It was said that Nero played the lyre while Rome burned. Well our leaders are doing the same thing; we should have emergency meetings every single day about the debt crisis, but we’re not. It’s the same old BS, and you can be sure that no change will occur unless it is forced upon us.
Does anyone out there really believe Obama, if reelected, is going to do a 180 and start being fiscally responsible? Does anyone actually believe that Romney is going to cut spending? Like it or not, Ron Paul is our best shot at getting out of this crisis alive. If you don’t support him because you “heard” he was a racist, or you “think” eliminating the income tax wouldn’t work, or you “think” his support of gold is a little loony because Warren Buffett said so, then quite honestly, you’re a moron.
This is just one of those things you either believe or don’t believe. News that our debt-to-GDP ratio rose from 94% to 100% isn’t going to convince nonbelievers that a massive crisis is coming. No alarm bells will be rung when short-term rates rise to historically “normal” levels, even though this will bring annual interest payments on our debt closer to $1 trillion. Most people will look for something like a stock market collapse to augur that a crisis is coming, but this is truly foolish.
The stock market collapse is behind us; in all likelihood Helicopter Ben will make sure equity markets are elevated. I am still waiting for the 90% decline in stocks that “has to” occur because that’s what happened during the Great Depression. But anyway, the bond market collapse is inevitable; there will come a day when there is no bid on our debt. This is going to send a lot of assets flying, including stocks.
In bull markets, the only question is: “what stocks should I buy”? However, this is a dangerous game, as people found out in 2008 when pretty much every stock fell. When the recession came, all the experts said you should get out of financials and into consumer staples. My whole thinking was, “why”? Yea you may have avoided the worst of the crash, but are you really going to pound your chest over losing less money than the next guy? I thought investing was about making money?
The somewhat more sophisticated investors split their options between stocks and bonds. This is an OK approach, but not the best approach for the years ahead. What you need to do is diversify, not within an asset class, but across asset classes.
Here’s a basic example of what I’m talking about, taken from the Financial Times wealth index for October. Behind the scenes, there is a major bull market developing in tangible assets. Does this mean that people are suddenly a lot richer than they were 3 years ago? No. It means the wealthy see what’s coming, and they are hedging accordingly. Top-shelf artwork serves more or less the same purpose as gold with less risk of confiscation. It is a very wise move as far as I’m concerned.
Diversify as much as humanly possible in preparation for the fireworks that are coming. It is not a matter of if, but when.