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Best of Doug Casey: Recent Writings

 

"It's time to buy both gold and silver bullion (or coins) in size, and with abandon." Doug Casey

[Doug Casey is the globetrotting editor of International Speculator, a monthly newsletter which brings his latest picks and insights from wherever in the world he may be. He has been quoted in The Washington Post, Forbes, Time, Barron's and a score of other financial publications. Well-spoken, smart, and always provocative, he's appeared on NBC News specials, Donahue, Larry King, David Letterman, Charlie Rose and CNN. A while back, Mr. Casey created quite a stir by claiming that Gold isn't merely about to go through the roof. Rather, he said, it is headed for the moon. Herewith, the Gilded Opinion updates our readers with some of Doug Casey's more recent prognostications on a subject they hold most dear. - Editor, The Gilded Opinion]


The Greater Depression Looms?

What follows is a brief overview of "the economy." I tend to stay away from this type of thing, not least because you're forced to rely on published statistics; I prefer to rely on my own observations, as limited as they might be. Entirely apart from that, statistics are so subject to interpretation, and so easy to take out of context, that most of the time they're best used as fodder for cocktail party conversations. Still, as potentially wrong-headed and tendentious as the subject is, "the economy" is occasionally worth talking about simply to establish a clear point of view.

In fact, I place the phrase "the economy" in quotes because I don't even accept the validity of the concept, nor that of "the GDP"; they're both chimeras. The idea of GDP gives the impression that it is not individuals that produce goods and services, but rather a machine called "the economy." This leaves the door open to all manner of nonsense, like the assertion that what may be good for individuals may not be good for the economy, and vice-versa.

For instance, an advance in the GDP doesn't necessarily mean increased prosperity: What if the government embarked on a massive pyramid building program, an archetypical example of public works? GDP might rise, but it would add absolutely nothing to the well being of individuals. To the contrary, the building of the pyramid would only divert capital from wealth-generating activities. On the other hand, if a scientific breakthrough was made which cut energy consumption by 80% for the same net output, or magically eliminated all disease, the GDP would collapse because it would bankrupt the energy and health industries. But people would be vastly better off.

Entirely apart from that, the whole idea of GDP gives the impression that there actually is such a thing as the national output. In the real world, however, wealth is produced by someone and belongs to somebody. We're not ants or bees working for the hive. The whole idea of a GDP just allows the "authorities" to bamboozle people into believing they can actually control "the economy," as if it were some giant machine. The officials pretend to be the Wizard of Oz, and Boobus americanus is trained to think they're omniscient. Thus whenever the rate of growth slips "too low," officials are expected to give "the economy" a suitable push. Conversely, whenever "the economy" is growing too fast, the officials are supposed to step in to "cool" it.

It's all an embarrassing and destructive charade. Einstein was right when he said the only element in the universe more common than hydrogen was stupidity.

Nonetheless. . .

That said, I remain of the opinion that we're headed into the biggest economic smashup in history.

That's an outrageous statement, and it's always dangerous to say something like that. After all, the longest trend in motion is the Ascent of Man, and that trend is unlikely to change; indeed, it's likely to accelerate. And it's usually a mistake to bet against an established trend. Furthermore, science and technology will continue advancing, people will continue working and saving, entrepreneurs will continue to create. And downturns in the economy have always been brief. There's a good case for staying bullish.

Even most of those who talk of a recession tend to write it off as either a simple reversal of recent "irrational exuberance," or a passing change in people's psychology, or temporary shock from the 9/11 events. Unfortunately, it goes much deeper than that. Those things have very little to do with what recessions are all about.

A recession, according to the conventional parlance, is a period when economic activity declines for two or more quarters. That's a description of what happens, but it's really not very helpful, much like saying a fever is a period during which your temperature is above 98.6 F. A better definition of a fever might be a period when the body's temperature is elevated as a consequence of fighting an infection, in that it gives you some insight into the cause as well as the effect.

