Okay, folks, this is not a drill.
Events have now sped up to the point that we cannot predict what will happen next. At this point a systemic banking crisis, complete political upheaval in one or more countries, a currency crisis, or a debt crisis are all within the realm of the possible.
This is the most difficult Alert I've ever had to write, because I know I have not yet processed all the necessary information to truly assess the risks. I am operating on gut instinct here, and several of you have already reminded me to trust myself. Thank you. That's what I am doing now.
The risks I am most concerned about striking outside of Japan are:
A derivative-fueled banking crisis. Another banking crisis could shut down international monetary flows for a period of time, which would severely impact your ability to access your money, conduct trades, or otherwise take care of business.
Critical shortages. Already we know that much of Japan's manufacturing output will be crippled for a while due to quake damaged plants being destroyed, workers failing to show up as they attend to their families in a moment of deep crisis, and electricity shortages due to destroyed power plants being taken permanently off-line. How much and which products will be affected will take weeks of effort to discover, as our highly integrated global supply network has an unknowable number of nodes that originate in or pass through Japan.
A global GDP insult. Building on the idea of critical supply chain disruptions and shortages, it is a safe bet that the world economy will take a hit now that various products cannot be manufactured and sold. Rather than a gentle slow-down that can be easily managed, the risk I see here is akin to a large wrench being tossed into a delicate transmission. The risk springs less from how much you slow down, but rather how fast you do it. This global GDP hit will further expose the weakness at the periphery, probably taking down the weaker players once and for all.
The main story line here is that Japan is a critical and embedded player in both the financial and productive economies, and it has suddenly, almost instantly, been taken off-line. We don't know what might happen next, but we should be prepared for anything.
Recently I had advised readers to be ready for a big downturn linked to the idea of a QE cessation. I am going to retract that somewhat (almost entirely), because this Japan crisis will provide all the political cover necessary for more printing.
Nonetheless, a market rout is on, but for entirely different reasons than I first projected.
At any rate, the time to move to cash from stocks is slipping quickly past, if not already gone, but if you haven't made that move yet, you should consider waiting for the next "Bernanke bounce" in which a few hundred billion are tossed into the kitty to stabilize the markets.
This alert is going to be a living document in the sense that I will be constantly updating it as time goes on and events unfold. The first stage of my advice centers on the basics. You need to have all of your basic preparations completed at this time. Food, water, medical kits, shelter, cash out of the bank, and all the rest should absolutely be in place at this time.
Get the basics done. Now.
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