For US investors the best bet is abroad
There was a joke doing the rounds before the US presidential election that no matter who won, the winner would wake up and demand a recount. Reading Peter Schiff's The Little Book of Bull Moves in a Bear Market, you can understand why - he sees no immediate or medium-term prospects in the economic future of the United States.
Schiff is so down on the US economy that towards the end of the book he suggests that it might be a good idea to stockpile cornflakes, motor oil and other household necessities and buy a handgun and plenty of ammunition to protect the supplies in times of civil unrest. 'Let's hope that you never have to use it ... but it's always better to be prepared,' he says.
Had this nugget of advice appeared earlier in the book, it would have been tempting to dismiss the wider reasons for his pessimism. Schiff's basic premise is that it is not just the US financial and housing markets that are in decline - the entire economy is heading for at least a decade-long recession characterised by inflation - and possibly hyperinflation - higher interest rates, rising raw material costs and depressed corporate earnings.
The outlook for the economy has never looked grimmer, he maintains, because the system was built on a false foundation of debt-financed consumption which was confused with real wealth creation. Booming property values encouraged homeowners to spend big on non-productive consumer goods. The situation was exacerbated by a US administration that kept interest rates too low, rewarding borrowers and speculators and punishing savers. Official inflation and unemployment data were misleading, with price rises and joblessness underreported, he says.
Against this backdrop, the dollar is set for long-term decline and the only way for the US investor to weather the storm is to get out of US dollar-denominated investments and into conservative, dividend-paying foreign stocks, gold, silver, mining, energy and agriculture.
Schiff also outlines the pros and cons of some US investment vehicles available, from depositary receipts to unit investment trusts. But he says that one of the best bets is to buy common stocks through foreign exchanges.
However, investors have to think about where they want to put their money before they decide what they should put it into. Beyond developed countries such as Australia and Norway, emerging economies, such as China, offer some possibilities. The risks are high but they are a good move in a bear market for professionals. Conservative investors can look at established companies in Hong Kong, Singapore and Australia that are tapping into Chinese growth.
Bull Moves in a Bear Market is clearly aimed at a US reader and offers little specific advice for the foreign or Hong Kong investor looking to the mainland for wealth-creation prospects. Readers will have to go elsewhere for a nuanced picture of China's economy and its sustainable growth areas. That said, his points about the nature of debt-fuelled consumption are cautionary, and his broader perspective might inform would-be wealth builders already operating on the mainland.
