The Aftershock Investor: A Crash Course in Staying Afloat in a Sinking Economy (32 page)

As we get closer to the coming Aftershock, moving to a higher percentage of gold will be prudent. For those who want to do that sooner rather than later, there is no long-term harm, as long as you are prepared for the significant short-term volatility in gold and you don’t mind sitting out any additional short-term upside that may be left in the stock and bond markets.

Many people like to ask us this question and we hesitate to answer. What we can say is that gold is up by more than 500 percent since 2000, during a period of only moderate inflation and moderate investor anxiety—a very negative environment for gold. We have to assume that in the next several years, when inflation will be higher and returns on bonds and stocks will be low—a very positive environment for gold—that it could rise even more than the 500 percent it did in the past 10 years in a very negative environment.

But even if it doesn’t do as well, and only increased 200 percent, how much better is that going to be than watching 50 percent (or more) of your CW portfolio eventually go to Money Heaven?

Not for a long time. That’s because it will be a long time before investors feel confident in other assets. For that to happen, we will need to start seeing some real economic recovery, not the current money printing and government borrowing that is driving the fake recovery we have now, and certainly not the Aftershock economy we will have after the dollar bubble pops. We are going to need real economic growth driven by fundamental productivity improvements in order to get the U.S. economy fully back on its feet. When that happens, the gold bubble will come down.

However, the gold bubble will not exactly “pop” the way we will see many other bubbles crash. Instead, as the U.S. economy recovers, other economies will continue to struggle for a while longer. Investors in those countries will not be eager to sell off their gold quite yet, not while they still have no or limited growth. So rather than quickly popping, the massive gold bubble will slowly decline over a period of many months, even years, giving us plenty of time to make our exits.

That means, like many big bubbles of the past, you will see this one rising and falling, and you will have time to buy in on the way up before the Aftershock and time to sell out on the way down before the full worldwide recovery. Of course, that’s only if you know it will pop and are not covering your eyes to the signs of a pop, unlike most people.

The economic cheerleaders want us to believe that if we will just be patient and wait a little longer, strong future job growth will soon return. It is true that the big job losses we saw right after the financial crisis of 2008 have stabilized, and some jobs have begun to return. Manufacturing jobs, for example, have made significant gains since the Fed began its first round of massive money printing (QE1) in March 2009. But more recently, the growth of manufacturing and other jobs has begun to slow again. And some jobs, such as construction, hardly came back at all.

As of this writing in June 2012, overall new job creation has been declining every month this year. If this is any kind of recovery, it is one without much job growth, and that kind of “recovery” is no recovery at all. Strong and sustained job growth is essential to any significant future economic growth—not only for the country but for most people’s personal economies, as well. Slower job growth means less income for many Americans and less tax revenue for federal and state governments, which is a recipe for a deeper slowdown, not strong future growth.

That means finding and keeping a good job in this evolving economy of falling bubbles will become increasingly challenging as time goes on. Much of this you can do nothing about, but you do have some control over which jobs you try for and what you can do to keep your current job or prepare yourself to move to another potentially more secure job before the falling bubbles fully pop.

While the pressures on the slow-growing job market will continue and increase, all jobs and businesses are not created equal; clearly, some will fare better than others as the various bubbles continue to pop. The purpose of this chapter is to give you an overview of what is happening with jobs and businesses, and what to expect next.

As the conjoined real estate, stock, private debt, consumer spending, dollar, and government debt bubbles all rose in tandem from 1980 to 2000, the U.S. job market boomed, adding a whopping
40 million
new jobs during this time period. New employees were in such high demand in the late 1980s and 1990s that employment agencies and headhunters could hardly keep up.

But when the Internet bubble popped in 2000, much of that strong job growth began to unwind. The housing bubble pushed up job growth again, but nothing like the 1980s and 1990s, and so when it popped, jobs related to real estate, like construction and real estate sales, took an immediate and lasting hit. But our job problems didn’t end at the edges of the real estate landscape; we had other falling bubbles, as well. Because the rising real estate bubble was so key in driving up the private debt bubble and the consumer spending bubble, when real estate began to pop, much of the hot air escaped from those other bubbles, too. With less home equity to tap into and rapidly tightening credit, consumers naturally spent less, which only made matters worse for businesses and jobs. So, along with the decline in housing-related jobs, big job layoffs were seen across the board, from the airline industry to shopping mall closures. And because the falling bubbles have not been reinflated, despite massive government stimulus to temporarily support them, many of those bubble-driven jobs have not come back either.

The bottom line is, even with the present massive government stimulus and the earlier rising housing bubble, we did not gain any net job growth from 2000 to 2010 (see
Figure 9.1
). While the number of jobs from 1980 to 2000 increased by 40 million, there was zero job growth from 2000 to 2010. In fact, we lost jobs—almost 200,000. Most of the nonfarm jobs created during the rise of the real estate bubble are now gone.

Figure 9.1
No Net Job Growth 2000–2010

From 1980 to 2000, 40 million new jobs were created. Then from 2000 to 2010, 200,000 jobs were lost.

Source
: Bureau of Labor Statistics.

As with stocks, bonds, real estate, life insurance, and nearly everything else, conventional wisdom’s faith in future job growth is derived from the assumption that what we had before (during the rising bubble economy) we will surely have again. CW loves to extrapolate trend lines—at least the trend lines they like. When things are going well, CW sees more great growth ahead; and when things are going not so well, CW says don’t worry, the previous good trend line will naturally return very soon. For CW, good trend lines always continue, even if they happen to get temporarily sidetracked for a while.

For example, five years ago when the number of government jobs was growing significantly, CW said government job growth would always be strong. CW says all good job trends last forever. Not only that, CW also likes to believe that whatever is the current popular area of discussion—such as green jobs or nanotechnology jobs—will have strong job growth in the future. The CW winning formula for future jobs is the current trend line (or the recent past, if that looks better than today) plus whatever is in fashion at the moment.

One of the reasons that CW feels so confident about its views about the future is that extrapolating out the trend lines has worked pretty well for CW in the recent past. Naturally, in a rising multibubble economy, most positive trend lines have been remarkably reliable, and it has not been all that difficult for CW to be right on many near-term positive predictions in the recent past. This, along with the need to ignore unpleasant facts that threaten the status quo, has become the strong foundation on which CW now rests its firm faith that all good trends, including all good job growth trends, never end.

While this may sound like a bit of an exaggeration, if you look back at CW over the past three decades, you will see almost all the CW-oriented analysts and economic cheerleaders continuously telling us that everything is basically very good and will continue to be very good, even if we have a little down cycle occasionally. You never hear them say that a currently good trend is unsustainable because it is based on an unsustainable rising bubble economy. At this point, rising bubbles are considered both the norm and our American birthright. And, naturally, that will always include lots of good American jobs.

Even when CW acknowledges that many U.S. jobs have been moved overseas in recent years due to cheaper labor costs, there is no acknowledgment of how the rising U.S. bubbles created many jobs, nor how the falling bubbles have taken them away.

Just as for stocks, bonds, real estate, life insurance, and nearly everything else, CW’s views on future job growth are wrong for the same reasons that CW is wrong about all the rest: good past trend lines
cannot
be extrapolated into the future indefinitely. The future is not the past. Not even the present is the past. Good trends do not continue forever because
markets always evolve
, and this is certainly true for the jobs market as well.

The U.S. jobs market has always evolved over time, driven by real underlying fundamental economic drivers, not the latest fashionable interests. For example, more than a century ago, most Americans were actively involved in growing food, either for income or to feed themselves. However, farming jobs evolved and declined, as more manufacturing jobs were created in the rise of the Industrial Revolution.