Uber bear investor and Gloom, Boom and Doom Report editor Marc Faber (pictured left) says Dubai World's debt problems are just the tip of the iceberg, and suggests investors will be better off not buying U.S. government bonds. "In the context of all the default that will happen in the world, it (Dubai) is not a big thing," Faber told Bloomberg. "But it's a reminder that governments can default." The 3.3 percent investors currently earn on U.S. bonds will likely be lost to dollar depreciation over time, Faber notes. Moreover, if deflation occurs, "much more money will be printed" and stimulus packages will cause government debt to rise. "Eventually, I suppose a lot of governments will be bust, including the U.S.," Faber says. "Nothing has been resolved, it's just being postponed…The ultimate crisis will not just bankrupt the banking system and financial as happened in 2008, it will bankrupt governments." "I think the upside potential for U.S. bonds is extremely limited." New York Investing Meetup founder and market trader Daryl Montgomery calls the Dubai default "merely the latest episode in the unwinding of a global real estate glut." – MoneyNews
Dominant Social Theme: Don't look at the man behind the curtain.
Free-Market Analysis: We've been reporting on a potential commercial real-estate unwinding for some time now, but quite predictably, the Dubai mess is not being covered as part of that larger story. Or not until Marc Faber puts it in perspective for us. Dubai has been covered, predictably, as part of a "stupid-Arabs-get-what-is coming-to-them" story. And we covered it most recently as a story that revealed once again a power-elite Hegelian dialectic.
The concept, we explained at the time, was that the West (the Anglo-American axis) attacked various Muslim countries overseas with the idea of making the leaders and populations of those countries more amenable to Western markets and corporations. But that's only one side of the strategy. A second argument is needed and that's where Dubai and the Arab Emirates in general fit into the picture. The other effort must be to present another alternative. Dubai was that other alternative, a Westernized Arab state, complete with glitz and glamour that even the West itself cannot offer.
Thesis (war), antithesis (Dubai) and then a grand synthesis somewhere in between. Much has been made of the argument that the invasion of the Middle East launched by then President Bush was a war for oil. But this does not in any way explain Afghanistan. Nor does the initial run-up to war which, as we have pointed out previously, featured an "Al Qaeda" that a major BBC documentary labeled a "fantasy."
If Al Qaeda didn't exist (or certainly not as it does now after eight years of war has apparently cultivated it) then what was the reason for attacking Afghanistan and Iraq (and by proxy Iran)? We would argue that the West is once again embarking on nation-building with an eye toward Westernizing Muslim populations around the world. It is the Muslim world that remains (outside of Africa) the most un-Westernized element of global society. It is difficult to have one world, when two billion of the world's citizens are not only not Westernized, but also don't believe in Western values or culture.
So that's what's going on in our humble opinion. People get exercised about the "Islamization" of Europe – but that's part of the idea as well, in our estimation. Muddle up cultures and get those involved with Islam more involved with Europe. Come up with a grand synthesis of East and West – including a variant of Sharia law if necessary – in order to complete the merger between Islam and the West. And then make damn sure that the Western power-elite is ultimately in charge of the merger.
As far as the real-estate crunch goes, Faber is dead on in our opinion. The next leg of the economic crunch is going to see big real estate going for pennies on the dollar. Dubai itself will be declared dead – as it already has by some in the investment world. But from our point of view that's no sure thing.
In fact the entire economic crunch has to be seen in terms of a dialogue between the power elite and its dominant social themes and free-market thinking. Free-market thinkers, in our estimation, are well aware of this dialogue as well as what constitutes free-market economics. Thus, free-market thinkers will have to figure out if they want to bet on the power elite or the free market this time around.
That's why you read the Bell, after all, dear reader. You knew there was more to it than vague allegations about a monetary or power elite. And there is! In actuality, the Bell paradigm is an investment paradigm. You've probably been investing this way all along – trying to figure out if this economic circumstance or that one is an economic reality or just a false alarm.
Questions to consider as a result of the Faber article, excerpted … Are we going to have a great depression? Is gold going to US$8,000? Are Green investments worthwhile? Does Climate Change exist? Is the real-estate crunch going to render commercial properties around the world worthless? How about stocks and bonds? Will there be another bond crash as well? Are Treasuries still a good thing to buy and hold?
See, you're constantly making these choices anyway as an investor. The only difference is now you can put a face to a theme. Now you may come to understand (if you didn't already) that much of the investment conversation around you is not amorphous or evolutionary. From our point of view the investment dilemmas in the world are for the most part promotions. Fiat money is a promotion. Central banking is a promotion. Even real-estate valuations are, in some sense, a promotion.
The question to ask is not WHETHER these are promotions (they are, in our opinion). But whether or not they are going to be SUCCESSFUL. Climate change, an obvious promotion, is having a tough go right now. So do you, as an investor, wish to invest heavily in green solutions? If you do, you are making a bet that the Power Elite is going to pull it off, well enough anyway for green sectors of the economy to succeed.
We have stated in these pages recently that climate change is currently on its last legs as a promotion, but we also admit that the Power Elite is very powerful and convincing. It may be that climate change continues to be a viable promotion, or that it is promoted no matter the reception – flogged throughout these trials and tribulations. Then you, as an investor, have to choose. Not us … you.
No, we won't choose for you! We have our beliefs about the reality and morality of all this, but ultimately it is up to the individual to figure it out. If you accept the conversation that is going on, if you are alert to the promotions – peak oil, climate change, swine flu, overpopulation, Islamofascism – then you are in a much better position to decide whether or not you think they (individually, or in aggregate) will be successful. If you believe they will be successful, and you want to make money, then position yourself in such a way as to take advantage of them!
Isn't that cynical, you may ask. Well, yes. But we are not writing of morality here but investing. Are the themes and their promotion ultimately detrimental to humankind and civil society? Well, yes. But we are not discussing current events from a philosophical standpoint. We are simply providing you, dear reader, with a way of evaluating your portfolio. But a more informed one.
BROWNIAN BONUS OF THE DAY … Wall Street Journal feedbacker Sundar Nilavar wrote into the Journal regarding an article about Ben Bernanke, the following: [The] Federal Reserve is not federal, and not a reserve, just a group (THUGS at Wall ST) printing money and giving it to their fellow THUGS and buddies. …" We've seen these kinds of quotes before, often with the term Bankster popping up as well, which is a Brownian term. What Ellen Brown (pictured left) has done, in our opinion (see her book Web of Debt), is to very cleverly REVERSE the terms of the free-market argument that has made so much headway in the past years. By claiming that the Federal Reserve is a purely private institution, purely beholden to Wall Street and the "banksters" (it is not), she is able to make the point that it is the private marketplace that has created the ruin around us. The solution, she suggests, are public, state run, government controlled "transparent" banks. It is a very neat argument. What she seems to have succeeded in doing, to a degree, is to resurrect the argument of the 1930s – its Wall Street's fault! Coincidence? A fair assessment? Brownians, we'd like to know …
Understand this greatest of all modern conversations – the elite's dominant social themes versus the free-market – and the world will fall into place for you. Not only will you not be mystified by the way the world works anymore, you will also find yourself beginning to predict what's going to come next! It is a feeling both exhilarating and depressing at the same time. We know, for we have experienced it.