That's why I prefer to say a recession is "a period of time when distortions and misallocations of capital caused by the business cycle are liquidated." What causes the business cycle? Excess creation of credit by a central bank (e.g., the Fed). The injection of artificially created money and credit into a country's economy gives both producers and consumers false signals, causing them to do things which they otherwise would not do. The longer the upswing of a business cycle continues, the longer and more severe the down cycle will be. A depression is just a really bad recession. . .

One thing that contrary to popular opinion can help get an economy out of a recession is a large pool of savings; savings give people the money to invest in new production, as well as the money to buy that production. That's why it's the height of idiocy for pundits to talk about how patriotic it is to go out and shop. It can only deplete the capital that will be needed in the future, and deepen the bottom with more bankruptcies, stealing consumption from the future. That's why the Fed's lowering interest rates on the federal funds rate from 6% to 2.5% since January is such a bad idea; it encourages people to save less and borrow more. This engineered decline may well, after a certain lag time, cause a cyclical upturn but it will only aggravate the underlying problem, guaranteeing yet a bigger bust. We're going to see lots more bankruptcies before this is over. Bankruptcies are about debt.

Domestic Debt

Actually, there's no question we're already in a recession, and have been for over a year; here come the GDP stats. Year-on-year industrial production fell by 5.8% in September, the 12th consecutive decline. Non-farm employment was down by almost 200,000 in September alone. The GDP's rate of growth fell to an annual 0.3 % in Q2, from 1.3% in Q1. And Q3 and Q4 are going to be much worse.

We're on schedule to make 2001 the biggest year in history for personal bankruptcies, well over 1.5 million. The average amount of debt per household is 15% of disposable income, the highest ever. The average credit card debt per household is over $9,000, about three times the level of 1990. Until just last month, stats show consumers were adding credit card debt at 16% per annum. Total revolving consumer credit rose more than $75 billion, to over $700 billion. The percentage of both delinquent credit card loans and mortgage payments are the highest since 1992.

In the last recession, in 1990, 71% of credit card users carried their balances forward, making only partial payments from month to month; only 29% paid their bills off in full each month. During the boom of the 90s, with full employment and stocks skyrocketing, the number financing their balances dropped to a low of 56% in 2000. That number is going to be heading up with all the economic indicators going into re verse at warp speed. Figuring 18% interest on the average balance of $9,000, about 2,000 non-tax-deductible dollars a year, and figuring how many people are already living paycheck to paycheck, and not counting the unemployment rate could go at least to the levels of 20 years ago before this is over, it seems like really big trouble. The Federal Reserve indicates thatnot counting home mortgages Americans are over $1.6 trillion in debt. Home mortgage debt, however, is the biggie, increasing by $1.2 trillion over the past three years alone. Of course it's looked grim plenty of times before. But this is just the start of a recession, not the bottom of one.

The Bigger Picture

This isn't just an American problem, because the US is truly the engine of the world's economy. But a lot of the drive behind the engine is the gigantic trade deficit. The $450 billion the US sent abroad in the last year alone, after over a decade of increasing deficits, has caused a lot of capital investment that will become uneconomic, and created a lot of economic activity that will come to a screeching halt when that deficit inevitably reverses. The whole world is levered on what happens in the US. The effect in economies around the world will be devastating. The Smoot Hawley tariff of 1930, which acted to collapse world trade, greatly exacerbated the last depression. It could be that economic conditions in the US alone could do it this time, without the overt "assistance" of the government. In fact, the US and Japan account together for 46% of world output. When the US radically decreases its buying of foreign manufactured goods, and the Japanese do the same with raw materials as a consequence, it's going to hit world trade like a sledge hammer.

I don't believe we're looking at just another cyclical downturn this time. We could bebut I don't think so. The meltdown of the bubble economy; the dissipation of perhaps trillions in the busted tech boom; the negative wealth effect from the collapse of stocks; now real estate, and next the dollar; the huge buildup of capacity which will go idle; the historic debt burden; and now a war that could go on for many years add up to a truly deadly combination.

Richard Russell (www.dowtheoryletters.com) noted a real trend sometime ago. This says it all:

"Daily new highs topped out on Oct. 3, 1997. Advance/Decline ratio topped out on April 3, 1998. Transportation stocks topped out on May 12, 1999. NYSE Financial Average hit its peak the next day. Utilities registered their high on the 16th of June 1999. NYSE composite topped out a month later. The Dow itself hit a high of 11,722 on Jan. 14, 2000. The NASDAQ peaked on March 10 at 5,048. The S&P topped out onthe 24th of March at 1,527. What's left? The dollar."

