{"id":39399,"date":"2013-06-27T23:22:38","date_gmt":"2013-06-28T03:22:38","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39399"},"modified":"2013-06-27T23:22:38","modified_gmt":"2013-06-28T03:22:38","slug":"dont-get-caught-in-the-market-crossfire","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/06\/27\/dont-get-caught-in-the-market-crossfire\/","title":{"rendered":"Don\u2019t Get Caught in the Market Crossfire"},"content":{"rendered":"<p>By <a href=\"http:\/\/www.MoneyMorning.com.au\" target=\"_blank\"><u>MoneyMorning.com.au<\/u><\/a> <\/p>\n<p><strong>Markets<\/strong> are all in a flurry &#8211; Dow down, gold  down, AUD down, government bond interest rates up. The only safe place in the  last month has been in cash, term deposits and USD.<\/p>\n<p>But remember, it will not always be so.  There will be a time to exit cash &#8211; that time isn&#8217;t just yet.<\/p>\n<p>So what is causing the great sell off in  non-cash investments?<\/p>\n<ul>\n<li>Is it China&#8217;s central bank refusing to supply liquidity to its cash  strapped shadow banking system?<\/li>\n<\/ul>\n<ul>\n<li>Is it Bernanke hinting at merely tapering (not stopping) the Fed&#8217;s $85  billion per month bond and mortgage purchases?<\/li>\n<\/ul>\n<ul>\n<li>Is it Japan&#8217;s print and be damned policy?<\/li>\n<\/ul>\n<ul>\n<li>Is it rising unemployment in Europe?<\/li>\n<\/ul>\n<ul>\n<li>Is it social unrest in Turkey, Brazil and Syria?<\/li>\n<\/ul>\n<p>Certainly one or more of the above global  issues are having a negative impact on market sentiment.<\/p>\n<p>But let&#8217;s step back a few paces and ask  why they are happening. These events are not <strong>the <\/strong>cause; rather they are symptoms.<\/p>\n<p><strong>The Great Credit Contraction<\/strong> thesis that  determines our asset allocation model is the <strong>cause. <\/strong>The events outlined above are merely the consequences of a  <a href=\"http:\/\/www.moneymorning.com.au\/category\/economy\/global-economy\" title=\"more on the global economy\">global economy<\/a> no longer supported by the <a href=\"http:\/\/www.moneymorning.com.au\/category\/financial-system\/debt-and-credit\" title=\"more on debt\">debt drug<\/a>. <\/p>\n<h2>The Squeeze is On<\/h2>\n<\/p>\n<p><a href=\"http:\/\/www.dailyreckoning.com.au\/category\/market\/\" title=\"more on financial markets from the Daily Reckoning\">Markets<\/a> have enjoyed a free ride on the  coat tails of the central banks printing presses. History has shown us time and  time again that artificial wealth creation has a limited shelf life. The  volatility in markets is an indication the use-by date on this strategy is fast  approaching.<\/p>\n<p>The talking heads (the share brokers with  their paid for comment spots on TV) make me chuckle every time they utter their  nonsense on why the market has moved up or down.<\/p>\n<p>Bad job data, good job data, lower than  expected PMI in China, better unemployment in the US &#8211; pick any reason to  validate the daily gyration. Day to day, week to week, month-to-month the  market will respond to various influences. However over-arching all of this is  why these influences occur.<\/p>\n<p>For nearly thirty years the global economy  recorded GDP growth due to the massive injection of private sector debt &#8211; baby  boomer consumers living beyond their means.<\/p>\n<p>Those glory days are now behind us. The  baby boomer is mentally preparing for retirement. Clearing the decks of debt  and trying to build a <a href=\"http:\/\/www.pursuitofhappiness.com.au\/index.php\/category\/retirement\/\" title=\"more on retirement\">retirement<\/a> portfolio.<\/p>\n<p>Hundreds of millions of baby boomers in  the developed world are changing their spending and savings pattern. Less  spending and more saving by this demographic powerhouse equals lower growth.<\/p>\n<p>This is lousy timing for governments who  (for political reasons) have cultivated a big brother welfare dependency  culture. <\/p>\n<p>A slowing economy does not generate higher tax  revenues (ask Swannie, sorry, Bowenie about this). So how does government pay  for their welfare promises?<\/p>\n<ol>\n<li><strong>Increase taxes<\/strong> &#8211; not a good option. Numerous studies have shown that  increased tax rates actually generate less tax revenue. People become  dis-incentivised.\n<li> <strong>Larger budget deficits <\/strong>&#8211;<strong> <\/strong>this can  happen for a while but even governments cannot borrow to infinity. Japan is  rapidly approaching the end of their debt rope.<strong><\/strong>\n<li>   <strong>Reduce government expenditure <\/strong>&#8211;<strong> <\/strong>in the  absence of a brave political leader, this will not happen until the &#8216;brick  wall&#8217; is plainly evident to everyone. By then it will be too late to take  corrective action. Just ask the citizens of southern Europe. In the not too  distant future France will also face this reality.<strong><\/strong>\n  <\/li>\n<\/ol>\n<p>So the Great Credit Contraction will do the job the  political and banking leaders will not do. <\/p>\n<h2>It Will Correct the Excesses in the Financial System<\/h2>\n<\/p>\n<p>In the days before central bankers &#8211; the 1800&#8242;s and  early 1900&#8242;s &#8211; depressions were reasonably frequent and relatively short lived.  People behaved recklessly and the market dealt them a quick and brutal  punishment. They took their medicine, licked their wounds and started again.<\/p>\n<p>These days every kid gets a prize, no one gets hurt in  the playground, sadistic criminals have rights, and the government is the  solution to all our problems. Personal responsibility is determined by the  courts, not our consciences.