I just wanted to share some thoughts today.
I asked myself the question above in my headline today, and once again the contrarion in me has me leaning against what the majority of Wall St believes.
Most pundits argue that we are screwed but the rest of the world is screwed worse. As a result, many think that when this worldwide financial house of cards comes tumbling down, the rest of the world will come running to the USA with their money to hide.
Another common belief on Wall St is "we were the first to go into a recession so we will be the first to come out of it". My first thought here is "says who?".
I am starting to believe that this is no longer the case as we spend ourselves into oblivion.
If I was an alien with assets(I know I'm stretching it here) and I landed here on earth without knowing anyone's financial history, I think the last place I would invest is the USA.
I mean think about it: Why would you place your money with a country that has more debt than anyone else?
Many believe that deflation is inevitable and as a result, the US dollar will strengthen as we see massive debt defaults while our economy "resets" to a more affordable standard of living. Cash will be king in such a world! This is true in such a scenario.
Money from around the world according to this thesis would then come flying into the US dollar because there is simply no other safe haven alternative. Wall St will claim that this is the only alternative because the Euro is a mess and no other currency is a viable. This could very well happen, but I think that this belief is far from being a lock.
I say this because I have seen ZERO evidence that Ben will stop inflating this bubble. I pray to god that he won't flat out print money, but after watching his helicopter respones to this crisis, how can you strongly believe that he won't do it?
The recent trends worldwide suggest that the world is also concerned about our reckless monetary response to our financial crisis. Doug Noland from Prudent Bear discussed this yesterday.
The reflation trade is telling you that money wants to flow outside the US into natural resources and emerging markets. This trade got hit hard on Friday but its far from over in my view. The reason I say this is because there is no fundamental reason for money to flow back into the US.
I mean why would money want to flow into a country like the USA that is destined to default on itself? The money flows into the US for two key reasons: Fund our consumer and our economic reputation. I don't think you would see a dime come over if it was based just on our current piss poor economic policies.
I think the world is slowly coming to this conclusion that the USA isn't the place to be anymore. The doubling of treasury yields in about a month is pretty much telling you that this is the case. I used to believe that Peter Schiff's "decoupling" was wrong. I now believe that he just might have been too early.
In my view, we have destroyed our reputation economically. China and Russia are running for the hills looking for alternatives. Both have agreed to buying IMF bonds. China comtinues to scramble around buying as many natural resources as it can find. Their gold reserves have doubled from a few years ago.
I think Jim Rogers may turn out to be right. China and the Far East may be where it's at in the next cycle. I mean if you had billions to invest, would you invest your money in a county that has a $2 trillion surplus like China or would you choose a country like the USA that has $2 trillion in debt and another $9 trillion in guaranteed debt that backs our financial and housing corporations(Fannie, Freddie, AIG etc.)?
It's time for this country to wake up and smell the coffee. Its become clear that the world has lost confidence in our economic ways. Eventually, viable alternatives will arise in the wake of our economic death. The USA stock market despite its recent rise is under performing versus the markets in the rest of the world.
If inflation hits down the road as we continue to destroy ourselves economically which will result in a cheaper US dollar, many viable investment alternatives will arise. Natural resources like oil, gold, and other commodities will become the rage. Money will flow into the countries that have them.
Other money will flow into countries that are more financially sound.
As for the USA? Run Forrest Run!
The signals that this is the case are sitting there right in front of you. If the USA was such a sure bet as a safe haven then why have our treasuries(which are considered to be our safest haven) been selling off at such a frightening pace?
If our country continues down the economic path they have chosen, we will lose our status of being the place to be economically.
The economy has become global and the fallout from this change means that there are many alternatives to the US when it comes to investing. I still hold a small sliver of hope that our government will wake up and begin to make the tough decisions that will shrink our deficits and save our country from economic ruin.
This process(although painful) is a must if we plan on keeping up with the rest of the world.
Its time to quit resting on your economic laurels Washington! We are about to become a has been!