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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.


Anonymous 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/€ ?

Anonymous 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?

Anonymous 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.