Crisi economica minuto per minuto

[Abbott (POL)]

Bce, taglio senza sorprese: tassi al 2% nell'Eurozona

Come previsto, complice il deterioramento del quadro economico e la discesa dell'inflazione nell'Eurozona ben sotto l'obiettivo fissato del 2%, la Banca centrale europea ha proceduto a un nuovo taglio dei tassi d'interesse nell'area portandoli dal 2,5% al 2 per cento.

http://www.ilsole24ore.com/art/SoleO...lesView=Libero

[Abbott (POL)]

Rules for International Monetary Reform

Daily Article by Jesus Huerta de Soto | Posted on 1/21/2009

In chapter 9 of my book, Money, Bank Credit, and Economic Cycles (pp. 789–803), I design a process of transition toward the only world financial order that, being fully compatible with the free-enterprise system, can eliminate the financial crises and economic recessions that cyclically affect the world's economies. Such a proposal for international financial reform is, of course, extremely relevant at this time, since the disconcerted governments of Europe and America are planning a world conference to reform the international monetary system in order to avoid future financial and banking crises such as the one that currently grips the entire Western world. As I explain in detail over the nine chapters of my book, any future reform will fail as miserably as past reforms unless it strikes at the very root of the present problems and rests on the following principles:

1. the reestablishment of a 100% reserve requirement on all bank demand deposits and equivalents;
2. the elimination of central banks as lenders of last resort (which will be unnecessary if the first principle is applied, and harmful if they continue to act as financial central-planning agencies); and
3. the privatization of the current, monopolistic, and fiduciary state-issued money and its replacement with a classic gold standard.

This radical, definitive reform would essentially mark the culmination of the 1989 fall of the Berlin Wall and real socialism, since it would mean the application of the same principles of liberalization and private property to the only sphere — finance and banking — that has until now remained mired in central planning (by "central" banks), extreme interventionism (the fixing of interest rates, the tangled web of government regulations), and state monopoly (legal-tender laws, which require the acceptance of the current, state-issued fiduciary money) — circumstances with disastrous consequences, as we have seen.

I should point out that the transition process designed in the above-mentioned chapter of my book could also permit, from the outset, the bailing out of the current banking system, thus preventing its rapid collapse, and with it the sudden monetary squeeze that would be inevitable if, in an environment of widespread broken trust among depositors, a significant volume of bank deposits were to disappear.

This short-term goal, which, at present, western governments are desperately striving for with the most varied plans (the massive purchases of "toxic" bank assets, the ad hominem guarantee of all deposits, or simply the partial or total nationalization of the private banking system), could be reached much faster and more effectively, and in a manner much less harmful to the market economy, if the first step in my proposal for reform (page 792 in my book) were immediately taken: to back the total amount of current bank deposits (demand deposits and equivalents) with cash, bills to be turned over to banks, which from then on would maintain a 100% reserve with respect to deposits. As I explain in chapter 9, chart IX-2, which shows the consolidated balance sheet for the banking system following this step, the issuance of these bills would in no way be inflationary (since the new money would be "sterilized," so to speak, by its purpose as backing to satisfy any deposit withdrawals).

Furthermore, this step would free up all banking assets (toxic or not) that currently appear as backing for demand deposits (and equivalents) on the balance sheets of private banks. On the assumption that the transition to the new financial system would take place under "normal" circumstances, and not in the midst of a financial crisis as acute as the current one, I proposed in my book that the freed assets be transferred to a set of mutual funds created ad hoc and managed by the banking system, and that the shares in these funds be exchanged for outstanding treasury bonds and for the implicit liabilities connected with the public social-security system (pp. 796–797).

Nevertheless, in the current climate of severe financial and economic crisis, we have another alternative: apart from canceling "toxic" assets with these funds, we could devote a portion of the rest, if desired, to enabling savers (not depositors whose deposits would already be backed 100 percent) to recover a large part of the value lost in their investments (particularly in loans to commercial banks, investment banks, and holding companies). These measures would immediately restore confidence and would leave a significant remainder to be exchanged — once and for all and at no cost — for a sizeable portion of the national debt, our initial aim.

