Financial survival tips for the age of debt
From whom would you rather take investment advice: one of the thousands of bankers or wealth managers who did not see the financial crisis coming or one of the few economists who predicted it?
In his 2003 bestseller “The Dollar Crisis”, Richard Duncan forecast how the unbridled creation of liquidity was set to spark a financial crisis. Three years after the crisis unfolded, Duncan’s new book, “The Corruption of Capitalism”, paints an even bleaker future.
Duncan expects that, in the years ahead, governments will prop up economies with ever-bigger doses of fiscal and monetary stimulus, but that eventually the extreme imbalances in the world economy will be corrected by market forces.
This will probably involve a collapse of globalisation and a drastic reduction of the standard of living of almost everyone alive
So how can investors protect themselves from such a dire outlook? Duncan says that his books aim to give policy advice, not investment advice. In “The Corruption of Capitalism” he writes only one line, at the very end of the book, about how to prepare for lean years:
In economic upheavals down through the centuries, gold, land and a broadly diversified investment portfolio have preserved many a fortune
When MacroScope asked him to elaborate recently, Duncan said that gold is his favourite investment, because it will appreciate in line with amount of fiat money that central banks will create.
Since the Bretton Woods gold-dollar link broke down in 1971, the dollar has lost 95 percent of its value against gold, he said, adding that it will not take another 40 years for the dollar to lose another 95 percent.
He believes that on average gold will appreciate by 10 percent per year for the rest of most of our lives adding that nothing goes up in a straight line and there may be years when gold falls by 30 percent.
Most of Duncan’s personal wealth is invested in property and he has also bought a variety of gold coins.
Investors need to own things that the government can’t make any more off, like land
But this does not mean he shuns securities altogether. He argues that since one cannot know the shape of future government policy, one needs to have a diversified portfolio, including stocks and bonds. If governments spend too little, there is a risk of deflation, and bond prices will rise. If governments spend too much, there is a risk of hyperinflation and bond prices will fall, but then gold and commodities will appreciate.
He also liked the idea of hedging by borrowing money at a fixed rate and buying property that can be rented out, as inflation erases the debt.