A Visit From the Ghost of Economic Future By Bill Bonner |
December 27, 2010
What does the ghost of Christmas Future
have to show us? What grave? What empty chair? What jokers
at the funeral?
The end of the year approacheth. What do
we know? What have we learned? Where have we come to?
Come hither specter… Come, tell us
your secrets. Take us by the hand… Show us tomorrow.
And then… What ho! A shimmering light…our
candle blew out by a sudden gust of wind that seemed to
come from nowhere. And then, a voice…disembodied,
ghastly…
“Heh, heh…want to see the future,
eh? Go to Prichard…”
What?
With those cryptic words, the shade vanished.
Christians go to bed tonight with visions
of flat screens and eternity dancing in their heads. In
the hush of the Christmas Eve, they hear everlasting life
breathing softly in their ears. For this night recalls the
Holy Night in which Christ was born.
If you believe the story, the savior freed
Christians from the grip of death. Yes, their bodies might
decay. But their souls would be immortal.
We only mention it because we read in the
news that Christmas has become a secular holiday. Few people
remember the religious significance of it. And many don’t
care, even if it is recalled to them.
Not that we care what people think. But
we are defenders of lost causes, underdogs, and diehards.
Since Christian traditions seem to be in danger; we will
rally to their standard.
What has this got to do with money? Probably
nothing. But it’s Christmas Eve, for ch**** sakes.
Besides, does everything we write have to be about money,
money, money? Well, does it, dear reader?
It does?
Oh…
Well, in that case, let’s just imagine
that these Christians are right. Let’s imagine that
death has been conquered. Sin has been beaten. Eternity
is ours!
If this were so, then the Ghost of Christmas
Future might actually exist, no? If you can have everlasting
life, you must have more than just the here and now. You
must have the past and the future available to you. Infinity
in both directions, right?
So, why couldn’t the shade take a
peak at tomorrow? And why couldn’t he give us a hint
of what is in store?
Come back, oh spook. Tell us more of your
secrets. Prichard? What do you mean?
We look around. We wait. But we see nothing.
No spook. Not even a shadow. Nothing.
Listen. We don’t hear anything either.
Hummmph.
Well, we’re on our own. We have to
make our own guesses about what tomorrow looks like.
Now, the mistake most people make most of
the time is in thinking that tomorrow will be like today.
If it is bright and sunny, they imagine it will be bright
and sunny tomorrow. If it has been bright and sunny for
a long time, they imagine it will be bright and sunny forever.
Got a leak in your roof? Betcha you will
think of repairing it AFTER a rainstorm, not before one.
After a long dry spell you forget that it can rain at all.
Why bother to fix the roof?
Now that that is established, we wish to
take issue with it. Because, guess what? They’re usually
right. Tomorrow usually is like today. And if we were in
a guessing mood, we’d guess that 2011 would be a lot
like 2010. But with some major differences.
The trouble with betting that tomorrow will
be like today is that you can’t make any money –
or even protect your money – that way. Nothing changes?
No pain. No gain. No problem.
It’s the unexpected changes that hurt.
That’s why buying stocks here is likely
to be so costly. One poll says investors are 58% bullish.
Another says 71%. Both say bullishness is at extraordinary
levels.
“When everyone is thinking the same
thing, no one is thinking.” That’s what the
old timers say. When everyone expects stocks to rise, the
smart money bets that they will go down. Because the buyers
have already bid them up. The money is to be made on the
other side – betting that they will go down.
So, the shrewd investor should be out of
stocks – even if he thinks stocks are more likely
to go up than down. The odds favor the seller, not the buyer.
The shrewd investor should be out of bonds
too. Again, this is not because he has the Ghost of Christmas
Future whispering in his ear. It’s only because he
can do the math.
Lend money to the government for 10 years
and you will earn a yield of 3.34%. This is at a time when
the Fed – custodian of the world’s dollar supply
– has increased the core monetary assets of the banking
system by $1.4 trillion…and fully intends to raise
the inflation rate. The foundation of the system is the
Fed’s own assets. It pays for those assets with money
it creates out of thin air. Ben Bernanke is creating three
times as much money as all the other Fed chiefs put together.
What does 3.34% say about this? It says
investors have lost their minds. Maybe they think the Great
Correction will keep inflation rates down for the next 10
years. Even so, the risk is far too great. Something will
almost surely go wrong. The dollar will collapse. Or the
bond market. Or both.
Shrewd investors don’t know what is
coming. But with this kind of crackpot monetary policy,
they know they have to protect themselves. They know the
odds favor betting against US Treasuries.
What else?
A shrewd investor should be invested in
gold. Not that there is any guarantee that gold won’t
go down with everything else. Christmas Future is going
to be a rough time. China could blow up. Commodities should
get hit hard. World trade could sink. Emerging markets could
backslide. Housing could take another major dip.
Europe could see more debt crises. None
of the fixes so far have fixed anything. The debt is still
there. It grows larger each year.
Sooner or later, at least one European economy
is bound to go broke…possibly the euro and the European
Union too.
The Europeans are trying to solve the problem
of too much debt by borrowing more money. And they’re
not alone. The Americans are doing the same thing. Even
if the national government doesn’t go broke in 2011,
there are bound to be some state and local governments that
get into deep doo-doo.
What’s this?
The New York Times reports – from
Prichard, Alabama!
This struggling small city on the outskirts
of Mobile was warned for years that if it did nothing, its
pension fund would run out of money by 2009. Right on schedule,
its fund ran dry.
Then Prichard did something that pension
experts say they have never seen before: it stopped sending
monthly pension checks to its 150 retired workers, breaking
a state law requiring it to pay its promised retirement
benefits in full.
The situation in Prichard
is extremely unusual – the city has sought bankruptcy
protection twice – but it proves that the unthinkable
can, in fact, sometimes happen. And it stands as a warning
to cities like Philadelphia and states like Illinois, whose
pension funds are under great strain: if nothing changes,
the money eventually does run out, and when that happens,
misery and turmoil follow.
“PRICHARD IS THE FUTURE,” [emphasis added]
said Michael Aguirre, the former San Diego city attorney,
who has called for San Diego to declare bankruptcy and restructure
its own outsize pension obligations. “We’re
all on the same conveyor belt. Prichard is just a little
further down the road.”
Oh…you sly wisps of smoke… You clever shivers…
You shimmering puffs of air…