Of course, since the dollar is by far the biggest market in the world, constituting the reserves of almost every government on the planet, the de facto currency of probably 50 countries, and the savings of hundreds of millions of people around the world, when it collapses, it will cause a financial earthquake, Magnitude 10.

Just an additional note on the stock market, in case you haven't noticed. Some 15% of NASDAQ stocks are trading below a dollar, leading the exchange to suspend, until January, its policy of de-listing such companies. It's rather embarrassing for them, especially since seven formerly high-flying tech stocks in the NASDAQ 100 index have bit the dust: CMGI [CMGI, $1.51, previous high $150], Broadvision [BVSN, $2.05, previous high $90], Metromedia Fiber [MFNX, $0.72, previous high, $50], McLeodUSA [MCLD, $0.72, previous high $35], XO Communications [XOXO, $0.96, previous high, $64], Exodus Communications [EXDSQ, bankrupt, previous high $86], and Excite@Home [ATHMQ, Chap.11, $0.05, previous high, $95].

As I said in the last letter: Use any rallies as selling opportunities.

I might add: Diversify your assets out of the US. Build a good position in gold. Buy gold stocks with speculative capital. Get your debt, if any, down to comfortable levels.

[END] November, 2001


Gold as a Joke

. . .[Y]ou may find [this article] depressing: the subject is a 19th century, choo-choo train economy industry that (with very few exceptions) has been chronically mismanaged, chronically loses money, is almost universally despised and/or disregarded by the media, regulators, the intelligentsia, and, indeed, Boobus Americanus in general. Who would want to invest in such an industry? And the takeover over of Homestake by Barrick isn't a ray of hope, but an additional sign that the industry is in liquidation.

"Wait a minute, Casey," you're probably saying, "I thought you were a bull? I thought you said gold wasn't just going through the roof, it was going to the moon?" Indeed. And I'm more of that opinion than ever, simply because things are so incredibly gloomy. Despite the dismal state of the industry, its stocks are up typically 10-20% in just the last month or so. It's pretty much analogous to the way things were with the broad market late in 1974 or in the summer of 1982. I believe we're about to see a bull market in gold and mining stocks that will dwarf anything we've seen for literally decadeswith the possible exception of the dot-com bubble.

OK, maybe you don't buy it. I've got a few other things cooking that should prove rather extraordinary over the next couple of months. And that's in addition to the report I'll soon have on the wildest places in the Middle East. Stay tuned.

Gold As a Joke

Some have asked me if I have any reservations at all about gold. All I can do at this point is repeat my mantra: Gold isn't just going through the roof, it's going to the moon. As for the timing, regrettably just because something is inevitable doesn't mean it's imminent. I think it actually is imminent but readers will recall I've thought that for about three years now.

I asked my friend geologist Brent Cook (who might be Dave Barry's alter ego) what he thought, trusting he would approach the problem scientifically. He advised me as follows:

"Gold was created by the stars, and it is the stars that are aligning to bring it back to life, or so I'm told. Here's the synopsis: Cataclysmic events associated with extremely dense binary neutron star pairs, the survivors of supernovas, are responsible for the only force great enough to cause the nuclear reactions which bond atoms into Au. This miracle happens when the entwined and moribund star pair collapse into themselves, tearing a light-sucking hole in the time-space field, lasting only microseconds and releasing enough energy to bond atoms, power Las Vegas, and form the noble metal. The resulting precious metal-rich space dust eventually coalesces into the galaxies and stars, of which our little planet is just one.

"From here, things get rather complicated. Suffice it to say that star-struck miners spend an excessive amount of energy extracting the star-stuff from the earth and handing it over, at considerable financial loss, to nasty, ugly little foreign men who hoard the noble metal and let it out only for their own sinister purposes.

"However, powerful satanic influences are afoot and these ugly little bastards may be about to meet their just ends. Consider the evidence.

