Deflationary Repeat of 2008?
There is fear in the land. Many are asking where to go if a deflationary repeat of 2008 is in the cards. The response to such an event may be an initial decline in all holdings across the board. The market roller coaster may take us down, but if we keep our eyes open, at exactly the same moment we could see a sudden rise directly ahead in certain sectors.
The drop might initially reflect a short term decline in commodity markets which are inherently volatile. Nevertheless, the eventual payoff may be worth the ride. Global debt crisis woes may be causing the recent breakouts in hard assets such as gold and silver as global speculators search for authentic safe havens.
Dollar Vs. Euro: Greater Leeway For QE3
The old game of wheeling and dealing is going on behind the scenes as the G-7 meets. The US needs to have a cheap dollar in order to pay off rising debts. The weakness in the euro has caused a bounce in the US dollar and is only cosmetic. The dollar long term downtrend is still apparent as it attempts to rise above the declining 200 day moving average. The rise in the greenback gives greater leeway for the Fed to institute accommodative measures. Conversely, the Chinese require a rise in the yuan to fight inflation and need access to the West’s natural resources, which they can purchase with their hordes of cash and US treasuries.
Further Government Interventions
Indeed, there may be further interventions and potential easing measures by government and politicians for a short term extension of the ongoing drama, as they dot the I’s and cross the T’s in the publication of some kind of interim bailout.
Our elected representatives will play the old game of kicking the can down the road to the 2012 election. This will serve a major purpose of deflecting blame away from the foxes who raided the hen house in the first place.
They then will be able to shift the blame to the people who are busily paying taxes and government salaries. They will walk away exclaiming that the people have spoken. Little wonder that the public’s belief in politicians is at an all time low.
Bullish On Commodities
My firm maintains our faith in the natural resource sectors and wealth in the ground assets is the place to be. Surely there might be other conventional safe haven plays in such venues as the dollar and treasuries. These countertrend moves are transitory in nature. The bubbles are in long term US debt and deteriorating Western paper currencies, not hard assets and natural resources. Any short term decline in our chosen sectors should rebound violently to the upside.
Investing wealth in the ground is exactly what our Chinese counterparts want to do with their paper assets in the dollar and long term debt.
Look for increased Chinese participation in acquiring mining assets. I believe this is only the beginning in the long range rise in mining resources.
So where are the safe havens now? Is it in treasuries, which are a promissory note by a government whose fiscal integrity is being questioned? Or is it the US dollar, which is constantly being inflated? Look at your grocery bills and the rising costs throughout the economy. These sectors will surely be punished by Ben Bernanke, a student of the Great Depression.
My firm chooses to regard our natural resource mining sectors as increasingly important safe havens. They represent not only real money, but realistic, non-fiat money of which no more can be manufactured. Do not be diverted or distracted from the path of sound money by bandaids, bailouts, and cosmetic “touch-ups”.