On Jan. 1, Paige Parker and I set off from Iceland on a three-year journey around the world, our goal to see as much of the planet as possible, as many countries as we can fit into three short years. Just now, we're barreling through Europe, and our next report, for Worth's March issue, should come from Turkey and the Balkans. The April issue should cover Iran and Central Asia, countries such as Uzbekistan, Turkmenistan, Tajikistan, and Kazakhstan.

We must recognize the parlous straits in which the world finds itself at this point in time. We all know what economic and political disasters have happened in Asia, Russia, and Latin America, while at the same time, the United States has been blessed with the longest peace-time expansion -- 93 months -- in our history.

Odds are this expansion will end during our three-year trip. Because the United States has been the economic engine for much of the world over the last few years, any fall off will lead to world-wide economic shocks and turmoil. Historically, economic turmoil almost always leads to political turmoil.

As we visit Russia, we can be sure things will be worse than now. As I have predicted for years, the Russian state is collapsing. In just six months, the ruble has dropped almost 75 percent from $.016 to $.045. The Economist recently pointed out that Russia, with 29 times as many people, has a budget the size of Finland’s. Its postal service has collapsed. Workers basic to society -- teachers, doctors, miners, postal workers, etc. -- remain unpaid for months. AIDS and TB are epidemic. And Russia still is due for an even more enormous crash than it's had so far.

In the fall of 2000, we plan to visit the Middle East, always a powder keg, and I expect by then it will be yet more volatile, as the longer the Arab countries focus on Israel as their primary problem, inflame their peoples by blaming their troubles on the Great Satan, and ignore their own failure to develop agriculture and industry, the more likely an explosion of major proportions.

By 2001, we hope to be in South America, and I expect to see it in yet more turmoil. All this will be magnified if Asia and South America, because of the end of expansions in the U. S. and Europe, have reached the end of their own expansions, leaving these countries with fewer markets in which to sell.

Today, as a result of the global expansion over the last years, the world financial system is chockablock full of leverage. Now, leverage is fine on the way up, when businesses are growing and every year produces more revenues and profits, but once revenues and profits shrink, leverage pulls down businesses and countries far faster than it allowed them to grow. The international banks, of which the Japanese banks are but the worst example, have plunged into the world-wide credit expansion with both hands, and are more leveraged than at any time in their history.

During long booms, borrowers and lenders forget that boom times don't last forever. Debt service a company can support when an economy is growing becomes impossible when it shrinks. As an example, a motel built 15 miles from Disney World might do well during boom times when many families take vacations and when motels cheek to jowl with Disney World can charge top prices and stay fully booked. If an expansion has continued for years and years both the bank and the borrower may easily conclude that such traffic is normal, not the product of the boom. Hey, the developers crow, we’ll buy the land cheaper because we’re not in the main hub, give families an indoor as well as outdoor pool and a fancy health club, throw in entertainment for the kids so mom and dad can have time for themselves, and still charge less than the existing competition. But let the economy take a downturn and the number of visitors to Disney World drop by a third, and the remaining tourists will get cheap deals and frills from all the resorts. With visitors having no reason to stay in the boondocks, those motels on the outer rim will suffer and probably won’t meet debt coverage. This example will be repeated tens of thousands of times as our economy goes into recession, the sort of event we saw in Asia last year.

At the top of a business cycle lenders allow too little margin for error; at the bottom, when it’s actually safer to use leverage, they demand too much margin.

During the next three years, two other enormous pressures -- the Y2K problem and the introduction of the Euro -- may impact the world economic situation, which already is walking a tight rope.

I'm no technological expert, but it’s clear enough the Y2K problem has to exacerbate whatever problems the world has, and could even be the trigger for a severe global downturn. Nor does it take much in the way of brains to see such a downturn coming; after all, expansions always end, and we’re nearing the end of a long one. Because this expansion’s continued for so long, the downturn will be correspondingly severe.

As for the Euro, an awful lot has to go right for its formation to work, and if all does go well, the Euro will make big problems for the U. S. The enormously complicated mechanisms of setting up the Euro could cause severe disruptions and if its formation unravels (which I expect), it will create systemic breakdowns that may also trigger a global downturn. However, the European currency markets are large, deep, and liquid; if the Euro manages to succeed it should begin to replace the position of the dollar in world markets, where the dollar is not only the reserve currency but also the chief medium of exchange. This situation has been highly favorable for us for decades, and our losing even a small part of this position could well lead foreigners to sell off our dollars and bonds. A corresponding rise in our interest rates would follow. A sell-off in our stock market would ensue as the costs of businesses rise and bonds become more attractive than equities. Moreover, while for years we have run a balance-of-trade deficit, Europe runs a balance-of-trade surplus. We are the world’s largest debtor nation; if the Euro succeeds, the European Union would be the world’s largest creditor. Provided the Euro succeeds, can you blame investors for choosing the far sounder currency?

