Going from a manageable recession into a state of disorder

Disasters are usually marked by a number of incidents adding up and leading to the potentially worst outcome.

In this context, we just need to look what happens in the economy. We had a third bailout and unbelievable losses in the case of AIG, last week. This week Citigroup became a penny stock. GM is most likely nearing bankruptcy next week and already today its German subsidiary Opel is declared dead by the press. Then there is GE which might become the next victim. “It´s time for a break”, might be what distressed investors might think. The trend has becomes manifested over the last weeks, we are changing from bad times to worse.

Within the next six months we will be most likely to observe dramatic economic implosions and bankruptcies. The ticking economic time-bomb hidden in Credit Default Swaps might lead to bully-up companies and even countries. I confirm my earlier predictions that the events will turn out bad in Q2, and I had predicted this trend leading to a depression, back in 2007.

However, there are still some individuals who believe in recovery. Some Forex traders told me that I might be wrong and the recovery is in sight. I do not share their hope. The situation is too bleak. We have most likely passed the period of efficient preparation. Now, time runs out.

We are on our way to leave what I call phase-I. Phase-I allows us to prepare for what will happen in the crisis. It allows us to get some accessories, a survival kit, a swimming west and get into a boat. By April, the rescue boats will become scarce, and in case you have not managed to get one than most likely you will sink with the Titanic.

When this happens, governments will attempt to accesses your capital rights. This will happen in parallel to other distortions in the markets. While any kind of investment in the “economy” will be depleted, one will have to start worrying about governments actions. The rate of depletion has taken fascinating speed over the last weeks and is sheer impossible to keep up with the news, but I recommend you watch for signs of accessing your capital rights.

Let me give you some examples:

One of these things is nationalization, which we have seen now in many countries. They drive shareholders directly into losses. AIG´s former CEO Maurice Greenberg is a great example of someone losing a major amount of money. Another example for accessing your capital right is inflation. And inflation is building up. It is like a Tsunami. What you notice at this point of time is that the water pulls back, but you might want to watch out for the wave of freshly printed money. The next way is to tax you out by implementing new taxes. Last but not least there is something called quantitative easing and in my eyes it is the most advanced method of accessing the capital rights of people. By buying government debt or corporate bonds a central bank usually can control the monetary exchange rates. It is a monetary policy tool. Therefore it should not be used as a political tool to stimulate the economy at all. If someone decides to do so, he takes severe market distortions into account. At discretion bond and equity prices will move in one or the other direction. In a situation like this where market participants distrust it is like adding oil to the fire. It increases the level of uncertainty and cause even higher volatility. It´s economic suicide.