I conclude with an important final warning: naturally (and I must never tire of repeating it) the solution I propose is only valid in the context of an irrevocable decision to establish a free-banking system subject to a 100% reserve requirement on demand deposits. Any of the reforms noted above, if adopted in the absence of a prior, firm conviction and decision to change the international financial and banking system as indicated, would be simply disastrous: a private banking system that continued to operate with a fractional reserve (orchestrated by the corresponding central banks), would generate — in a cascading effect, and based on the cash created to back deposits — an inflationary expansion like none other in history, one which would eventually finish off our entire economic system.

__________________________

Jesús Huerta de Soto, professor of economics at the Complutense University of Madrid, is Spain's leading Austrian economist. As an author, translator, publisher, and teacher, he also ranks among the world's most active ambassadors for classical liberalism. He is the author of Money, Bank Credit, and Economic Cycles. Send him mail. See his article archives. You can subscribe to future articles by this author via this RSS feed. Comment on the blog. You can receive the Mises Daily Article in your inbox. Go here to subscribe or unsubscribe.

http://mises.org/story/3300

[Abbott (POL)]

Lo spettro del debito

di Pietro Di Giorgio (Libertyfirst)

Uno dei probabili effetti della crisi di questi mesi è la destabilizzazione dell’equilibrio tra economia americana e cinese. In concomitanza col calo della crescita di Pechino i creditori potrebbero bussare più forte alle porte degli americani, presentando un conto stavolta davvero salato.

L’economia statunitense è in recessione, e questo ha provocato negli ultimi mesi un rapido calo della crescita economica cinese. Già un anno fa gli indici azionari cinesi erano stati pesantemente colpiti dalla crisi finanziaria mondiale (la spiegazione più comune era che i cinesi avevano investito negli strumenti finanziari strutturati che erano al centro della crisi), ma la tenuta della crescita cinese aveva fatto pensare che questa potesse fare a meno degli USA: i dati più recenti fanno pensare il contrario, come era facilmente prevedibile.

INTERESSI COMUNI - Le relazioni economiche tra USA e Cina hanno avuto un rapido sviluppo nella prima decade del XXI secolo: con la recessione del 2000 e la seguente politica monetaria espansiva, gli USA hanno di fatto smesso di risparmiare, e hanno aumentato i consumi a livelli insostenibili nel lungo termine, sperando che l’apprezzamento continuo delle abitazioni potesse essere sufficiente per finanziare questi eccessi. I cinesi ne hanno approfittato per comprare montagne di titoli del Tesoro USA ed esportare merci verso il mercato dei consumatori ossessivo-compulsivi. Di fatto, i cinesi ci mettevano i risparmi e gli USA i consumi. Ma comprare merci senza vendere altre merci significa comprare a debito: la controparte del boom consumistico USA è stata quindi una rapida espansione del deficit commerciale e un rapido aumento del debito commerciale con il resto del mondo. Allo stato attuale, gli USA hanno 20,000 miliardi di dollari di debiti col resto del mondo, e 17,600 miliardi di crediti. In pratica, hanno 2,400 miliardi di debito netto, una cifra che aumenta di 200 miliardi l’anno per via dei nuovi acquisti a debito (deficit commerciale). Tutto questo ha aiutato di molto la crescita economica cinese: investire in Cina oggi significa investire in un paese dove la produzione costa poco, per poi vendere in un mercato pressoché illimitato dall’altra parte del Pacifico. I cinesi con i loro risparmi consentivano il finanziamento del deficit USA, e questa offerta di credito ha tenuto bassi gli interessi USA per praticamente un decennio; vista dall’altra parte dell’Oceano, la fortissima domanda di consumo USA ha aumentato i rendimenti degli investimenti in Cina, consentendo una rapida espansione industriale.

