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In the second half of 20th Century, you could count on the rising U.S. economy to lift nearly all boats.
Sure, we had recessions.
In fact, in the years between 1945 and 2000, economists count a total of eight significant contractions along with eight bear markets — some minor, some not-so-minor.
But looking back, it’s obvious that those setbacks were merely temporary ripples in a veritable “golden age” for investors that lasted over a half century.
In fact, if you had simply invested $10,000 in the average Dow stock in 1945 and held it until year-end 1999, you could have seen it grow to $756,146, multiplying your money by more than 75 times! But …
21st Century Investing Is
Another Matter Entirely!
If we’ve learned anything in the twelve years since New Year’s Day, 2000, it’s that buy-and-hold investors are practically begging to get their heads handed to them.
In fact, for most investors, the 2000s have been a financial nightmare:
They lost $9.5 trillion when the dot.com bubble burst in 2000 … technology stocks went down in flames … and most other stocks sunk along with them.
They lost another $15 trillion when the real estate bubble burst in 2007, slashing 56% off the average S&P 500 stock … driving companies like Bear Sterns and Lehman Brothers to extinction … and erasing a staggering $14.8 trillion of real estate values.
Total losses since 2000 alone: Nearly $40 trillion. Almost $267,000 for every American worker.
Time after time, we’ve seen key stocks double, triple, and quadruple as each bubble grew … only to be give back ALL of those gains — and more — in the subsequent wipe-out.
And we saw many stocks — even venerable old companies that had been with us for a hundred of years or more — simply dry up and blow away.
Investors lost their shirts in supergiants like Lehman Brothers, Washington Mutual, WorldCom, General Motors, CIT Group, Enron, Conseco, Chrysler, and Pacific Gas and Electric.
Plus, investors lost nearly everything in Refco, IndyMac Bancorp, Global Crossing, General Growth Properties, Calpine Corporation, New Century Financial, UAL Corporation, Delta Airlines, Circuit City, and Polaroid.
All of these companies went bankrupt. And all their stocks fell to zero. Yet …
The Tech and Housing Bubbles That Created These
Giant Failures Were SMALL in Comparison to the
Greatest Bubble of All, Being Created RIGHT NOW!
I’m talking about the massive growth of the federal government that we’ve seen over the past few years.
Not only is the government bubble the biggest of all time, but it is rapidly expanding in four separate ways:
First, we have an unprecedented Government Debt Bubble: Washington has spent a record $16.3 trillion since 2007 … has added $6.5 trillion to the national debt … and is CONTINUING to run up trillion-dollar-plus deficits every year.
Second, we are witnessing the Greatest Monetary Bubble in U.S. history: Just since 2008, the Federal Reserve has dumped more than $1.8 trillion newly-created U.S. dollars directly into the economy.
Plus, the Fed is creating even MORE money by holding interest rates low in order to increase loan demand. Never forget: When banks lend money, they effectively create new U.S. dollars out of thin air.
Third, we have a Government Employment Bubble. The Heritage Foundation reports that since December 2007, even while the private sector workforce has shrunk by 6.6%, shedding more than 7.5 million jobs … the federal government workforce has grown by 11.7%, adding 230,000 jobs.
Fourth, and most dangerous, there’s the Entitlement Bubble: Just consider the facts:
One in every five Americans now relies on federal assistance.
Nearly 46 million Americans need food stamps to keep body and soul together — 34% more than just two years ago.
The average recipient of federal aid collects $32,748 in benefits — about $300 more than the average tax-paying family gets in disposable income.
The biggest of all: The government’s obligations for Social Security, Medicare and Medicaid are now $65 trillion, nearly five times the value of all the goods and services produced by the entire country.
But Soon, Three Major Events
Will Burst This Massive Bubble …
First, the U.S. government is going to lose its primary creditors — overseas investors.
In fact, there’s abundant evidence that this deadly process has already begun.
That’s why Lawrence Goodman, a former Treasury official and president of the Center for Financial Stability, pointed out last week that major U.S. creditors like Japan and China, that once scooped up U.S. debt, are shunning it. Such foreign purchases of U.S. debt amounted to 6 percent of GDP and has since fallen by over eighty percent to a paltry 0.9 percent.
Second, that’s why the Federal Reserve has had no choice but to temporarily fill the gap.
Last year the Fed used printed money to purchase a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis.
This raises the question: What happens when the Fed’s actions drive fuel, food and other prices through the roof? Treasury interest rates surge — the first sign that the government bubble is bursting.
