On the looming crisis “There will be four distinct phases. And each phase will generate enormous opportunities to grow your wealth”- MTalks Ed
Last week, when Larry Edelson began his video to announce his shocking forecasts for 2015-2020, he created an uproar here at our Weiss Research headquarters.
So many people jumped online to watch him that all our servers crashed. Our staff tried frantically to restore them. But it was too late. Our only solution was to send out a letter of apology.
That had never happened to us before. And it raised several urgent questions:
What exactly are Larry’s forecasts? Why are they creating such a stir? And what are his strategy recommendations?
To best answer these questions, I decided to do something I rarely do: I hopped on Skype, called Larry in Bangkok, and conducted an unscheduled in-depth interview (transcript below).
Larry Edelson’s Shocking Forecasts for 2015-2020
(Transcript, edited for clarity and brevity)
Martin Weiss: Larry, you’ve just made the most important forecast of your 37-year career, and it’s causing a sensation here. In fact, so many people showed up for part one of your three-part briefing, our servers went down.
Larry Edelson: I’m not surprised. What we see today is unprecedented in history.
Martin: I’m not surprised either. What you’ve been saying is happening, and you’re becoming increasingly well known for the accuracy of your forecasts.
You correctly warned of the great stock market crash back in 1987, the tech wreck in the late 1990s, the real estate bust of 2007, the stock market crash of 2008, and nearly every one of the major moves in stocks over the past three decades.
Then there’s gold, the first market where you earned a reputation for forecast accuracy. You urged our readers to buy gold aggressively when it was under $300. And you also told them to close out their positions just within a couple of weeks of the exact top in 2011.
What would you say is the key to your forecast successes?
Larry: Several. First, I don’t come from Wall Street and I don’t have a traditional training in economics. But what’s most important is I’m a student of human behavior; and human behavior is cyclical in nature.
Martin: We’re all familiar with the expression, “History tends to repeat itself.”
Larry: But most people underestimate how deep that runs. They underestimate how regular and strong our habits are, how predictable our mood swings can be, and how those patterns pervade nearly every move in financial markets of any significance.
Markets are bipolar. They swing from extreme optimism to extreme pessimism, back to extreme optimism. The key is that those swings are distinct, regular, rhythmic, quantifiable, and, for the most part, predictable.
Martin: Could you tell us about some of the events that cyclical analysis has helped to predict? I’m not talking just about you personally, but also about other prominent students of cycles.
Larry: Start with the father of cyclical research, Nikolai Kondratieff. Under Stalin, he studied the Western — and the Soviet — economies. He came to the conclusion that both would eventually collapse. Of course, Stalin didn’t like to hear that. So he sent Kondratieff off to Siberia and later had him executed. But, lo and behold, the Soviet system did collapse.
Next, fast-forward to Edward R. Dewey in 1930-31, Chief Economic Analyst at the Commerce Department in President Hoover’s administration.
Dewey became extremely interested in cycles to help Hoover find the true cause of the Depression. So he painstakingly researched everything from cycles in nature to cycles in commodities, business inventories and more.
He found two cycles that could best forecast the stock market — a 20-year GDP cycle and a 60-year GDP cycle. With these two alone, investors could have side-stepped the stock market collapse and the Great Depression that soon followed. But no one had that information ahead of time. No one predicted the Crash of ’29, except perhaps your father.
Martin: No, not even my father. Yes, as soon as it happened, he recognized that the entire economy was headed for very hard times. But not before. To our knowledge, no one in history predicted the crash.
Larry: Cyclical analysis has come a long way since then. Other researchers, including myself, have conducted massive amounts of due diligence on cyclical analysis. But what’s most exciting — and frightening — is that, right now, many very powerful cycles are converging in the same time and place:
– We have a major aspect of the Kondratieff wave, largely characterized by technological innovation, that’s now turning down, heading into 2020.
– We have what’s called the Kitchin cycle, named after a French cyclical theorist, Joseph Kitchin, which looks at the business inventory cycles, and is now pointing lower. They are also converging along with the Kondratieff wave, heading lower into 2020.
– Then there’s the Juglar cycle, also related to business inventories, which is turning down, starting right about now, heading into 2020.
– On top of all that, you have the original cycles discovered by Mr. Dewey — the 20-year and 60-year GDP cycles — intertwined with stock prices, also converging and heading mostly lower into 2020.
– And never forget the war cycles, which add an entirely separate layer of powerful forces.
Economic stress leads to war. It leads to tension. It leads to civil strife, international strife. So it’s all coming together, and that’s what’s so disturbing to me.
Unfortunately, cycles are still mostly pooh-poohed by Wall Street and Washington. Politicians and central bankers want you to believe that they can smooth out booms and busts. They don’t like the idea that it’s beyond their control. But the more they interfere with cycles, the worse the consequences.
