Worldwide Market Crash & Central Banks drops rate to 1.5

Excuse my absenteeism this week while I catch up with the market crash. There has been too much information to digest in such limit amount of time. Worldwide markets have been taking the US’s action of the $700 million bailout, negatively. There were markets such as Brazil and Russia that have shut their market to decelerate the drastic sell off. Markets have been so volatile that VIX (volatility index) for the first time in history breached above $50 range or a gain the past week of 21%. Currencies worldwide have been depreciating at a rate never seen with the exception of the ¥ YEN which has gained considerable speed against the dollar as of late.

The US financial fallout has spread as mentioned from previous posts like a virus. Countries as far as Australia and Iceland have been affected with market share and currencies falling nearly 40%. I’ll repeat that song from REM “It’s the end of the world as we know it” but I don’t feel fine. The sky is falling and so are worldwide markets. This is truly scary, as some analysts have been comparing this fallout to the market crash of the 80’s, technology bubble of 2001, and to some extreme similar to the Great Depression. Will we experience the Great Depression of 2009? I hope not, but we’ll experience instead a prolonged recession period that will last for 1.5 to 2 years, much more severe than the DOT COM Bubble. Ladies and Gents, we are much further into a Recession, a recession that will not only affect the perseverance of the US market, but effect worldwide markets and nations alike. “Worldwide Recession of 2008 – 2010”- shhh don’t tell Mr. Bush he doesn’t already know! I’ve pulled the DJIA and noticed a similar fallout from 2001 -2002, following an enormous catapult. I don’t believe we’ll see one anytime soon. Markets have not bottomed out. I predict the DJIA to hit the range of 7500 – 8000 as our floor level. That is about 1500 pts away.

What can we comprehend from this?

One; Asian and European markets have experienced a panic sell off and a realization that their nations banking systems are experiencing similar symptoms, jitters and lost confidence along with tight or in some markets frozen borrowing. The LIBOR and short term interest rates have drastically increased with banks, less inclined with interbank borrowing and more reliant to government borrowing.

Two; World output and growth have seized. Did you know Iceland; a country of 350,000 was once experiencing the worlds’ finest per capita ratio and considered the most satisfying country to live in, a country whose GDP raked in only $10 billion. That is a considerable amount given with 350,000 people. It is unfortunate to believe, but Iceland is one of most heavily exposed to the Financial Crisis with banks exposed to over $100 billion in liabilities, much larger than their GDP. Iceland will probably be the first country to declare bankruptcy. Now, that is scary.

Third; Asian and European Indices’ have fallen off to five year lows, most considerably the NIKKEI, which dropped 9.6% last night. I guess Toyota won’t surpass GM has the world’s most purchased vehicle. This market has become increasingly scary.
Four; Commodities have fallen through the floor. I can’t believe that Commodities (oil, precious metals, fertilizers..etc..) were in 4 year upward trend and then dissipate to zilch. It took a matter of weeks to erase gains that it had taken 4 years to build. Take a look at Potash (POT), it hit an all time high of $220 midyear and now currently trading around the $80 range. The sky is falling!

What should an investor like your self do in today’s market?

For starters, I hope you took heed to my previous post of 401k’s to allocate your funds into Stable funds and or treasuries. Please tell me you changed it. Don’t look now, but just continue what you’re doing and shuffle around your investments to less risky funds as mentioned before. This environment will not improve overnight. Greenspan has done enough damage with deregulation, loose lending practices, and the illed artificial injection super shot of Vitamin E – now exhausted of all energy. Thanks Greenspan of your ingenious practices.
STAY AT CASH….I don’t see anything positively moving at this moment. Cash out immediately or hold on to your losses for another 2 years for a turnaround – as I bite my tongue…gulp…I say we hope. I would hold interests in puts in everything imaginable (BAC, yhoo) for starters. I predict the DJIA bottoming out at 7500 - 8000

As previously mentioned oil will continue to fall due to basic economics, people. Oil will not increase immensely just because winter is approaching. It won’t matter when we have increased supplies and a decrease in demand. It goes back to the basics of law; supply and demand. DUG and UNG by the way mentioned in previous posts, pull the quotes for your selves, I don’t want to stay I told you so!!!! I originally predicted oil will hit $85 floor, now further revised to $60 -75 range.

Inflation and Unemployment

Watch for these figures to increase for the next year or so. Unemployment will hit 7%and forget about inflation, as the government injects liquidity by the $trillions of printed money at the expense of taxpayers. Inflation by the way is considered a hidden tax. Look it up!! The possibility of inflation will significantly increase especially for the fact that Central Banks this morning announced a collaborative effort with EU, UK, Canada, Switzerland, & Sweden to lower interest rates by half a point to 1.5. And off to the races investors go as the dollar decreases in value and GOLD appreciates.

GOLD

With onslaught of inflation on the forefront of everybody’s mind, investors have always run to cover under the umbrella of what everybody loves to wear, GOLD. Gold is considered a hedge against inflation and what do you know, inflation is high and the dollar is weak. I predict GOLD to make a run to $1500 or more.
Markets will continue to fall, stay at cash till the next intraday trade. Do not hold longer than a day. Few players that I like for the day are ABK, GDX, and GG.

Regards,

ACE