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How to Get
Richer in the
Coming Great
Western
Depression
Inflation AND Deflation
Coffee at Starbucks costs more. Gas costs more. Food at the grocery store costs more.
At the same time, property prices lost 33% of their value between 2006 and 2011, according to
Case-Shiller.
Wages remain stagnant. With so many people applying for jobs, no business will pay employees more
than they must. Many businesses hiring people today are now paying new staff 25% less than they
would have before the great recession.
Employment continues to languish.
This underlying deflation is less obvious because we don’t confront it everyday, like we do food prices
in the store.
After all, as humans, we’re more aware of what burns us every day and we’re blind to the effects of
unseen events. It’s like cancer. If you’re lucky, you might see some early warning signs, but mostly
you don’t know it’s there until the damage is extensive.
And deflation is a cancer to our economy. It eats away at the system, mostly unseen, until suddenly
we can’t ignore it anymore. As the following chart shows, that’s where we are right now. Our research
has found an uncanny correlation between inflation and workforce growth, as young people are
expensive to incorporate. We’re going to see strong deflation ahead as the baby boomers retire.
Inflation Indicator and Forecast and Private Debt
Inflation Indicator and Forecast
The Consumer Price Index vs. Workforce Growth on a 2.5-Year Lag, 1954-2030
4.0%
3.0%
LABOR FORCE
GROWTH
2.5-YR LAG,
left
INFLATION (CPI),
right
2.0%
1.0%
0.0%
-1.0%
1954
1957
1960
1963
1966
1969
1973
1976
1979
1982
1985
1988
1992
1995
1998
2001
2004
2007
2011
2014
2017
2020
2023
2026
2030
-2.0%
18%
16%
14%
12%
10%
8%
LABOR FORCE 6%
GROWTH
4%
FORECAST
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
Source: Bureau of Labor Statistics, Dent Research
Deflation is inevitable… In fact, it’s part of the reason the government’s irresponsible fiscal behavior
hasn’t resulted in run away inflation... and why it never will.
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But the Fed is determined to hold back the tsunami. It’s pumped more than $4 trillion “new”
dollars into existence. There was its QE1 efforts from November 2008 to March 2010 that added
$1.42 trillion to the economy. Then there was QE2, which dumped another $600 billion into the
economy in the form of long-term U.S. Treasury bonds. And we had QE3, which initially promised
“unlimited” easing, but has now been wound down.
Ben Bernanke swore to keep interest to near-zero rates for years. Janet Yellen continues in the same
vein.
But when all is said and done, these desperate moves are doomed to fail.
108 Million Reasons Why the Fed Can’t Win
Between 1942 and 1968, the U.S. economy enjoyed an economic spring boom. This turned into an
inflationary bust from ’69 to ’82. The economic fall boom that followed saw the creation of the biggest
bubbles in history. And in 2008 we turned the corner again to head into a winter deflationary bust that
will last until 2022/early 2023.
These booms and busts have nothing to do with oil, interest rates or trillion dollar deficits...
presidential decrees, central bank antics or anything else except one thing…
People.
That’s it. It really is that simple. The rise and fall of our economy is all thanks to the 800lb gorilla in
the room: consumers who are also workers.
And when revolutionary changes in medicine and agriculture in the 1940s transformed our standards
of living, our health, our diets and our fortunes, we added 108 million more consumers to the
economic pot.
Over the last several decades, these baby boomers bought houses. Then McMansions. Then holiday
homes in exotic places. They bought cars, SUVs, minivans, sports cars.
Home prices skyrocketed. Industry ramped up production.
Everyone was living the American dream.
Then one day we couldn’t anymore.
In 2008 we ran out of money. We’d maxed out our credit cards and suddenly couldn’t balance the
budget every month. American consumers and the businesses who serve them accumulated way
more debt than government since the 1980s. At the peak of the debt bubble, we’d racked up $42
trillion to be exact. $14.2 trillion of that was on mortgages alone.
