Martin Weiss: A Depression Is Unavoidable
Written by HardAssetsInvestor.com Wednesday, 29 April 2009 14:00 Page 1 of 2
Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to HardAssetsInvestor.com’s interview series. I’m Mike Norman, your host. Well, are we headed for a depression, and if so, what can you do about it? My guest today is here to tell us. He is Martin Weiss, author of the “The Ultimate Depression Survival Guide,” and economist. Martin, thanks for joining me on the show.
Martin Weiss, author, “The Ultimate Depression Survival Guide,” (Weiss): Thank you for having me.
Norman: Well, the book just came out recently and it shot up to the No. 1 position on the
Wall Street Journal Book Review and also on Amazon.
Weiss: It’s No. 1 on Amazon and it's on the
Wall Street Journal best-seller list. It’s not No. 1 on the
Wall Street Journal yet, but it should be soon.
Norman: Hopefully after this program, it will be. So the book is titled “The Ultimate Depression Survival Guide.” We discussed it a little bit. You’re obviously worried about things that might happen … the situation’s looking pretty scary for lots of people right now. What you’re saying ... look, if we go into a bad period, there are things you can do, there are things to protect yourself. That’s what you talk about in the book. Let’s get a little bit of an overview.
Weiss: Well, first of all, whenever you see a government-inspired intervention, a government-inspired rally in the stock market or a recovery in the economy, to me that’s an opportunity to get out.
Norman: Really?
Weiss: That’s an opportunity to do what you wish you had done in 2008 before the stock market tanked. It’s what you wished you had done with your real estate properties before the real estate market collapsed.
Norman: But what if you had done that, though? Let’s look back in history. It seems from that statement that you just made, you are averse or you view government intervention as a backstop, as a countervailing force in an economic downturn – you see that as bad. But what if you would have gone against that in the 1940s? You would have lost a lot of money.
Weiss: Oh of course. It depends on time. I’m saying in this era, in the beginning of the 21st century, we are in a decline, fundamental decline that’s going to continue, but it’s not a straight-down move, just like any market. Therefore, when you have a countermove, that’s your opportunity to sell; that’s your opportunity to reduce your risk and build cash. Now we have, because the government has done so much, and I know you’re in favor of that ...
Norman: I am.
Weiss: ... but precisely because the government is doing so much, you may have a bit of an uptick, but I don’t see it as a change in trend. I think that a depression, a deep depression is essentially inevitable and unavoidable. Let me explain what I mean by a depression. A depression is a multiyear decline in the economy, bring massive unemployment and delivering widespread financial losses to the majority of the population.
Norman: All right, but by that definition, we’re already in it.
Weiss: Exactly my point. You guessed what I was about to say, and it’s that we’re already in it, but there’s no sign that’s it over yet. There’s a lot of hope that it would end prematurely, but I don’t think it will, and I’ll explain why.
Norman: Now, things are bad; I’m going to let you explain why. But just from the standpoint of observation, things are bad; there’s no question. Twelve million people have lost their jobs in the last year, the stock market has experienced one of the worst declines in history, not just here but around the world. We have a massive credit crunch and problems in the banking system. Yet when you walk around here in New York and other places around the United States, you don’t see soup lines, you don’t see the sort of visuals that we at least read about from the Great Depression.
Weiss: We’re not there yet.
Norman: Things are bad relative to where they were. But are you saying they’re going to get that dire?
Weiss: It’s going to get much worse, but it’s not the end of the world. There’s one thing I agree with on about what you said. You walk around, buildings aren’t destroyed, the lights are still on, the Internet is still up, and we still have the fundamental strength of our country’s infrastructure. So we’re talking about a financial economic crisis, not the destruction of our society or our country. Based on that fact, there’s still hope; this is not the end of the world.
A depression, even a severe depression like we had in the 1930s, was not the end of the world. So that then is an opportunity for you as an individual to protect your assets now, build up a nice nest egg of cash, put it in a truly safe place, and then wait for the opportunity to buy what I call the big bottom. This is not it yet.
Norman: OK. So that answers the question I was about to pose to you. It’s not too late for those who have been watching this horrific decline and the problems in the economy, and saying, it’s too late, I’ve missed my opportunity to protect what I have. You’re saying it’s not too late?
Weiss: The cup is still half full, and if you only have half of your portfolio left, it’s still half full. And one more point: If I’m right that real estate prices and stock prices and other prices are going to continue going down, that means that your half-full portfolio will be worth a lot more in the future, provided you can preserve what you have today.
Norman: We’re going to talk about some of the strategies, but I want to touch on one point, because it seems to me that you feel what will instigate this or cause it to become very severe - you mentioned it before, you alluded to it - is the government. In what way though? Are you talking about an inflation?
Weiss: Higher interest rates - not inflation, but higher real interest rates. Let me explain why. The government’s deficit this year is going to exceed $2 trillion even with the best of economic assumptions. If I’m right about the scenario, you’re going to see that deficit perpetuate itself and get larger. There’s only one conclusion: Interest rates must go up.
Norman: But Martin, that flies in the face of facts. I mean look, in 2000 we had a surplus of 250 billion, we’re about to have a deficit of 1.8 trillion and interest rates went from 6.5% to zero; they didn’t go up. So why are they going to go up this time?
Weiss: The deficit is coming now, that’s what driving the interest rates, and interest rates are driven by a combination of factors. One is sinking demand for Treasury securities, the other one is rising supply of Treasury securities, and a third one is a revival of inflation. You put it all into the soup, and short term, the Fed can keep short-term interest rates down, but it can’t control long-term interest rates.
Norman: I say interest rates are a parameter set by the central bank, period. Anyway, stick around, we’re going to have the second half of my interview with author Martin Weiss, and we’re going to talk about some strategies about how to protect your assets and come out of this looking good. So folks, come back to this site, HardAssetsInvestor.com. We’ll have the second half of the interview with Martin Weiss. Take care for now; this is Mike Norman.
Be sure to check back for Part II of our interview with Martin Weiss
