SYRACUSE, Sicily – “When in doubt, go to Italy” is the saying.

We are always in doubt. What better place to go?

Today, a warning about why a global recession is now likely.

But first, an update on Sicily… where we’ve spent the last few days exploring.

Sicily is not exactly Italy. It sits in the middle of the Mediterranean, where every sleepy sailor or ambitious empire builder was bound to wash up. The Phoenicians, Greeks, Carthaginians, Romans, Byzantines, Arabs, Normans, Spanish, and French – all tried their hands at ruling Sicily. The Italians are only the most recent of the invaders.

A Visit to the Temples

We rented a little Fiat 500 to explore the island. It lacks power, but it is perfect for zipping around in tight places.

Yesterday, we visited Greek and Roman ruins. The Valley of the Temples at Agrigento is a marvel. It has one of the best preserved Greek temples in the world.

About two hours away is a Roman villa with some of the best frescoes ever discovered. Apparently, they were buried in a mudslide and were thus preserved for 1,000 years.

The Sicily that we’ve seen so far is remarkably open. Rocky mountains, open fields, vast pastures – there is little shade. It must be excruciatingly hot in summer. If we were running things, we’d plant more trees.

Still, it is nice to be able to see so much countryside as we are driving around. One thing we’ve noticed is that there are thousands of abandoned houses – large stone farmhouses – all over the island. The small towns, too, are depopulated.

In the large towns – Syracuse and Palermo, for example – you see many recent immigrants from Africa and India. But the small towns and rural areas seem to be losing people, leaving houses empty.

Between Scylla and Charybdis

More about Sicily in a moment…

Back in the markets, the Dow rose 200 points – or just over 1% – on Friday.

And commodities giant Glencore recovered most of its week’s losses. The fright of a few weeks ago seems to have diminished. It is “back to normal” — almost.

Stocks and bonds still trade at silly prices. Shills from Wall Street still “talk their books” on TV. And the Fed is still promising a rate hike – perhaps before the end of the year.

This rate hike talk is either believed or not. To the extent it is believed, it is disastrous in the short run. To the extent it is not believed, it is disastrous in the long run.

A rate hike (or even the anticipation of higher interest rates) in the U.S. drives investors to dollars. This raises the price of dollars for holders of foreign currency.

Anyone who owes dollars and can’t print them at will – in particular, governments and corporations in the emerging markets – is in a rough spot.

And when you put debtors between Scylla and Charybdis – that is, between a rock and a hard place – many of them are bound to run aground.

Here Come Negative Interest Rates

The U.S. dollar is the funding currency for the world economy.

When the exchange value of the dollar goes up, it is another way of saying dollars are scarce. And when dollars are scarce, world trade tends to go down.

In other words, it creates a situation opposite to the EZ money the Fed has been aiming for.

We see the effects of this already. Sales of the yellow machines – backhoes, loaders, bulldozers, etc. – have been falling for three years. Containerized freight coming from China is down 30% since 2013. The world economy is slowing down. A global recession is now in the cards. (More on this below in today’s Market Insight…)

On the other hand, if you don’t believe the Fed will raise rates – which we don’t – it sets up a further thought. The Fed did not raise rates at its last meeting for a reason. It must see the problem developing in the world economy, as we do. And it must realize that its policy goal must be to lower the price of the dollar, not raise it.

Our prediction: The Fed will come forward, not to praise the dollar with higher interest rates, but to bury it with a negative-interest-rate policy (NIRP)… a ban on cash… or “whatever it takes.” It is all coming… along with bigger and even more reckless bubbles.

Crooked Deals

But let’s forget the Fed for a moment…

We landed in Palermo on Friday. The city has a bad reputation.

“People don’t like Palermo, because it was controlled by the Mafia,” explained a taxi driver.

“They made crooked deals and built all these ugly apartment buildings you see on the outskirts of town. Many times, they had to tear down ancient buildings that had been there for hundreds of years.”

It was true that there are ugly apartment buildings in the hills surrounding Palermo. But it looked to us like almost any other town. The apartment buildings that the Mafia built were no uglier than those built by the democratically elected government of Baltimore.

“How was it to live in a town run by the Mafia?” we wondered.

“It wasn’t so bad. They killed people who threatened them – but besides that the Mafia ran a fairly decent government.

“There wasn’t much crime. If someone stole something from you, you could usually go to the Mafia and they’d get it back for you.”

More to come…




Further Reading: Thinking about retiring overseas? Our friends at International Living magazine – which Bill set up more than 35 years ago – are experts at showing readers how to live better for less overseas.

They have compiled a list of inexpensive places where you can live the good life on nothing more than your Social Security checks. Read on here for their list of the “7 Great Retirement Towns You’ve Never Heard Of.”


The world economy is likely to plunge into recession in the next two years.

That’s according to a recent research note by Citigroup’s chief economist, Willem Buiter.

The trigger, says Buiter, will be a hard landing in China.

Brazil and Russia are already in recession. If China goes into recession – as Buiter believes it will – this will be enough to cause other big emerging markets to follow suit.

Today’s chart shows the median forecast for global GDP in 2015 from Bloomberg’s regular survey of economists.

100515 DRE GDP Forecast

As you can see, economists have been forced to lower its forecast five times already this year.

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More great feedback from Diary readers on how to live better for less. (Catch up on Bill’s two-part series here and here.)

When my wife and I were newlyweds, we asked a farmer if we could camp in his woodlot for the summer. He looked us over pretty good, and then said, “Okay, as long as you don’t cut down any trees and are careful with fire.”

Everything we owned was in our old car. We didn’t have a tent, so I made two lean-tos from branches – one to sleep under (we did have sleeping bags) and the other to keep our stuff under.

There was a little creek for water. We cooked over a fire.

We both had jobs and could use the facilities at work for showers and shaving, etc. Boy did we save money those three months – no utilities, no rent, and two incomes.

I look back at it as a fun time.

– Al C.

I’m really appreciating your series on “cheap living.”

Have a look into permaculture, which includes how to produce more high-quality food than your family can eat (even on a suburban lot), various low-cost living systems (such as hay-bale houses and mini-houses), and other ways to get out from under the “financial pressures.”

Another factor is to have and continue using some skill set that others want, for a fee if possible. Retirement to “do nothing” is a short road to death.

There’s lots of potential opportunities out there — some local networking with groups that have common interests to yours would be a start in finding them. As an example, my “retired” engineer husband tutors math, teaches music, and makes things in his fully equipped wood and metal shop in our garage.

We don’t live on $500 a month. But we have NO DEBTS – including no mortgage – and we spend less than we make.

– Cassandra A.

In Case You Missed It…

Last Friday’s warning from Bonner & Partners managing director Amber Lee Mason was our most popular email last week.