Casey Research Phyle Wrap for Sacramento – May ’10

Casey Research Phyle Wrap for Sacramento – May ’10

Last night our Sacramento based Casey Research “Phyle” met to discuss the current investing landscape – which quite frankly appears to be littered with mostly landmines right now!

(A couple of months back, our group talked about the scary potential for retirement plan confiscation, how to wire money to Central America, and other offbeat personal investment topics you won’t see discussed on CNBC!)

For the first time I can remember, we all entered the meeting with a unanimous opinion on something: the world economy is completely screwed.

Nobody had a scenario they could think of, however outlandish, that might save the day.  So while your average investor may believe the financial media hype that the “worst is behind us”, we all believe the real pain is yet to come.

VIX volatility price chartAfter nodding off for the past year, the VIX has awoken.  Fear is back!

(Courtesy of

The reason?  The debt – especially of the sovereign variety.  A century of ever creeping government in the Anglo Saxon is coming to roost.  Government scope and spending was a runaway bull market through much of the 20th century – it now appears to be in the final stages of a classic “blow off top” that can only end poorly.

The Greek bailout is just kicking the can down the road.  A default, and getting on with life, would be the best option.  But since nobody wants to face the music, the market is going to turn up the dial and extract what it believes it is owed.

Our group is equally disgusted with both Democrats and Republicans, and doesn’t see any hope for the US situation either way.  This nation, like it or not, is due for a massive restructuring – the type that a only a very deep Depression will bring.

While there is always talk about fleeing the nation, many in our group feel more at home, and safer, in the good old U S of A if things really hit the fan.  Perhaps we are being homers here – but we still see an independent nature, a love for liberty that runs deep in this country.

While half of this country may indeed be subsisting on bread and circuses (as half of US citizens are net recipients from the US government, believe it or not) – we don’t think the majority of this nation has yet lost it’s will to work and achieve (a la Club Med over in Europe).

Nevertheless, it appears inevitable that the sovereign debt problems are likely to topple economies – first Greece, then the PIIGS, then likely the UK, Japan, and the US.  It’s going to get ugly.

Nobody is sure “when” this next – massively huge – shoe may drop.  Will is be weeks, months, or years?  None of us had a good guess.  It could be this summer – next year – or 2014 – for all we know.

It really depends how long the bond market holds up.  The bond vigilantes forced the issue with Greece – they’ll no doubt return.  But they’ve been eerily quiet in the US, suggesting other forces (dare I say deflationary in nature) may be at work.

So the way we see it, the million dollar question is still: Are we heading for inflation, or deflation?

Few of us have the stomach anymore for individual stock picks.  In fact, one of our members returned from the latest Casey Summit, and he noted fewer individual investment picks than years past.  (Perhaps this is the sign of a bottom, but it’s hard to believe – we’re only 10 years into a bear market, equities are historically quite expensive…not to mention all of the debt issues).

So the inflation guys are continuing to accumulate gold and other precious metals – both stocks, and especially the physical variety.  Even us deflation guys believe that physical gold is a safety hedge that belongs in every portfolio.

The mood, overall, was more awe than anything – awe at the scale of the economic disaster that looks as if it’s looming before us.  And equally amazing to us is the general cluelessness of your average person – even your above average person.  Most seem to genuinely believe the worst is behind us.

Well, we continue to hunker down and prepare for the storm ahead.  In 2008, some of us got caught offguard – I know I did, big time – so this time we are trying to use the “eye of the storm” to tie down as much as we can, and get ready.

We had been spacing our meeting a couple of months apart – while the market drifted higher day after day, and volatility hibernated, there was not too much to talk about.  I suspect we may need to pull in our next meeting for a more agile approach in the coming months!