"Astrologically, the opposition of Saturn and Pluto beginning in September, combined with the transiting of Uranus and Jupiter, will finally bring the US dollar to its knees.

·"September 21st should mark the end of gold's woes, as gold, symbolized by the sun, experiences its final humiliation -- a solar eclipse. Watch for increased solar activity in the tail end of 2001.

"It is also no small coincidence that: 1) 1998 = 666 x 3, worse yet 2) 1999 is in fact 666, the beast turned upside down! Add to this, the seven seals have been broken: we have witnessed the slaughtering of lambs on Wall St., the burning of lambs on British television, and the gunning down of the defenseless by US sanctioned narco's in the jungles of Brasil. These facts, I am told (I am not making this up), are building toward the final blow out scheduled for 2007. For those of you in Utah it's quite simple, keep a close eye on Moroni and his horn.

"Non-believers would say, there are more fundamental economic forces at work that portent gold's return from the dead. Dry data such as, decreased worker productivity, massive increases in M-3 money supply, even more massive corporate and consumer debt, a bursting bubble and negative wealth effect, dropping interest rates, an energy crisis, mad cows and angry Muslims ransacking McDonalds, yada, yada, yada.

"Yes it's really the collusion of the stars and heaven, with admittedly a little help from Easy Al, that will bring gold back to its rightful position."

You've got to appreciate a geo who can keep his sense of humor at the bottom of the ugliest bear market for gold (and, indeed, most commodity-related) stocks in at least the last thirty years. . . But then, I don't think we're really at the bottom any more. At least as far as most of the stocks we've examined here are concerned. . .

A Word on Gold

The last gold bull market crested in January 1980 at over $800, and it's been all downhill since then; at the same time, the world's economy and common stocks have been in a truly historic bull market (recently ended). Since all this has been going on for over 21 years now, a full generation, everyone believes it's going to go on forever. Even gold miners believe it and most of them have been shorting their production years into the future.

The problem, however, is all that gold which has been borrowed from vaults has been made into jewelry and such and is owned by millions of individuals. If the lenders of the gold, the central banks, want it back, the bullion dealers and mining companies aren't going to be in a position to deliver. What appears to be developing, in other words, is a classic short squeeze, but one of gigantic proportions. The X-factor, however, is that central banks still have maybe 15-20% of all the gold in existence left in their vaults, and if things started getting dicey-say some New York bank getting in trouble because of its bullion dealing they could sell a lot to keep its price down. But the short position is going to have to be covered at some point.

I'm super-bullish on gold for lots of reasons that are unrelated to the alleged short position. But it sounds credible to me, and it's just one more good reason the metal isn't just going through the roof, it's going to the moon. I just wish I knew the timing but I sure wouldn't want to be short right now.

[END] August, 2001


Sic Transit Gloria Mundi

As longtime subscribers know, I can't resist doing the odd obituary on famous, or especially infamous or fatuous, personalities. Particularly if I knew them. In the last few months both Mortimer Adler and Isaac Stern shed this mortal coil. To most they were just a couple of names associated with intellectual activities. I can't laim to know either well, but found these contemporaries to be quite different breeds of cat.

Adler was an enthusiastic student of John Dewey, the philosophically pragmatic and politically statist author most famous for his opinions on education; that alone would serve to make one suspicious of him. But more on that later. He was best known for having compiled and promoted the Great Books program, revamping the Encyclopedia Britannica, and writing numerous books, of which How to Read a Book was the best known.

I applaud his Great Books program, which is founded on the notion that all educated men through time and across space share a familiarity with the classics. It's a far cry from the notions that prevail in colleges today, which are generally either monuments to Political Correctness, or trade schools. I happen to have been a trustee for one institution of each description. In the former there were more classes on gender feminism and modern poetry than there were on Shakespeare and ancient classics. In the latter, the classes were all on subjects like automotive marketing and business administration. All knowledge has value, of course. It's just that an accumulation of assorted facts and current notions shouldn't be considered an education. In any event, the Great Books are excellent, although I'd certainly make a few serious additions and deletions. But that's another subject altogether.

