Doug Casey: Save, Invest, Speculate, Trade, or Gamble?

03-14-2011 • LewRockwell.com

I’ve been looking for bargains, all over the world and in every type of market. And, yes, you can definitely find a stock here or a piece of real estate there that qualifies. But when it comes to any particular asset class, absolutely nothing – anywhere – is cheap at the moment. You may ask, how that can possibly be? It’s almost metaphysically impossible for “everything” to be expensive, if for no other reason than that it raises the question: “Relative to what?” Nonetheless, we’re in a genuine economic and financial twilight zone, where nothing is cheap and everything is high risk. This is most unusual because there’s usually something on the other end of the seesaw. The reason for this anomaly is worldwide “QE” on a completely unprecedented scale and by practically every government. So much money has been created in the past couple of years that it’s flowed into every sector of every market – stocks, bonds, commodities and property. Even money itself is actually overpriced – the conundrum is that it’s maintaining as much value as it is, despite many trillions having been recently created around the world and much more to come. Many people, and most corporations, are staying in cash simply because it allows you to move quickly (which is important when you’re sitting on a financial volcano), and it seems better to suffer a sure loss of perhaps 5% per year than an unexpected loss of 50% in some volatile market. Neither is a good alternative, of course. But I’ve thought about it and feel I can offer some guidance. Again, an economist learns to see the indirect and delayed effects of actions. But this isn’t an academic exercise. So although we want to think like economists, we want to act like speculators. A speculator is one who sometimes profits from the immediate and direct effects of actions, but that’s not his real forte; almost everyone can predict those, so it tends to be a crowded playing field. Running with the crowd limits your profit potential – the whole crowd is unlikely to make a million dollars. And it’s dangerous, because crowds can change direction quickly and trample the less fleet of foot. Rather, the thoughtful speculator prefers to look for the indirect and delayed effects of politically caused distortions in the markets. Because the effects are delayed, we have more time to get positioned. And because far fewer people pay attention to what’s likely to occur over the horizon, versus what’s tucked up under their noses, the potential tends to be much bigger.

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