Sunday, August 26, 2012

Black Tswanami 2

I had written earlier about an upcoming storm. In general, most analysts tend to focus on the Eurozone or the China slowdown (which is a welcome new affair), but they fail to understand global repercussions of what seems to be happening.
The problem is not the China slowdown or the Eurozone grinddown; rather it is how interconnected the world is and how the middle east still holds power because of oil, in addition to global liquidity, and the Japan debt story - the list goes on.
The thing about a bubble is that it is seldom spotted before it pops; furthermore, if it deflates slowly, it is not termed a bubble.
Marc Faber was in Dubai recently and I finished seeing this video just now. He is 'ultrabearish' on most things but believes in the resilience of what he terms 'stocks', but favours gold right now. As an example of whether there is a bubble in Gold, he asked the audience - how many of you have more than 5% of your investment assets in gold? And very very few (or may be none) raised their hands.
He said that if one would have asked in 1999 or 2000 (in the US at least) as to how many had more than 50% of their investment assets in internet stocks, the picture would have been vastly different.

It is important to understand that the recent 2008 crisis was not due to a bubble, but it was due to an interconnected web of liquidity and trust, which was shattered when Lehmann went bust. There was a housing bubble, yes, but that was the catalyst to unravelling our financial world.
After that the crisis moved from the US to Europe.
Nowadays, people have finally accepted in the horrific system that is the Eurozone (currency-wise).
Soon, people will move to scrutinizing China - they have already started doubting reported numbers, electricity consumption falling, production falling, etc. But the real crisis in China is in the economic model that rests on an unstable monetary and fiscal policy, and the conduits which have been used therein.

  1. When the China crisis does hit, there will be a big crash in commodity prices
  2. Companies will begin putting their expansion plans on hold
  3. Money should flee the US's irrationally low interest rate papers and demand a higher interest rate
  4. Money has no reason to go to Japan
  5. Where will it go? - Gold is a good option and so are other currencies - but they are not liquid enough
  6. In essence, I believe that in our next crisis, money will be confused as to where to turn to...
I am by no means 'smart' in this field of futurism but I do see that there is a fundamental issue in our global currency system.
10 years from now, we will require a new or altered currency mechanism.

But tell me, what does the owner of a small business think of when things go berserk? He asks himself if his earned money is safe or not - and not so much about how much money will be made next year. 

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