The Exact Date
Martin: There’s a finite date associated with your forecast. Please explain.
Larry: It’s October 7, 2015, when we enter a new phase of the global economy, a phase when everything starts to hit the fan at once. It doesn’t necessarily mean that a precipitous event will occur on that day. There may be, there may not be. But it does mark a line in the sand between two eras:
* The current era when government debts continue to grow with reckless abandon, when nobody really gives a hoot and …
* A new era, when we’re all going to have to pay a big price for that government debt.
It’s a giant shift in the entire economic landscape, a time when governments must finally meet a great day of reckoning. I call it the “Great Convergence.”
Martin: When’s the last time we’ve seen a convergence point of this magnitude?
Larry: In 1929.
Martin: Does that mean that the events that ensue after this convergence will be similar to those that happened after 1929?
Larry: In magnitude, yes. In substance, no. They’ll be different from 1929 because we have a different monetary system. We no longer have the gold standard, for example. No matter what, the key is that mankind will finally have to pay the piper for decades of government excesses.
Martin: Which governments in particular are you talking about?
Larry: Western Europe, Japan, and the United States — modern, semi-socialist societies that are committed to trillions of dollars in payments to the infirm and the unemployed, to veterans and retirees, and more.
We’ve already seen the decline and collapse of socialist structures in the Soviet Union. We’ve also seen socialism fade dramatically in China. The next shoe to drop will be the semi-socialist societies of the West and Japan. They will officially default on their obligations. Or they will simply fail to deliver on their promises, while swearing that they have not defaulted.
In the European Union alone, there are 28 countries. Nearly all have massive debts. And most of those debts are patently unpayable.
Martin: As in Greece.
Larry: Greece is small potatoes. The main reason Greece is important is because it’s the canary in the coal mine — the harbinger of doom for any government in Europe that has followed the primrose path of false promises, any government that has embarked on crazy spending to fulfill the promises, anyone who has accumulated massive, unpayable debts to cover that spending.
Martin: They’ve used public debt to buy personal power.
Larry: Yes. And as we shift into the new era, they’re going to fight for their lives to keep their jobs. The house of cards they created is going to crumble right before their eyes. Spain, Italy, Portugal will be next.
Martin: I disagree. First, I think you’re going to see countries like Bulgaria, Romania, Slovenia and Slovakia go south.
Larry: Sure. Absolutely. Go back to the 1930s. You’ll see that nearly all of Europe went bankrupt, reneged on its debts. That’s what really caused the Great Depression — not the stock market crash. Stock market crashes don’t always translate into a depression.
In fact, percentage-wise, the Crash of 1987 was worse than the Crash of 1929. But it didn’t cause a recession — let alone a depression.
Martin: Tell our readers what does cause a depression more directly.
Larry: I already have. It’s the sovereign debt going bad; and globally, the sovereign debt monster is 15 times the size of stock markets.
Martin: What happens in that scenario?
Larry: Bankrupt governments behave like cornered animals. They raise taxes. They resort to confiscatory tactics — like we’ve seen in Poland where pensions were seized. They slap on capital controls — like we’re already seeing in parts of Europe, where ATM withdrawals are severely limited. Worst of all, they effectively wage war against their citizens.
Ultimately, more countries begin to look like Greece, where banks were shut down and capital was severely controlled.
The telltale sign: Government bond markets crash.
Martin: They’re already starting to fall.
Larry: Yes, and over the next several years, government bond markets will be a disaster zone. For investors to own government debt will be suicidal.
Martin: That should come as no surprise. That’s where you’d expect the sovereign debt crisis to rear its ugly head — in the form of falling bond prices, as investors vote with their money and get the heck away.
Larry: And that’s where you’ll find one of the big profit opportunities.
Martin: Yes, I know. In 1930, my father borrowed $500 from his mother and used it to short the stock market. But things have changed a lot since then. Back then, outright short-selling was the only vehicle for profiting from a crisis. Now —
Larry: Now we have a lot more vehicles, lots more flexibility, many more ways to play falling markets with clearly defined risk. Not just for stocks. Also for virtually every market and sector.
But the more important difference with 1929 is the sequence of events: Europe will go down first, then Japan. The U.S. will be among the last to fall.
The catastrophes in Europe and Japan will make our economy and stock markets look good in the interim, as foreign capital flows to our shores, as the U.S. dollar continues to rise, as our blue chip stocks move higher.
Martin: What exactly do you see coming? Please paint a word picture for us.
Larry: A five-year roller-coaster through hell — wild, euphoric rides up the hill … and devastating falls that could scare the living dickens out of you.
Investors who have loaned money to governments will start snapping their wallets shut. You’re going to see governments shed hundreds of thousands of employees. Anyone with a business that depends on government contracts is going to get hurt badly.