Third, ultimately entitlements must be cut — just like they’re being cut in Europe. In Spain, Greece, Portugal and Italy, those cuts are taking massive amounts of money out of the economy and plunging them into deep recessions.
Imagine what will happen when the world’s largest government with the world’s largest entitlement obligations begins making similar kinds of cuts!
Make no mistake: This great government bubble — probably the greatest mankind has ever seen — is destined to burst.
Like all the bubbles before it — Tulip Mania in the 1600s … the South Sea Bubble of the 1700s … the Tech Bubble in the 1990s … the Housing Bubble of the mid-2000s, this Great Government Bubble WILL BURST. And when it does, blood will run hip deep down Wall Street.
How to Grow Rich in Bubble Land
This is truly one of the most terrifying, frustrating — and, for those who know how to make money in times like these, one of the most exciting — times for investors ever.
The fact that we have identified this new “bubble/bust” pattern gives you a very significant advantage over other investors.
Knowing what’s likely to come — knowing that this new bubble in the government is destined to burst — gives you the power to both protect and grow your wealth throughout 2012 and beyond.
Here are three simple rules of thumb we recommend:
1. Do NOT be lulled into a false sense of security by anything Washington or Wall Street may tell you.
Remember: These are many of the same people who, in the 1990s, swore that the technology bubble would never burst.
Their mantra: The Internet had created a “New Economy” that made recessions obsolete. They were wrong. The Internet did not repeal the laws of supply and demand. Quite the contrary. It merely help exaggerated the swings from boom to bust.
Also remember that these are many of the same people who scoffed in the mid-2000s when we warned that the real estate bubble would inevitably burst.
Their mantra: “There has never been a nationwide real estate bust. Therefore, there will never be a nationwide real estate bust.” Again, they were wrong for the simple reason that there’s ALWAYS a first time.
Now they’re doing it again, and their newest mantra is the most ridiculous of all. They’re saying: “The Fed is guaranteeing low interest rates. Therefore it will be impossible for interest rates to rise.”
In the real world, however, the Fed never has controlled — and never will control — interest rates for more than limited periods of time. Meanwhile, regardless of the Fed’s attempts to combat it …
• Inflation naturally drives rates higher as investors demand more yield to cover the depreciation of their money. And …
• Global investors can drive rates skyward simply by dumping their holdings of sovereign debts, much as they did in Europe last year … and are doing again in Spain right now.
2. Wealth-building is not possible without wealth- preservation.
This is especially true right now.
Europe is in shambles. The Middle East seems on the verge of a major new war. The real estate crisis that triggered our last recession in the U.S. is not over. Home foreclosures are still rising. Home prices are still falling.
So make sure you have a strategy that will protect you in the worst-case scenario, while offering you substantial profit opportunities in the meantime.
Examples: Select companies in the strongest foreign countries, plus stable companies that produce gold, energy and other natural resources.
3. Never settle for less than the best.
Surround yourself with the best investment guidance available to you. They should help you (a) own the investments that are most likely to generate substantial safe returns while the bubble continues and (b) see the danger coming so you can get your money to safety before this bubble bursts.
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 17 comments }
I agree: “Surround yourself with good advice” is a good idea. But which good advice?
Thankes for the warning! This is the third time i have read a simular warning, they were virtualey the same. I agree. .
Of course your correct in the long run,but think of all the over 65,retired guys who bought gold in 1980 and probably died with loses.Right now,obviously,this is the time to be avoiding fiat and fiat promises(govt debt) and staying in real assets.
Im a dollar cost averaging investor. I have been buying the same dollar figure of the S&P every month since 1995. I doubled the monthly purchases between sept 2009 and May 2009. I’m well up on that part of my account. But where I made the most money is shorting Dr. Weiss ideas. I shorted Brazil in 2010. I shorted gold stocks in 2011. I’m now short nat gas. Thanks Dr. Weiss you make it easy to find ideas to make money on
Martin,
You are starting to read like an investment advisory service that’s hitting the terrify button very hard to drum up business for yourself. Comparing the United States to Greece is ludicrous on its face. Last time I looked we were still the country with the largest GDP and the most powerful military on the planet. While talking about trillions of dollars of debt is somewhat overwhelming the US treasury bond market still is at historic low level level interest rates and the problem the economy has is with falling asset prices not inflation. Business is aided by moderately rising prices. The housing market is plagued by oversupply, but its only over supply because not enough individuals have the means to pay for the housing they want and need. Once the economy starts to improve they will again have the means and the oversupply will be reduced and eventually eliminated. All money is really a function of debt. The national debt expands money supply which is necessary in current economic conditions. Houses are not tulip bulbs, people truly find them essential to a happy existence. The only bubble the country has to fear right now is in the guts and butts of many of its citizens.
