The Great Depression Online

Great Depression Online Archive Issue:

Getting More of What You Least Expect

Great Depression Online
Long Beach, CA
July 21, 2009

Inside This Issue You Will Discover…

*** A World without Consequences
*** Filling in the Grand Canyon with a Sand Bucket
*** Getting More of What You Least Expect
*** And More

A World without Consequences

We’re bewildered and befuddled by the baffling economic enigma we’re living in.  We look for correlations and find disconnects.  We look for cause and effect and find separation and severed relationships.

What goes up must come down.  Water boils at 212 degrees Fahrenheit.  Inflation is always and everywhere a monetary phenomenon.

All of these are true, of course…except for when they are not.  Just last month we were feeling smart.  For the world was working exactly the way it is supposed to… 

~~~~~~Just One Thing~~~~~~

Twelve of the World’s Best Investors Reveal the One Strategy You Can’t Overlook.  Never before has such an esteemed assembly of financial gurus offered their most valued insights in such a succinct manner—and in a single volume.  And now these gems of investment wisdom can be yours.  Check it out here.


The Federal Reserve was handing out money for free to the big banks and printing money to lend to the federal government.  In fact, the Federal Reserve had more than doubled its balance sheet to over $2 trillion to counteract the credit crisis.  And the federal government was on the way to running a $1.8 trillion deficit for the 2009 fiscal year…over four times the previous record deficit set last year. 

Predictably, logically, and understandably, with these inflationary monetary and fiscal policies, Treasury yields were rising.  It was all so neat, orderly, and systematic.  There was cause and effect…there were consequences for imprudent actions.

Now, while inflationary monetary and fiscal policies have not changed, since June 10th, yields on 10-Year Treasuries have gone down; not up.  Rather than being punished for their record borrowing, the U.S. government has been rewarded.  How could this be?  Are we living in a world without consequences?

Filling in the Grand Canyon with a Sand Bucket

George Soros, the billionaire investor, has written extensively on the concept of reflexivity, where the biases of individuals enter into market transactions, potentially changing their perception of the economy’s fundamentals.

Perhaps, then, our expectations for inflation were biased by our perception of the governments inflationary monetary and fiscal policies.  Consequently, after pausing to reconsider the economy’s fundamentals, we’ve come to the following nutshell conclusion… 

Things are much worse than we imagined.

From our investigation, here’s why Treasury yields aren’t rising…

“The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007.” – Bill Gross, July 2009.

If that number is true, and we have no reason to doubt it, then by our back of the napkin calculation, the $787 billion stimulus bill adds back just 5.25 percent of the wealth that has vaporized from the pockets of American consumers over the last two years.

In other words, the stimulus amounts to filling in the Grand Canyon with a sand bucket.

Getting More of What You Least Expect

“Find an important, nonconsensus and long-term investment theme – and stick with it,” said Gary Shilling in the book Just One Thing.

Gary Shilling, if you didn’t know, achieved financial independence in the mid-1980s through aggressive – leveraged – investment in 30-Year Treasuries.

Last Wednesday, speaking to Henry Blodget on TechTicker, Shilling outlined the following…

* The economy won’t start to recover until 2010 (versus the current consensus of now).  It will recover because the government will be forced into a second stimulus.

* The US consumer rules the world…and the US consumer is cutting back fast.

* Consumer spending will drop from 70% of GDP to 60% as consumers pay down debt and go on a saving spree.

* Most recessions have a positive quarter or two of GDP, so if we get one, it won’t mean anything.

* The S&P [500] will plunge 35% to 600 by the end of the year.

* Buy Treasuries.

How’s that for particulars?

If Shilling is right, and he’s got a long successful track record of being just that, then we won’t likely see inflation until the economy starts to recover in 2010.

Just a month ago we would have told you Treasuries were one of the worst investments you could make at the moment.  We were certain inflation, perhaps hyperinflation, was emerging.  Yet, while we still believe this economic rollercoaster to hell will end with an inflationary route that ravages the life savings of bond investors, we now believe we’ll have to wait another year for it – or more.

In the meantime, sell stocks.  Buy Treasuries…and some gold, just in case inflation comes sooner.  For we just may end up getting more of what we least expect.  And inflation is most dangerous when you least expect it.


M.N. Gordon
Great Depression Online

P.S.  If you want the specific details of how Gary Shilling got rich investing in Treasuries you can find it in the book Just One Thing.  And not only will you discover how Shilling made his fortune, you’ll also discover how eleven other extraordinarily investors did it too.  Just One Thing.


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