All of the markets are so manipulated right now that you can’t expect fundamentals to work correctly. Many folks have emptied their 401k’s because emergencies have come up or they are paying down debt. It did not help that several Governments including the US have raided pensions to keep themselves afloat. This creates a few of problems:
- Fewer average Americans have a real stake in how the market is doing.
- Low volume in the market makes any swing higher or lower has a larger effect on the closing bell
- The use of computers for pattern recognition of the market creates buy and sell orders in a matter of seconds and it happens so quickly that no human can intervene.
- Lastly everyone is becoming a day trader. Instead of parking some money in a stock and receiving dividends everyone is chasing the “Next Apple,Google or Netflix”.
Comex is suggesting it will hike the margins for gold like they did with silver so that will keep a lid on gold for a bit, but Hugo Chavez is taking his gold back from the storage vaults of BOE and JP morgue, and some folks expect that those banks may have a difficult time getting that much physical gold together.
The USA and EU have sent most manufacturing jobs overseas for cheap labor, but people with low pay service jobs/welfare can’t really buy anything but the basics. In China, Brazil and other 2nd tier economies the workers know they make the cars, Ipads and phones and want higher wages to buy some of the things they manufacture. This is starting to create unrest and we will see supply interruptions and higher prices.
I think what will kill the system is all Credit Default swaps. (CDS) Once a couple of the TBTF banks and or countries fail/default the CDS will cause a cascade of failure. Just look at Bank of America selling off its divisions trying to get some liquidity.
Right now the markets are doing a remake of 2008. But instead of TBTF banks going down it will be countries as well.
What you can do to protect yourself:
- Have your food and daily supplies ready for 6-12 months
- Get out of debt as quickly as you can. Get your living costs as low as possible.
- Don’t time the market. If you are thinking of purchasing gold and you don’t have the first 2 items taken care of, you are a fool. For the price of 1 oz. of gold you can easily get all your food, security and supplies for a year. You can buy a hell of a lot of Beans, rice, grains and ammo for $1900.00
- Your emergency fund is cash on hand not a credit card or loan. I’m all for local Credit unions and small banks for holding higher amounts but keep enough physical cash on hand for a couple of weeks of basics. If there is a bank run, Cash will be king! Most likely no merchants will accept debit/credit cards or checks and ATMs will be emptied.
You will be on your own the government will have their hands full just dealing with the chaos of a financial meltdown. Depending on when it happens SNAP cards may not get filled because the JP Morgue now has the contract on filling those cards with digital money. You must be ready to protect yourself and stay away from all stores for about a week. That will give the riots, looting and anarchy, time to burn itself out.
Hopefully I’m wrong again and the financials will get back on a sound basis. The Governments will start working on the debt and deficit spending and not kick the can down the road.
Which do you think is more likely to happen?