|
|
I feel like I have to give my view on this and what I think you should do.
If you believe that we are about to go into a depression/very deep recession then there is one main question you need to think about. Will it be deflationary or inflationary? The two different scenarios will require very different investing strategies. So far I think it all points to an inflationary depression. This means that the economic downturn will be accompanied by rising prices of every necessity you need. If you are dependent on a social security check or similar, sucks but it won't buy you anything.
What you have to remember is that the current crisis is a result of the housing bubble. The losses have already occured and there is no way the government can take them away, yet they try. The government doesn't create wealth, it only redistributes it. So when the government talks about bailing someone out you have to realize that someone else is paying the bill. Since no one is talking about raising taxes the main way people will pay is through inflation.
The main thing that points towards inflation is that the FED chairman Ben Bernanke has studied the great depression. The only problem is that he got it all wrong. He believes that the problem is that banks don't want to lend so people can't consume. He wants to inject more money into the banking system so that people can keep consuming. He doesn't realize that the reason people can't continue to consume is because they can't afford it. Everyone has consumed too much. A period of overconsumption inevitably leads to a period of underconsumption. This is why all major recessions has been preceded by a major boom. The great depression was preceded by the roaring twenties, the stagflation of the seventies was preceded by Lyndon Johnsons "Guns and Butter" program, and the current crisis is preceded by the housing bubble. However, the person in charge of the money supply of the global reserve currency doesn't seem to understand this, and he so far he seems very determined to keep injecting liquidity (read: inflation) in order to get people start consuming again. What this basically means is that all the losses from the housing bubble are being transfered from those responsible for it to the dollar and US treasury notes. And there are trillions of dollars worth of losses, and that's a heavy weigth for the dollar to bear.
So, if you want to stay ahead of the curve you should have a close eye at the federal reserve. So far, they have been doing everything wrong. They created this mess and they think we can get out of it by keep doing the same thing. If you want to read up on what they have done during all this bailout debacle i suggest you read this (it is not a comforting read):
http://news.goldseek.com/GoldSeek/1223400153.php
The FED is essentially broke already and they only have one weapon left, inflation.
So what do i think you should do? First, you need to realize that your main concern shouldn't be making money right now. You should be concerned about preserving what money and wealth you already have. This is not the time for conventional investing.
Second, you have to determine wether you believe it will be deflationary or inflationary. I certainly believe it will be inflationary but you should make up your own mind. In an inflationary environment you want to own hard assets because money will lose a lot of value and buy you less. Real estates would be good unlees you would have to pay bubble prices. Precious and industrial metals and just about any commodity such as wheat and similar will be good. If you buy gold make sure to own the physical metal, not just the paper variant. You could also diversify into foreign currencies and foreign stocks as well. I think Asia is in better overall shape than Europe so look into those stocks.
Some people say that gold is very expensive right now. It's not. If we are in for an inflationary depression gold is still dirt cheap. I've also heard a lot of rumors about physical gold becoming very hard to obtain recently, but the price has barely moved. This could be because the paper gold (futures) will fail to deliver and if that happens we'll see a huge spike soon. Personally, I have more than half my money in gold.
Also, it may be a very good idea to stock up on food and other necessities at home. If we are in for a financial disaster there will be a lot of infrastuctural problems and being prepared certainly doesn't hurt.
In the short run I don't think anyone can predict what will happen. I believe anything is possible right now and that it can happen fast. So you really should prepair as soon as you can. But lets assume that the situation does stabilize for now. What will happen in the coming years? Take a look at this:
As you can see most of the subprime mortgages have already reset but there is a second wave of option adjustable rate mortgages and Alt-A mortgages about to reset. Considering that interest rates are rising and will continue to rise we can expect a couple of things from this. First of all, these mortgages were also semi-risky and will result in a lot of foreclosures as well. Second, even those who are able to make their payments will have to cut spending to afford it, which will decrease profits even more for companies. Unemployment will rise, which obviously will put even more pressure on the economy and individuals.
Since the government has taken on the impossible task of helping everyone we will probably see a lot more government financed programs and bailouts. The only problem is, the government is broke as well. It's gonna print and borrow money like there is no tomorrow. If they continue on the bailout path, I don't see any way the dollar will survive this. Interest rates on government bonds are already getting lower. If foreigners start seeing that the interest rates aren't even making up for the inflation they would dump the bonds and the dollar. That would be one hell of a ride.
|
Iceland is bankrupt. Pakistan faces same destiny
Reply With Quote
Well, no one can say we aren't living in interesting times.
Originally Posted by SaulPaul
