Great Depression Online Archive Issue:

What Should Happen in 2010

Great Depression Online
Long Beach, CA
January 01, 2010

Inside This Issue You Will Discover…

*** Knowledge and Wisdom
*** It All Seemed So Obvious
*** What Should Happen in 2010
*** And More

Knowledge and Wisdom

Congratulations.  Welcome to a new year…and a new decade.  Alas, we’re a little older than last year.  But, hopefully, we’re a little wiser too.  What we mean is we know less today than we did a year ago.

Knowledge and wisdom are inversely correlated, you see.  That’s our experience at least…

For us, the high water mark for knowledge was reached in spring of 1992.  We were fourteen years old…and we knew everything there was to know about everything.  We were full of knowledge and empty of wisdom.

Since then, thanks to the school of hard knocks, our knowledge has receded like the Mississippi Delta following a 100-year flood.  With each passing year we know less than we did the year before.  Yet the less we know…the wiser we are.

~~~~~~New Predictions~~~~~~

Bernanke is insistent on using inflation to make our personal debts seem small, all the while setting the country up for a much larger disaster long term.  Bernanke is borrowing from Peter to pay Paul…and robbing taxpayers to pay Peter.

New Predictions from the Nostradamus of Investing

~~~~~~~~~~~~~~~~~~~~~~~~~

Along with wisdom comes humility…something we could always use more of.  But not today.  Today we’re shelving our humility and replacing it with conceit.  We do so, however, not for ego or arrogance; but rather for entertainment and amusement.

It’s January 1st, after all.  And what good would this humble little newsletter be if we couldn’t pause one day a year to venture a guess or two at what will happen in the new year.

It All Seemed So Obvious

Here, again, we find a fly in the ointment.  For we know nothing…and we’re quick to admit it.

What will happen in 2010 is a question only the gods can answer.  That they shall answer it in good time, we are confident.

Yet though we know nothing, we do have opinions on how the world works…or at least how it should work.  Thus we’ll lick our index finger, hold it up to the economic winds, and conjecture what should happen in 2010.

But first, a quick review…

Last year it all seemed so obvious.  Wall Street banks were disappearing faster than rustbelt manufacturing jobs.  The stock market was in full freefall.  And the economy was freezing over like the Alaskan Tundra.

What’s more, the Federal Reserve was printing money at an unprecedented scale.  Not only that, for the first time ever, the Federal Reserve was buying more than just Treasuries.  They were exchanging their notes with investment banks for toxic mortgage backed securities.

But that’s not all.  Newly elected President Barack Obama was on the case too.  And in one of his first presidential acts, he signed a $787 billion stimulus program…pushing the federal deficit above 12 percent.

With all this funny money floating around we were certain a hyperinflationary crackup boom and bust like Weimar Germany in the early 1920s or France in the 1790s would soon follow.

What Should Happen in 2010

Here at the GDO we miscalculated the situation.  The economy was much worse than we imagined.  As all the stimulus, bailouts, and liquidity pumped money into the financial system, the deleveraging of the economy withdrew it…and U.S. Treasury yields were pushed to record lows.

U.S. Treasury yields have now been so low for so long people have come to believe that is where they will always be.  In fact, it has become so certain the government can borrow money for so cheap that everyone, including the U.S. government, has come to expect it. 

At the GDO, we believe U.S. Treasuries are not at a normal equilibrium…but at an epic bubble.  Remember where you heard it first… 

The year 2010 will go down in history as the year the great 28 year U.S. Treasury bond bubble finally pops.  That’s what should happen at least.

If you’ve got a little imagination, you could short 30-year Treasuries by buying the Rydex Inverse Government Long Bond Strategy Fund.  In fact, it trades on the NASDAQ under the ticker symbol: RYJUX.  As government debt wanes, and interest rates rise, you’ll be rewarded while traditional Treasury investors are ruined.

But patience is still the order of the day.  The stock market should suffer a rapid selloff during the first part of the year when hopes for a robust economic recovery are dashed.  When this happens, investors will rush back to the perceived safety of government debt…again pushing yields to historic lows.  Not until then will the U.S. Treasury bond bubble finally pop.   

Lastly, and as an aside, one of our inside sources tells us that before the year’s end, there will be a major technological breakthrough specific to energy and power generation.

Happy New Year!

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  As you may have noticed, the government will not save you from the reverberations of a declining U.S. economy.  You’ll have to take matters into your own hands…and no one is better at pointing the way than the editors of The Casey Report.  No matter how dire the economic trend, double- or triple-digit gains within 12 to 24 months are easy if you discover the right opportunities to profit.

Learn more here.

 

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