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The Greater Depression

Mises Daily: Wednesday, July 09, 2008 by

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FreedomFest headliner Doug Casey told a crowd of investors recently that it's "tough to give advice because we're in the twilight zone." That's quite a statement given that Casey has made (and continues to make) a living giving people investment advice, especially in the junior mining and resource stock arena.

The globetrotting Casey literally wrote the book on crisis investing. In fact, he wrote two books: Crisis Investing, published in 1979, and Crisis Investing For the Rest of the '90s, which came out 14 years later. In both books, Casey predicted what he calls The Greater Depression.

Speaking in Scottsdale in March, Casey believes the Greater Depression has begun, with the misallocations of the previous boom being liquidated, the business cycle climaxing and "most people's standard of living declining." Both federal and state governments are bankrupt and many big companies in the United States will be bankrupt, and all of this happening with the stock markets near all-time highs, something that perplexes the world-traveling polo player.

Casey sees things getting much, much worse, especially with the looming prospect of Democrats controlling the presidency, house and senate. Bigger government is on the way, which is not a good prospect for prosperity. But, humans "tend toward self-destruction," according to Casey. Stupidity is rampant, he says, especially in politics, economics and the English departments at major universities.

The acerbic international investor unflatteringly compares current conditions in the United States to both the last days of the Roman Empire and to chimpanzees. "Like chimpanzees everywhere, if they can't trade for it, they'll have their armies take it," Casey said.

Casey sees "eight or nine Black Swans circling," in reference to the rare and cataclysmic financial events that are the focus of 2007 FreedomFest speaker Nassim Nicholas Taleb's financial bestseller The Black Swan.

And while many hope the residential real estate market is bottoming, Casey believes "buy a house today and you are catching a falling safe." He believes the entire real estate market, including commercial will get "real, real ugly" and that owners will abandon properties because they won't be able to pay the taxes and utilities.

So with this widespread outbreak of stupidity, a coming tsunami of bankruptcies public and private, governments that will get bigger and meaner, and a continued meltdown in the stupid majority's favorite investment vehicle — real estate — what's the rational person supposed to panic and do?

First of all don't be borrowing money with adjustable rate loans. Casey is in agreement with other financial gurus, James Grant, Bill Bonner and Bill Gross, that interest rates are headed up — way up.

Casey continues to pound the table for junior exploration stocks. He believes the bull market in the metals and mining stocks is far from over. And that even though the easy money has been made, the market is still just in the "wall of worry" stage, which will be followed by the "mania" stage, when the real money will be made.

In a recent edition of his monthly International Speculator newsletter, Casey pointed out that the drivers of the resource bull market are still in place. The demand from China and India has not gone away. There are still huge supply constraints impeding miners and drillers and government central banks are printing money like crazy — which is inflation. Thus, in Casey's view, "there's no reason to believe that, with the situation set up as it is, there won't be a Mania stage to this market."

The public (remember, the stupid masses) hasn't yet embraced the metals boom, but when they do there will be spectacular gains in the junior mining shares. "There are still 50-1 shots ahead of us," Casey guesses.

So, don't be so quick to take the plunge buying bank foreclosure properties and forget traditional stocks and bonds. It's not for the faint of heart, but the road to riches is with junior mining shares.