rebellions?  Tax rebellions, let’s take that. Go back to 2007, we wrote about tax revolts when George Bush was president. We saw this coming. Current events inform future trends. They are squeezing the people at every level. Look at what is happening in California. Tax rebellion is already happening. They are trying to downplay them when tea parties and tax protests happen. This hasn’t happened in America before in my lifetime. And now they are commonplace. They happened in April and again on the 4th of July. This is just the beginning. Food riots, oh yes. When people get hungry, when they have nothing to eat, you are going to see a lot of ugly scenes happen in America.What would you project the unemployment rate to be at end of 2009 and end of 2010?It will probably be heading towards 11% by end 2009 and by 2010 it could well be into 12-13%.Where would you project the Dow Jones?We don’t know. The Dow Jones is a different game. It can go in any kind of direction. When you go to the Great Depression, you saw the Dow Jones improving. It is not an economic indicator, it is a casino.When do you expect housing prices to bottom out?It could be many years. It could be a decade. There are two buying seasons in America, Spring and Fall, period, paragraph. Spring buying season was a bust and Fall does not look any better. It is very dismal for the future.Do you think our money is safe in U.S. banks?We don’t give investment advice. I tell you what I do. I am a big believer in gold and I think Indians like gold. I hedge my money. In my business I need cash, so I spread it between euros and dollars, knowing that if euros go up, dollars go down, so I have parity. That is the investment strategy for right now, it is not to take risk, it’s wealth preservation….We are looking at mid August for some dire economic news. In the event there is dire economic news, there are more financial collapses, there is a probability that they may call a bank holiday. It is not unprecedented, it has been done in America before, Pres. Franklin Roosevelt did it .… So are banks safe? It is not a question, are banks safe; it is a question, will they call a bank holiday, which they have done before? If they do, you will be restricted on how much money you can get out. They have done it in Argentina and other countries. Yes, you can get your money out, it’s FDIC insured. You just can’t get it out all at once and it may be devalued.What do you do with your investments and retirement accounts?I don’t have any. My investments are in the property and real estate I own. My retirement is all in gold.What can people do to minimize their employment and other financial risks?This whole mentality, this American mantra to shop until you drop, what kind of sick thinking is that? The businesses that we believe are going to make it in this new climate are going to be ones that accentuate quality — less is more. In our study, the very best company that we see are the ones whose profits are down between 25-30%, that’s the best. The worst are down 70% .…The other thing to consider is, why are you sending your child to college for an MBA, or a degree in communications, journalism, art, history? As an economist what is going to be the return on the investment? The college industrial complex is going to be one of the major economic collapses in the United States. They are producing students, retraining people for jobs that don’t exist. So unless you are in specialty fields in high tech, health, engineering, alternative fuels, or smart areas that have more productive usage of resources, outside of those fields, the soft arts are going to be losers.This country was built not on a mantra of shop until you drop. It was called Yankee frugality: use it up, wear it out, make it do, do without. Those are the kinds of things that need to be considered again.At this stage what do you think are the greatest risks to the U.S. and the global economy?The greatest risk on the economic end is the collapse of the U.S. dollar. That is the greatest risk that we see, because America has the ability to destroy the global financial system with these unprecedented bailouts, stimulus and rescue packages. Whoever heard of this before? They are jeopardizing the global economy. It is not saving it, it is jeopardizing it.Are there other disruptive forces as well?We are only looking at economic issues. Back in 2001, President Bush’s popularity rating was as low as President Obama’s is now. It was declining rapidly. I even remember word for word, because I was writing about it, what the American media were talking about. There was this Congressman Gary Condit and his aide, a young girl Chandra Levy, who was missing, and shark attacks. That was the news, that is all they were talking about in the summer of 2001 and Bush was off on vacation in Crawford, Tex., for months as America was still suffering from the fallout of the dotcom bubble burst.Then all of a sudden on Sept. 11 the whole game changed. The war on terror began and Bush’s popularity skyrocketed. The same thing can happen here. Any wild card could happen and change the game at a minute’s notice and deflect people’s attention away from an economic policy failure, an economic policy that is doomed to fail.Do you envisage that as conditions worsen, immigrants could face a backlash?I don’t care what country it is, immigration is going to be a major issue because there is not going to be enough wealth to go around under the current system.Do you know that the anti-marijuana laws in America grew mostly out of the Great Depression and they blamed the Mexican immigrants for all the heinous crime. They trumped up the problem and blamed it on the immigrants. They made it an immigrant issue, which had absolutely no foundation at all, either the danger of smoking marijuana or the problem being caused by the Mexicans. But they blamed it on the Mexican immigrants and it was used as a pretext to have very severe anti immigrant laws in place and they were of course also blaming them for undercutting the economy. So these trends are old. It’s just a new time and a new phase.Do you think either political party could have made a difference?No, it is like watching the World Wrestling Federation. They pretend to be arch-enemies on the stage. After the cameras go off, they do their deals together. There is very little difference between the two parties. Related Itemslast_img

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