It's Bad...
It's bad.Our financial markets are broken.
According to the Bank of International Settlements, there is over 600 trillion dollars (notational value) of derivative securities floating around our planet.
Global GDP is approximately 60 trillion.
10 to 1.
That's a lot of leverage.
Greece, and Italy have huge debts coming due beginning in March of 2012.
Here in the U.S., trillions of 5 year adjustable loans and bonds are coming up for resets in March 2012.
The perfect financial storm is brewing.
The ingredients are in the stew.
It's bad.
It's not financial Armageddon.
It is what has to happen.
Failure.
Failure has to be allowed to clean the financial markets.
A lot of very rich people, and entities will have to lose a lot of money.
The good news is that up until March 2012, we see U.S. stocks moving much higher.
Strangely, our normal economy is fine. This earnings season should bring lots of pleasant surprises. Balance sheets are clean, Income statements are healthy, debts are being paid down, and companies have lots of cash to work with.
If we look at traditional economic indicators, we can make a case for the DOW Jones Industrial to go to 18,000, and even higher in the next few years.
However, when you look at the 10-1 debt to value ratio that is sitting on top of our planet like a black cloud, (if we can't pay the interest on this debt) we see the Dow Jones Industrial at 2000.
Now that's a GAP!
We feel that the Federal Reserve implemented, "Operation Twist" so that the U.S. Government, and corporations could get one last shot of really cheap long-term financing.
But that's it.
Once everyone refinances their 5 year arms for 30 year loans at 2 and 3%, the central banks of the world will only have one option.
Print more money.
This will cause huge global inflation.
As evidence from the, "Occupy Wall Street Movement" normal people are upset.
They don't want any more money printing.
They are upset about, "Global Banking Occupation".
This group of angry citizens hasn't figured out this one point yet. (This goes of the Tea party too).
Once they do, and they get focused on one single message, watch out.
We see our domestic problems with all of the 5 year ARM resets colliding with the European debt crisis. Once the fighting across the ocean begins, all financial markets will simultaneously experience extreme volatility and extreme devaluation.
Correlations will all go to: 1.
It's Bad.
But, it doesn't mean that you cannot make money.
Have a strategy in place.
Start selling your risk-based investments. You should have from now until early next year to get some decent prices.
In early 2012, look for opportunities to buy PUTS.
You don't want to be buying puts when there's blood on the streets. You want to be buying them when the sky is calm and blue.
Buy some physical Gold and Silver. Not ETF's.
When the volatility comes, be ready to buy companies with simple business models that trade at 10 times or less price to free cash flow.
It's bad.
However, on a closing note, we have one kind-of positive thing to point out.
While we might not have the AAA rated bonds any more, our BOMBS are still AAA.
We have the world's greatest military.
In the final analysis, our BOMBS are our currency.
If there is any glimmer of hope, we would urge you to look at New Orleans and how it has come back since Katrina.
To see New Orleans before, Katrina, then right after Katrina, and now, today, well, it's pretty darn amazing.
New Orleans is back. They survived.
There is still a lot of work to do. Sure.
But they came back.
Our financial system will come back to.
We will re-establish the, "Glass-Steagall Act".
We will design a new rules based currency and banking system.
We will keep commercial banks and investment banks separate.
There will probably be two tiers of stock markets. One for individuals, pension funds, 401k's and small business. There will be another tier that will allow for financial engineering to keep on.
Expect tough.
Expect rough.
Respond with ability.
You cannot control the markets. You can control how you respond.
This will be your corner of freedom.
It's bad.
Posted by The BalanceZone Team at 10/17/2011 9:49 AM 
Categories: BZI Observations
Tags: Alternative Investment strategy to modern portfolio theory
Categories: BZI Observations
Tags: Alternative Investment strategy to modern portfolio theory
Comments