Investments: Doom and Gloom Are Back!
Never mind that inflation, interest rates, and unemployment have declined sharply, marginal tax rates have been cut to 28/33 percent, and the stock market is at an all-time high. Forget deregulation and privatization. The Great Crash is inevitable and is coming sooner than you think!
Of course, we have all heard this old saw repeated over and over again since the 1970s, and still the "bad times" have not recurred. You would think the doom-and-gloomers would have lost their constituency by now, but apparently not.
The hard-money crowd and other purveyors of bad news have continued to publish the message of Apocalypse as if Armageddon were just around the corner. In fact, judging from the number of recent publications on the subject, you'd think we were in the midst of a worldwide panic. Howard Ruff just changed the name of his newsletter back to Ruff Times (from the upbeat Financial Success Report). Doug Casey, maverick investment advisor and author of Crisis Investing, is one of the most successful speakers at investment seminars. In his monthly letter, Investing in Crisis Newsletter, Casey predicts the "Greater Depression" and sharply higher gold prices.
Other popular hard-money writers and speakers who are spreading the bad news about excessive debt, the banking crisis, and government intervention in the economy include Don McAlvany, Gary North, Donald J. Hoppe, and Julian Snyder. (The truth is, I'm more than willing to add my name to the list, although I tend to be more optimistic than most hard-money advisors.)
But now it appears that doom and gloom have even become popular with the "establishment." Forbes columnist Ashby Bladen has become a kind of popular folk hero like Andy Rooney by writing regularly and depressingly about the worldwide debt crisis. As he stated in a recent column, "It is more pleasant to enjoy the rising stock market than to recognize that, unless we as a nation stop borrowing and start repaying, we will bequeath to our children an impoverished and over indebted nation." Bladen recently published his bearish outlook in How to Cope With the Developing Financial Crisis (McGraw-Hill, $4.95).
Jim Davidson and William Rees-Mogg have written a morbid tale of the world's economic future in their book Blood in the Streets (Summit Books, $19.95), based on Rothschild's cynical remark, "Buy when blood is running in the streets." (And I would add, "Just make sure it isn't your blood!") Davidson is the founder of the National Taxpayers Union and has recently entered the investment advisory business with his newsletter Strategic Investment. Rees-Mogg is the former editor of the London Times—you can't get any more "establishment" than that.
According to Davidson and Rees-Mogg, the world has gone mad with excessive credit creation, which inevitably leads to a default on debt and a real estate crash, among other sordid events. Unfortunately, the authors are long on criticism and short on solutions, especially for the average investor who is more interested in protecting his assets than in making a killing during a crisis.
The most improbable addition to the crisis hit list comes from none other than the Wall Street Journal! One of its news editors, Alfred L. Malabre, Jr., has just written a blockbuster that is gaining considerable interest around the country, appropriately called Beyond Our Means (Random House, $17.95). Malabre, no friend of the hard-money movement, says that "the dark pessimism of the apocalyptic forecasters grows less improbable." He bluntly predicts: "Reagan's Age of Optimism now seems likely to end in an economic catastrophe and a sharply reduced standard of living for us all."
Malabre argues that we are headed for neither deflation nor hyperinflation but "a new era of intensifying government regulation over the economy." This intervention might include wage-price controls, foreign-exchange restrictions, and shockingly, a moratorium or partial default on government securities! For all you security-conscious conservative investors who have put your money in "guaranteed" Treasuries, you may be rudely surprised someday. (I have long maintained that lending money to the U.S. government through the purchase of T-bills and U.S. savings bonds is unethical and a tragic misallocation of investors' money. Sometime in the future they will also prove to be a lousy investment.)
Like Davidson and Rees-Mogg, Malabre offers very limited practical advice about how to protect yourself from the coming financial panic. As Malabre points out, there is little the government can do to keep the panic from striking. "The main message here is that the hurricane can't be stopped, that we can only try to make things less nasty when it hits."
I think the best way to protect yourself is to (1) eliminate personal and business debt as quickly as possible, (2) build a strong cash position, and (3) buy quiet investment hedges, such as gold and silver coins or real estate.
Mark Skousen is adjunct professor of economics at Rollins College, Winter Park, Florida, and the editor of the monthly investment letter Forecasts & Strategies.
This article originally appeared in print under the headline "Investments: Doom and Gloom Are Back!".