Tuesday, March 26,
Poor People and Iron
By Harry S. Dent Jr., Editor, Survive &
Many republicans and free market advocates
would love to see virtually no government and no regulations to constrain the unlimited innovation capacity
of entrepreneurs and the free markets.
Most (if not all) kids would love to see
virtually no parents or rules.
Ah… if only it were that
Unfortunately, people of all ages need some
kind of regulation to function optimally. It’s as wired into us as is the need to eat, drink and have
The sad truth is, without some regulation, we humans regress into
nutless monkeys that get bullied by the 800-pound gorillas in the forest, and when that happens, nobody wins…
except the 800-pound gorilla.
For evidence of this, look at history before
the American Revolution. The 800-pound gorillas created a mafia-like advantage that didn’t pass down to most
people. Such dictator and tribal-leader economies are still poor today despite unprecedented growth in
Zimbabwe. Think Libya. Think Haiti.
But when power mongers like these are reigned
in and made to conform to regulations just like everyone else, the world sees unprecedented economic
progress. That’s what happened around the late 1700s / early 1800s when we saw three major revolutions.
The first was in economics in the late 1700s.
The instigator was Adam Smith and his book, The
Wealth of Nations, wherein he espoused the principle of the “invisible hand…” the
notion that free markets and innovation drove progress naturally from the bottoms-up without excessive
government direction or regulation.
Next up was the industrial revolution, driven
by the steam engine. This resulted in an explosion in the use of energy to drive human productivity through
And finally, there was the American and French
Revolutions, both breaking free of the tyrannical reign of monarchs. The French chopped off heads. The
Americans severed the cord.
Hey presto, we have everything we need to
You see, free market capitalism rewards the
fittest and those that contribute the most. Democracy forces the system to pass down the rewards and
opportunities to the people. And the big surprise: when you involve people in the innovation process and give
them some stake, they surprise you and add much more innovation.
The truth is that the most prosperous nations
today came from the irreverent puritans that settled America (and the wild-west gunslingers to follow), and
the prison colonies of Australia.
People withless wealth have much greater motivation to
innovate than people who already have it made! Wealthy families almost always lose most of their wealth in
just a few generations of spoiled kids.
It was the marriage of free market capitalism
and democracy that created the greatest economic revolution since agriculture and urbanization. It enables us
to constrain the natural tendencies of the 800-pound gorillas to take all the spoils.
Now, most people see democracy and free market
capitalism as similar principles, but they are in fact opposites that interact to create the dynamics of
growth, innovation and progress; like male and female, innovation and destruction, boom and bust,
So Why the History
For two reasons…
First, I believe the study of history is
critical to the success of any forecasting efforts (besides which I love it) and second, all this talk of
revolution is to illustrate that there’s a cycle here. One you can monitor and use to your
That is to say, major revolutions at the
highest political, social and technology levels happen every 250 years. And we are now due for the Second
American Revolution that will extend globally. Look…
The 250 Year Revolution
Government and clear, simple regulations are a
way to leverage the new technologies that lead us to higher standards of living. The challenge is to keep it
simple and not let those regulations choke innovation, which is what we now see in our overly complex tax
codes and health care systems.
The 800-pound gorillas found a way to get back
their power. They’ve been throwing their weight and B.S. around for decades now. And finally we’re starting
to see the sparks that will trigger a bottoms-up revolution in the structure of all business and government
to rein those monkeys in again… before they choke the life out of our economy.
I call this the new Network Revolution and it
will be more powerful than the assembly line revolution of the early 1900s. Not only is it going to utterly
transform the way we do things, it’s going to boost our standard of living even higher, despite slowing
demographic trends in all wealthy countries.
As it does this, you have the opportunity to
invest on the ground floor. There are securities you can add to your investment portfolio. There are business
opportunities you can start positioning yourself in now so you’re in the right place at the right time to
take advantage of what lies ahead.
Keep your mind and your eyes open. This is your
chance to become the world’s next Rockefeller.
P.S.If you missed me on CNBC yesterday, here’s a
link to the recording.
the Curve with Adam O'Dell
Euro Gold: The Ultimate Crisis
Rodney wrote about gold yesterday. If you
missed it, you can read his article here.
Harry feels the same way, if not more strongly
about it. In fact, to say Harry is passionate about the direction of gold, the dollar and the economy is an
understatement. He’s willing, even itching, to have heated debates with anyone holding opposing views. It’s a
riot to watch!
We’ve been steering investors out of gold (for
the most part) and into the U.S. dollar, even as much of the mass media peddles the exact opposite approach.
The difference in our analysis is simple: deflation.
Fiat currencies, like the U.S. dollar, tend to
get a boost when massive amounts of debt are deleveraged. And, despite gold being a good store of value in
times of inflation/hyperinflation, it loses value during deflationary environments.
That said, if you’re itching to buy some yellow
metal… there’s one way we’d suggest doing this. Buy gold in euros, not dollars. Let me
By and large, gold is priced in U.S. dollar
terms. But it can also be priced in euros. Here’s a chart of the two quotes: gold in dollars (yellow) and
gold in euros (green).
See larger image
As you can see, these two quotes mostly move
together. And any divergence between the two is easily accounted for by shifts in the exchange rate between
the U.S. dollar and the euro.
But buying gold in euros is the ultimate “crisis hedge”
1) Gold tends to spike higher leading into
global financial crisis, and
2) The euro tends to drop in times of crisis as investors flee to the dollar safe
If gold goes higher, and the euro moves lower,
a position in euro-denominated gold would enjoy a “double whammy” boost.
If this strategy resonates with you, you’ll
need to build a “synthetic position,” as there aren’t many investment vehicles that allow you to buy
euro-denominated gold directly.
To do this, simply buy a gold instrument (gold futures or a gold ETF, like GLD) and simultaneously sell short an
equal dollar amount of a euro instrument (euro futures or a euro ETF, like FXE). To accomplish the “short euro”
side of this, without selling short, you could also purchase an inverse euro ETF, such as EUO (but only buy half
the amount, as this ETF is leveraged 2x).
This trade should perform best as crisis fears
are climaxing. It’s a great hedge heading into the crisis, but you won’t want to hold it through ‘til the
bitter end. I’ll keep an eye on this and write to you again once the tide has turned.