FINE DEI GIOCHI? - Prendete nota: i bassi tassi USA sono un merito (soprattutto) del risparmio cinese; gli alti rendimenti sugli investimenti cinesi sono un merito (anche) dei consumatori americani. Una stranezza di tutto ciò è che - nonostante un rapido aumento dell’indebitamento con l’estero - gli USA hanno un reddito positivo dalle loro transazioni finanziarie con l’estero. La cosa è apparentemente impossibile: uno si riempie di debiti, e guadagna interessi? Semplicemente, il debito estero USA è fatto di titoli del Tesoro: 100$ di debito al 2% significa un costo annuo di 2$; d’altra parte, il credito estero USA è composto di investimenti industriali diretti (FDI), che rendono molto di più: 70$ di credito al 3% consentono un ricavo annuo di 2$. Le due cose si compensano. L’anno scorso, quando ancora la crisi era di là da venire, avevo notato una gravissima falla in questo equilibrio: il basso rendimento dei titoli USA dipende dai risparmi cinesi, e l’elevato rendimento dei crediti USA dipende dalla salute del resto del mondo, che a sua volta dipende dalla domanda USA! La mia intuizione del 1 Febbraio 2007 rischia di diventare realtà? Al momento sappiamo che la Cina non si è affatto disaccoppiata dagli USA, e la cosa era prevedibile. Ora facciamo due ipotesi. La prima è che la recessione cinese riduca i risparmi cinesi e quindi la loro capacità (e del resto del mondo) di finanziare l’economia USA. Questo implica che i tassi di interesse USA dovranno aumentare (per carenza di credito) o comunque che sarà molto più difficile tenerli bassi (più interventismo monetario, più inflazione: gli USA dovranno ridurre di molto i consumi se vogliono mantenere gli investimenti allo stato attuale senza il contributo di risparmi cinesi). La seconda ipotesi è che la recessione USA riduca la domanda di merci estere USA e quindi renda meno conveniente produrre in Cina, riducendo quindi i rendimenti degli investimenti esteri.

USA IN BILICO - Questi due effetti impatterebbero negativamente l’economia USA attraverso due canali. Il canale diretto è che gli USA, con meno credito da investire, dovranno ulteriormente ridurre consumi e/o investimenti. Il canale indiretto è che il debito commerciale USA comincerà a trasformarsi in un pagamento netto di interessi verso il resto del mondo: tanto debito ad interessi in crescita, e poco credito a rendimenti in discesa significano un flusso di reddito netto dagli USA al resto del mondo. Anche trascurando eventuali complicazioni, come un nuovo panico finanziario USA, una serie di riforme protezioniste che danneggino ulteriormente il commercio internazionale (come il famigerato Smoot-Hawley nel 1930) e rivolte di massa nella Cina non più anestetizzata dall’elevata crescita, quanto c’è in ballo? Un 1% in più sul debito USA significano 200 miliardi di dollari da pagare. Un 1% in meno sul credito USA significano 180 miliardi di dollari da pagare. Gli USA rischiano di trovarsi a dover quindi trasferire verso l’estero centinaia di miliardi di dollari l’anno. Diciamo che il resto del mondo tiene il consumatore americano per le palle: questo auto-proletarizzato che vive da oltre un decennio di capitali altrui si trova in condizioni critiche. Tutto dipende dalla volontà estera di elargire ancora credito. Il più grande hedge fund del pianeta, gli USA, non è ben diversificato ed è esposto a rischi consistenti.

http://www.giornalettismo.com/archiv...ro-del-debito/

[Abbott (POL)]

[-Duca-]

stà per arrivare il casino, l'oro ha toccato i massimi sull'euro, 700 euro l'oncia, quando l'oncia toccherà i 90.000 yen e quando l'oro segnerà il nuovo masimo sul dollaro allora ne vedremo delle belle.. (più di quante ne abbiamo viste finora, questa in sintesi l'analisi di usemlab)

[Abbott (POL)]

quoto.

mi sono letto l'analisi di Francesco su Usemlab, ottima come al solito.

