Another year has blown by and again each of us are at the helms of our little boats looking out to see what a new year might bring. Will it be a year of sun, steady winds and clear sailing? Or, will it be a year of dangerous storms, battering waves and tough navigation? It is the goal of this article, and the links associated with it, to provide you with information that may be used for charting a successful course in the year ahead. Information on potential storms on the horizon and safe havens you might want to set anchor in while these storms pass. But first, let’s take a look back at our wake and review the waters we’ve passed through in 2007.
In the future, 2007 will probably be remembered as a year of transition. A year of realization and awakening to many things. For many of us, 2007 leaves us in a very unsettled state. We watched an expensive unjustifiable war continue, a housing crisis escalate, the potential for a banking collapse develop, the Dollar fall to new lows, another sadly comical presidential election process begin, a public awakening to the warming of the environment, and the initial stirrings to the realization that we live in a limited and finite world. In a sense, a realization seems to have developed that we are coming to the end of a long wild party and awakening to both a real mess and a major hangover. Most of us have that gut feeling that things are about to change, and not for the better.
That being said, it should also be remembered that from chaos comes great opportunity. Storms on the horizon can bring great opportunities and rewards if we understand how to navigate around the squalls and position ourselves to run with the winds and surf the waves.
That these storms bring rain to the fields, snow to the mountains, flowers to the desert and new life to parched lands. Our challenge is to avoid being caught in the erosion of the fields, run over by avalanches, or drown in a desert flash flood.
This article includes many links for you to explore the information provided here. There are a number of links to videos that are incredibly valuable and easy to access even if your time is limited. Please share this information with family, friends and others around you. We hope you will view the video “Crude Impact” in the peak oil section or on youtube.com. If there is one future event that will affect all of us in the long-term financially and in our lifestyles this is it.
The Dollar
As escape artists tied to the American financial system, we are all interested in the plight of the Dollar. Will it rise or fall? This question is of extreme importance if you are living in a foreign country on a fixed budget. It is also important for those of us who are still working to bring our foreign dreams to fruition.
There are numerous reasons to be either a bull or bear when it comes to the Dollar in the coming year. Although most of us realize the Dollar is backed by nothing more than the promise of bankrupt government, it is pretty much the same with many other currencies. Almost all countries have been inflating their currencies over the past decade, many at a greater rate than the US. On the other hand, our country has been borrowing and spending money like a bunch of sailors on shore leave. This is starting to scare many countries as they believe they may end up with a lot of worthless US paper in their treasuries.
So, will the Dollar continue to fall? Probably, but there is a case for it holding on or getting a little stronger as central banks work to hold the system together. That being said, we should still all plan for losses in our buying power as both the Dollar falls further and inflation rages on.
For a good understanding of gold v. the Dollar take a look at the first two tables in this article. Also, in this article by Richard Russell it is important to note the part about China, gold and the Renminbi as the reserve currency. If this happens, and remember Mr. Russell has been writing his financial newsletter for 50 years, the dollar could become almost worthless overnight. It has been my speculation for a number of years that we will see a replay of the period in history when the US Dollar replaced the British Sterling as the world’s reserve currency (global economic collapse, confiscation of gold by the Chinese govt., backing of the Renminbi with gold, Chinese Ren then becomes reserve currency, the Dollar collapses, and the US becomes 3rd world nation). Mr. Russell’s insights are incredibly interesting if not downright scary.
The Housing Crisis Continues and Expands
2008 should bring the realization to everyone that the housing crisis goes far beyond the Subprime market and deep into the Alt-A and Prime markets as well. As we watch those in the prime market with adjustable rate mortgages experience increases in their monthly payments we will begin to see foreclosures rise in this market segment. Here in California, many holders of prime mortgages that were adjustable are faced with trying to refinance to a fixed rate requiring a down payment on a property that is decreasing in value. Those who refinanced and took out maximum liquidity from their homes face a similar problem as the downturn in housing prices begins to send them into a position of being financially upside down… owing more than the house is worth.
Expect to see housing prices continue the process of what is known in economics as “returning to the mean”. This natural law is a process that can only be accomplished in two ways: a) an increase in income, or b) a decrease in housing prices. With the outsourcing of our industry and recession on the horizon don’t expect increases in income to come to the rescue.
On the bright side. For those positioned correctly there will be many great opportunities to purchase real estate in the future. This may not take place for two to three years, but it will happen. For those of us with an eye on the international real estate market, there are areas that are great opportunities right now. It is our belief that many international areas, having also seen rapid price increases, could face the same situation as property in the US as liquidity in these markets dry up. Whether this will be offset by the fall in the value of the dollar is the 64,000 dollar question.
Peak Oil Rears its Ugly Head
Just as 2007 was the year people seemed to start taking global warming seriously, 2008 could be the year that Peak Oil and its consequences raises its ugly head to the consciousness of a sleeping global citizenry. Peak Oil, for those of you new to this issue, is the point at which global production and refining reaches a peak, plateaus and then starts to fall even though demand continues to rise. As you can well imagine, with standards of living rising in China, India, Russia, and many other countries there is and will be increased competition for this finite resource. The big question will be if we as a species deal with this issue so as to serve humanity’s best interest or will we revert back to old habits usually associated with competition for resources.
On the bright side. Again, this creates many opportunities for those who are interested and willing to study this issue in depth. Going forward, investments in energy and resources should be a big winner.
The Financial System Crisis
If 2007 can be described as the year the financial dam cracked, 2008 should be the one where the dam breaks. Already we are witnessing numerous banking institutions having to be bailed out of the mess they created. Although the media has tried to describe this problem as one created by the subprime housing market, the reality is the financial industry is the responsible party in this criminal fiasco.
