Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

Surviving the Credit Crisis Chaos

Companies / Credit Crisis 2008 Sep 17, 2008 - 02:36 AM GMT

By: Kurt_Kasun

Companies Best Financial Markets Analysis ArticleLast week when I wrote, “ Extraordinary Measures Today, a Financial Funeral Tomorrow ,” I didn't literally think that the funeral would actually occur ‘tomorrow'. Someone started the financial Armageddon clock when the ratings agencies downgraded AIG this evening and the Fed told AIG that they were on their own to raise capital. It was reported on CNBC that they have until Wednesday to secure $75 billion or risk being forced to declare bankruptcy--setting off the most nightmarish of scenarios.


Is this how it ends? I have a hard time believing the US government isn't holding some kind of a trump card (possibly a figurative ‘gun to the head' of Goldman, JP Morgan, others to ‘pony up'). Otherwise, all of the Herculean, extraordinary measures they have made up until now would be a waste of time (all of those weekends they could have been watching football like the rest of us). They will almost undoubtedly pull something out before permitting the entire world to descend into credit chaos. I think they have enough juice left to avert the financial catastrophe once again. But the smell of fear is nonetheless becoming more and more palpable. Many in the goldilocks crowd appear to be entering a state of shock. It is actually healthy to move out of denial and into panic. It means you at least have chance to survive.

But you have to react appropriately. Once you get your bearings and correctly position yourself, you can move from panic to equanimity. As I wrote in my last article , deflationary-type investments have been the winners since mid-July. They have certainly outperformed the Goldilocks gang this decade, but have lagged those who have been positioned for inflation, benefitting from a much weaker US dollar. Many of the inflation investors have seen their portfolios grow several-fold since 2002.

But many of the gains enjoyed by those who were “long inflation” quickly evaporated over the last few months, placing many of them on par with the performance of those who were “long deflation.” Deflation means portfolio death for those who are betting on inflation. Today, a Bloomberg article titled, “ Asia to `Monitor' U.S. Banking Crisis; Assess Impact ," quotes Tony Tan, deputy chairman of Government of Singapore Investment Corp., who said, "The world may face 'Japan-like' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis. If house-price declines are significantly greater than expected, larger financial institutions could become insolvent, the credit crunch would be more severe and economic growth could weaken considerably. A vicious deflationary cycle with falling house prices, failing financial institutions and weaker growth could then ensue." This captures the deflationist view of the negative feedback loop that now seems inevitable.

"Team Obama" and "Team McCain" may have something to say about this outcome, however. Obama is already promising free money to people who pay no income tax! Billions of dollars! These checks are going to the people who have no concept of savings and who will definitely spend it. Once he figures out that the real consumption comes from people who earn more than $250,000/year, he will be giving this cohort rebates too. McCain will do the same. Do you think they are going to sit by and watch deflation doom their economy? They may fail, but they are at least going to try. And when they do, the inflation trade will be back on. The Fed will be forced to monetize the debt in this scenario as the US Government is forced to issue more bonds to compensate an exploding budget deficit. Dollars could become worthless. Or they could fail and deflation will win out.

We may remain in the grips of deflation through the remainder of the year. If problem of the financial markets bleed into the real economy as I expect, you can expect to see trillions of dollars mailed out to consumers in an effort to stave off Keynesian concerns over deflationary thrift as a new administration takes charge. McCain and Obama are both Keynesians at heart. Stimulus packages coming from Obama and Democrat Congress could be unlike anything this country has ever seen. They could call it “The Great New Deal Society.” Descendant of FDR and LBJ could show up on the White House lawn as the bills are signed into law.

You should expect for the markets to oscillate between inflation and deflation until the final reckoning occurs and be prepared to reposition accordingly. Those who are positioned one-way will likely see their portfolio shredded a little more each time the sword-sharpened pendulum perilously swings from one extreme to the other. Determining which ‘flation prevails (“who wins”) might depend on which team “has the ball last.” There is one possible “buy-and-hold” strategy designed to hold up in both scenarios. I discuss it in my commentary .

Excerpted from the 9/15/08 Global MegaTrends Portfolio's Newsletter:

To learn more about Kurt's Kasun's Global MegaTrends Portfolio, click here

By Kurt Kasun

A contributing writer to GreenFaucet.com , Kurt Kasun writes a high-end investment timing service, GlobalMacro, which is focused on identifying opportunities that produce returns in excess of market with reasonable risk. He is strategically located in Washington , D.C. , a key to maintaining contacts and relationships which help Kurt understand global policy and economic factors as they emerge. His investment approach has always been macro in nature largely due to his undergraduate studies at the U.S. Military Academy at West Point (B. S. National Security, Public Affairs, 1989) and his graduate studies at George Mason University (M.A. International Commerce and Policy, 2006).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Kurt Kasun 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

6 Critical Money Making Rules