The ominous opening line of ‘The Day After the Dollar Crashes: A survival guide for the rise of the new world order’ by Damon Vickers ( >www.wiley.com ) is that we are at ‘a crossroads of immense proportions.’ Nationally, internationally, and globally, we are living in a manner that is absolutely, unconditionally, irrevocably unsustainable, he adds. The U.S. and its fellow nations, in his view, are facing an Armageddon of economic collapse as every nation slowly spins into ‘a death spiral, pulled down by debt that appears impossible to repay.’
Watch the trend
An instructive section in the book is what is titled ‘What can an investor do to prepare for this crash?’ Investors who want to make it to the new world after the dollar crash must focus on surviving, the author urges. He believes that those who survive the coming rout will be able to realise a period of global economic prosperity unlike anything we have ever seen before!
In all markets, however, pay attention to the trend, advises Vickers. Markets rise and fall, but if a market is headed down, one of the most dangerous things we can do is to try to anticipate a bottom too soon, he notes. As for buying equities on dips, his counsel is that seeming ‘bargains’ can become bigger bargains. “There is no way to tell which companies will be standing after a bear market has run its course. And even the ones still standing likely never resume being leaders when the bull market returns.”
Collapse of bonds
One of the first things we will see is a collapse of bonds, the author foresees. Reminding that millions of investors around the world have put tonnes of money into bonds and into treasury securities that represent the ‘sovereign debt’ of Westernised economies, he frets that right now debt is as common as sand on the beach. “We have a huge supply of debt and depressed prices and few buyers.”
A scenario that the author describes – if we see heavy dollar dumping, which is likely in the event of a dollar crash – is that we may see interest rates climb as countries compete for the available liquidity.
While this could create new demand for bonds with these higher yields, and with that demand we could see a spike in bond prices, his recommendation to investors is not to try to profit from this possibility as it would require precision timing. “The markets would probably be in chaos at that point anyway, which would interfere with the execution of orders. By the time your order was executed, the profit could have come and gone. It’s probably more prudent to ‘Just say no’ to bonds right now.”
State of shock
A grim depiction of the response to crash that we are likely to witness is that people will panic even though they can’t do anything! “Expect people to stay in shock like they did in the Haitian earthquake. We won’t necessarily experience the instantaneous loss of life as an earthquake, but the impact of the events will be deep and long-standing. People may become disoriented and unpredictable. It will feel like something major has changed, but we will still be breathing and eating and talking to people.”
We will see problems with electronic money exchange systems unable to handle the rapidly-changing circumstances, the author warns. He anticipates also swift changes in demand for cash, gold and other hard assets as people attempt to grab valuable assets.
Reasoning that people will do whatever it takes to protect what they have, to feed themselves and their families, Vickers alerts that we will very likely see an increase in crimes and mortality as well as growing transient populations in search of resources.
Rally vs bull market
Posing the question, ‘Could the next bear market be just around the corner?’ the author says it just might be, but not specifically because of the devaluation of the U.S. dollar. “Markets certainly respond to fluctuations in currency values, along with prices of commodities like oil and gold, but stock prices have more to do with the value and earnings of companies themselves.”
He, however, distinguishes between the rally, seen in the markets since March 2009, and a bull market. A rally is a general rise in equity prices, whereas a bull market is about economic expansion, explains Vickers. “It’s about creating jobs. It’s about IPOs, companies going public, and the capital markets of the world focusing their investments toward new industries and new companies and new ideas.”
The main challenge, as he underlines, is one of jobs, in the U.S. and all global markets and Westernised economies. “It is a valid concern whether the economies of the U.S. and Europe will be able to not only replace the jobs they have lost to Asia, but also whether they are going to have job creation in the future when new technologies and new industries arrive. Based upon the cost of production in Westernised economies like the U.S., it is unlikely that is going to occur…”
A sobering read for a summer afternoon.
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