Hello quickcat,
Most important LT is that after the initial crash, the mother of all bears will accompany the mother of all depressions. Look at Japan throughout the '90s to get the feel of it, but not the magnitude. The big depression of the '30s is ancient in terms of global economic development, so the next depression might look different , but IMO the '30s Big Depression is the correct magnitude to look for.
The current bubble is by far the biggest in the last two centuries, maybe the biggest bubble of all times. The Market Cap. / GDP indicator has risen to unprecedented highs last July, same as %age of households participating in the stock market.
My belief in big economic cycles is unshaken (A few months ago, AG spoke of the characteristics of human nature which remained the same at least a few thousand years, and there is no evidence of them changing this time around), and I expect the next contraction to be very big.
Cash is king in depression. One has to keep full liquidity before and during the depression to take advantage of the great opportunities of it's end - top assets at clearing prices.
So the main strategy for the next depression should be defensive - Cash mostly, and currency diversification in the face of global turmoil. I would recommend diversifying into Euro, which is widely seen as economically (which means LT) undervalued.
But if one wants to see some appreciation of one's worth during depression time I guess two options are available - one is Gold (low premium coins and bars), the other government (not even triple A) bonds. The recent expansion in the economy was in disinflationary environment, and when contraction begins, it can (and will) quickly deteriorate into deflation.
Gold could become a safe haven in deflationary environment. This may sound like an oxymoron, but it is well argued that in times of economic turmoil, when all currencies are distrusted, Gold can be bid up as the only constant and safe currency. (Also when all currencies drop without inflation, they have to drop against something, and that background is Gold. The lay observer may see Gold rising, but in fact it could be everything else dropping).
But usually, keeping cash is good enough as cash itself is bid up in deflationary times (goods and services value drop against cash equals cash value rises against goods and services).
JMO,
ATG |
