Monday, February 25, 2008

Place your bets

Peter Navarro lays out three global economic scenarios and their effects on different asset classes. The grid looks a bit like the betting board for roulette, or possibly craps. At any rate, a good tool for helping you decide.

To me, decoupling seems the least likely at this stage; I don't feel the rest of the world has yet built up demand sufficient to be unaffected by the loss of the American consumer. But what do I know.

I'm guessing the first scenario for a while, followed by the third when governments panic.

6 comments:

dearieme said...

Only the glinty stuff gets two "L"s.

SACKERSON said...

Yes, and that market is so manipulable.

Nick Drew said...

wonder if he sees UK / Sterling as more aligned with US/$ or Eu/€ ?

John East said...

In the sure knowledge that things never pan out as logic suggests, I'll cast my vote for the following.

Scenario 1 over the next 12 months, i.e. to all appearances a "locomotive" US, but all lies and bluster as they continue papering over the cracks and remain in denial, hoping to re-capitalise with no one noticing. Gold will break above $1000, but maybe not decisively.

In 2009 we will then drift into scenario 3, a few large US financial institutions will fail and it will be doom and gloom. Gold will hit an inflation adjusted high $2300/oz.

Finally, from 2010, scenario 2. The dust will have settled, Asia will begin to decouple, and a slow grinding recovery will begin. Gold will spike in this phase and then collapse.

The day before gold peaks I'll sell, buy a yacht, and retire to the Caribbean.

SACKERSON said...

Interesting playout, John, though the disruptive consequences of 1 and 3 might mean that it takes longer for the East to get to phase 2. As to the yacht, you have to have fairly serious money to make serious money, otherwise I might do the same. But we do buy the odd Lottery ticket.

Do you think the Caribbean is safe?

John East said...

Damn, you've guessed my secret. Yes, I intend to buy a lottery ticket as well, just as insurance you understand, in the unlikey event that my master plan fails.