Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Financial Crisis Script for 2012

Stock-Markets / Financial Markets 2012 Dec 30, 2011 - 07:44 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleShah Gilani writes: Welcome to 2012, the third act of a tragic play. As an investor, you have a part in it.

So, if you haven't been paying attention to character development or lost sight of the plot, you're going to be frozen onstage when it's your turn to act.


Here's your script and some direction.

The set-up went like this: The audience walked into the world theater in September 2008. They took their seats and read the card left on their velvet chairs. It was short. It said:

Act I opens with the backdrop of mounting tension as insanely leveraged homeowners, consumers and banks scramble to make sense of declining home prices. The curtain lifted and the show began. The first act was dramatic, but ended in March 2009.

Act II began immediately without an intermission. Asset prices began to climb from their depths thanks to massive global stimulus.

But, Act II also revealed the tragic nature of this play. In spite of "green shoots" and rising commodity and stock prices promising a return to normalcy, the truth is that the world changed before the credit crisis and the Great Recession. There's a "new normal."

Globalization has increased labor pools, lowering costs and causing massive shifts in manufacturing realities, while productivity gains orphaned an army of white collar, middle-management sergeants, mostly in the developed world.

Seismic shifts in emerging markets were met with inflows of capital, while in developed countries, especially Europe and the United States, outflows of capital were offset by politicians borrowing more from future generations to promise retirees they would be able to retire.

As Act II comes to a conclusion at the end of this year, and Act III is going to look completely different. In fact, it might be titled...

"The Hangover."

That's what 2012 is going to feel like - a bad hangover.

There are fewer workers working in America today than there were in March 2000. One reason is that there are 6.6 million fewer jobs in the U.S. today than there were just four years ago.

Some 23 million people want to work full time, but can't find a job. Half of the unemployed in America are long-term unemployed, meaning they've been out of work for more than a year.

Not only is it hard to find jobs, most of the unemployed don't have the skills to fill the jobs that are out there. And, structurally, the mobility of workers in America has crumbled as homeowners can't sell their houses to move to where jobs are or might be. Need I mention that rents are rising too?

Average household income in the U.S. is less than 1% greater than it was back in 1989, according to the U.S. Federal Reserve. And over the past six years, household net worth relative to disposable income is lower by 20% as a result of overleveraged and declining home values.

Meanwhile, more than 2 billion workers from Asian and Eastern European countries have joined the global labor pool.

While on the surface, a larger labor force may be good for producers, at the other end of the supply chain, lower wages mean less purchasing power on an aggregate basis.

It's not inflation that we have to worry about, it's the continuing deleveraging of households and countries, and the threat of deflation that will make 2012 a sad act to follow.

The stimulus in the U.S. and in Europe that was gifted to banks in the hopes that they would spread the wealth has been an abject failure.

Asset prices, including commodities, rose as excess liquidity remained in speculators' hands instead of being funneled into long-term investment projects to rebuild crumbling infrastructure.

Now, with budget-busting deficits and massive long-term structural debts, we are being led by combative politicians to the wishing well of productive spending and being told there is no more water in the well.

If our collective thirst for productive long-term investment - okay, call it stimulus spending - is not slaked, we will dehydrate our economy and cause another dust bowl, only this one will be worse than the Great Depression.

So, how are you going to act?

It would be wise to continue to be defensive - that is, until Act III seems to be coming to an end, which may be possible by the end of the third or the beginning of the fourth quarter of 2012.

If deleveraging continues -- and you'll know if that changes (watch for any significant and sustainable uptick in inflation) -- then commodities and risk assets should stay on the shelf.

There'll be plenty of time to go shopping for risk-on assets, especially commodities. If by the first quarter of 2012 there is no resolution to Europe's debt issues, and if China continues to slow, risk-on assets will be shed with increasing speed and volatility.

I like big-capitalization, high-dividend paying (preferably 4% to 5%, or more) stocks of companies sitting on huge capital reserves and NOT spending them on buybacks.

I like selling calls on these stocks and I like selling puts, too.

I want income from selling premium. If your appreciated stock gets called away, good, you're ringing the cash register. If the puts you sold cause you to have to buy more stock at a lower price, good, you are averaging down into great stocks whose dividend yields are only increasing (as long as they are not cutting payouts).

The way to act in this tragic environment is as if your most important role is preserving capital, because that's what's going to make you shine when there's a new play to act in.

Source :http://moneymorning.com/2011/12/30/the-script-for-2012-and-your-part-in-it/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in