[Abbott (POL)]

The Future of Gold

Daily Article by Naufal Sanaullah | Posted on 1/26/2009

The historic wealth destruction of 2008 was obviously deflationary. Defaults strip away wealth. Institutions respond by selling assets to raise capital. Widespread deleveraging leads to supply expansion in assets and contraction in money and credit. Deflation.

Nevertheless, the response has been unprecedented in its own right. Government debt held by the public was $5.51 trillion when September began; by the end of 2008, it had risen to $6.37 trillion. The more than $1 trillion expansion in Treasury borrowing surely partially serves to offset the $438 billion budget deficit. But what about the additional half a trillion dollars?

On September 17, the Treasury announced the creation of the "Supplementary Financing Account" in the Federal Reserve. This is a capital reserve in the Fed financed by the Treasury selling new debt, but its excess capital is "trapped" and does not immediately reach currency in circulation. As of January 2, $259 billion is in this cash pool and $365 billion counting the Treasury's "General Account." The capital itself is money borrowed by the public, so its immediate net effect is deflationary.

On top of that, the Fed in an unprecedented gesture has started incentivizing excess bank-reserve deposits by issuing interest on these holdings, trapping liquidity. The Fed is essentially issuing debt, and banks are engaging in what amounts to a dollar-based Fed vs. interbank carry trade. Banks borrow money from the Fed, deposit it back into the Fed, and profit from the differential between the federal-funds and overnight rates. Less than $40 billion a year ago, the excess reserve deposits held by the Fed have ballooned to $860 billion. These deposits comprise another huge pool of excess liquidity on the Fed's balance sheet that doesn't immediately affect circulated currency.

Another Fed-induced cash trap has been in the form of increased reverse repurchase agreements, which are up to $88 billion. Reverse repurchase agreements are the offering of collateral in exchange for a cash loan. The Fed has utilized reverse repurchase agreements in its liquification of banks. It buys off toxic defaulting assets in exchange for cash and immediately reclaims the cash by selling the banks' T-bills. The Fed printed money to pay for these T-bills, so there is excess liquidity that is trapped in time-sensitive debt.

The Fed's risk transfer to the taxpayer is only worsened by its lack of transparency in doing so. The $2 trillion in lending is going to unknown places in exchange for unknown collateral. This leads me to believe the Fed has been busy buying up all of the toxic assets held by banks. This explains why it let the congressional bailout funds be used for equity purchases and not toxic debt. It hides the huge toxic-asset purchases — which it paid for with printed money — in its balance sheet's opacities. Bloomberg recently made a Freedom of Information Act request for details on bailout fund appropriations, but the Fed refused to comply and is being sued. This secrecy by the Fed in its appropriations of taxpayer money and the most-likely worthless collateral it exchanged it for represents inflationary risks the Fed is attempting to conceal.

The Fed's balance sheet suggests it has been cranking the printing presses like mad. Fed liabilities have expanded to $2.26 trillion, up over 140% since September. However, currency in circulation is up only 7% in that same time period. Where is this "trapped" $1.37 trillion? The answer is it's confined in temporary cash pools, whether in the Supplementary Financing Account or excess reserve deposits or in time-sensitive T-bills. The Federal Reserve seems to be sequestering all of this cash to buy time for the Treasury to finish its funding activities.

But who is going to keep funding this expansion of Treasury debt issuance? The American public is broke and cannot offer its capital in return for terrible yields. Foreign nations don't have the means or will to continue financing our debt. Commodity prices have collapsed, cutting deeply into foreigners' export revenues. Oil is down from highs around $150/barrel this past summer to around $40/barrel now.

In November, China announced a $585 billion economic stimulus package to be fully invested by the end of 2010. The Chinese government agreed to provide only $170 billion of the funds. How will China raise the other $415 billion for continuous use until the end of 2010? Surely, local governments and private banks and businesses can't finance such a large package in the midst of a historic recession.

