Another underground investor mowing down the green shoots is Doug Casey of Casey Research. We know Doug well. He owns land in Argentina’s Salta province. And he’s a frequent visitor of Notes HQ. 

Last time he was down, we went out for a big steak dinner in the Palermo district of Buenos Aires, where our offices are. After dinner, Doug regaled us with stories of his near death experiences in Third World countries. Doug has made fortunes in countries that most people couldn’t pronounce!

Doug is very contrarian, and he “lets the bastards have it” like no one else we know. It used to be that even in front of an audience full of anarcho-capitalists Doug would clear out a few seats.

But times they are a changin’. At this year’s Agora Financial Symposium in Vancouver hardly anyone left their seats during Doug’s speech. Like James Dale Davidson, he believes that it’s almost the endgame for the current financial system.

It seems to me that it’s almost the endgame for this financial system. Since the depression of 1929 to 1946, we’ve had a worldwide economic boom; in its early stages it was quite real, since it was based on the savings that were accumulated during the depression. But over the last generation, starting in the 1980s, we’ve had a phony boom, driven entirely by debt.

The whole world is awash in debt. Individual consumers are head over heels in debt. State and local governments are head over heels in debt and going bankrupt. National governments all over the world are deeply in debt. And businesses that are catering to old patterns of consumption are going to find they have no earnings to service their debt with, and their assets are unsalable at acceptable prices.

One of the problems we’ve got here is that people confuse paper money with real capital. This is an important distinction that’s being overlooked. Capital is actually just another word for “savings” – the excess of production over consumption. I can’t emphasize that enough.

Unfortunately, people are used to thinking of capital as being the same as the dollar bills or other paper money in their wallets – and that can be created out of thin air. But capital can’t be created out of thin air.

So, I’m very concerned that all these governments are going to destroy the world’s monetary system in tandem. I don’t know exactly how it will end up, but it’s going to be really ugly. This is compounded by the fact everybody is looking to the governments to solve these problems. Government is the cause of these problems. And the people it employs are not the best and the brightest (how that ridiculous canard ever got traction astounds me) but the poorest and worst part of humanity. [...]

The talk of green shoots is all PR, because the morons running the government actually believe the economy is based on psychology. In fact, psychology has zero to do with it. If it did, then all the Zimbabwe government would have to do to solve their depression would be to slip everyone a Prozac tablet every day. But maybe we’ve already tried that here, since something like 50 million Americans are already on antidepressants….

There may seem to be green shoots in the same way it seemed that way for a while in 1930. After the stock market went down for six or eight months, it reached a temporary plateau and bounced back up. People thought it was just another recession, that they’d pull through as they did after World War I.

There’s a profit angle to all this. (There always is.) According to Doug, the glut in government borrowing and spending means the trade of decade is likely to be short US Treasury’s and long metals. We think he’s dead on with this call.

I want to go for the low-hanging fruit. What the stock market does and what the economy does are really two different things. Stocks could actually skyrocket because of all the dollars the government is creating. People might want to buy stocks because they actually are equity; they represent real wealth. I suspect that in this depression, the stock market isn’t going to bottom until we’re looking at dividends in the ten percent range across the board, after being cut from present levels, which implies a much lower stock market.

But do I want to make a bet that way?

Not particularly. All that money creation could drive the stock market up in spite of much lower earnings and a bad economic situation.

It seems to me that the sure bet is to be short bonds. Interest rates are going way up. Why? There will be tremendous demand for capital, of which there’s a limited supply. Interest rates are the price of capital. So they’re going up for that reason – and because of the trillions of paper dollars the government is creating, inflation is going to skyrocket. High inflation will itself guarantee high interest rates.

So, the trade of the decade is going to be to short long-term bonds and to go long precious metals (which are the only financial assets that are not also simultaneously someone else’s liability). These are two excellent investment plays, but there are many others. We go into a lot of detail on the best ways to play them in The Casey Report and the International Speculator.

However, just as important is political diversification. The main risk you have is your own government. You have to diversify your assets out of the control of your government. This is even more important than picking the right investment today.

[You can check out Will Bonner's introduction to the symposium here. We couldn't find video of Doug's speech from this year's symposium. But here's his speech from 2007. It’s called "The End of the World as You Know It". Enjoy!]