Enzio's Crisis Prescription
|Our Correspondent||Jan 30, 2009|
The global economy remains characterized by an excess demand for money (banks don't want to lend) and by an excess supply of goods. Crucially, this type of "excess demand for money" is dangerous, as bank lending is driven by profits, not by central bank policy, so the question then becomes: "When will banks start wanting to lend again?" Answer: the day that they cannot afford NOT to lend anymore.
Meanwhile, the excess supply of goods is most glaring in rising unemployment and thus the possibility of rising social unrest.
For the next couple of quarters, the world will be stuck in "L": the best image of stock markets is to picture a fish flopping around on a hot cement sidewalk.
Obama will disappoint, sadly. I am glad that he won, but it is one thing giving great speeches, and another thing to create Congressional approval for effective policy. First, his stimulus package cannot work as banks simply won't want to lend; at best, he is stopping the rot.
Secondly, he is going to anger China with all of his "undervalued RMB" rhetoric, so watch for the possibility of a trade war to result. This will lead the Chinese to buy fewer government bonds, so up go long bond yields, and;
Thirdly, I fear that he will be worn out by fights within the strong personalities in his Cabinet, not to mention with the Republicans in Congress.
What the key investment objective must be during the first half of 2009:
UNLESS you are a trader who is very well plugged-in, this is the time of FEAR, not of greed!
This fear is exactly why the investment advice that we have provided our subscribers gains of over where Investors should park their money:
For now, the dollar is the safe haven currency. I disbelieve recent strength in "commodity currencies" like the Australian and New Zealand dollar: with an excess supply of goods, there is NO reason to expect demand for commodities to rise strongly. Equally, the yen will remain strong until risk appetite has returned and investors re-visit multi-currency carry trades.
Avoid them for the same reason that I am cautioning you against buying commodity currencies. The only commodity worth considering is gold as a safe haven.
c) Stock markets
If you agree with my assessment of the global Economic Time, and thus agree with my key investment objective of wealth protection, then do NOT play around in stock markets.
I know that many people perceive there to be great value out there. So do I, but I also would add that this is value at risk. There is plenty of bad news not yet factored into markets.
For instance, the low PE ratio is going to rocket once the "E" sails south yet again, so that destroys the argument that there is great value out there.
d) Bank deposits
This is the BIG difference to previous crises: this time it is different in that people don't really trust the banks in which they have put their money. Indeed, recent news on the shenanigans of office decorations and yet another corporate jet at major banks supports this suspicion.
Thus, if your bank is not government-guaranteed, find one that is. Equally, even if it is government-guaranteed, read the fine print and see if your money really is safe.