In How Does One Invest For 'Muddle Through'? I talked about...

In How Does One Invest For 'Muddle Through'? I talked about unwinding of the credit bubble. Here is the pertinent section: BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Assuming we do muddle through, there is still a strong likelihood for a continued asymmetrical unwind of the credit bubble. Implications of that last point are particularly ominous. A carry trade unwind has the potential to affect nearly every equity class. In addition, there are obvious implications on emerging markets and China if US consumer spending is weak. It's a safe bet that several of the companies above will go bankrupt or be taken into receivership. The amount of capital destroyed already has been immense. Many of those charts sport prices all the way back to 1998 or even before. That is some unwind. . In deflation, the value of money rises. Money is hoarded. Furthermore, in economic turmoil in general, gold is sought as a safe haven. Gold has both of those things going for it. With leverage everywhere under attack however, there is a possibility of a sharp pullback. From what level such a pullback might occur is anyone's guess. Unfortunately, people confuse a shortage of oil and misguided government policies with inflation. Those who think inflation is about prices need to read Oil is a wild card. If Bush attacks Iran oil can easily spike to $200. There would not be anything inflationary about that either. An oil spike to $200 could even trigger a depression. On the other hand, as the global recession picks up steam and leverage is forced out of 10,000 hedge funds all betting the same way on commodities, oil could easily fall all the way back to $50. Copper was on a tear with housing. It is still lofty but that chart looks like a massive double top from a technical viewpoint. As the recession picks up steam I would expect sharp pullbacks in copper and base metals. If leverage is forced out of 10,000 hedge funds as I suspect it will, the drop in some commodities might be spectacular. Corn's message is about an artificial shortage caused by misguided ethanol policies from this administration. In addition, a rising standard of living in China is increasing the demand for corn. Finally there is the effect of commodity speculation by countless numbers of hedge funds all willing to bet the farm on rising commodity prices. Tech's message is the anti-3-letter-acronym-play. Tech has nothing to do with housing, CDOs, SIVs, CMOs, and other three letter acronyms that are affecting much of everything else. So investors and hedge funds have once again pushed up technology stocks and the QQQQ to insane multiples. The rise in QQQQ was an asymmetrical rise with chip stocks (SMH & $SOX) in the gutter and a mere handful of stocks such as Apple (AAPL), Research in Motion (RIMM), Google (GOOG), and Amazon (AMZN) accounting for most of the gains. This same lack of breadth in conjunction with 'no price is too high' mentality was present at the 2000 peak. Headed into 2008 the question is: Will a rally in financials lead the market higher or will tech stocks and other 'safe havens' start to catch up on the downside? ), technology high flyers and various commodities have a lot of catching up to do on the downside as the asymmetrical unwind of the credit bubble continues. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.