Debt Crisis in our future: posted 10/25/2010

In the past 10 years we have had two great bubbles the tech bubble and then the subcrime bubble. The next bubble is going to be the US Government debt bubble. This will lead to a transition from money flows from US as foreign creditors leave dump our bonds and find other places to put their money, mainly China and India. The way out of this bubble is something the US Govt is unlikely to do and that is to take austerity measures (just can't go through the pain) for 3-5 years so they will keep printing more money thus driving down the dollar & driving up commodity prices, across the board.

The us equity markets will under perform the emerging markets and that we have already seen, over past decade and will see in the next ten years. For example, the Bombay stock exchange is up 270% in the last ten years and the S&P has gone nowhere in that time. Gold, Silver, Platinum, Uranium, Oil, Gas, and Agricultural commodities have risen will soar in price (and relative to the S&P they already have outperformed) especially when the $h^t hits the fan.

With unemployment rates remaining high the consumer will continue to be under pressure leading to decreased consumption, greater risk of credit defaults and foreclosures. And this will play out over years, possibly the next ten years or so. This is the SECULAR TREND.

At this time there is an irrational exuberance and the market has taken it as a given that QE2 will be large in amount and efficacious in result. A pullback is on its way, when exactly I'm not certain. All the technical indicators are lining up for a top in the market, see previous post. Upside potential for the S&P is 1220 from here (short-term), if there is a breakout we could get another 100-150 points. On the downside, risk is to fall to 1120. If that doesn't hold I think we can go down to 1060.

The way to protect yourself (inflation/debt crisis) or make money is pretty simple, go long commodities eg. energy, metals, Ag ETF's: XLE,  SLV/GLD 2:1 respectively, UNG, MOO, DBA and a basket of uranium related stocks (CCJ,URZ, UEC). Shorting long bond (TBT)