Rebuilding Capitalism, Part Three

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What Will be the Effects?

So this is it. Keynesian theory is up to bat. It’s now or never as this is the greatest Keynesian economic experiment in history.

There are going to be one of four outcomes.

It works

  • Growth returns, inflation goes back to a controllable 2%, and a new world infrastructure ushers in the framework for several generations of growth. Happy times are back again

It fails

  • The Austrians are right, we get hyper inflation, government investments in bad banks is lost, and authoritarian fiscal protectionism is a result that finally sees the decline of the American capitalist machine. Commodities prices go crazy.

It works here, It fails there

  • In some places where there is little to no consumer debt like the BRIC (Brazil, Russia, India, China) countries it serves a catalyst of modernization. In others it will fail as it is throwing more money into a black hole that is fundamentally broken. The result is the global shift in financial markets, the great Decoupling Theory that was all in vogue until recently is given a wide open field to take shape.

The Black Swan Shows Up

  • Something happens that no one expected that changes the game (Black Swan Theory). This could be anything from a widespread war in the Middle East or even WWIII, to a political revolution in Russia, to a worldwide famine and food shortage or a serious disease scare.

Likely, it will be some combination of the above outcomes. But another, more geeky minded outcome will be a revisiting of Breton Woods. The original Breton Woods system was established in 1944 as WWII drew to a close and was intended to reconstruct the world financial system. Given the calamitous events of 2008/09, there is serious talk of a revisiting of Breton Woods, or Breton Woods II. Sarkozy of France has stated :

“we must rethink the financial system from scratch, as at Bretton Woods

while Argentinian Kirchner agreed:

“the financial world crisis will need a strong regulation in the matter of financial markets and capital movements throughout the world. A new Bretton Woods will be needed”\

If this is the case, we may see the inevitable decline of the U.S. dollar as the world’s sole reserve currency and the accent of the Chinese yaun. It’s already begun in fact, this March.

How to Play It?

Ah, THAT is the question, isn’t it?

Outcome one – buy every single bluechip on the DOW and the TSE because this is best time EVER for the buy-and-hold strategy.

Outcome two – buy commodity heavy TSE stocks, oil, gold.

Outcome three – buy commodity heavy TSE stocks, oil, and the BRIC countries.

Outcome four – throw a dart and then go to church and pray about it.

I’m nearly done positioning myself for all of them. While I’m leaning towards commodities and certain of the BRIC countries, I just can’t totally disregard the entrepreneurial spirit of the American people. As annoying and bullheaded as they may be, this is a country that invented the car, put a man on the moon and invented the internet. It’s tough to bet against the enduring American spirit, but I really don’t like the value of their dollar.

Also, for a more Canadian perspective, I’ve finally bought the banks, especially those with good discount brokerage services as another result of the recession and market crash is going to be people flooding into the dollar-a-trade services of DIYI (do it yourself investing). Why do you think TD is pushing Ameritrade? This is only exacerbated by the new TFSAs.

What a rant, eh? I needed to get it all out though. My goal remains the same – make enough cash to eventually afford a wife, kids and a permanent home somewhere very far from any snow or rain where I can pursue my truer passions.

This concludes the 3 part series, we hope that you have been financially enlightened. Take the time to read this. It may be boring, however, everyday the economics is a part of your life. So understand it you asshats.

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