What to Bet Against in 2012

The safest investments may not be what you think...

MUCH COULD go wrong in 2012. How do you protect yourself? asks Bill Bonner in his Daily Reckoning.

"Find the investment premise that is false and bet against it," was George Soros' formula. And right now, the biggest premise in the financial world is that US Dollar-denominated Treasury debt...and to a lesser extent, US stocks...represent the safest investments you can make. This idea is so popular it could take American debt and equities higher in 2012. People flee Europe and the Emerging Markets for the safety of US assets.

But the premise beneath these investments is false. Neither US debt nor US equities are becoming more valuable. They're losing value. Americans are becoming poorer. They have not had a real wage increase since 1974. Only by working more hours per household...and going further into debt...were they able to increase their standards of living. But now, with unemployment over 8% and de-leveraging taking place (admittedly, in fits and starts), they will have to spend less. Sooner or later, investors will have to recognize it.

"They only way for the European [and American] economies to recover is to admit that they are not poor and live within their means," writes Mahathir Mohamad, former prime minister of Malaysia, in the Financial Times. Then, they must go back to doing real business, i.e. to produce goods and sell services. Wages, bonuses and other perks have to be lowered to become competitive. ...There can be no return to the status quo ante."

No, dear reader, there's no going back. And every step you take going forward you risk stepping onto a landmine or into a trap. But one thing is almost a certainty. When we finally reach our destination, US stocks and US bonds will be lower.

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