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Navigating the Other Side of the Debt Storm

Interest-Rates / Global Debt Crisis Jun 05, 2010 - 02:06 AM GMT

By: Casey_Research


Best Financial Markets Analysis ArticleBy Doug Hornig, Editor, Casey Research : The trillions in U.S. federal debt now exceed 85% of gross domestic product – and that’s not counting unfunded liabilities. Unemployment is breaking 20% as the government used to calculate it. The Federal Reserve is printing money like the paper it is. And the supposedly recovering housing market sees as many foreclosures in a month as new builds.

Few would argue that a major storm is on the horizon. But it’s hard to know how to batten down the hatches. No wonder so many investors are simply giving up, taking the term “bear market” to heart and heading for hibernation.

For true sailors, however, the words “batten down the hatches” are a call to action, and in that spirit Casey Research assembled 20 experts in Las Vegas last month. They came from every field of investing.

Attendees at our 2010 Crisis & Opportunity Summit, headlined “Out of the Eye of the Storm,” testified enthusiastically to its value. But we didn’t really have to be told. As always, we who put it together learned as much as anyone else.

From mining and technology, to real estate and retirement – so many important topics. And so many stand-out moments to choose from.

Our own Doug Casey fielded questions about China’s prospects, expatriation, education for the real world, and whatever else some of the savviest investors around could throw at him. It’s always no-holds-barred during Q&A at a Casey conference. We wouldn’t want it any other way.

Bud Conrad, Casey Research’s chief economist, opened the summit. Right away, he confronted us with the hard data supporting his contention that the U.S. is fiddling madly away while its economy burns. As in the early years of World War I, it’s easy to think of currency crises and government defaults as things that only happen “over there.” Bud destroyed that delusion with his stark graphics and plain talk.

On chart after chart, covering deficits, employment, trade balances, and much more, Bud showed that America is rooting in the same pen as the PIIGS – Portugal, Italy, Ireland, Greece, and Spain. Spending one’s way out of debt didn’t work for U.S. homeowners, it didn’t work for those governments, and it won’t work for ours either.

“We are past the point of no return for debt, in my opinion,” said Bud. “We’re seeing the decline of the empire of the West, and it’s moving to Asia.” His new book, Profiting from the World’s Economic Crisis, came out a few days before the summit, and attendees snapped up every copy on hand.

There are some rays of hope, Bud said. One is our leadership in technology and information – though U.S. education in these areas is declining and that trend must be reversed. Another is our unexcelled capacity to exploit natural resources. But, he added, that’s provided Washington doesn’t further screw things up.

One of America’s most promising natural resource assets – offshore oil and gas – is now under the gun. Marc Bustin, University of British Columbia geology professor and Casey Research’s senior analyst for energy, nailed it when he predicted that the impact of BP’s spill in the Gulf of Mexico – at the time just 10 days old – would be far-reaching.

Since then, the Obama administration has reversed its support for offshore drilling by declaring a six-month moratorium. It also suspended hard-won plans for exploratory drilling off Alaska this summer and canceled a lease sale off Virginia scheduled for 2012.

Even if the drilling moratorium should be lifted, can oil companies operating in U.S. waters afford the new insurance rates? In late May, the media were reporting about rates rising as much as 50%, perhaps permanently. Summit participants heard it a month earlier. Such escalations exert strong pressure on oil prices – and yes, as oil goes up, the economy goes down.

Casey’s Extraordinary Technology editor Alex Daley is a veteran of the IT industry who’s worked on projects as varied as composite ceramics and face-detection software. He’s also advised venture capitalists about start-ups and technology CEOs about strategic planning.

At the conference, Alex offered four stock recommendations, as well as two general strategies: Invest in proven technologies with solid but undervalued companies; and invest in what an industry needs, such as in batteries for electric cars rather than the car company itself.

He also explained that, ironically, the past can point the way to profit in the forward-looking technology field.

“If you invest in the future, you have to wait a really, really long time for it to pay off,” Alex said. In his presentation, he used developments of the past decade as a tool to spot emerging patterns and trends. For example, smartphones today are more powerful than desktops in 2000, so what’s the next capability they’re likely to acquire? Or consider that gene therapy’s disappointments in treating disease at the end of the last century have given way to treatments tailored to a specific genetic profile. Who’s leading the pack there?

Rick Rule, chairman of Global Resource Investments, revealed his top picks for the coming year. He also had sound advice for investment strategies in a tough economy, particularly in the resource sector.

“Everybody talks about properties,” said Rick, but properties can be liabilities as well as assets. “When you get down to it, this is a people business.” Make sure a company’s management team has deep experience, or at least demonstrated success, in areas very close to the field you’re considering. If you manage risk with this approach, he said, “the reward will take care of itself.”

With his characteristic dry wit, Rick also delivered one of the memorable lines of the day, about investment risk: “Because I’m American, I think I have less to fear from [South American leaders] Chavez and Correa than from Bush and Obama.”

Many participants came to the session on expatriation with great anticipation. And Simon Black – co-founder and editor of Sovereign Man, an e-letter about living abroad – did not disappoint. If you’re looking for a second passport, said Black, Singapore is one of the best countries in which to acquire it – as long as you’re willing to meet its requirements. For others, Paraguay may be better. But whatever you do, he warned, “be very careful with what you read online. There’s a host of misinformation out there.”

As many know, opening a bank account abroad is rarely a simple task for U.S. citizens these days, and it’s impossible in many countries. Foreign-trust expert Michael Chatzky, of the San Diego law firm Chatzky and Associates, provided information about setting up an offshore entity that can get around these rules legally, while protecting assets from the long arm of Uncle Sam.

An arm that just keeps getting longer. The U.S. Patriot Act now allows federal agents to write their own search warrants, said speaker Andrew Napolitano, the New Jersey Supreme Court judge turned judicial analyst. He described how the act’s original limitation to financial institutions was virtually eliminated in late 2003, when then-President Bush signed an intelligence authorization bill that quietly defined financial institutions to include the likes of doctors, real estate agents, and local libraries.

“There’s not Democrats and Republicans, there’s one party: the Big Government party. And it’s not here to protect human liberties but its own power,” said Judge Napolitano.

He noted that British laws allowing soldiers to write their own search warrants propelled colonists to revolution some 235 years ago, leading a summit participant to ask how Americans could take back their country today. “We have to persuade state legislatures to stick their thumbs in the eye of the federal government,” said the judge, a reply that drew ringing applause.

And there was more, much more.

The Casey Research Crisis & Opportunity Summit may be over for 2010, but if you missed it, you can still listen in: how to build a crisis-proof portfolio to weather any storm, how to internationalize a portion of your assets, what’s likely to happen in energy, real estate, commodities, and currencies, how to gain control of your retirement investments, which specific companies the experts are buying… it’s all there on CD.

Click here to learn more about this 15-hour collection of insights from some of the best minds in the business.

© 2010 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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