Those who lived irresponsibly deserve their misery, I hear over and over.
I don't disagree. But the problem in wishing for an economic catastrophe to punish the guilty is that a new Depression, or worse, wouldn't ruin just the profligate. It would drag us all down.
From a practical viewpoint, if economic Armageddon is your forecast, why bother reading anything about investing? An economic collapse could render every investment worthless, perhaps with the exception of gold.
And if things are going to get that bad, those who own gold are likely to have it taken away at gunpoint. Canned soup might be a smarter investment than bullion.
Separate from the Armageddonites, there is another camp of pessimists who see hard times ahead, but not End Times. If nothing else, their less-dire outlook allows for the possibility of investment moves that could help shelter one's portfolio from the worst of what's coming.
Many in this camp believe that the government's efforts to avoid a rerun of the 1930s -- a deflationary Depression -- will succeed, thanks to the tidal wave of federal dollars flowing into the financial system and economy.
But the penalty, they say, will be a new surge in inflation that will inflict long-term harm on the economy and erode the value and appeal of many investments, particularly low-yielding Treasury bonds.
The government "is going to get what it wants -- they're going to inflate the economy in 2009," said Michael Pento, senior market strategist for Delta Global Advisors in Huntington Beach.
He believes the inflation rate, which lately has been negative (deflation), will rise to between 3% and 5% in 2009, and will be "accelerating greatly." In that environment, investors will turn back to hard assets, particularly commodities, as inflation hedges, Pento said.
What's more, absent a global economic collapse, investors should focus on companies that meet people's basic needs, including food, he said. He likes stocks of agricultural firms such as seed producer Monsanto Co. and fertilizer maker Mosaic Co., both of which plunged in 2008.
A broader theme of the hard-times-not-End-Times camp is that the U.S. is facing a long period of anemic economic growth as consumers pay down their debt loads.
"Lowering debt and consumption levels will likely cause a severe drag on growth," hedge fund giant Bridgewater Associates noted in a report to clients this week.
One result, the firm says, is that the coming decade is likely to be characterized by "a shift away from a . . . U.S.-dollar-centric financial system and toward a world where a higher portion of the world's wealth and economic activity resides abroad, particularly in emerging markets."
That could mean that foreign investments will be crucial over the next few years if you're hoping to buttress your portfolio against a weak domestic economy and another potentially long period of devaluation for the dollar.
So the steep declines last year in foreign stock markets, many of which fell more sharply than U.S. shares, could be a gift for patient investors -- provided, of course, that you believe the end of the world remains postponed indefinitely.
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tom.petruno@latimes.com
