By MoneyMorning.com.au
A credit boom is like every other boom. The bigger it gets the more credit it needs to grow… Just as a rising share price needs even more investors to keep buying in order to push the price higher.
Once a share bubble pops, it’s pretty hard to re-inflate it. Investors lose faith. And the share price has to fall a long way before they’re prepared to buy it again.
The same goes for credit markets. With slower credit growth, odds are asset prices won’t rise as much. And that means investors will be less inclined to borrow to buy shares (because asset prices won’t rise enough to offset the interest cost of the debt).
And if price inflation doesn’t rise as much as people are used to, they’ll see less need to go into debt to buy goods… Because there’s a chance the goods won’t cost any more six or 12 months from now.
That spells bad news for companies used to reporting strong sales and profit growth.
Trouble is, those in power don’t want that to happen. So they’ll do anything in their power to stop it. And we mean anything… manipulating currencies, printing money, stealing client money to make leveraged bets (MF Global)… whatever it takes.
Ultimately, they don’t have the power to prevent the end of the credit boom without destroying private wealth. Because the end game is more money printing and more price inflation.
But in the meantime, it will appear to work. Just as the 2008-2009 stimulus measures appeared to work… at first. But at some point, the market will figure things out. Low interest rates and money printing aren’t working.
But rather than give up, the bigwigs will figure they just need to do more. And so the stimulus circus will start again. As the market shifts from stimulus to no stimulus and back to stimulus, well, that’s what will keep the markets super volatile.
That’s where – if you’re smart – you can act to profit from the manipulation.
You just need to make sure your portfolio is balanced in a way that helps you preserve your savings… while at the same time allocating a portion to assets that will benefit from an ongoing volatile market.
And the sectors we think will benefit the most from this volatility are energy and resources. Both have taken a beating in recent months and are almost certain to go higher when the central bankers engineer the next short-lived stock market rally.
It’s not a question of “if”, it’s just a matter of “when”.
Cheers.
Kris
P.S. To discover six ways to profit when energy and resources stocks turn back up again, click here
Related Articles
Special Report: Six Extraordinary Resource Investment Opportunities for 2012
The Only Gold and Silver Stocks to Buy
The Secret Aussie ‘Bank Run’ is a Sign to Buy Gold
Why Gold Should Become Your ‘Stay Rich’ Asset
From the Archives…
How to Turn Paper Money into Silver and Gold
2011-12-09 – Kris Sayce
Will Silver Break Through $50 an Ounce in 2012
2011-12-08 – Dr. Alex Cowie
Investing in the Market for Survival and Prosperity
2011-12-07 – Aaron Tyrrell
China, the U.S. and the Scramble for Commodities
2011-12-06 – Dr. Alex Cowie
Santa Claus: A Market Rally Not Worth the Risk
2011-12-05 – Kris Sayce
For editorial enquiries and feedback, email [email protected]