The only reserve China can tap into to finance its stimulus package is its $1.9 trillion foreign exchange reserves, $585 billion of which is in US Treasury securities. Financing its stimulus package would require selling Treasury securities, but becoming a net seller of US debt could have disastrous economic, political, and even militaristic consequences for China, so it will be interesting to see how events unfold. What seems certain, however, is that China can no longer purchase more American debt to finance the US Treasury (and consequently the Fed).

This is a problem echoed by the rest of the big creditor nations. After China, the biggest holders of American debt securities are Japan, the United Kingdom, Caribbean banking centers, and OPEC nations. Japan is facing enormous headwinds as its quality-focused exports are suffering massive demand destruction as its consumers abroad lose wealth at epic proportions. Japan was a net seller of US Treasuries in 2008 and it is highly unlikely it will switch to being a net buyer anytime soon. The British demand for American debt represented Middle Eastern oil-financed investment, but with oil prices collapsing, it will be next to impossible for this proxy demand from the UK to rise and finance additional debt. The demand for US debt by Caribbean banking centers is because of their tax laws but as the credit crunch leads to liquidity destruction in Caribbean banks, these banking centers will no longer be able to buy additional debt. OPEC nations' US debt demand, similar to the UK's, is tied to Middle Eastern oil revenues financing American consumption (of their oil exports). As oil prices tank, so will OPEC nations' economies and they too will have no wealth to buy up more American debt.

Bernie Madoff is well recognized as the perpetrator of the biggest Ponzi scheme in history, at $50 billion. I beg to differ with that assessment. The United States has financed debt with debt since the late 1980s, when its external debt/GDP broke the 0 mark. Since then, it has risen to over 100% of its GDP (which in itself is quite artificially inflated because of manipulated hedonics-adjusted inflation figures), and now stands at $13 trillion. That is what's called a debt bubble. Bernie who?

But the debt bubble appears ready to collapse. The pyramid scheme is finally running out of investors, and many Treasury ETFs (like SHY, TLT, IEF, and IEI) are showing classic parabolic topping patterns and the next few weeks should confirm or deny my suspicions. Interest rates are at an obvious floor at zero, so there is nowhere to go but up. That means bond prices have nowhere to go but down, and the falling prices will cascade into more selling until the debt bubble deflates and all the spending is financed by quantitative easing. Judging by gold backwardation (discussed later) and the bearish charts on the bubbly debt ETFs, I think the debt monetization and dollar devaluation will begin within the next six weeks. The ProShares UltraShort Lehman 20+ Year Treasury Bond ETF (TBT) and ProShares UltraShort Lehman 7–10 Year Treasury Bond ETF (PST) are good ways to play this debt-market collapse.

With an insolvent public and no foreign demand for Treasuries, the Federal Reserve will monetize debt to finance its continued bailouts and economic stimulus. This is purely created capital pumped right into the system. This is not anything new for the Fed — for the past two decades, it has kept interest rates artificially low and created massive artificial wealth in the form of malinvestment and debt financing. In the past, the Fed has been able to funnel the inflationary effects of its expansionary monetary policy into equity values with its low rates, which discourage saving, causing bubble after bubble. The excess liquidity was soaked up by the stock market, which gave the appearance of economic growth. With inflation being funneled into equity and real estate over the last two decades, illusory wealth was created and the public remained oblivious to the inflationary risk and the great disparity between real returns and nominal.

Now that the "artificial-wealth bubble" of the past two decades is finally collapsing, one of two scenarios can occur: capital destruction or purchasing-power destruction. Capital destruction occurs when the monetary supply decreases as individuals and institutions sell assets to pay off debts and defaults and savings starts growing at the expense of consumption, otherwise known as deleveraging. This is deflation and the public immediately sees and feels its effect, as savings accounts, equity funds, and wages start declining. Deflation serves no benefit to the Federal Reserve, as declining prices spur positive-feedback panic selling and bank runs, and debt repayments in nominal terms under deflation cause real losses.