Then we hit a wall. A slight increase in interest rates and millions of Americans could no longer meet
their monthly mortgage repayments. Then they could no longer make their credit card payments.
Then they could barely get food in the house.
At the same time the wheels were coming off, the leading edge of 108 million baby boomers began
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to prepare for retirement with greater urgency. All of this set into motion a shrinking of the money
supply. It also doomed the Fed’s stimulus plans.
Think of the economy as a bucket. During good years, the Fed pours water (money) in and we
consume it. As inflation takes hold, the level of water in the bucket rises. When inflation hits
extremes, the bucket overflows.
When times turn deflationary — when people stop spending all the money at their disposal and start
paying back their debt — suddenly the bucket has holes in it. The more people save and pay down
debt, the more holes there are.
That’s what’s happening now. As consumers, we’ve spent the last five years doing everything in our
power to free ourselves of debt and to save for retirement. Every time one of us pays off our car,
or mortgage, or credit card, we put another hole in the bucket. When we put cash into a savings
account, another hole appears. But the Fed doesn’t want us doing that. It wants us to spend, and
spend, and spend. That’s why it maintains its ridiculously low interest rate policy.
Consumers are fighting a protracted battle with the government. They want us to spend with
abandon again. We’re not buying it. Because, at the end of the day, we don’t do what the government
wants us to do. We do what’s best for ourselves and our families.
When we buy a new car, we don’t do it because the government says “unemployment levels in the
automobile industry are unacceptably low.” We do it because our old car is now too small for all our
teenage kids and the dog, or because we need a more fuel-efficient car so we can cut down our gas
bill, or because we know our loved ones would be safer in a better car.
And that’s why the government is checkmated. No matter how much money the Fed floods into
the system, it’s not going to make consumers spend anymore than they do right now. As demand
dwindles, prices will come down. And in a deflationary period like that, the dollar will gain value.
That means, the first step you should take now, to survive and prosper in the years ahead, is to hoard
your dollars…
The Dollar Will Come Out on Top in This Shakeout
In deflationary times, cash is king.
That’s why, contrary to everything you might be hearing, the U.S. dollar (and dollar-based assets)
will be the best currency to own in the years ahead.
The last time the markets crashed in 2008, the dollar rallied 22% in just four months. It was one of
the few things that soared when almost everything else plummeted. It will do so again for two simple
reasons.
The first we’ve already discussed. Fewer dollars have greater worth.
The second reason is that, for now, there is simply nothing out there that can replace the dollar. It is the
most liquid currency in the world. It’s present in 85% of all transactions in the global foreign exchange
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market, which has a daily volume of $4 trillion. No other currency has the same volume or liquidity.
Yes, there is a large, vociferous group of analysts and investors who believe the dollar’s days as reserve
currency are numbered. They may be. But not for at least a decade yet. The reality is, there is nothing
with which to replace the dollar anytime soon. Take gold, for example…
Gold Will Never Be a Currency: A currency should have two attributes: it should be a storehouse of
value and it should be able to serve as a unit of exchange. It is the former — the storehouse of value
— that partly drives gold-bugs to hoard the precious metal. But, gold could never serve as a unit of
exchange. There are simply too many products and services available and too little gold to go around.
It would be impossible to find the right amount of gold to exchange for, say, a haircut or a candy bar.
What would need to happen instead is the issuance of notes backed by gold, much like the dollar
before 1933. But that won’t happen because it would move the power of the purse from the
government to the holders of capital and the rest of the world would overrun the currency. Fiat
currencies allow governments to take value from their citizens at will.
What about China’s efforts to replace the dollar?
China’s About to go Ka-Boom: China may protest loudly against the dollar and one day it may
topple the world’s reserve currency, but right now, China is about to implode. The unprecedented
real estate and infrastructure bubble it’s inflating ensures a collapse is inevitable.
Twice the housing is being built than the number of households being formed. Upper-middle-class
citizens are buying up condos and apartments in a speculator’s frenzy and then letting them sit empty.