So not only is the world over-leveraged, but it has the added pressures of the Euro and the Y2K problem. If these three stressors don’t trigger a global heart attack, war or some other mistake by governments may do it. As an example of governmental mistakes, today the central banks are expanding credit faster than I’ve ever seen. As a result of last fall’s world problems, the U.S. Fed is forming credit at double-digit rates, far above normal. Even if the Fed merely reverts to its customary single-digit expansion, such a contraction will be a shock to our economic system, and might thereby trigger a world-wide heart attack.

To add to these pressures, all the European countries are now being run by left-leaning governments. Back seven years ago, when the treaty establishing the Euro was signed, only conservative governments were in power, those whose primary currency goal was a sound currency. Today, the Euro's implementation is being handled by governments who see their mandate as full employment rather than as the establishment of a sound currency. This creates yet another pressure on the Euro's formation that may lead to its downfall and world-wide currency turmoil.

Globally, everything has to work just right, or the global financial system, now under enormous pressures, stands a strong chance of breaking down. With the world economy far larger than at any time in history, with the enormous leverage that’s been employed at so many levels, an awful lot of delicate social and economic machinery will be destroyed in such a crash. Who knows how difficult it will be to rebuild such a complicated machine? We could be on our backs, like a turtle trying to right itself, for many long years.

As Paige and I set out on our trip, what are the best investments as I see them around the world?

First, in the U. S. nearly all small electric utilities are a good buy, companies such as Green Mountain Power in Vermont and El Paso Electric in Texas. One, they’re not over-priced, and two, most pay dividends, but more important yet is that as electricity becomes deregulated, these small utilities will be bought out by larger ones. Right now, we're even seeing foreigners buy them. Even when the market goes down, as it must sooner or later, the combination of their regular dividends and low prices will keep these utilities from sinking as far as the market.

As for shorts, my two best candidates are the U. S. financial community and the Internet stocks. I won’t name names in the financial community, as I have too many friends there who will be upset, but all these stocks will be hit hard when the market takes a nosedive. While on this trip I can’t be attentive enough to short the Internet stocks, interest in them has reached the stage of mania. Lots of money can be made by traders nimble enough to play for this disaster waiting to happen. I am short the S&P mid-cap index, however, as middle-size stocks in the next economic setback will suffer as investors stay with the big companies for perceived safety.

During the next three years, solid opportunities exist overseas. European governments have directed their defense industry to consolidate. If it doesn't, it can't compete against our defense industry, which already has merged. Since no one in Europe is against it, it's likely to happen, so I own small and middle-size defense companies in Europe.

I feel the same way about small and middle-size European banks, as the European banking industry is being forced to consolidate, too.

I own all the European hydro-carbon companies. Not only do I believe oil is making a bottom here, but these companies also are consolidating. Moreover, the U. S. government has ruled that U. S. oil companies cannot do business in certain countries, such as Iraq, Iran, Libya, Nigeria, and Burma, to name a few. The Europeans will have a field day without our top oil companies to compete against. Besides, Europe’s oil companies see our oil companies consolidating, and they don’t dare not to.

So, what do I expect to find as we tootle through the world?

In a few weeks, we’ll be in Iran, which I anticipate finding has changed for the better. Even though Iran still ranks close to the bottom, number 154 out of 161 countries in the 1999 Heritage Foundation’s annual index of national economic freedom, and even though oil prices have long been low, the Iranian economy grew by 2.5 percent from mid-1997 to mid-1998. With 46 percent of Iranians under age 15 and only 4 percent over 65, and a moderate president, Mohammad Khatami, the stranglehold of the religious far-right is bound to ease. Just their giving us permission to drive through the country is proof that it’s changing.

We plan to drive along the east and the west coasts of Africa, which I haven’t explored nearly enough. I expect to find positive and exciting developments in both Ethiopia and Mozambique. However, when we reach South Africa a year and a half from now I’m worried that with Mandela gone the political and economic situation will have deteriorated.

Today's lower oil prices are putting a huge strain on Nigeria, which contains the largest oil deposits in Africa. Because Nigeria is not a real country but rather a product of one of those jury-rigged political contraptions that were a specialty of the British Empire, it will probably benefit from a breakup. I certainly hope it doesn't do any breaking up while we’re there.

