A book I've recently read had some good insights on the big picture. If any of you remember Jim Rogers, he was the guy who used to run a hedge fund with George Soros. He's adapted a gloomier picture of the US which seems to be more realistic than what the dead fish on CNBC seem to spout on a regular basis. Namely, the budget surplus will be no more in the near future, due to the upcoming scarcity of capital gains. This supposed budget surplus was produced from ill gotten gains from a credit pump of massive proportions by Greenspan in 1998 and 1999. The dollar is massively overvalued IMO, sort of like the stock market. Well, last year, Rogers made the following comments, and in light of recent events, I think they are very pertinent to what's happening now in US.
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LG: Can we talk about the United States? Everybody is saying, or at least the media are telling us, what great shape the U.S. economy is in. In your book Investment Biker, you didn't think so. What do you think now?
Jim Rogers: In my book, I made the point that we were a debtor nation; we were living off borrowed capital and it was getting worse. It's only gotten worse since then: we're living on more and more borrowed capital, gigantic amounts of borrowed capital right now, even though the recorded numbers of the budget deficit are now positive. If you and I kept books the way the U.S. government keeps books, we'd be in jail.
The government deficit has continued to build, so, we're much more of a debtor nation now than we were when I wrote that book. I was really talking about the big picture of the country and the macroeconomic trends of a major international debtor nation, major internal government debt, all of which have gotten worse, not better. The tax structure is wacky and hasn't gotten better. If we had attacked the problems in 1994, that would have been one thing - we would have had some pain, but not too many people would have suffered. When the problems erupt in 1999 or 2000, or whenever they do so, it's going to hurt a lot of people because there are a lot of people now investing in the stock market who don't have a clue.
The market is going to go down some day. This isn't necessarily the top; it might be, but the top may have been made a year ago. Most stocks have been going down for a year. In 1986, a lot of smart guys, not me, sold out of Japan because the Nikkei was 20000, much much too expensive. Then it went to 40,000 over the next three years, so those guys looked like damn fools. Now it's 1999 and the Nikkei is 16,000, down 20% from 1986 - thirteen years later - so who's the damn fool? The guy who sold out in 1986 and said this is madness, or the guy who stayed in and stayed in and said: "You don't know what you're talking about. This is a new era. We don't put on our trousers one leg at a time"?
So, these things always go on, on the upside more than anybody expects and likewise on the downside. If you had said to anybody in 1986, even to the smart guys who sold out, that in 1999, the Nikkei would be at 16000, that would have been the end of you.
We're at a stage in America where, the next time the economy gets worse, the budget deficit is going to reappear in spades because a lot of the so-called budget balancing is from capital gains taxes, which won't be there if the economy slows down. When you stop having capital gains taxes, you have a reinforcing process where taxes go down, welfare benefits go up, and the deficit gets much, much worse. |
