As markets collide, which has pretty much been inevitable given that currency users in Europe have been subsidized into a liquidity trap, what is an investor to do? Everyone is running to safety. The question is, what is safe? Let's talk about the common perception.
- Gold - Gold is safe. It's my opinion that global monetary powers prefer inflation over deflation, at least empirical evidence suggests that this is the direction that leadership favors. It doesn't matter that this only has exacerbated the housing crisis that still is looming in shadow inventory or that banks are still not marking to market and may just end up being forced to walk away from these homes which on paper are assets but in reality are liabilities in some cases. This argument is similar to my argument that Greek debt is a liability, not an asset.
- Silver - Silver is gold on steroids in my opinion. If you are a gold bug, you don't even own gold for the most part. My only concern regarding silver is summarized by the question, 'Is investment demand going to more than offset declines in industrial demand and increases in production due to higher selling prices and a gloomier global economy?' That I cannot tell you. What I can tell you is that you've got to be nimble to avoid crashes like the one we just saw today.
'Kind of Safe'
- The Swiss Franc? The global interconnectedness of markets and central bank dominance has led to what some might call a phenomenon. The location with the central bank that can devalue its money the fastest experiences the strongest growth. This is obvious to anyone who looks past the nominal figures and at the real figures. China's real figures are even more than just questionable and their public demeanor in my opinion is summarized by 'Say what you need to say to do what you want to do.' Downright shady. Regardless, all of this money printing from all over the place has finally had an effect that I didn't even anticipate. The SNB is intervening to devalue what they call the 'massively overvalued' swiss franc. What was once considered a complete safe haven by me now is still a lot safer than any other, more manipulated currency, but I'm biased to gold and silver over the swiss franc now in terms of what to own during a 'Flight to Safety.'
- U.S. Treasury Bonds? China thinks that their downgrade of them matters. That's like the pot calling the kettle black. If you take China's numbers at face value as I used to do, you're not doing it right. Regardless, U.S. Treasuries are yielding their lowest interest rates in years and this low interest rate environment is supposed to encourage debt-laden consumers to go out and continue to spend beyond their means? Probably not. Balance sheet recession. There are two ways out of this. If those in charge understand MMT and start to increase U.S. Government spending to offset private sector savings, on average, we will be a lot better off than if we treat the U.S. government as if it can run out of money (it can't) and cut back on spending and enter the largest deflationary period the world has ever experienced, where dollars and U.S. Treasury Bonds are king. Since Bernanke is called 'Helicopter Ben' for a reason, I am imagining that deflation will be met with creative ways to increase the money supply.
Want to take advantage of these ideas? There are ETFs for that. GLD is the Gold ETF. SLV is the Silver ETF. FXF is the Swiss Franc ETF. TLT is the U.S. Treasury ETF. If you're looking for more than safety and are actually planning on markets falling/collapsing - consider short S&P500 ETFs like SDS. As for me, I think that panic is temporarily peaked. How much worse can it get when the Bank of New York (NYSE:BK) starts charging you on deposits, Italy seizes documents for Moody's and the S&P, and Spain announces that they don't want the ECB to buy their bonds. If the run to safety was just a full on sprint by a fairly obese man, I think he's probably going to slow down to a jog for at least a few days, until the next 'discovery' of crisis problems presents itself. What's on deck?
- Bank Run - On the banks, by the banks.
- Numbers - really ugly economic data, more layoffs
- Bonds - Country decides not to sell bonds to the ECB.
- Default - Greece, Portugal, Italy, etc. But will they call it a default this time?
- Earnings - Earnings misses on a corporate level.
- Inflation - It's a race for every government to make its exports more competitive by printing more money than everyone else.
- Recession - GDP growth goes negative.
Cash is king during a deflationary spiral. Commodities and land are king in times of high inflation. Gold and silver are king during periods of monetary fear. In the short term, fear peaked today. In the mid-term, I think more fear is in the pipeline.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.