The country has several huge ghost cities. For example, Ordos has the capacity to hold a million
people. Everything’s there. Streetlights. Roads. Apartments. Shopping centers. Offices. Houses. But
there’s almost no one there. Only 2% of its buildings were ever filled. The rest have been left to ruin.
On top of that, some of the most expensive real estate in the world is in major Chinese cities. Prices
for property in Guangzhou and Hong Kong are 28 to 35 times income. Prices in Shanghai and
Zhenjiang are respectively 40 times and 34 times income.
The problem is, Chinese consumers are not driving this economic boom. The Chinese government
is. The people on the ground are actually spending less and less. Personal household consumption
as a percentage of Gross Domestic Product (GDP) has dropped from a high of around 70% (in the
1960s) to as little as 37% (in 2010). And now there are signs of collapse everywhere, with Chinese
growth slowing markedly, property prices declining sharply, and the number of possible defaults
increasing.
And Chinese manufacturing is slowing down so fast it looks like a contraction is unavoidable. There
is no doubt in our minds: China’s infrastructure bubble will implode soon. When it does, not only
will the yuan weaken, the fear this collapse will create will drive even more investors into the dollar,
thus pushing the dollar up.
The euro won’t dethrone the buck either…
The Euro is a Much Uglier Sister: The crisis in Europe is far from over. Greece is still broke and
it’s not the only country in the euro zone in that position. Spain is in deep trouble. Italy is not in
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much better shape. And now the European Central Bank (ECB) has a 0.05% interest rate. All of
this is dragging the euro down. As one of the world’s largest currencies, after the dollar, the euro is
in a rapidly destabilizing position. This means the euro offers no threat to the dollar’s reserve status.
Neither does the yen…
The Yen is Long in the Tooth: Japan is a dying country. Its demographic trends are sharply negative.
Fewer Japanese are having children and the population is aging rapidly. It has also been unable to
pull itself out of the deflationary cycle that started more than 20 years ago. The last thing Japan
wants right now is a strong currency because that would just put more pressure on an already
struggling economy.
Remember, a weaker currency translates into stronger exports and stronger export numbers boost a
country’s GDP. Japan is a major exporter with world-famous brands like Toyota, Honda, Nissan and
Sony electronics. It’s crucial that the yen stays “weak.”
Mighty Switzerland Has Gone Soft: The Swiss franc also has no hope of unseating the dollar as the
world’s reserve currency. It simply lacks the required liquidity. In 2011, it strengthened against all
major currencies. This led to a stampede into the currency, so its value shot higher. Of course, this
pushed prices in Switzerland up as well. At the end of that summer, a Big Mac in Switzerland cost
the equivalent of $17.
The Swiss government could not tolerate such a strong currency. No country wants its goods and
services to be so expensive that no one can afford to buy them. Especially not Switzerland, where
exports contribute roughly 72% of the country’s GDP.
The stories are the same with the Australian and Canadian dollars. There is simply not enough of
each currency to go around.
The bottom line is: as deflation shakes up the global economy more violently, the dollar will regain
its strength. That’s why Adam O’Dell, our Chief Investment Analyst, and Editor of the highly
successful Cycle 9 Alert, recommends you buy the PowerShares DB USD Bull Fund (NYSE: UUP)
up to $26.
UUP shorts the dollar against six major currencies:
1. The euro
2. Japanese yen
3. British pound
4. Canadian dollar
5. Swedish krona
6. The Swiss franc
Action to Take: Buy the PowerShares DB USD Bull Fund (NYSE: UUP) up to $26.
Another way to benefit from the strengthening dollar is to sock away what you can. That’s why Adam
suggests you put cash into an EverBank 5-year Yield Pledge Certificate of Deposit (CD)…
For the sake of transparency, we have an advertising relationship with Everbank, but Adam would never
recommend using the company if he wasn’t convinced of the value it can add to your investing strategy.
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How to Get 7 Times More Interest on Your Dollars
Adam believes EverBank’s Yield Pledge CDs are one of the safest investment vehicles in the market
right now. They’ve also outperformed the market for years. In fact, Bankrate.com ranked this
particular CD in the top tier 100 highest earners for 14 years in a row.