Purchasing-power destruction is much more desirable by the Fed. Its effects are "hidden" to a certain extent, as the public doesn't see any nominal losses and only feels wealth destruction in obscure price inflation. It breeds perceptions of illusionary strength rather than deflation's exaggerated weakness. The typical taxpayer will panic when his or her mutual fund goes down 20% but will probably not react to an expansion of monetary supply unless it reaches 1970s price-inflationary levels. In addition, the government can pay back its public debt with devalued nominal dollars, which transfers wealth from the taxpayers to the government to pay its debt. Inflation is essentially a regressive consumption tax, which the government wants and the Fed attempts to "hide." Not only is the Treasury's debt burden reduced but the government's tax revenues inherently increase.

The Fed, in an effort to minimize inflationary perception, has for the last two decades supported naked COMEX gold shorts to keep gold prices artificially low. The Fed, as well as European central banks, unconditionally supported these naked shorts to deflate prices and stave off inflationary perception, as gold prices stay artificially low. This caused gold shorts to be "guaranteed" eventual profit, by Western central banks offering huge artificial supply whenever necessary, causing long positions in gold to be wiped out by margin calls and losses.

Now that the economy is contracting, the Fed won't be able to funnel the excess liquidity into equities or other similar assets. It also can't allow the unprecedented excess liquidity of today to be directly injected into the economy, as that would be immediately very inflationary, with more than three times the money chasing the same amount of goods, technically leading to 300% price inflation. These figures are strictly based on monetization of the Fed's current liabilities, not including any future deficit spending (which is sure to dramatically increase, especially with Barack Obama's policies), the American external debt, or unfunded social programs that need payment as Baby Boomers retire.

In order to funnel the excess liquidity into a less harmful asset, the Fed appears to be abandoning its support for gold naked shorts, causing shorts to suffer their own margin calls and cause rapid price expansion in gold. On December 2, for the first time in history, gold reached backwardation. Gold is not an asset that is consumed but rather stored, so it is traditionally in what is called a contango market, meaning the price for future delivery is higher than the spot price (which is for immediate settlement). This is sensible because gold has a carrying cost, in the form of storage, insurance, and financing, which is reflected in the time premium for its futures. Backwardation is the opposite of contango, representing a situation in which the spot price is higher than the price for future delivery.

On December 2, COMEX spot prices for gold were 1.99% higher than December gold futures, which are for December 31 delivery. This is highly unusual and it provides strong evidence for the theory that the Fed is abandoning its support for gold shorts. Backwardation represents a perceived lack of supply (in this case, the artificial supply the Fed would always issue at strategic times no longer exists), causing investors to pay a premium for guaranteed delivery. I consider gold's backwardation as a leading indicator to a dramatic increase in prices. In fact, crude began its most recent backwardation in August 2007 at around $75/barrel and increased dramatically over the next nine months to $133/barrel at contango levels.

But why would the Fed abandon its support for naked COMEX shorts? The unique nature of gold and precious metals provides its desirability in this Fed operation. Gold has little utility except as a store of value, unlike most commodities (like oil, which is consumed as quickly as it's extracted and refined), so its supply/demand schedule has unusual traits. Most commodities and assets go down in price as the public loses capital, because the public has less to consume with and that is reflected in demand destruction that leads to price deflation. Gold is not directly consumed and has much less industrial use than most other commodities.

As a result, gold is relatively "recession-proof," as evidenced by its relative strength in 2008. Gold prices rose 1.7% last year, which is quite spectacular considering equity values went down 39.3%, real estate values went down 21.8%, and commodity prices went down 45.0% in the same period (as determined by the S&P 500, Case-Shiller Composite, and S&P Goldman Sachs Commodity Indices, respectively). Because gold is not easily influenced by consumer spending, highly inflationary gold prices don't do any direct damage to the public and are a good way to funnel excess liquidity without economic destruction.

