Real estate, stocks and bonds down 90% from their peak values. 40% to 60% unemployment. A depression lasting more than 20 years. These are some of the future scenarios envisioned in David Wiedemer, Robert Wiedemer and Cindy Spitzer's Aftershock, the sequel to their 2006 book America's Bubble Economy where they predicted the 2008 housing market implosion and stock market collapse. The authors believe we are currently in the midst of six co-linked bubbles which have been growing since the early 1980's and that all of these bubbles are destined to pop in the next 2 - 4 years. The six bubbles in question are: real estate, the stock market, private debt, discretionary spending, the dollar and government debt. Of the six bubbles, the first four are already in motion and once the dollar and government debt spiral downward, our economy will be rocked to the core: "...and send deep and destructive financial shock waves around the globe.". Not a pretty picture.
In many places throughout the book, the authors caution about the current government bail-out and temporary reprieve from doomsday and sum it up best: "But the dramatic government intervention only served to temporarily blunt (not stop) the effects of the underlying fundamental trend, which is why falling housing, private debt and stock market bubbles are still on their way down. In time, these trends will also include a major Aftershock that few others are anticipating: the busting of the dollar and government debt bubbles.". It's a ticking time bomb right now, at least that's what the authors claim, and in a matter of months: "multiple failed treasury auctions will mark the beginning of the government bubble collapse.". Aftershock stipulates that: "if no one will buy our future debt, we will have no way to make payments on our past debt. The U.S. government will be in default on its debt, and the big government debt bubble will fully pop.". This is when all hell breaks loose causing the dollar to contract, too.
Although timing the market is an inexact science, Wiedemer, Wiedemer and Spitzer think these interlinking bubbles will explode sooner rather than later and dole out advice for not only maintaining your assets, but building them too. The first thing they want you to do is go into cash, and when they mean cash, they are talking about short-term government bonds like T-bills. However, when the dollar bubble pops, they feel you should move your money out of government debt and into gold: "The coming gold bubble could easily last 10 or more years, and at its height, gold prices could become truly stratospheric - so high, in fact, we won't even mention our best guess for fear of losing credibility.". I don't see why they wouldn't give us a ballpark figure on gold prices. After all, they already made bold projections on unemployment rates and stock market prices. Why not go the extra mile? One problem I have with putting all of your eggs in one basket with gold is that Uncle Sam confiscated all the gold back in the 1930's during the last depression. Why wouldn't he do it again? Other ways to make money during the crash are to short the market using ETFs, the same strategy the Ithaca Experiment is utilizing, or to invest in Euros with ETFs.
Aftershock fans the flames of my current belief that we are in for a sloppy and choppy market to the downside for the next few years. Although the authors caught lightning in a bottle with their first book, it is difficult to believe they can hit the bulls eye for a second straight time, but if they are close, my current strategy will be an optimal way to increase my holdings. Like Robert Prechter's Conquer The Crash, Aftershock paints a gloomy picture of what is right around the corner not only for Americans, but people all over the world. There are two sides to every trade and right now I'm on the short side. I'm just going to bide my time and let the chips land where they may.