With a one-year term, you earn three times more interest on your savings than the national average.
With a five-year term, you could earn as much as seven times more interest on your savings. That’s
significant. If your company decided to increase your two weeks allotted vacation by seven times,
you’d have three months and eight days leisure time at your disposal.
Unfortunately, your boss isn’t about to do that. But with EverBank’s Yield Pledge CD, you get to
experience the power of up to seven times more interest.
And it’s quick and easy to buy this CD. All you need is a minimum deposit of $1,500. Then decide
how long you want to hold it. Your options are three months, six months, nine months, one year, 1.5
years, two years, 2.5 years, three years, four years and five years. Obviously, the longer term accounts
offer the highest interest rates.
Visit EverBank.com to open your account. Make sure you have your Social Security number,
residential address details and employment information handy.
This CD is a quick, easy and safe way to grow your cash during the deflationary shakeout ahead.
Action to Take: Open an EverBank 5-year High Yield Certificate of Deposit.
Consider These Big Shorts
For those of you with an appetite for more risk, Adam has found a third way for you to get richer
during the years ahead. That is, consider shorting particular sectors.
When markets crashed in 2008, most investors watched in horror as half the value of their portfolios
simply disappeared. But, at the same time, some of the smarter investors enjoyed gains of 15%, 69%
and 104%. They did it by shorting the market.
Now, during the coming Western depression, you can do the same. And Adam believes ProShares is
the best way to play the markets in this way. The company is the world’s largest manager of leveraged
and inverse funds. With its 150 ETFs, you gain exposure to U.S. and foreign equities, fixed-income
commodities, currency and volatility benchmarks.
There are two particular ProShares ETFs Adam believes you should look at when the time comes.
The first shorts the real estate market.
Not only are baby boomers no longer in the market for large, family homes, but millions of
Americans are trapped in houses that are worth less than the mortgages they owe. Or their credit
records are still recovering from their forced defaults.
While the real estate market has recovered some from recent lows, it is not yet in a position to rise
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for much longer. That’s because the wrong kinds of people have been snapping up properties. It’s not
families who need a home. Such people would drive a sustainable recovery. Instead, property prices
are being driven up by speculators, flippers and companies like Black Rock. Sooner rather than later,
their interest will dry up, leaving the market artificially inflated and ripe for another collapse.
The bottom line is this: there is much further to go in the property sector’s correction (with the
exception of one or two isolated segments).
That’s why ProShares Short Real Estate (NYSE: REK) is a good stock to consider.
Then there’s the stock market…
The Dow Will Dive Towards 3,300
The Dow will dive to 3,300 by 2022 after sinking to 6,000 between 2015 and early 2017. And the
looming geopolitical crises and the ongoing euro zone mess are only two of the reasons. The driving
force behind the deflationary shakeout remains simple: people will spend less during the years ahead.
The less they buy, the less money companies can make. The less money companies make, the fewer
people they need to employ. The more people that are unemployed, the less money there is to spend.
Between now and 2022/early 2023, thousands of businesses will go bust. Only the strongest, most
adaptable consumer companies will emerge to lead the way into the next boom. That’s why the
ProShares Short S&P 500 could help you profit from this mega consumer spending shift.
Action to Take: Watch the ProShares Short Real Estate (NYSE: REK) and the ProShares Short
S&P 500 (NYSE: SH).
When the time is right, we will add these plays to our Boom & Bust portfolio, and send you
instructions.
With these weapons in your portfolio, you’re on your way to getting 10 to 20 times richer in the
coming great Western depression.
Note: The recommendations in this report do NOT form part of the official Boom and Bust
portfolios. We do not track these plays.
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Publisher.............................. Shannon Sands
Editors.................................. Harry Dent and Rodney Johnson
Chief Investment Analyst.... Adam O’Dell
Boom & Bust
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Delray Beach, FL 33483 USA
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Contact: http://www.dentresearch.com/contact-us/
Website: http://www.dentresearch.com/
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