It is better to be an outcast, a stranger in one’s own country, than an outcast from one’s self. It is better to see what is about to befall us and to resist than to retreat into the fantasies embraced by a nation of the blind.
Chris Hedges

Monday, September 29, 2008

First the Bailout - Now the Hedge

With a bailout deal now all but done, get ready for the next collapse in the financial house of cards that is the US economy. On Tuesday, investors in hedge funds can take advantage of the first in a series of "cracks". Cracks provide investors with the opportunity to pull their capital out of hedge funds. There are four such cracks. The first is this Tuesday, followed by opportunities in December, March and June.

I predict a run of selling that will see the collapse of many highly marginalized hedge funds. This will be followed by an increase in the stock market as wealth seeks a safe haven in offshore stocks (Asian and European Markets will have a good week this week.) There will also be sharp increases in commodities like oil and gold.

By the end of next week we will be seeing increases in the price of gas at the pumps. Because oil and food increases are no longer are factored in the Consumer Price Index, the CPI will remain unchanged, but in real terms families will begin feeling the pinch.

The injection of $700b into the system waters down the currency, so investors will transfer their dollars to gold. I expect gold prices to hit new highs by the end of next week. The Fed will have no choice but to increase lending rates as the value of the dollar falls inverse to the rise of gold. Companies will revise their profit projections and behind the scenes, the first in a long series of layoffs will be announce.

That's what I think will happen in the coming week.

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