[Note: Some of these issues were discussed in a lively thread a few days ago. I thought I'd say a bit more about it here. It was interesting to see just how emotional a response this topic generated.]
I spoke with my mentor in NYC on the phone for about an hour last week and he shared with me his thoughts on the economy, in particular the strength (weakness) of the US dollar and how this will affect us all in 2007-8. I am no economist, and do not have the knowledge or skills to debate these arcane issues intelligibly. I do know, however, that the media are confirming many of the things he told me 10 days ago: the price of oil and other commodities will continue to rise in the long term; the dollar in the foreseeable future cannot recover no matter how much Bush urges us all to go shopping, and all the Fed can do is print more dollars, pushing us closer to inflation; China will probably sell a healthy chunk of its dollars (in Chinese, via Shanghaiist) after the New Year (things are orchestrated to allow us to enjoy our holidays); the housing slump will further slow down the US economy (so many jobs and ancillary industries are linked to the housing market, as they are to the auto industry); as always at a time of slower growth and diminished supplies of resources, the best investing bet for the next two years will be commodities, precious metals, natural gas, etc.
For an extremely opinionated outlook on these issues, you may want to peruse this site. The author is obviously banging his agenda-driven drum loudly, even hysterically, but I find enough nuggets of insight there to make it a daily must-read. And the guy is no quack. I overhauled my entire portfolio this week to protect it against a weakening dollar. I put some of my savings into a fund that shorts the US dollar, as well as mining stocks and commodities funds.
I am not predicting the collapse of America, just some hard times for many and some surprises for those whose hopes and dreams are pegged to the dollar. And I may be totally wrong – God knows, I was wrong during the dot-com bubble, though I like to think I learned a lot from that experience (I haven’t lost any money since). All we can do is watch and wait.
About my mentor: He is a professor in NYC, my oldest and closest friend, and he has an astonishing track record when it comes to investing. He is a contrarian and sees all “establishment” thinking on the economy to be fraudulent, almost a form of brainwashing. His philosophy: The oligarchy rules and we serve, and while there is no way to alter this, we can open our eyes and see how the oligarchy operates, and from time to time we may even outwit them. Evidence of how the powers that be is there, right in front of our faces, but most of us choose not to look. Ignorance is bliss. One splendid recent example, via Sinclair, is the Federal Reserve’s recent decision to mask the dollar’s perilous position. Money quote:
With their decision to put an end to the publication of M3 and other indicators designed to measure the evolution of Dollar ownership worldwide, the US authorities initiated a policy of “hidden monetisation” of the US debt. The Bush administration’s incapacity to handle the various deficits (budget, trade) and the related debt will result in a monetary creation of unequalled proportion, leading to a dilution of the American debt in an ocean of Dollars. The process has in fact already started: during the first three and a half months of the US fiscal year (beginning in October), the Federal Reserve has increased by 320 billion USD its stock of currency, that is 5 times more than it did over the same period last year…
I increasingly like the thought of going to work in China and being paid in RMB. I am delighted that my contract states my pay in RMB and not US dollars.
Richard Burger is the author of Behind the Red Door: Sex in China, an exploration of China's sexual revolution and its clash with traditional Chinese values.