Quote from Ed Breen:
Retief, buy a huge stash of 'Marlboros.' They will be more usefull for trading, easier to make change, than gold coins.
In terms of the market trading before feared Armegeddon, you need to consider that persistent deflation makes the cost of debt more expensive. You should short the enterprises and sovereign assets that have the most debt relative to insecure or declining revenue streams...clearly many sovereigns with crashing revenue streams are in this boat...but not CAD or AUD. Look for high debt and vulnerable revenue.
Flip side is to stay in cash and look for favorable long positions in enterprise or sovereign assets that manifest secure base revenue and low debt. Stay away from banks even though deflation makes credits more valuable; the defaults caused by the increase burden on debtors overwhelms the increased value of the credits to the lender.
An accurate way to look at the process of deflation is to understand it as a capital flow out of tangible assets into short term financial assets, money and money like substitutes. The process follows a credit collapse and is characterized by a responsive reduction in credit leverage ratios on both tangible and longer term financial assets. Because leverage ratio actually contributes to the value of assets, actually contributes to the increase of tangible values during a credit expansion, the reverse of the process as leverage ratio's decline, leads to the devaluation of collateral assets in a self reinforcing process. Once the process passess a tipping point the expectation of continued asset devaluation reduces leverage ratios and becomes self fullfilling. Contrary to the remedy proscribed by Fisher, once the process is established, it is not ameneable to correction by monetary means that would seek re-inflation becuase money supply expansion cannot move beyond the interbank system to the real economy if private credit is contracting...so attempts to increase the money supply by interest rate and by quantitative easing will only result in a build up of excess reserves trapped in the banking system which will not have inflationary effect in the real economy. Remedy must be in re-establishing private credit expansion through fiscal incentives.
