A Visit From the Ghost of Economic Future

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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…

December
27,
2010

Bill
Bonner [send
him mail
] is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
Century
and
The New Empire of Debt: The Rise Of An Epic Financial Crisis

and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets
(Wiley, 2007).

The
Best of Bill Bonner

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