Quote from darkhorse: -12-07-04 12:42 PM
"Riots in the streets, dogs and cats living together, mass hysteria!"
-Dr. Venkman
Anyone have thoughts on what the world looks like if the flaming abyss scenario plays out?
i.e. the big players do precisely the wrong thing, Europe and Asia get tough + Russia gets stupid at just the wrong time, and the dollar falls another 40-50% in less than two weeks as a perfect storm chain of events creates a self-reinforcing tidal wave of fear.
Yields skyrocket, the mortgage nut tightens like a noose around overleveraged RE speculators' necks, and banks pull it tighter in panic, fearing that their exposure to housing will now drag them over a cliff. Liquidity vanishes, RE transactions come to a near screeching halt, and there is just an ominous silence with no real bids or asks out there, just a gigantic air pocket.
Asia's export markets are now toast, as well as their completely trashed USD based holdings. Controls on the Yuan are tighter than ever as China's government instinctively tightens its grip in fear that the rotten banking system could implode. Precious metal investments in gold and silver are banned. There are signs of a reverse exodus back to the hinterlands as the thriving coastal cities go into a vapor lock of panic.
Japan responds like a weak elderly man who just got brutally mugged (after coming out of intensive surgery). Political fights break out about whether to buy the dollar en masse and devalue in hopes of maintaining a competitive stance vis a vis the rest of Asia, vs plowing the rest of the reserves into precious metals and waiting for the end of the world. The noble sarariman develops a morbid interest in hara-kiri.
Europe howls in pain yet smiles with glee at the same time, engaging in a tasty bit of schadenfreude as its gauche neighbor crashes and burns. European politicians try to get together and discuss what they are going to do about a serious threat of deflation and potential depression thrust upon them due to the massive currency spike, liquidity contraction, credit crunch and profit crunch that comes with a loss of export markets, collapse of energy demand and rise of hard lefters shouting how they told us so, the French way is better, l'Americans are dangerous buffoons (c'est la vie)... but its hard to get anything done with all the dissension regarding what to do next. Some Europeans recognize with surprise and regret that their popular culture has come to prefer gloating on the edge of poverty over a second or third place role in prosperity.
Russia gets hammered by a vertical drop in the demand for natural resources and energy, but Putin finds himself more interested in his newfound opportunity to tighten his grip on power and recreate a sphere of influence similar to the old USSR. The Russian anthem plays louder in his mind as he shuts out the economic destruction all around him and redoubles his focus on how to use the current turn of events to advance his pawns on the chessboard of realpolitik and close the military technology gap with the vulnerable West (the populace can sacrifice a few more crusts of bread for the good of Mother Russia).
Meanwhile back at the ranch, a number of major US banks are threatening to go under. FDIC is stretched to the hilt, Fannie Mae has become the new chernobyl and the USG has come within a fingernail's breadth of default. Jim Glassman appears on CNBC in a drunken stupor, slobbering about how adding a couple zeros to the greenback means the dow could actually fulfill his 36,000 prediction when it hits 360. Upside down investors with no equity in their homes are leaving their keys in the mailbox, walking down the road or consolidating resources with other family. Oddly, travel is much higher than normal as family members traverse the country in an effort to pull together and create cohesive units. Cities empty out significantly as professional types and the elderly feel a natural draw to family in the country.
All the newspapers post blaring headlines of financial armageddon. Theories of investment risk in a post USG world abound. What happens to the sharpe ratio when there's no more benchmark for a risk free investment? The blame game is played with glee by some but dies on the vine fairly quickly. Eventually the blaring becomes a confused and depressed silence.
Everyone is walking around in a state of pure shock, except the gold and silver bugs, who are walking around laughing like mad scientists. Gold has run to $960, silver to $37, after which both went flat like a dead man's pulse. The glee of precious metals owners becomes puzzlement when they realize that rather than new kings of the world, they are like victors on a bloody battlefield that doesn't make much sense, with no real way to cash in on their holdings and no one to really share the glee with. To add insult to injury, the nymex didn't even go under. They are oddly resentful of this and suspect the trilateral commission.
Markets have simply...stopped. No real bids or asks in anything. You can walk down the streets of New York and hear the wind whistling around the skyscrapers.
And then people start to look around, start to recognize that everything is still here. The houses, the buildings, the brands (well, most of the brands), the technology, potential discoveries, means of progress, means of communication... all still here.
Now what?
. I've been buying gold silver and materials (steel, tie, etc) to tie up my cash. I was a bit premature, bought almost 2 weeks ago, but they're now rising again. The cheaper the Dollar gets, the more of our materials other countries can afford is how I look at it.