One day, soon, I would like to see a blog from you on “what happens when we default on our debt”. Or, with the US dollar close to what could be freefall, “what happens if it does go into freefall” and what would you advise in the way of investments/safe havens… I know they are entwined, but you know where I am going on this one…
This has to be most frequently asked question as many astute readers are aware of the sad state of economic affairs and the potential subsequent consequences. We all like to have some kind of crystal ball to see how this current scenario will play out.
I am not so sure if the dollar destruction will actually come about as many anticipate.
Historically, currencies have been destroyed because of one country’s failure to adopt sound monetary policies. However, the bursting of the current real estate/mortgage/credit bubble has affected all industrialized nations around the world, and all governments have adopted similar policies, all of which could be considered bad for their respective currencies.
This brings up the interesting question as to how much individual currencies will really suffer if everyone is essentially devaluating at the same time; maybe to slightly different degrees.
While I don’t have that answer (I don’t think anybody does), for some more thoughts along the current deflation scenario, you might want to read Mish Shedlock’s blog post on “Creative Destruction.”
As far as future investments are concerned, it is far too early to try to predict/speculate as to what will be the safe haven on the horizon. As always, I let the trends be my guide.
The ETF Master list in the weekly StatSheet gives you some 12 pages of ETF listings (ranked by momentum) covering just about any sector and area you could think of. The column to watch in the future is %M/A (the percentage an ETF is positioned relative to its long-term trend line. A positive number means the price is above its trend line while a negative number means it’s below it).
Over time, as market conditions change, you will see ETFs moving from positive territory into the negative area and vice versa. The crossing to the upside should get your attention to see if such a move accompanied by rising momentum figures may justify an investment in such an ETF.
Right now, with most ETFs showing positive momentum numbers, there is not much that can be learned about the future. Once the markets sell off again and negative momentum prevails, that is the time to watch for those ETFs, which are the first ones to sprint again above their respective long-term trend lines.
Keep in mind that after a sell off, or market crash, those ETFs who recover the quickest, are most likely in tune with the economic circumstance at the time. Those are the ones to focus on and that is about as close as you can come to make an appropriate choice without too much guesswork.