Maximus

Historic Financial Collapse Underway?

I agree that we could be heading for deflation, an argument that Stephen Leeb makes, if the price of energy heads rise too high, too quickly (which he says is 80% year over year).

He recommends zero coupon bonds as 50% of a portfolio under that scenario.

He also recommends a 20% weighting in energy stocks (oil services and alternative energy companies mostly) in case that opposite happens -- high inflation.

The more I read, the less I seem to know about the biggest questions out there that will impact our collective future:

1. Inflation or deflation?

2. The US as world economic engine still or decoupling? Can the world economy (Asia, Europe, Latin American, Africa and the Middle East) operate normally with a vastly devalued US dollar and enfeebled US economy? I suspect not but am not sure, the Chinese know how to make a lot of things now...

3. How much can we really expect in additional losses from US financial institutions?

I am natural inclined to be pessimism about the economy but even I am beginning to feel like that pessimism is overshooting.

The most likely scenario for the world economy is that we all muddle through as we adjust to a difficult period of deleveraging and a decline in aggregate demand in developed countries (due to lower birth rates) and an increase in aggregate demand in developing countries (due to higher birth rates and a increase in total factor productivity).