Martin, you certainly well sum the second half of the twentieth century, as well as most of today’s problems. However, you could also at least mention: the effects of the, relatively recent and rapidly expanding, computerized “flash trading”; the continuing corporate fraud scandals such as WorldCom, Enron, etc., etc.; as well as the developing lack of trust in our very trading system and our “fiduciary” institutions themselves; with the possibility that, in an “emergency”, these may simply “help themselves” to OUR money in their accounts (as with MFGlobal). What you are saying here too, is that we all HAVE TO BECOME TRADERS, rather than “investors”, like it or not, and regardless of how old and stable or in basic commodities, that the companies underlying the stocks and bonds may be. Most of us are not even capable of COMPETENT trading, to say nothing of competing with the professional “computer traders”; so — who do we hire to trade FOR US (and what assurances can we take from THEM?
Dear Mr. Weiss,
You omitted to recommend investing in inverse ETFs. You have always said this here. I have bought stock each time you said sell and it’s worked out well. That’s why I need your guidance so I can do the opposite.
What happened to the financial Armageddon you prophecised about?
You are correct.
Growing rich with his advice? Anyone has been following Safe Money Report has lost a lot of money. Read all Martin’s article that was published in 2009 and you will know what I am talking about.
Martins words above are fiscal wisdom that need to be heard across this country and especially in Washington, D.C. and on Wall Street. However, Martin acknowledges the federal government’s (and taxpayers’?) debt as an ever-growiing bubble whose growth can only be sustained by the Fed “filling the gap'” by buying more and more bonds not purchased at treasury auctions. That means that he anticipates that Congress and the credit agencies will go along
with debt ceiling increases indefinitely. If he is correct, then the debt’s interest will continue to grow. – and when inflation skyrockets and interest rates soar higher,, the federal debt’s interest will also soar higher.
In fiscal year the debt’s interest cost $454.4 billion and in 2012 YTD interest has already cost $186.7 billion – something that nobody wants to acknowledge and discuss. But, imagine the higher interest cost that looms ahead. Clearly, budget deficits must be eliminated asap to cap the debt’s growth AND debt amortization must then begin. We all need to acknowledge such goals and create a plan to accomplish them with minimum pain. The longer we wait, the greater will be the pain and sacrifice.
The first sentence of my above comment’s lower paragraph should have begun “In fiscal year 2011, the federal debt’s interest cost $454.4 billion, etc.
Also unknown to virtually all Americans is that the debt’s interest since Reagan’s 1981 inauguration (when the debt was $930 billion) has cost nearly $9 trillion. During his 1980 election campaign, Reagan promised to balance the budget.to cap both the debt and its interest cost in 3 years, Instead, Reaganomics increased the debt $2 trillion during his two terms. Had he instead fulfilled his promise, today’s $15.6 trillion debt could be perhaps $13 trillion less – (if, of course, taxes had been temporarily increased to fund our wars.
In 1980 the greatest threat to the economy was runaway inflation. Here’s my personal experience during that time.
I was hired by the Federal Reserve Bank in 1971 , right after college. In 1974, I was assigned to the “Treasury Issues” department. It was like a tsunami struck that year. I particularly remember the headline at the top of in an American Banker newspaper which ran “TREASURY BILLS REACH 9%”, and the caption underneath: “HIGHEST INTEREST RATES SINCE THE CIVIL WAR”.
I learned the meaning of the word mob. People lined up to get into the Fed lobby. We had people crushing themselves into the bank elevators to get to the 2nd floor (where my little staff awaited) for those “9% government bonds”.
Some people carried a shopping bag of cash camouflaged in some way. No joke. But at least that cash wasn’t doing anything helpful at home under the mattress.
However, others cashed out CDs to buy our 9% (and later 10%, 11%, and 12% T-bills) . This was not so harmless as it reduced deposits at regular banks. Lower deposits induced reduced lending. Reduced lending led to reduced economic activity. Truly this was a race to the bottom.
