The Monetary Monster-Crisis (48)

Exchanging Bubbles
jwr Bubbles are hitting global economy at increasing rates. Their intensities seem to be growing. Statistical similarities between hurricanes and bubbles' size are astonishing at least to those who are unaware of the mechanisms. A friend of mine told me to look at the Madness Of Markets-video1 and indeed the observations seem to be quite correct. Considering the strategy of surviving a sawtooth-economy's breakdown the wise (and the unwise) investors should start planning how to escape the bond bubble. It may take another year, or four years, but even a hurricane seems to deliver enough showers of rain to extinguish the little fire QE3 may have ignited if at all. Sawtooth economies2 end up in big bubbles and the movie clearly demonstrates that a new bubble is ignited well before the old one collapses. The idea of escaping the collapse is to move assets from the inflating bubble to the moderately growing next one.

New Bonds Old Bonds Gold

Fig. 1: Switching Bubbles in Sawtooth economies

The video "Extraordinary Popular Delusions and the Madness Of Markets explained clearly demonstrates how to escape from loosing all assets by sticking to bonds or any equivalent value. Now what is the perfect timing for switching from one bubble to the next one. Let's investigate the two bubbles which have been identified at the end of 2012. The bond's bubble is ripe and the gold's bubble is on its way towards maturity.

1 Extraordinary Popular Delusions and the Madness Of Markets explained by Grant Williams 2 The Monetary Catastrophe (34) - The Basics of a Sawtooth-Economy

Consider an idea of a crashing monetary system and the need to swap your liquid assets to another monetary system, say from Euros to Renminbi. Of course you might also wish to wait for a while to see what happens until the crashes' dust are disappearing. It may take some time before the air is clear again and new bonds are being defined probably based on a more decent base than the old fiat-money. I've heard some monetary designs are being developed right now, but they will take time to grow to maturity and stability.

New Bonds Old Bonds Gold

Fig. 2: Switching Bubbles in Sawtooth economies In the meantime it might be wise to switch from the old bonds to another stable asset. Of course the majority of the owned bonds should be shifted to another asset before the old assets collapse. Then it might be wise to wait for some time until the markets have stabilized. As soon as another an improved asset has been established you might risk another switch. That's what seems to make sense. However the video clip titled Extraordinary Popular Delusions claims that the bubbles seem to be based on the majority's ignorance and it may be worth to think to which category we would like to belong... To the wise or to the fools