[Roccland]

The following has been posted by permission from Bud Conrad on Bill Tamblyn's ERT YH Group. Bud Conrad, is a senior researcher at Casey Research. casey research

Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl, and Tandem. Currently, he serves as a local board member of the National Association of Business Economics and teaches graduate courses in investing at Golden Gate University. Mr Conrad, a futures investor for 25 years and a full-time investor for a decade, is also a regular lecturer for American Association of Individual Investors.

Here is how Bud sees things panning out...


$this->bbcode_second_pass_quote('', '1'). THE CRISIS

The Credit market continues to "freeze up" meaning that there are no good pricing models and many investments drop by half. Many hedge funds halt operations. Big European Banks, who thought they were safe with AAA rated, now junk holdings, continue into problems and funds go into dissolution, and won't support US Credit markets for years.

US Derivatives holders, see huge losses. Lending to risky customers drys up. That slows the economy. Recession becomes more obvious. The continuing reset of up to $50B per month of subprime and variable loans continues the drumbeat of home defaults, and home equity is no longer a source of borrowing for the US economy.

Hedge Funds collapse on a daily basis. Stocks swoon 400 Dow points per week for a month. Finally a big bank announces insolvency. China offers to bail out but drags feet when US regulators get in the picture and then….

2. THE BAILOUT

The Fed rides in on a white horse and cuts:

25 points. then 25 points, then 50 points. Then a full point.

Government programs to fix infrastructure are passed and Halliburton and Bechtel get big contracts. Bush offers corporate tax cuts, but Congress balks, and the deficit grows. War spending continues, but regular retailers collapse and jobs continue to be moved offshore.

But markets don't recover. No one wants US dollars or debt. All rates but the short term government guaranteed rise. Foreigners (the new sovereign investment groups) bid for whole companies in the resource sector and this time the US government lets them, for fear of making the dollar worth even less by intervening. The scenario is like Korea during the financial crisis when foreigners, Soros et all, swooped in to buy on the cheap in 1978.

3. Inflation comes unglued, 15% then 20%. Gold slices through $1000 on it way to $2000. Oil barely slows down at $100/ bbl. Stocks recover in nominal terms, politicians say everything is all right (and it is in their offshore special funds), and the middle class wonders why they are falling behind.

Real energy efficiency measures are adopted from the high prices, and troops are brought back very delusioned (like Vietnam).

Investable suggestions:

Gold, oil, short junk, non US

[OilIsMastery]

$this->bbcode_second_pass_quote('Roccland', 'T')he Credit market continues to "freeze up" meaning that there are no good pricing models