This book by Stephen Leeb is the second recent review about the inevitability of an economic collapse. The review of the book posted last week predicts what will happen in the United States compared to what happened in Russia after the Soviet Union collapsed. That book provided little guidance other than encouraging stockpiling of food, medicine, and barter goods. There is advice in “Game Over” on how to be best prepared for predicted collapse caused by runaway inflation and shortages of commodities.“Growing numbers of the world’s 6.6 billion people are now actively seeking to equal Americans’ high consumption lifestyle…” There are limits to all commodities, and governments and central banks are not acting as if they have the restraint necessary to keep inflation under control.
Peak and decline of oil supplies and inadequacies of alternative energy production are likely to cause energy production to fail to keep up with the world’s appetite. Replacing carbon fuels with wind is impossible, because there isn’t enough iron oxide to build enough towers and turbines. It is not yet clear whether solar cells produce a net gain in energy. Thin film photovoltaics require cadmium telluride, and there isn’t a wealth of that available in the world. Producing energy by converting corn into ethanol uses more energy than is gained and making fuel out of food when there is a shortage of food is, to be kind, idiotic.
Most of the available new sources of oil are deep, and therefore demand more energy for drilling and pumping. From a completely cynical perspective, oil shortages will be good news if you agree with the global warming theory. The prediction is that oil will become so expensive that it won’t be refined to make gasoline for private vehicles.
The U.S. has considered a “carbon-based energy tax,” as a method of forcing less oil and coal from being burned. The book predicts that would fail to make a difference, since the developing world would eagerly buy any additional supplies.
The book could serve as a good primer for those interested in commodities beyond oil. There is a table listing sixteen minerals with data on production and predicted years of reserves. The reserves are mostly in developing nations, and those nations will be less interested in providing resources to support other countries as shortages develop. The result will be a cap on economic growth. The worst case scenario is that the developed nations, which have developed complexity along with wealth, will collapse in the midst of violence and starvation. An example of what complexity can do to prevent the ability to react to a problem is that no new oil refineries have been constructed in the United States since the mid-1970s because of environmental regulations.
There is an excellent discussion of water as a commodity in Chapter 3. “Beyond directly nourishing human life, water has many other essential uses that keep it deeply entwined in the vicious circle involving energy and other commodities.” Many regions don’t even have adequate safe drinking water or water for sanitation.
I disagree with the book is on the subject of nuclear power. Nuclear is opposed by many, and Three Mile Island, Chernobyl, and the recent Japanese tsunami damage to reactors haven’t helped the reputation of that method of producing energy. However, nuclear power would be our best hope if we use lessons learned to build new, safe reactors. The author argues that the reactors use too much water and that there isn’t enough uranium. I counter that using the “fast breeder,” which uses plutonium generated by uranium powered reactors, would provide huge amounts of energy.
There are many ideas about what investments would be wise and which ones would be likely to lose value if the predictions in the book would come true or partly true. Investors need first to be ready for the high inflation and loss of the value of the dollar that is guaranteed by the fiscal irresponsibility demonstrated by the ballooning U.S. debt and the money printing that has been used to combat the recent recession. Entitlement programs including Social Security and Medicare will help drive total federal obligations to over $50 trillion dollars, which is 90 percent of the total worth of all American households and about $175,000 for each citizen.
The number one investment recommended to prepare for all of this is gold. It is wise to own some of the physical metal, and investments could be supplemented by an exchange-traded fund (ETF) such as SPDR Gold Shares GLD. GLD holds gold bullion as the only asset. The Market Gold Miners ETF GDX invests in gold and silver mining companies. Recommendations are also given for several specific mining companies. Brazil, Russia, Australia, and Canada (ETFs EWZ, RSX, EWA, and EWC, respectively) are recommended because those countries have significant commodity resources. Specific companies are Australian BHP and Rio Tinto RTP. Several oil service providers are listed, headed by Schlumberger SLB. One intriguing listing is the Canadian Oil Sands Trust COSWF. (I say intriguing, because the Canadians seem willing to take advantage of their resources.)There are thirty-five new nuclear plants planned in the world, and Australian Energy Resources (EGRAF) and Canadian Cameco (CCJ) mine uranium. Cameco is the largest uranium provider in the world. I also liked the idea of Exelon, EXC, because it is a U.S. utility that has nuclear plants. Veolia, VE, and ITT specialize in improving supplies of freshwater.
Berkshire Hathaway BRK/B is listed as providing “…genuine defensive benefits…”
There are other recommendations, to include defense industry stocks, but those listed above captured most of my attention. I recommend others read the book and make their own choices.
As an aside, there is currently anger at Capitalism (read “Occupy Wall Street”). The book says that in 1980 5.7 percent of U.S. households owned mutual funds. At the time of publication that number was 43 percent. Punishing Wall Street would harm many Americans.
I was disappointed the last page of the book advocates “…government will have to play a bigger role in the economy.” I hope that means the government gets out of the way. I posted a blog that gives more details and opinions.