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Now
that 2009 has passed into history, analysts have flooded the public with
their opinions on how the events of the past year will
impact the coming years. While most are optimistic, I feel that
last year's developments have greatly exaggerated the imbalances in the
U.S. economy. Although we may see a temporary respite from the turbulence,
these mistakes will hinder our long-term viability. I fear that we
have gone down a road that will destroy the value of the dollar
and may even threaten the political stability of the United
States.
While celebrating nominal gains in GDP, consumer confidence, and home
prices, most commentators conveniently ignore the deep freeze that persists
in the private credit markets. The lack of risk capital continues to
strangle small businesses - the main creators of new jobs. The Administration
has only worsened the situation by positioning itself as an enemy of
business, creating great uncertainty among entrepreneurs. So moribund is
the labor market that the economic boosters now cling to the oxymoronic hope
of a "jobless recovery."
Rather than making any real changes that would portend recovery, Washington
has entrenched failure. Two years after the recession began, consumption
still accounts for about 70 percent of GDP. Even this economic activity
has been made possible only by unprecedented "stimulus"
spending. And even with the federal boost, retailers have been forced to
protect market share with massive discounts, damaging future earnings.
Therefore, the risk of a double-dip recession remains high.
Total unemployment, including those forced into part-time jobs, is
approaching 20 percent. This suggests that employers are not seeing the
profit opportunities that would justify new hires in the coming months or
years.
Through it all, business on Wall Street remains largely unchanged. Washington
has stepped in to provide cover for ongoing speculation by institutions that
they have deemed to be "too big to fail." Furthermore, the
feds have camouflaged the banks' de facto insolvency by permitting 'creative'
accounting.
Investors retain some caution but have largely placed their faith in recovery. Forced
by unrealistically low interest rates, investor funds are being thrust into
bonds, real estate, and equities. Indeed, American stock markets have
recovered some 60 percent of their 2008 nominal losses. Standing at the level
of 1126 level, the S&P Index represents a P/E ratio of some 22 times
forecast earnings. This is quite a premium for an economy teetering on a
double dip due to the aforementioned factors.
Investing entails not just analyzing the current state of affairs, but
trends. While the United States is still a measurably more liberal regime
with more transparent markets and better administration of justice than its
chief competitor, China, we are clearly trending toward
socialism (while the PRC gallops the other way). Historically, socialism
leads to economic ruin.
These worrying signs have not been lost on international investors. As
we had predicted, in just the past year, the U.S. dollar has fallen
significantly against other currencies that we have long championed (down 21%
and 14% against the Australian and Canadian dollars, respectively). Measured
against gold, between 2001 and 2008, the U.S. dollar depreciated by an
average of some 18 percent compounded each year. In 2009, the dollar fell by
an additional 30 percent against gold. We see no sign that these long
term trends are abating; the sad truth is that they are likely to get worse.
Despite the upward pressure on bond yields, the Fed is likely to prove
desperate in its resistance to raising interest rates. Such an increase would
cause politically untenable increases in mortgage rates, social security
costs, and Treasury debt funding costs. Above all, the Fed hopes to
avoid an interest-rate led crisis in the vast derivatives markets. As a
result, we can expect that an unjustifiably easy monetary policy will
continue unchecked for the foreseeable future. In short, America is
exhibiting economic behavior that in times past was practiced solely by
dysfunctional banana republics. It can't be long before our living
standards reflect this reality.
Looking back, those who invested in gold and non-U.S. dollar assets have
survived this turbulent decade intact. Since 2009 did not herald fundamental
changes, stay the course. Next year, either this Administration will choose
to begin the restructuring process, however painful, or the
"recovery" will quickly unravel.
For a
more in-depth analysis of our financial problems and the inherent dangers
they pose for the U.S. economy and U.S. dollar, read Peter Schiff's 2008
bestseller "The Little Book of Bull Moves in Bear Markets"
and his newest release "Crash Proof 2.0: How to Profit from the
Economic Collapse." Click here to learn more.
More importantly, don't let the great deals pass you by. Get an inside view
of Peter's playbook with his new Special Report, "Peter Schiff's Five
Favorite Investment Choices for the Next Five Years." Click here to download the
report for free. You can find more free services for
global investors, and learn about the Euro Pacific advantage, at www.europac.net.
John
Browne
Senior Market Strategist
Euro
Pacific Capital, Inc.
20271
Acacia Street, #200 Newport Beach, CA 92660
Toll-free:
888-377-3722 / Direct: 203-972-9300 Fax: 949-863-7100
www.europac.net
Read
all the other articles written by John Browne
For a
more in-depth analysis of our financial problems and the inherent dangers
they pose for the U.S. economy and U.S. dollar, read Peter Schiff's just
released book "The Little Book
of Bull Moves in Bear Markets." Click here to order your copy now.
More importantly make sure to protect your wealth and preserve
your purchasing power before it's too late. Discover the best way to buy gold
at www.goldyoucanfold.com, download my free research report on the powerful case for
investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.
John Browne is the
Senior Market Strategist for Euro Pacific Capital, Inc. Mr. Brown is a
distinguished former member of Britain's Parliament who served on the
Treasury Select Committee, as Chairman of the Conservative Small Business Committee,
and as a close associate of then-Prime Minister Margaret Thatcher. Among his
many notable assignments, John served as a principal advisor to Mrs.
Thatcher's government on issues related to the Soviet Union, and was the
first to convince Thatcher of the growing stature of then Agriculture
Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher
famously pronounced that Gorbachev was a man the West "could do business
with." A graduate of the Royal Military Academy Sandhurst, Britain's
version of West Point and retired British army major, John served as a pilot,
parachutist, and communications specialist in the elite Grenadiers of the
Royal Guard.
In addition to careers
in British politics and the military, John has a significant background,
spanning some 37 years, in finance and business. After graduating from the
Harvard Business School, John joined the New York firm of Morgan Stanley
& Co as an investment banker. He has also worked with such firms as
Barclays Bank and Citigroup. During his career he has served on the boards of
numerous banks and international corporations, with a special interest in
venture capital. He is a frequent guest on CNBC's Kudlow & Co. and the
former editor of NewsMax Media's Financial Intelligence Report and
Moneynews.com. He holds FINRA series 7 & 63 licenses.
Copyright © 2008
Euro Pacific
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