Indeed, that’s a guiding light of our trip: to stay away from wars and epidemics. However, this is such a ripe time for global turmoil that we’ll have to be attentive to the shifting trouble spots as we move about. Roads, the lack of, and their condition, will also be important. There may be 10 ways to get to Los Angeles from New York, but there are only three ways to drive through Africa, two in South America, and one each in Siberia and China. While when I rode a motorcycle around the world it was imperative to keep within the "bubble of summer"—on this planet it’s always summer somewhere—since we can put up the convertible’s hard top summer is not a necessity, but traveling is a darn sight more pleasurable in good weather than in bad.

As we cross China, I want to examine the pressures on the Chinese economy. Since all its neighbors have devalued, this puts yet more strain on China's currency. Even though the Chinese have an enormous economy with a small export component relative to its neighbors, if it is unable to sell its products outside its borders because of its high currency, it will suffer. According to its own government reports, China is handicapped by the over-production of approximately 500 types of products, causing these factories to operate at less than 60 percent capacity. For countries as for businesses all the important events happen at the margin. That is, it’s the last 10 to 20 percent of a company’s revenues that create the lion’s share of its profits, and often these come from exports. The strains on China may cause political and economic chaos while we’re there.

I don’t expect to find that Japan has improved its bleak situation. The Japanese desperately need to open their economy, to deregulate it, not to just throw money at their problems. After all these years, the Japanese people are still paying $6 for a bag of rice for which we pay $1, and now there's talk of a 1,000 percent import tariff. Just deregulating rice might make a huge difference in Japan. Right now, the price of land stays high because rice prices are kept so artificially high. In addition, many other sectors of the Japanese economy need to be opened to international trade.

We expect to arrive there in the summer of 1999, and I expect the Japanese banking system to have continued to deteriorate. Its banks are still stupidly protecting their worst customers—as they have for a decade—and not supporting their most profitable ones, a certain recipe for a lender’s disaster. That is, any fresh capital the Japanese banks obtain goes to keep the borrowers afloat who are behind on their loans and have no hope of ever paying them off, while the new customer who may be prospering cannot be taken on. Good loan officers say, as difficult as it is, "The first loss is the best loss." They mean when a borrower gets hopelessly behind it’s better to put a bullet in its head rather than pour in more money and hope. Shopenhauer put it well, "Hope is the enemy of the businessman."

I don’t expect the Japanese to bite this bullet in the next year or so, but the pain may become so severe that in two or three years they’ll do what’s necessary.

On the positive side, I expect to find opportunities in Australia, New Zealand, Canada, and Latin America, particularly Brazil, which should have hit an attractive bottom by the time we visit in 2001. I believe the political and economic situation in Brazil will be at levels that haven’t been seen in 50 to 60 years, providing wonderful buying opportunities.

We’ll visit Asian countries twice, one in 1999 and again in 2000. I expect to find during our second visit their economies to be much improved, particularly those of Thailand and South Korea.

Commodities, which are hugely important in the global economy, are now hopelessly out of fashion as investments here in America. In this country not only are producer prices up just 0.7 percent in the 11 months ending in November, but intermediate goods, excluding food and energy prices, were down 0.2 percent. Moreover, the Bridge/CRB index of 17 commodities is at its lowest levels since the late 1970s.

However, in a matter of weeks, not months, the world commodities markets, including that of oil, will make an important bottom if they haven’t already. Commodities made important bottoms in 1986 and 1992, and this next one will be in place as you read this, and it is the one off which to buy.

However, gold will not have pride of place as it did in the 1970s. Other commodities will do better, such as oil, lead, rice, cotton, wool, and hogs.

As we tour will we find deflation? Not much more than we’ve already seen. Central bankers around the world—many of whom have MBAs and PhDs in economics from our most prestigious universities—have all absorbed one great lesson from their study of the Great Depression of the 1930s: in a deflation a central bank should print and spend money. Today, with so many left-leaning governments in power, whose mandate is more to keep employment up rather than to create a sound currency, central banks will be all too eager to print and spend.

I’ve asked myself what I expect to be different on this second trip around the world. I’m looking forward to exploring East and West Africa, which I’ve never properly done. I’ve never investigated the Brazilian interior. I haven’t seen Iran or Venezuela, both of which ought to be engrossing. While I’ve seen China four times before, I’m impatient to see what it’s morphing into. Will the vast wilderness of Siberia have changed? Will the shifts in Russia and world conditions have reached those remote and independent people? I don’t know, but it will be fascinating to find out. It’s been a long while since I’ve seen parts of India, and I’m curious to see how they’ve developed. I haven’t been to Scandinavia in 25 years, and I want to see if it’s changed as much as I have.

And of course, I’d like to see how my reactions to what I see have changed. I’m older, more experienced, and maybe even wiser, and I’m curious to see how I respond now to all the splendor, misery, bizarre ways of doing things, and bureaucratic stupidity that I know we’ll encounter on this trip.