Paul Volker, our Fed Chairman, believed he could end the inflationary spiral, using available fiscal monetary policy. President Carter would not agree, and it is understandable because Volker’s plan would almost certainly create one or perhaps two years of recession and an election year (1980) was coming up. .
In 1980 Reagan stood with Volker. The plan worked. Good-bye inflation. Hello price stability. When housing prices stood still, and interest rates came down, my husband and I could afford to get into the market and we did.
However, history shows that in 1982, Reagan’s “stand” was punished by the Dems who demonized the very policies which ended inflation and stagflation. Dems won more seats in 1982 and had the votes for more tax and spend bills. Reagan could not have governed at all unless he compromised and he did. Hence the debt increase – who drove it? Was it Reagan’s policies? Or was it Dems?
You’ll have to answer these questions for yourself, but I think this story illustrates one reality. If an economic policy is unsustainable (LBJ’s “guns & butter), it will fail. People will react, perhaps rationally, perhaps hysterically.
Are you ready for a mob?
Thanks barbara concise and to the point and when you look at the tax and spend policies of carter and the damage he did it seems like nothing compared to what OBAMA is doing I dread to think if that brown turd gets elected again and the damage that he is going to do to this country through 2016 lets all not to forget to flush the brown turd out of the whitehouse in 2012
Please cancel my April 2 “comments awaiting moderation” and replace with the single one below: BTW, the source of my historical debt and interest numbers is the U.S. Treasury Dept’s web site.
Martin acknowledges the federal government’s (actually taxpayers’) debt as an ever-growiing bubble whose growth can only be sustained by the Fed “filling the gap’†by buying more and more bonds that nobody else is buying at treasury auctions. That means that he anticipates Congress and the credit agencies will go along with debt ceiling increases indefinitely. If he is correct, then the debt’s interest will continue to grow. – and when inflation and interest rates inevitably skyrocket,, the federal debt’s interest cost will also..
In fiscal year the debt’s interest cost $454.4 billion and 2012 YTD interest has already cost $186.7 billion – something that nobody wants to acknowledge and discuss. But, imagine the even higher interest cost that looms ahead. Clearly, budget deficits must be eliminated asap to cap the debt’s principal and interest growth AND debt amortization must then begin. We all need to acknowledge the need for such goals and demand a viable plan to accomplish them with minimum possible pain. The longer we wait, the greater will be the pain and sacrifice.
Also unknown to virtually all Americans is that the debt’s interest since Reagan’s 1981 inauguration (when the debt was $930 billion) has cost nearly $9 trillion. During his 1980 election campaign, Reagan promised to balance the budget.to cap both the debt and its interest cost in 3 years (and so I voted for him). Instead, Reaganomics increased the debt $2 trillion during his two terms. Had he instead fulfilled his campaign promise, today’s $15.6 trillion debt could be perhaps $13 trillion less – if, of course, Congress had then continued to levy sufficient taxes to fund the spending they approved (including for wars).
Ron Paul vs. Paul Krugman: Austrian vs. Keynesian economics in the financial crisis
On You Tube watch it
Hi Martin
The fundamental problem most large scale investors have at the moment in the US is Debt, Fraud and unaccountability. If I had a billion dollars right now the last place I would come is the US. Currency depreciation aside the US administration has demonstrated an inability to bring down a balanced budget, the skill and necessary legislation to protect people and institutions from fraud and any semblance of trust. Viz MF Global. I’m sorry Martin but I’m looking elsewhere.
Dear Mr. Weiss:
To put it simply, at some point in time all governments must do a better job matching revenues with expenditures. The best we can hope for is a soft landing. What should one be invested in once government expenditures equal government revenues, assuming that the sensible path of raising govermental revenues and cutting goverenmental expenditures is followed. As an example, discretionary expenditures will shrink dramatically and companies that serve this market will really take a hit (ie Starbucks, McDonalds, Regal Cinemas, etc, etc, etc).
What difference does it make what the economy is doing. Following the mindless chat in the media one would go nuts trying to make a financial decision. Here;s a great strategy: 1) If the fed is inflating the currency again that’s good, so you buy stocks and place a stop loss in. Who cares if the public is furthered damaged by inflation. 2) The markets today are gambling pits so act accoringly. 3) To survive one must cut household expenses and most certainly have zero debt on non appreciating items such as autos, furnishings ect.. 4) One must also be in a good cash position regardless of the low intereest being paid.
If folks follow the above simple advise they will not only survive but prosper as well.