IMO a deflationary war scenario has changed everything.
Vast over extension of credit during the Clinton/Rubin/Greenpump bubble created an unstable house of cards economy built on too much debt. We know the contraction to correct of those distortions and misallocation of capital was already taking us into a cyclical recession.
But the colossal hammer blow of 9/11 changed everything. Let's take a look inside FDR's classic insight, "The only thing we have to fear is....fear itself."
What was looking like a somewhat more severe than average post WWII global recession has suffered a huge injection of fear and the impact IMO will be economically devastating. Fear is the catalyst that's accelerating a normal recession ala 1981-1 or 1973-74 into a classic deflation, more akin to the 1930s.
Up until 9/11 I was willing to give the benefit of the doubt to inflation. But that has all changed now.
Fear of flying. Fear of job loss. The list goes on and on.
Fear, as FDR clearly understood, immobilizes people and the economy along with it. This the catalyst that has transformed a stiff but normal cyclical recession into a K-wave bringing our debt ridden house of cards economy crashing down as travelers stop flying, consumers stop buying and industry after industry shows a quantum leap in layoffs.
Sure there WILL be a bounce back and some good market rallies during the next year. But IMO we are in a LT global slow growth environment as huge amounts of capital that would otherwise go into productive economic growth must instead be deployed to protect what we have and more importantly our lives.
Responding to this terror is going to be a huge LT drain as we funnel 100s of billions of $ into domestic security measures for our cities, airlines, power plants, reservoirs, pipelines, refineries, storage tank farms, yada yada.....
In other words the cost of protecting our physical plant, infrastructure and population centers will be the economic growth that's characterized the post WWII period. Hence my conclusion that we face, at best, years of slow global growth.
Gold is the strongest beneficiary of the kind of deflation that IMO has now taken control.
Greenpumpster is aggressively debasing the dollar and other major CBs will follow in a desperate attempt to fight these deflationary conditions. So what we get is a repeat of the competitive devaluations that characterized the 1930s with gold increasing relative to all major currencies.
Other than the sm part of portfolio in energy to hedge against the eventuality of a ME supply cut off, am
staying away from all other commodities till the market is finished discounting this new deflationary environment that's been thrust upon us. It's not even close to doing that yet, IMHO.
Elvis Rules<g>
Isopatch |
