Who's Scoffing Now?

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by David Galland: Bring
Out Your Dead



A couple weeks
ago, the family and I watched Dirty
, an altogether entertaining show from the Discovery
Channel. In the episode we watched the host, Mike Rowe, serve as
a mechanic in the military. There were a couple of things that caught
my eye.

The first was
that, using nothing more than a cleverly arranged array of blocks
and tackle, five members of the mechanics group were able to easily
muscle a well-stuck 5-ton Humvee from deep sand. We humans are,
indeed, a creative and intelligent species.

The second
thing was the strict adherence to protocol, with everyone acting
almost robotic in their issuance of commands and responses, and
surgical in their use of equipment. Even so, this slavish adherence
to “the book” is understandable, given that the soldiers
operate in extremely difficult, dangerous, and often chaotic circumstances.

I had to raise an eyebrow the next day when BBC reported that of
$9 billion allocated to the U.S. military to be used in Iraq reconstruction
projects, fully
$8.7 billion has gone missing
. Proving, once again, that no
matter how well plans are laid or how tightly “management”
might think they are controlling things, gaps in process can open
up that are wide enough to drive a Humvee through – a Humvee
full of cash, in this particular case.

we are led to believe that the Treasury and the Fed, having applied
the right combination of monetary and fiscal blocks and tackles
on the well-stuck economy, have freed the economy from its quagmire.
In this case, the biggest sovereign debt crisis in history.

In support
of that contention, the following appeared in Bloomberg,
a steady cheerleader for the administration and its friends on Wall

For all
the criticism of record budget deficits, President Barack Obama
can take comfort knowing that for the first time in half a century,
government bond yields are declining during an economic expansion
and Treasury Secretary Timothy F. Geithner is selling two-year
notes with the lowest interest rates ever.

The combination
of record-low yields on two-year notes, 10-year rates below 3
percent and a deficit projected to surpass $1.4 trillion for a
second consecutive year is a signal that the bond market is less
concerned with government spending than with getting the economy
back on track.

It’s kind
of ironic, I find, that the very same people who are quickest to
scoff when hearing the phrase “This time it’s different”
– namely the professional investing class – apparently
see nothing to worry about in the idea that the world’s largest
debtor can run the world’s largest deficits… and do so
at historically low interest rates.

To which I
would comment, “Trust your eyes.” If it seems as though
the situation is untenable, it very likely is. The only real question
in my mind is, how long can this fiction persist? To that I don’t
have an answer, but I suspect that when the truth of the situation
is revealed – possibly by the roundabout path of seeing one
or more of the large Asian economies come unglued – things
will get far uglier, far faster, than most people suspect.

After all,
for things not to “be different this time around,” the
mountain of unpayable sovereign debt must be resolved in a currency
crisis. To believe otherwise is to believe in Easter Bunnies and
in the proposition that, like the military, the U.S. government
can meet every challenge – the former through a concentration
of force, the latter by bankrupting future generations.

I can’t
speak for what you’re seeing in your neighborhood or hearing
from your customers or friends, but everyone I talk to says that,
at best, things are holding the line at “bad,” but, for
the most part, are not getting significantly worse. No one has told
me that things are actually improving.

That my ground-level
perception may be the correct one seems to be confirmed by the latest
consumer confidence readings – which just fell to a 5-month
low, the wrong direction for a recovering economy.

Yet, in stark
contrast to what my eyes and ears are telling me, the cheerleading
for a robust recovery in the mainstream media is becoming almost
deafening… just as you would expect in the months leading up
to an important U.S. election.

While it may
just be inherent stubbornness, we here at Casey Research remain
steadfastly bearish, for no other reason than that none of the big-picture
economic challenges have actually been solved.

Which is to
say that we are the ones scoffing at the idea that this time is
different – it’s not. In support of that contention, look
no further than Bud Conrad’s chart below, from the March edition
of The
Casey Report
. As you can see, the world’s two largest
economies, the U.S. and Japan, are solidly in the danger zone and
likely past the point of no return.

Depending on
your ability and willingness to take risks, you may wish to stay
especially liquid – or trade the volatility that is inevitable
as the train periodically looks like it’s about to leave the
tracks (in time, it will). You can do that by buying the VIX index
(there are ETFs for that) or by buying good assets (gold, gold stocks,
deep-value stocks) on the dips and selling on the rallies.

Of course,
some people will buy into the idea that the crisis really is behind
us, deficits and debt be damned. Others, including yours truly,
believe the markets are being played like marionettes by the administration
and its allies ahead of the November election.

In time, I
strongly suspect, we the people are going to wake up and find that
our government has spent trillions of dollars in its attempt to
put in the fix and, as has been the case with the military’s
Iraq reconstruction efforts, 96% of the money will have simply vanished.

Finding opportunity
in crises is the forte of David, Doug Casey, and the other editors
of The Casey Report – and they do it month after month.
With keen instinct and diligent research, they analyze big-picture
economic trends, predict where they are leading, and then recommend
the best investment strategies for subscribers. To learn about one
of their favorite investments for 2010, click

David Galland
is the managing editor of Casey

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