The bankruptcy of Lehman Brothers is going to be a severe test for the Wall Street investment banks and the counterparty risk that they are exposed to through derivatives. This could well precipitate a crisis of confidence in the entire US banking system which has piled up derivative exposure equivalent to hundreds of times the nation’s GDP.
Anybody who has been thinking about dumping their US stocks has probably now left it too late, as everybody is going to head to the exit at the same time. Why should confidence be maintained in the face of such massive uncertainty?
What you can do is be very nimble about buying the only asset class, aside from bonds, that stands to profit in this situation: precious metals. The dollar is bound to resume its weakness, if only for one reason: the Fed is going to have to cut interest rates again to try to restore confidence.
Gold has fallen in value over the past couple of months while the dollar rallied in value. That rally is now over, and the dollar will fall sharply. This will bring gold and silver prices back to their earlier levels, and on to new all-time highs.
If you want to be clever then you should be buying the heavily discounted gold and silver producer’s shares tonight. On Friday we saw a bounce in precious metal stock prices across the board, and this is just a small taster for the real thing.
For maximum gain buy the junior gold explorers which have been most sold down over the past two months. This is a huge opportunity and a chance for people who have been losers in the precious metals sector over the summer to make amends and then some.
IMO it one could buy some calls in majors for 6 month term or so and hold as much cash on the side or buy bullion. This shit is looking bad, 500 points down today for dow and tsx, PMs go up but the markets put PM stocks down. I'm hoping there isn't a market crash coming soon. Financial problems around the world are bad news, good for gold bad for stocks. Hold on to your bullion.