Social Security will be on ice. Medicare will be fried. Welfare, food stamps, slashed. Philosophically speaking, that’s actually a change for the better. But everyone is so addicted to government safety nets and government promises, it will cause civil unrest as it hits larger segments of the population, especially the middle classes.
Martin: How do you see governments responding to this crisis?
Larry: There’s nothing on earth more dangerous than a government that’s fighting for its survival, a government that’s like a cornered rat.
Throughout history, whenever governments have been confronted with this kind of crisis, they’ve turned against their own citizens.
That’s what’s coming here too.
Any vestiges of privacy we enjoy will be in jeopardy. The government will track your money like never before. There will be ever tighter capital controls. Wiring money out of the country will be increasingly more difficult. Large cash transactions will become largely extinct, and major steps will be taken to shift toward a mostly electronic currency. Some of that is already underway in Europe.
Martin: They’re moving towards electronic currency?
Larry: They sure are! If the currency is electronic, it’s far easier to tax and track. This is what Harvard economist Kenneth Rogoff is advocating. Plus, it makes it easier for the authorities to shut down the banking system — almost instantly.
Meanwhile, here in the U.S., the IRS is going to get increasingly more authority to seize assets. Already, every U.S. citizen has to report his overseas banking and brokerage accounts, regardless of the funding source.
Martin: Approximately when does the crisis begin?
Larry: There will be four distinct phases. And each phase will generate enormous opportunities to grow your wealth.
We’re in Phase 1 right now. Much like an approaching hurricane, you have the opportunity to prepare ahead of time.
Savvy European investors are already doing it — dumping their euros, buying dollars, and then using those dollars to invest in U.S. stocks, real estate, and even entire U.S. businesses.
Phase 2 is set to begin in October. That’s the phase when you’ll see the Greek crisis spread, the euro experiment begin to unravel. That’s also the phase when the flight of capital from Europe is going to accelerate and we should see the Dow finally break out above 18,500, beginning a long, two-year ascent.
Phase 3 should begin next year, possibly in the second half. That’s when I expect Japan will become the next domino, generating a second source of flight capital to the United States.
Here’s the key: Between the flight capital from Europe and from Japan, you could see the Dow move all the way up to the 30,000-to-32,000 range by the end of Phase 3.
Martin: Amazing. But why Japan? Isn’t it showing some strength right now?
Larry: Some upticks in some sectors, perhaps. But that’s almost entirely because the yen has depreciated so abruptly, giving a temporary shot in the arm to their exports. The dire reality is that deflation is still a big drag, and Japan is still feeling the effects of its fifth recession since 2000.
What’s worse, the malaise is driven by two powerful long-term factors:
Number one, Japan’s social spending programs are enormous. More people are on the government dole in Japan than are actually paying taxes. The government debt is over one quadrillion yen. That’s a one followed by 15 zeros. And it’s 238% of GDP, by far the highest of any modern economy.
The second problem is the deeply embedded aging of the population.
Martin: I know. I lived in Japan from 1979 to 1981, and Japan specialists were warning about it back then. But politicians didn’t care. It was too far into the future for them to even think about. But now here we are. Roreika (aging of the population) has devastated Japan.
Larry: That’s another canary in the coal mine. But it’s far worse in Europe. You have 50% unemployment among the youth in Greece; close to 25% youth unemployment in several other European countries.
This is the backdrop in Japan and Europe. But center stage, again is the trillions of yen and euros that are going to head for safer shores — mostly to the United States.
The U.S. and the U.S. dollar will continue to win the global contest for the “least ugly.” Despite all its faults, the U.S. has the deepest, most liquid markets on the planet. We have financially healthy multinational companies offering a combination of stability, dividends and appreciation that are far better than what you can get in virtually any other type of investment.
These are the qualities that today’s global money managers and savvy investors crave the most.
Martin: Let’s fast forward to the end of the cycle. You get the tsunami of flight capital into U.S. assets. You have the Dow at lofty levels. What next?
Larry: That’s when we move in to Phase 4. And that’s a time of peak risk for U.S. investors.
Look. During this entire bull market period, while the U.S. stock market is moving sharply higher, the U.S. economy will still be growing at a snail’s pace of maybe 2%, 2.5% tops.
So the primary bull market driver is not growth. It’s flight capital from Europe and Japan. That’s not a sustainable kind of bull market.
Yet, at that point, most U.S. investors will think it’s all about how wonderful the U.S. economy is. They will be lulled into a false sense of security. That’s my biggest worry. The gains will be real. But that’s only if you take them off the table.
As America’s own problems come home to roost, much of that flight capital can disappear. That’s when Phase 4 strikes hard, when the U.S. economy, the last major Western market standing, begins to roll over.
The official debt total in the U.S. is relatively small — $18 trillion. But that’s only the tip of the iceberg.
