Given the liquidity bubble, with cash and credit chasing assets like a cheetah chasing prey, then bubblefying them, I think the short term survival trick will require two things: First, knowing how to follow the excess money, and run in front of it if possible and, second, making sure that an investor has a seat when this game of musical chairs ends.
This, not necessarily gold, is what will be your savior, though it might be gold or other commodities that may end up being the life ring.
Anyone who is not asleep knows that real estate crashing. Housing prices have fallen across the board. Foreclosures will follow as subprime loans cannot be repaid. The results will be felt across all sectors of the economy and will eventually result in a consumer spending downturn.
The stock market will follow, but the question is when. Most pundits I read and respect say we have a few more months. The Wall Street credit bubble is HUGE, and cannot be sustained.
The stock market keeps bubbling away. Housing, the dollar, GDP growth, the twin deficits, employment, etc., by any measure, the American economy should not support a bubblefied stock market. It is supported, nonetheless, by the huge increase in money supply. Heck, its best measure, M3, is not even published anymore by the Fed.
I recall from Econ 101 that when there was too much money chasing too few goods, inflation was the result. We thus had an inflated real estate market and now we have an inflated stock market. No secret, simple as A-B-C.
When the consumer loses his access to his real estate ATM, which will be soon, his spending will of course decline. Stocks will then tumble. Foreign investgors will retreat from the US stock market.
Then there are the hedge funds, leveraged to the hilt. No need to say it here: leverage works both ways. When the flow of liquidity reverses or stops, the hedge funds will take losses and the stock market will tumble. Then, if you were smart enough to make sure you had a seat at end of the game of musical chairs, you will be facing the opportunities of a life time. The anti-bubble will be terrific. |