On the other hand, I don't like what Adler did to the Britannica when he took it over in 1974. As far as I'm concerned, he wasted the first volume with his Propaedia (which serves as an introduction) and the next eleven with the Micropaedia (which amounts to an extended dictionary). The formula of the Britannica over the previous 200 years was much better.

The odd thing about Adler was that, even though he claimed to be a professional philosopher and thinker, he was basically unsatisfactory at both. I say this because of a regular luncheon I attend, which he also periodically attended during the 80s. After we engaged in a conversation centering on coercion, ethics and the State, I (as well as my old friend Jack Pugsley) walked away thoroughly unimpressed at his lack of both perception and logic. It permeated his books as well.

It was a different story with Isaac Stern. Two friends and I had dinner with him at the Russian Tea Room about 10 years ago. I admit to expecting an argument once the talk went beyond the weather and the state of the roads, but was delighted when we agreed on most everything. In particular, he felt that the labor unionization of orchestras around the US was a major factor in both keeping young artists from working and driving costs so high as to make the opera and symphonies unaffordable for any but the rich.

It was especially memorable when I asked him what he thought of the NEA, the teachers union. His response: "It ought to be flushed."

The following article is from my old friend Terry Coxon, who runs the Permanent Portfolio family of funds, as well as Passport Trust. In the over 20-odd years I've known him, I'm not sure we've found anything important to disagree about except, perhaps, what wine to choose with dinner. I certainly agree with all of his sentiments on this subject.

Two especially astute observations he makes deserve further emphasis.

One is the so-called "War on Terror" not only makes less sense than the "War on Drugs," but is ridiculous as a concept. Terror is a method, not a person, or even a thing. Entirely apart from the fact that it has an ancient and venerable history in war, making war on terror makes as much sense as making war on cavalry charges, frontal assaults, attrition or guerrilla tactics. The fact no one calls attention to this simple fact is itself an indication of the quality of thought prevailing today. Orwell had a name for it, though. He called it "Groupthink."

The other point Terry makes is that many things that are legal today could arbitrarily be illegal tomorrow. There's no certainty what may happen, but it's absolutely certain that the "War on Terror" will result in much, much less financial (as well as personal) freedom and flexibility. If you were ever thinking about doing some offshore planning, it may literally be now or never. I urge you to contact Terry regarding the establishment of an offshore trust (707-778-1000). The benefits are significant and the costs are actually quite low. Terry is one of those people that you'll be glad to know, and he could be critical to your whole financial future.

Casualties

From the time of Lincoln, each war the United States has fought has ended with a permanent change in the public's attitude toward government and a permanent change in the freedom that Americans actually enjoy. In the anger, fear and urgency of conflict, the public tolerates or even demands a loss of freedomwhich most people hope will be only temporary. But in every case, part of what was given up fails to return when the war ends. It still fails to return after all the soldiers have grown old. And it fails to return even after the last veteran has told his last story.

It's as though at the sound of war, every article of the Constitution, every principle of governmental self-restraint and every customary distinction between what is public and what is private gets dressed up in uniform and marches off to battle. When the war is finished, most of them come home. But some don't.

Will the War On Terrorism be any different? It may be worse.

In past wars there was a war front and a home front. Everyone knew which was which. People on the war front fought and were subject to military command. People on the home front lent support but continued to live as civilians.

In the War on Terrorism, the war front might be anywhere. It might be in your neighbor's garage or in the elevator you ride to work. It might be in the truck that just drove by. For all the government knows, it might be n your briefcase. There is no place the government will not feel pressed to watch and control.

In past wars there was a clear enemy a particular government or alliance of governments.

In the War On Terrorism, the enemy is indefinite. It's certainly Bin Laden, but he never leaves a forwarding address. It's probably the Taliban, who are Afghanistan's government if Afghanistan has a government and whose members even now are being invited to join the Taliban's opponents. It may be Iraq, depending on our government's eventual judgment of Saddam; did he join in the attack or just cheer it on? It might even be Libya, if we want to be thorough.

In past wars there was a clear objective kill enough of the enemy so that the rest stopped fighting. When the objective was won, there was no uncertainty about it. The war was over.