Washington also has at least another $100 trillion in obligations for Medicare, Social Security, Veterans Benefits and more. One Harvard economist says it’s closer to $200 trillion. That makes us the biggest debtor in the history of civilization. So when the sovereign debt cancer reaches the United States, we switch from summer daylight to the equivalent of a dark nuclear winter.
Martin: Based on your analysis, that’s still years away. So let’s save it for a future discussion. Right now, please share with us your strategy recommendations for Phase 1.
Larry: If you haven’t done so already, your first priority is to get out of all government bonds. Just clean them out 100%.
Martin: What about inflation-adjusted Treasury bonds?
Larry: Any kind of bonds.
Martin: And five-year Treasury notes?
Larry: Get out. The only things worth holding, for the ultimate in liquidity, are some 13-week Treasury bills and T-bill money funds, as we’ve said all along.
Martin: What about municipal bonds?
Larry: I would not touch ’em with a 10-foot pole. We’ve already seen the bankruptcy of Detroit and big troubles in Puerto Rico. Chicago could be next. Remember, municipalities won’t be able to rely on the federal government to bail them out.
Later in this crisis, they’ll get crushed. But I wouldn’t wait until then. I would get out of any kind of bond — including triple-A corporates — because anything of a bond nature, government, municipal or corporate, is going to get killed at this stage.
Next, your second priority in Phase 1 is to profit from Europe’s decline. How? One very handy vehicle is specialized exchange-traded funds (ETFs) that are designed to go up when European markets go down.
Martin: Inverse ETFs on Europe.
Martin: Since you’re known as a leading advocate for gold, one thing that has surprised some people is your outspokenly bearish stance on the precious metals in recent years. While practically every other gold bug on the planet has been stuck in the mantra of buy-buy-buy, you’ve told your subscribers to sell. Long term, you’re still a gold bull.
But on a medium-term basis, you’ve been the lone wolf in that crowd who’s often warned people away from gold, who’s helped protect investors from big gold corrections.
Larry: The best leverage in any market is to buy near the bottoms. That tactic, just by itself, can multiply your profits.
Martin: When do you see the next bottom in gold?
Larry: I’m looking at a time window between November of this year and January of next. No matter what, gold is going to be one of the best plays throughout Phases 2, 3, and 4.
Martin: Last year, you predicted another major decline in gold, and a
lot of people were very unhappy about that. They felt you betrayed them. Now, though, many are thanking you. I can see some of the comments right on your blog, which say, in essence: “Thank you for getting me out of gold last year, Larry. You saved me a bundle.”
Equally important is the opportunity you’ve given them to buy gold at much lower prices. Like you said, that’s the best kind of leverage to enhance your profit potential.
Larry: And gold could be, by far, the most consistent big winner in Phase 4. The critical period will be between 2017 to 2020. To deal with the chaos, I suspect the G20 will have to get together, shut down everything, and reinvent the entire monetary system.
Martin: Are you saying that the G20 could effectively declare a banking and market holiday of some sort?
Larry: It’s a distinct possibility.
Martin: That’s what we just saw happen in Greece. But the G20!?
The G20 includes the United States and Canada …. the UK, Germany, France and Italy … Brazil, Russia, India, China and South Africa … Japan and Australia … plus seven other major nations. Are you saying that what’s just happened in Greece could ultimately happen in many of those countries too? Why?
Larry: For the very same reason I stated at the outset: Because of governments that are overloaded with unpayable debt, governments that will go bankrupt, governments that will respond with desperate measures, and populations that will revolt against them.
And whether it reaches the extremes we’ve seen in Greece or not, one thing is certain: The sovereign debt crisis is a fundamentally powerful bullish force for gold.
Martin: So where do you see an ounce of gold ultimately going in a global sovereign debt crisis?
Larry: At least to $5,000, possibly to $7,000.
Martin: What about silver?
Larry: Right now, I’m more bearish on silver than gold. I expect silver to bottom out around $12 per ounce. That means it has another $2.50 to $3 to fall, another 20% or so.
But on the upside silver also has much more potential because it can easily go to $100 or $125 by 2020.
Traders call silver the devil’s metal — and for good reason: Because of its volatile swings. That’s a key reason why I tend to favor gold. Its rise will be steadier, more reliable. I recommend silver primarily for trading; gold for both trading and long-term investing.
Martin: Before we part, tell me more about your report, “Convergence.”
Larry: Today, I’ve given you just a sampling of my forecasts — some of the highlights. In Convergence, I give you all my forecasts for 2015 to 2020. I give you a play-by-play description of each of the four phases. I lay out my strategy and tactics for each. And I name 17 investments that I’ve specifically selected to protect your wealth and grow your money between now and 2020.
I want to do everything I possibly can to help readers not only protect your wealth, but to really grow it. That’s from the bottom of my heart. I know what’s happening. I can see it coming and I want to help as many people as I can.