<\/p>\n<p>Little wonder we have a <a href=\"http:\/\/www.moneymorning.com.au\/financial-system\" title=\"more on the financial system\">financial system<\/a> that reflects  this culture. Policy makers cannot regulate out of existence the laws of  economics, as much as the policymakers wish it were so. In the same way they  can&#8217;t get rid of the laws of gravity.<\/p>\n<p>The Great Credit Contraction has been slowed by the  central bankers&#8217; determination to alter the laws of economics. The events of  the past month demonstrate the formidable power that is unleashed when hundreds  of millions of people alter their consumption habits.<\/p>\n<p>Bernanke <strong>will  not<\/strong> taper, the Chinese authorities will change their mind and start  printing, the Japanese will continue speeding towards the brick wall, Europe  will also join the printing party.<\/p>\n<p>These are the only actions this bunch of desperados  have left. <\/p>\n<p>The tanks of the Great Credit Contraction keep rolling  forward. The central bankers have fired their best shots and delayed, but not  stopped the advancement. The only artillery they have left in their arsenal is  reams of worthless paper. <\/p>\n<p>The recent volatility is a dress rehearsal for what  awaits investors. When The Great Credit Contraction rolls into town, it will  not take any prisoners. <\/p>\n<p>All markets &#8211; except cash and term deposits &#8211; will get  caught in the crossfire. Shares, property, precious metals and fixed interest  will be casualties.<\/p>\n<p>Baby boomer retirees with balanced portfolios will  suffer such losses they are going to re-consider their <a href=\"http:\/\/www.pursuitofhappiness.com.au\/index.php\/category\/retirement\/\" title=\"more on retirement plans\">retirement plans<\/a>.<\/p>\n<p>The policy making morons that deliver this Armageddon  to our doorstep will have all wandered off on tax payer funded pensions,  leaving unprotected investors to pick up the pieces.<\/p>\n<p>Forewarned is forearmed &#8211; take precautions now to make  your portfolio bulletproof.<\/p>\n<p><strong>Vern Gowdie<br \/>\n  Contributing Editor, <em>Money Morning<\/em><\/strong><strong> <\/strong><\/p>\n<p>  <strong><a href=\"https:\/\/plus.google.com\/106516983215198267222\/about\" title=\"Join Money Morning on Google Plus\"><u>Join Money Morning on Google+<\/u><\/a><\/strong><\/p>\n<p><strong><em>From the Archives&#8230;<\/em><\/strong><\/p>\n<p>    <a href=\"http:\/\/www.moneymorning.com.au\/20130621\/the-12-most-important-rules-every-investor-must-know.html\" title=\"Permanent Link to The 12 Most Important Rules Every Investor Must Know\" target=\"_blank\">The 12 Most Important Rules Every Investor  Must Know<\/a> <br \/>\n  21-06-2013 &#8211; Vern Gowdie <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130620\/the-us-economy-butterfly-effect.html\" title=\"Permanent Link to The US Economy Butterfly Effect\" target=\"_blank\">The US Economy  Butterfly Effect<\/a> <br \/>\n20-06-2013 &#8211; Murray Dawes <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130619\/beware-the-federal-reserves-deadly-game-of-poker.html\" title=\"Permanent Link to Beware The Federal Reserve&rsquo;s Deadly Game of Poker\" target=\"_blank\">Beware The  Federal Reserve&#8217;s Deadly Game of Poker<\/a> <br \/>\n19-06-2013 &#8211; Dr Alex Cowie <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130618\/why-thursday-could-be-a-key-day-for-silver.html\" title=\"Permanent Link to Why Thursday Could Be a Key Day for Silver&hellip;\" target=\"_blank\">Why Thursday  Could Be a Key Day for Silver&#8230;<\/a> <br \/>\n18-06-2013 &#8211; Dr Alex Cowie <\/p>\n<p><a href=\"http:\/\/www.moneymorning.com.au\/20130617\/the-single-biggest-mistake-a-technology-investor-can-make.html\" title=\"Permanent Link to The Single Biggest Mistake a Technology Investor Can Make\" target=\"_blank\">The Single  Biggest Mistake a Technology Investor Can Make<\/a> <br \/>\n17-06-2013 &#8211; Sam Volkering <\/p>\n<div class=\"feedflare\">\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?a=Z0rfSsi9oWM:sYnHqereHLI:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?a=Z0rfSsi9oWM:sYnHqereHLI:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?i=Z0rfSsi9oWM:sYnHqereHLI:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?a=Z0rfSsi9oWM:sYnHqereHLI:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/MoneyMorningAustralia?i=Z0rfSsi9oWM:sYnHqereHLI:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/MoneyMorningAustralia\/~4\/Z0rfSsi9oWM\" height=\"1\" width=\"1\" \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>By MoneyMorning.com.au Markets are all in a flurry &#8211; Dow down, gold down, AUD down, government bond interest rates up. The only safe place in the last month has been in cash, term deposits and USD. But remember, it will not always be so. There will be a time to exit cash &#8211; that time &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2013\/06\/27\/dont-get-caught-in-the-market-crossfire\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;Don\u2019t Get Caught in the Market Crossfire&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-39399","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/39399","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=39399"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/39399\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=39399"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=39399"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=39399"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}