Dan’s T-Bills are better than gold and will remain so ad infinitum
Dear Dan–some ideas for you in response to your questions about asset valuations…
..I think we are headed into a very deep Depression, primarily for reasons rarely considered. Mostly, it is a function of demographics. In US–the older generation–my own– will be out of the workforce entirely very soon–so we are going from the heavy spending, inflationary, phase into the deflationary, non-spending phase, of our lives and we are 92 million in number –one-third of the nation–the primary repercussion of all this which is that we stop spending–most particularly in real estate–we don’t need big houses, we don’t need new cars ever again, we don’t need toys. More poignantly, the next generation is very small compared to my own–they can’t take up the consumption slack. China is in far worse condition–she inadvertently killed herself with the population policy–China is already massively overbuilt and exposed 50 percent to exports the demand for which will largely dry up as older people don’t need that many new toys. Back home in China, there are already many, many cities over–built and over capitalized–and vacant– 24% vacancy rate in China–no customers–and they have no new generation of sufficient size to purchase the houses or products–it sounded like a good policy to limit population, but in truth it was suicidal. Avoid China. It takes 30 years to grow up a generation–so China is finished for our lifetimes as an attractive investment vehicle.
As to our policy, everyone concentrates on public debt–see elections and other follies–but nobody looks at private debt–which is fully 20X public debt. That debt is now de-leveraging for largely demographic reasons and the result will be massive deflation. Depression is an academic construct in which massive unemployment is coupled with collapsing prices. In such circumstances, the American dollar will be more supreme than ever before. This situation is unavoidable and really has nothing to do with government spending and the situation will not respond to government stimulus–it’s simply about numbers of people.
You’ve asked me what to buy and what not to buy as your government paper returns almost nothing. Be in cash, avoid equities unless you are proficient in shorting stocks, avoid commodities of all types–gold, oil, industrials, et sequentia. will completely collapse–no demand. Avoid real estate like the plague–don’t take possession of real estate if someone gives it to you–the massive foreclosure backlog–4 million homes in US–will not sort itself for many years–basically–if you want to find a real valuation on your house–look at its’ value in 1998-2000–it has to get that cheap again before there is any upward movement–leave your baby the house because by the time she is out in the world real estate will be OK again, but we are basically talking 2025.
Places of interest–India, Argentina, Peru–other emerging markets which are NOT tied to supplying commodities to US and West Europe. Brazil is as bad off as China in terms of exposure to commodity supply prices–avoid Brazil and China.
Everybody likes to harp on US public debt and spending–but there seems a gentleman’s agreement not to discuss private debt–literally 20X public debt and it is de-leveraging as I write–simply because my generation is massive in number and moving off the playing field to be replaced by a far smaller younger group. A man hits his spending high note at age 46 and, after age 50, he barely spends at all. Many of my generation are in fine shape but we just don’t need to spend very much and that is curtains for a consumer economy.
End point for now as you asked me this some months ago–stay in cash or US denominated instruments–bluntly–bluntly–keep your T–bills–do not buy municipals in any state or locality–the old sure-fire widow’s paper is now poison–these places cannot print money–the central government can– and consider yourself lucky to get your return–the dollar is an absolute king in a depression and if you have dollars, you will be royalty.
Sub-note–do NOT keep much in bank deposit except for CDs or broker accounts that are held separately from the liquidity of the banks themselves–all major US banks are completely insolvent and their continued exposure to toxic real estate paper will likely bring down many of them–again, your CDs, safe deposit boxes and non-invested brokerage accounts are legally separate from the bank’s fiscal condition so they are safe no matter what happens to the holding bank. If you have a good credit Union at the Department–that is a safe place to store cash–but mostly hold onto government paper, cash or any other dollar denominated instruments you find of interest.
And, finally, don’t accept the Presidency if offered to you at gun point, or wish it on anyone you admire.