Saturday, January 29, 2011

THE LITTLE BOOK OF BULL MOVES

What's happening today in the US economy is not an adjustment - it's an earthquake.

That's Peter Schiff's premise in "The Little Book of Bull Moves (in Bear Markets)", an interesting and somewhat scary read which argues that we have entered an era of economic deconstruction and deleveraging that's bound to continue for another 10 years.

Instead of producing goods of services to run the economy, the United States government has chosen to print money.  In the next decade, Schiff argues, the economy will have to return to its traditional roots of producing and saving rather than borrowing and consuming if America is going to retain it's place as a global economic leader.

If the housing bubble has already popped, what's next?

Schiff believes that the next big government bailout coming will be for student loans, as millions of loans default and students walk away from billions of dollars in debt they cannot repay because the jobs they thought were waiting for them are no longer there.  College education, Schiff says, is overleveraged in the same way housing was overleveraged.  And because of it, tuitions have become artificially high because of the government's push to make college accessible to everyone.
That easy access to college-education financing is about to end, according to Schiff, and when it does, the price of a college education will fall and universities will see double-digit enrollment declines. 

As America becomes poorer, Schiff argues, our service-based economy will suffer.  Financing and banking services, retail sales, travel and tourism are all going to be hit hard.  Somewhat surprisingly, Schiff is also bearish on health care, despite the fact our population is aging and more life-extending medical procedures are available than ever before.  Schiff believes the government simply will not be able to afford to provide such high-level care and as individual wealth diminishes, citizens won't be able to take advantage of the advances in health care. 

We'll see more foreigners, who are benefiting from rapid growth in their own production-based economies, coming to the US to take advantage of our health care innovations while Americans are priced out of the market. 

What industries will be the next to cycle up?  Schiff believes the winners in the next wave will be engineering, construction, agriculture, commercial fishing, computers and technology, textiles and anything related to the "New Energy Economy", which is big here in Colorado. 

America has got to rebuild it's economic base, according to Schiff, and those industries that actually produce will be better situated than those which simply provide services.

Whether you agree or not with Schiff's viewpoint, "The Little Book of Bull Moves (in Bear Markets)" is a compelling read.  It stimulates thought, and it's foundational points are worth considering. 

We are all going to have raise our IQ when it comes to economics, and Schiff's book offers plenty of heavy and compelling theories to ponder.