By: Hans Lysglimt
I say this is the Big One. This financial crisis is the beginning of the depression that must follow from the loose monetary policy, especially since 1971. A depression is the end result of a long line of causality, of events that must follow from previous events. If you believe in the Austrian School of economics you know that eventually the paper money system must collapse on itself. We have now arrived at this moment.
I have called this as the big one. This could be right or wrong. If I am right we will see a multi year depression with a fundamental readjustment of the capitalist system for better or worse (most likely), or the total state (think 1984) and a decline into total fascism. Both are possible.
If I am wrong, then the politicians of the world in a coordinated fashion will be able to prop up the system with new fiat money and reignite the perverse debt based global economy for another run towards an even worse collapse. A run that might last 5-10-15-20 years, who knows.
This is the big question you should ask yourself, and invest accordingly: Is this the Big One?
If you think this is the big one you go into defence mode. You set yourself up to carry through the next 2-3-5-10 years in defence modus. This means, low cost, low debt, gold, little equity, home garden, a small private business with steady income. If you believe this you have found a home here at Farmann.no.
If you think we are up for another round of marry go lucky you go into an offensive posture. High profile, impressive manners, new clothes, new car, new house, new wife, new debt, make fun of gold, leveraged positions in equities. If you believe this there are plenty of online communities available. We recommend you read any main stream media source, USA Today, New York Times, CNN, FOX – they’re all good.
I still belie the bear market bull run momentum ended Friday last week. This new boom, of a absolutely eye popping 7% gain in the S&P 500 yesterday is a new Obama/Geitner/Bernanke easy-money boom. They will attempt to print enough money to bail everything out, including the banks. If they bail out the banks, they might be able to keep the US banks operationally running – to ward off the total collapse. And, they probably will succeed, in the US.
In Europe however the situation is much much more dire, especially in Eastern Europe. They can not print Euro themselves and are left to the mercy of the EU, Germany, IMF and the international community.
So, even though the US market rallied due to a bank rally from bail packages, this does not justify an equal euphoria in Europe and Asia.
Overall there is a huge discontent in the markets. Monday, US markets rallied 6-7%, but gold fell just 1%, and the dollar had a small move down. This does not hold up. If there will be massive new money coming up to save the banks, that will drive up the price of gold as well, and press down the dollar.
I believe the US led rally is unjustified. Some of it can be explained by the new money saving the banks nominally, but that would translate into similar moves in gold, the dollar and bonds. Foreign markets are not justified in joining this euphoria, they will not take part in the new money.
Especially the rally in European banks is unjustified and represents a great shorting opportunity. These banks will take enormous losses, especially in Eastern Europe. Geitner can order the printing of as much money as he likes, this will not save car factories in Tjeckia. Those car factories will go down and bring the Austrian/German/Swedish banks with them.
So please do not be let into this, the markets will reverse with a vengeance.
We are looking for what to short and when to short it. Our main target is still Swedish banks with exposure to Eastern Europe. Sweden has rallied on the renewed confidence, the Swedish Krona has gained 14% from the bottom a few weeks ago.
Farmann reader an commenter Kris suggest we focus more on the long term. He has a point, and we always aim to do that. Yet, the turbulent current events continually push our horizon back to the present. We will consider his comment.
Still I believe focus on the present has it’s merits. Here at Farmann we try to tell you WHAT to do, but also what NOT to do. Right now for example we do not recommend shorting the USD in the short picture, but we do recommend positioning yourself for a fall in the dollar in the long run.
Reader Patrick asks where to place ones debt. Interesting question, how should one place ones debt. Should one convert ones debt into USD in expectance of the coming depreciation of the dollar? We believe the Norwegian Krone and the Euro will both be attempted to be held up more than the USD. When the USD eventually starts it’s slide we believe it will be dramatic, so USD is better than NOK or Euro. The longer you can place your debt in USD the better, 10-20-30 years and you should do fine.
Follow Farmann writer and moderator Geir Kokkvoll Engdahl on the right time to short the markets:
He will write a piece when he thinks the time is right.
Yours truly editor amazed by yesterdays 7% rally, holding on to a fistful of gold coins for sanity’s sake.
March 24. 2009
Hans J Lysglimt