Top economic advisors and analysts are shouting a common refrain these days. And when two of their more prominent issue global economic warnings forecasts in the same morning, you want to listen. I’ve also outlined what I see as the developments in trends over the next five years, and many of them provide a broader picture to the specific financial forecasts made by these experts.
Soros has come out recently noting that the European financial system is fragmenting; while Jim Rogers, of Quantum Fund and Adventure Capitalist fame, admits that he is quite worried about what will happen post-election in 2013.
Probability of US Decline = 100%
Marc Faber said back on May 25th that the probability of a US downturn in 2013 is “100%.” Marc Faber is known for hyperbolic statements generally, but predicting 100%? You’d have to have a fair bit of confidence in your estimates for some value so boldly precise and certain.
But even Peter Schiff is behind this pronouncement. Rogers brings up the important set of likelihoods that this is, after all, an election year, and markets tend to do well in election years (a basic fact of seasonal investing). More money will be spent and more promises will be made ahead of November. But once post-election hits and bills need to be paid, financial realities will set in and the possibility of interest rate hikes on US sovereign debt will increase.
If interest rates climb on Treasuries, “conditions and data” are going to change. And this time around it’s going to hurt all the more because the US debt load is now so staggeringly high. It is projected to be more than 16 trillion dollars (”IOU’s” is more accurate) for fiscal 2012.
As it turns out, 61% of all sovereign wealth reserves are kept in US dollars; and another 28% are kept in Euros. See the potential problem here?
Commodities The Only Solution
The only safe space ahead of the coming storm, for Rogers and Faber and Schiff and Soros, is, unsurprisingly, commodities. When money is printed and it forces other nations to inflate their own currencies in order to stay competitive for exports (the exploration of inflation).
When this much inflation occurs, commodities everywhere become more relatively expensive. Their prices will go up. Especially the basics as oil, gold and silver. So one way to hedge against the coming inflation is to buy commodities as these when they are “on sale.” Right now, gold prices are cheap. Right now, oil is cheap at only $83/barrel.
So look for gold and oil producers for your portfolio. And look at other producers, such as Freeport McMoRan (NYSE: FCX) (copper), Alcoa (NYSE: AA) (aluminum), Potash Corp (TSX: POT), and Silver Wheaton (TSX: SLW).
When you look at all the clear warning signs coming out of Europe, you would be brain-dead to not realize that at least something more economically serious and high-stakes lies ahead.-