Federal Reserve Chairman Ben Bernanke is a staunch proponent of devaluing the dollar against gold and is very supportive of President Franklin D. Roosevelt's decision to do so in 1934. In the past, manipulating gold prices to artificially low levels was beneficial because it prevented capital flight into a nonproductive asset like gold and kept production, investment, and consumption high (even if it was malinvestment and unfunded consumption).

Bernanke's continued active support for gold-price suppression would lead to widespread deflation that would collapse equity values and cause pervasive insolvencies and bankruptcies. Insolvency in insurers removes all emergency "backups" to irresponsible lending and spending, which would surely ruin the economy. Bernanke's plan seems to be to devalue the dollar against gold with huge monetary expansion, causing nominal equity values to rise. I've heard estimates of 7500 and 8000 in the Dow Jones Industrial Average as being minimum support levels that would cause insurers and banks to realize massive losses, causing widespread insolvencies in them and other weak sectors like commercial real estate that would irreversibly collapse the economy.

This gold-price expansion, set off by the massive short squeeze, will continue until gold prices reflect gold supply and Federal Reserve liabilities in circulation. The "intrinsic" value of gold today (called the Shadow Gold Price), calculated dividing total Fed liabilities by official gold holdings, is about $9,600/oz, compared to the actual spot price of around $850/oz today. This gold-price calculation essentially assumes dollar-gold convertibility, as is mandated by the US Constitution and was utilized at various periods of American history.

The US dollar's strength as the equity and commodity markets collapsed was due to deleveraging and an effect of the Fed's temporary sequestration of dollars, taking dollars out of supply. That is over. Oil seems to be putting in a bottom on strong volume, no one is left to buy any more negative real-yield securities the Treasury is issuing, and gold has started looking very bullish.

But a good speculator always considers all situations. Even if deflation is to occur, which I see as next to impossible, the price of gold should still rise to $1,500/oz levels next year, because it has shown relative strength as one of the most viable assets left to invest in. In addition, the short squeeze occurring in gold will provide substantial technical price expansion, even in the absence of dollar devaluation. A rise in nominal values in deflation represents an ever greater rise in real values, so I think gold's price ascent in real terms will be nearly identical in inflation or deflation.

I see the market breaking down from these levels to about the November lows, with commercial-real-estate stocks like Simon Property Group (SPG), Vornado Realty Trust (VNO), and Boston Property Group (BXP) leading the way, as well as retailers like Sears Holdings (SHLD). I recommend short positions (including leveraged bear ETFs) against these stocks for the very near term. If the market indeed breaks down but shows bouncing/strength around 7500–8000 in the Dow Jones, that would confirm to me that the Fed is able and willing to inflate its way out of this crisis and I will sell my bearish positions and buy into bullish gold positions.

Because in inflation the dollar is devalued, I am a proponent of owning bullion and avoiding gold ETFs, but I do believe gold and gold-miner stocks will provide great returns over the next few years. Royal Gold (RGLD), Iamgold (IAG), Jaguar Mining (JAG), Anglogold Ashanti (AU), Newmont Mining (NEM), Randgold (GOLD), Goldcorp (GG), and Barricks (ABX) are among my favorite gold equities at this early stage in the process.

I leave you with this, a quote from Fed Chairman Ben Bernanke about President Franklin D. Roosevelt's 1934 Gold Reserve Act, which was the greatest theft of wealth I'm aware of in American history:

The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level … With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. Between Roosevelt's coming to power in 1933 and the recession of 1937–38, the economy grew strongly.

My predictions: gold at $2,000/oz by the end of the year and $10,000/oz by 2012 and silver at $30/oz by the end of the year and $130/oz by 2012.

_________________________

Naufal Sanaullah is a student at the University of Michigan and a derivatives trader. He is in the early stages of development of Dorm Room Derivatives, a stock-selection blog and newsletter service with daily updates and a customized stock-report service. Send him mail. Comment on the blog. You can receive the Mises Daily Article in your inbox. Go here to subscribe or unsubscribe.

http://mises.org/story/3302