But terrorism is a method, not a concrete enemy. How can we know when it's been defeated? It may be enough that Bin Laden and his bodyguard are dead. Or perhaps the war will be finished when the Taliban collapses and Afghanistan is ruled by Political Artists Formerly Known As Taliban. Perhaps. Or the war may go on and on for so long as any government, organization or practice can be associated, if only rhetorically, with the 6,000 murders at the World Trade Center.

I can only guess what freedoms will be lost and what new government practices will come to be taken for granted. But I do know that a war on an abstraction, which the War On Terrorism may become, is likely to squander freedom even more extravagantly than any past US war on a definite enemy. Our recent experience with the War on Drugs shows how weapons intended to attack a clear evil get fired at so many targets.

Seizure laws designed to threaten drug profits hit people far removed from the drug trade. Government agencies turned those laws into a license to steal, supplementing their budgets and taking money because they could take it. Billions of dollars were lost by people never convicted of a crime or even charged with one.

The mere possession of cash became grounds for suspecting a crime. Hundred dollar bills became illegal tender in any number beyond 99. New laws painted the innocent financial practices of innocent people as criminal money laundering.

Our government will claim wide powers for the War On Terrorism. It will claim them in good faith and may in fact claim nothing more than it really needs. But don't be surprised if those new powers are used for other things. Don't be surprised if laws inspired by the War on Terrorism repaint the innocent practices now called money laundering as financial terrorism.

What you can do easily and lawfully today, you may not be able to do at all tomorrow. I won't say "Hurry up." But if you have been thinking about bringing more of your financial life under the protection of your offshore trust, now would be a good time to get on with it.

End Quotes

I find I've failed to make any comments on the newly commenced Forever War. But some others do have some relevant thoughts.

Americans (the few that read history, anyway) are in process of discovering that the Brits were in Afghanistan 150 years ago. It didn't end well. I recently came across Kipling's poem, The Young British Soldier, and thought its last stanza especially timely. I'll post the full poem on the website for your convenience. My favorite Kipling work is The Man Who Would Be King, made into a superb movie starring Sean Connery and Michael Caine. It, incidentally, is also about Afghanistan, although he calls it by the politically incorrect moniker Kaffiristan.

"When you're wounded and left on Afghanistan's plains,
And the women come out to cut up what remains,
Jest roll to your rifle and blow out your brains
An' go to your Gawd like a soldier."

--The Young British Soldier, Rudyard Kipling

I've used a lot of material from Gibbon and Mencken in recent months, unjustifiably neglecting Bakunin who'd be beside himself if he listened to the tenor of today's news.

"Natural patriotism may be defined as follows: an automatic and wholly uncritical, instinctive attachment for hereditary or traditional ways of life which are collectively accepted, and an equally automatic and instinctive hostility toward any other way of living. It is love for one's own, and a hatred for everything foreign."

(B goes on to compare patriotic citizens to the dogs of a town, that reflexively attack any outside dog that may accidentally wander into their town Ed.)

" the patriotism that is extolled to us as an ideal and sublime virtue by the poets, by politicians of every school, by governments, and by every privileged class, is rooted not in man's humanity, but his animality."

--Mikhail Bakunin, Open Letter to Swiss Comrades, 1869

[END] November, 2001


Ed. Note: There's been a great deal written and you've probably read more on the Bin Laden/Terrorist/Afghanistan situation than you really want to. Here are Doug Casey's views on various investments extracted from an his analysis post 9/11.

Investment Implications of 9/11/01

Stocks: Let's skip over the commonplaces that you'll hear touted in the media. They'll include buying security firms like Wackenhut (WAK, US$19.85). Or "defense" stocks, like Northrop Grumman, Raytheon and General Dynamics. These things may, or may not, go up. But this incident seals the fate of the bear market that's been in motion for several years now. And in a bear market, with very rare exceptions, you just don't want to own stocks. That's entirely apart from the fact that things everybody thinks they know simply aren't worth knowing.

