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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. 1 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 2 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 3 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 4 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. 5 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 6 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. 7 Publisher.............................. Shannon Sands Editors.................................. Harry Dent and Rodney Johnson Chief Investment Analyst.... Adam O’Dell Boom & Bust 55 NE 5th Avenue, Suite 200 Delray Beach, FL 33483 USA USA Toll Free Tel.: (888) 272-1858 Contact: http://www.dentresearch.com/contact-us/ Website: http://www.dentresearch.com/ Legal Notice: This work is based on what we’ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Delray Publishing expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Delray Publishing, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. Also, please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings. (c) 2015 Delray Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Delray Publishing. 55 NE 5th Avenue, Suite 200, Delray Beach FL 33483. 8