The banking system, sitting on top of hundreds of billions of dollars in bad collateralized subprime mortgage debt, is facing the issue of now having to put this bad debt onto their balance sheets. Up to now, it has been recorded as assets. Additionally, these banks, the credit rating services that gave the high ratings to these bad debt instruments, and the mortgage brokers that falsified applications to get approval are all facing potential law suits. This means the future could get very interesting. Sadly though, many investors and pension fund holders will pay the price for these criminals long before any justice will be imposed upon them. For a humorous, but spot on analysis of the situation take a look at this video.
Speaking of interesting, recently the courts threw out a group of foreclosure requests by Deutsche Bank as they “did not own the loans”. The loans had been sold to Wall Street so the new owners of the loans were in fact the investors in those instruments. The judge ruled that since DB no longer owned the loans they had no right to foreclose on the mortgages. This may be an interesting twist as hundreds of thousand of loans enter foreclosure.
Finally, it is important for investors to understand the problem the derivatives market will create in the coming months and years. A derivative is basically a paper insurance policy covering a transaction. Currently the derivatives market is over 500 Trillion dollars and growing by over 30% a year. According to the Bank of International Settlements in Switzerland, derivatives increased by over 100 trillion in the first six months of 2007. Considering the entire global economy is only about 50 trillion, this should send red flags waving in the heads of anyone who holds paper investments on Wall Street including pension funds, mutual funds, financial stocks, bonds and even money in the bank.
If you would like to understand these issues better and explore some avenues for protecting your assets I would like to recommend a very well written and researched book, “Crash Proof” by Peter Schiff. It is well with the cost and the time spent reading it.
Environmental Degradation and Destruction
Global Warming will continue to grow in awareness so there isn’t much more that can be added on the topic. We would like to make a point to consider. It is often the case that one issue can gather so much attention that other issues of great importance are completely overlooked. It is our fear that this is happening with the Global Warming issue. As everyone focuses on this issue we ignore at our own demise problems such as species extinction, collapse of the world’s fisheries, ocean dead zones, and decreasing agriculturally productive lands and falling food output. It is important to keep these other problems in mind as they will also affect us in the coming years. A good example is food security. With population increasing, productive agricultural lands decreasing, food production falling, and food reserves at the lowest point in decades it is fairly easy to see we are about to have some big problems. The collapsing of global fisheries doesn’t help. So as everyone else is focusing on Global Warming, keep in mind the big picture.
Another US Presidential Race
As if these issues mentioned above weren’t enough to think about, we must also go through yet another presidential election cycle. Promises will be offered, pontifications will be made and ultimately we will be offered the choice of choosing between a bad and worse candidate. Those offering true solutions to our dilemma as a country will be discounted and quickly forced out of the race. Those doing the bidding of elite, corporations, or military adventurism will be supported and ultimately elected. Don’t expect any help from this direction.
From our perspective, there is only one candidate with the knowledge and willingness to do the things needed to save this country, and he hasn’t got much of a chance. With the corporately controlled media completely blackballing any information outside of their agenda, this country will soon have another president chosen by those behind the scenes. The elite will continue running the country, the war mongering will continue and probably expand, and the country will continue into receivership of those countries now lending us the almost 3 billion dollars each day just to keep the US going. But you do have to admit Ron Paul has done a great job of getting this far.
Positioning Yourself
The key to making 2008 a great year is to walk into it with our eyes wide open and the realization that no matter what the storm on the horizon looks like there is beautiful weather on the other side and many opportunities between here and there. Positioning begins with educating ourselves to the situations we are facing. The more information you have, the better able you will be to consider all of your options and prepare for whatever 2008 brings. And understand, the challenges are systemic in nature so even if 2008 passes without events taking place, the underlying problems still exist and will need to be dealt with sooner or later. So, if nothing happens in 2008, consider it a blessing as we will all have another year to better position ourselves for when things do happen.
Here are a few thoughts to consider when looking at your current portfolio and trying to project how trends will affect it in the coming years. The information is not a recommendation but offered for educational purposes. Make your own decisions on your own research.
Paper Assets- Holding paper assets is probably the greatest concern people should have. As few investors truly know where there IRA’s, pension funds or 401k’s are invested, most people will not understand their exposure to a financial system break down. If you are one of these individuals now is the time to find out. The financial services part of this economy has been one of the hot investment areas in the past 10 years. Of course it has been built on a foundation of derivatives, hedge funds, and falsified economics and accounting practices. It is our belief that individuals should consider limiting their exposure to paper wealth and move into real assets or investments in companies that are producing real products.
Real Assets- With the population of the world growing unsustainably and nations like China and India developing at incredible rates it is obvious that the finite resources of our little planet are going to be taxed beyond imagination. Competition for these limited resources will force the prices of these items much higher. At the same time, expect assets like houses to fall in value. Call it De-Stag-Flation. The deflation of housing and paper portfolios, stagnation of wages/incomes, and inflation on items such as food, energy, and daily essentials. We are very bullish on investments in energy, food, gold, silver, uranium, oil and the companies that are in the supply lines of these commodities. If you are looking for long-term investments that are environmentally friendly with great returns you might consider hardwood trees.
An Insurance Policy Under the Mattress- As none of us can project exactly what events might happen to us at any time it is always a good idea to have a little insurance policy tucked away as protection. We would like to recommend that you consider tucking away a store of cash, food, and other items you might need just in case. It always comes in hand whether the event is an earthquake, flood, hurricane, power outage, or financial hardship.
It is our hope that each and every one of you have a great year and that this information will help you in making 2008 an incredibly successful year. |