Even though it's a bear market, I'm also disinclined towards obvious shorts like the airline stocks. They were already in trouble with the recession. Now you've got a huge segment of the population that's afraid to fly. And another huge segment that's loathe to be questioned and processed like someone on their way to jail every time you board a planeentirely apart from the huge time penalty. I recommend using any and every rally as a selling opportunity.

Bonds: So far, bonds have been an excellent place to be. But I continue to see them, especially with interest rates at these levels, as a triple threat to your capital. First, interest rates are just as likely to rise as they are to fall further. Second, the dollar is almost certainly started on the path to reaching its intrinsic value. Third, the creditworthiness of most issuers, not least of which is the US government, is likely to come into question.

The dollar: This floating abstraction, an IOU nothing on the part of a government which relies completely on new tax revenues just to pay the interest on its debt, is an accident waiting to happen. It rests upon nothing more than the world's confidence, and confidence can blow away like a pile of feathers in a hurricane. The only thing that can save it is a massive deflation. But the Fed is creating new dollars frantically to prevent that. . . I suggest you not look to the dollar as a haven.

Domestic Real Estate: Partially driven by the long bull market, crowned by a historic mania, in stocks, US property, especially in upmarket locations, has done extremely well. Unfortunately, property prices will reflect the purchasing power of the people who own it. They're likely to suffer asset meltdowns, loss of their jobs, and the consequences of a gargantuan amount of debt. Prices stand to drop dramatically, certainly in real terms. If you view your house primarily as a financial asset, I suggest you hit the bid while there still is one. As an alternative, you might consider taking out a large 30 year mortgage while rates are this low (6.2%, with no points, on a typical 30 year mortgage) but only if you're confident you can keep the proceeds secure.

One possible relative bright spot may be somewhat isolated small towns, on the template of Aspen. Horribly overpriced at this point, they may still do well as the well-heeled decide this might be a good time to sell out in the city, and enjoy life in what used to be their second homes. As will a lot of others who were just looking for an excuse to move there. They now have the excuse.

We'll see. And I may be speaking as a biased observer here, in that I've been pretty heavily involved in ranchland around Aspen for some years.

Foreign Real Estate: I've said for years that there's every reason in the world to have a crib abroad, and almost no reason not toas long as you're in a financial position to do so. I think it's no longer just smart; it's critically important. My favorites? Longtime readers know that I'm partial to New Zealand and Argentina, and both places are very, very cheap at the moment. I'm also leaning towards doing something in Vanuatu (see XXI/8) just because it's incredibly cheap and beautiful. But with some real problems. Anyway, a man's got to know his limitations, so I'm edgy about developing, despite the potentially appealing profits. If you have a substantial and fairly immediate interest in any of these areas, we can talk, however.

Gold: There's little I can add to what I said in the last issue, and indeed many issues before that. Buy it. If not now, I guess it'll be never.

Commodities: Absolutely everything that's traded looks very, very cheap. To me, the situation resembles that just before the first dollar devaluation in 1971. The explosive upmove in silver as trading reopened on Sep. 17 is a straw in the wind. A word to the wise, perhaps.

End Quotes

One reason I like to offer thoughts from Gibbon is that countries, like companies, markets and individuals, go through cycles, a point he's well aware of. It seems to me that Americans are at about the same stage the Romans were in the late 2nd century, as their long descent into the abyss began in earnest.

"The minds of the Romans were very differently prepared for slavery. Oppressed beneath the weight of their own corruption and of military violence, they for a long while preserved the sentiments, or at least the ideas, of their free born ancestors"

--Edward Gibbon, Decline and Fall of the Roman Empire [1776], p. 72

Based on the government's nearly complete disregard of what little remains of the Constitution, which is heartily endorsed by the vast majority of Boobus americanus, I'd say Mencken's assessment is more correct than ever.

"The average man doesn't want to be free. He wants to be safe."

--H.L. Mencken, Notes on Democracy [1926], Part III, p.148

[END] September, 2001


by Doug Casey
December 21, 2001

Copyright © 2001 by Doug Casey. All Rights Reserved.

Doug Casey is the editor of the newsletter International Speculator, and author of the best-selling "Crisis Investing" and "The International Man."

Reprinted by USAGOLD with permission of Doug Casey. Further use without consent is prohibited.

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