Economic Collapse?

The futures are continuing to get weaker tonight and as much as I hate to say it, we may be on the verge of collapse. I have been an advocate of letting the weak fail without government assistance, but I hope they bail AIG out. If AIG goes down, I think we could be looking at a 50% down move on the major averages. Retirement wealth is evaporating and our country could be in real trouble. Now I know my next few statements are going to get a lot of criticism---and that is OK. I think the best way to hedge over the long haul is going to be oil---not gold. I believe the selling in oil today is a function of hedge funds raising capital and margin calls for investors who were late to the party. Here is the issue that I have with gold--I am not sure we are going to see a falling dollar. What we have heard from Jim Rogers and Peter Schiff about the problems with the U.S. economy have been right on the money. No doubt about it----these guys not only know their stuff---they did their best to warn people long before things really got bad. The part of their theory that hasn't played out totally is rampant inflation and the collapse of the dollar (even though the dollar has been in a steady significant decline).

I am wondering if the collapse of so many assets is going to stave off inflation. I really believe that the tight credit markets are having more impact on inflation than are the lower interest rates. Money might be cheap, but if it isn't available, then it can't contribute to inflation. I doubt we are going to see wage price increases in the next few months. If we don't see wage pressure, we aren't going to see that much inflation near term.

Now as to why I think oil will be better than gold. First, the reson that I believe oil was under pressure today is that it had become more popular as a hedge than many gave it credit for. Could it be that the commodity that got hit hard today was truly the inflation hedge (and it was just being sold off because there had been a lot of capital allocated to it)? I am sure I will receive tons of emails accusing me of being everything from drunk to downright crazy for this thought process, but I think it is accurate. Gold has "real" useage than does oil in this environment. For the gold theory to hold, I think we had to see foreign markets hold up much better than the domestic market. That certainly IS NOT THE CASE RIGHT NOW. If you don't believe me, go take a look at the foreign averages. They are getting absolutely hammered. Are we going to see more FORCED LIQUIDATION tomorrow? Most likely. After things settle down I believe that we will see oil outperform of the next few months. I talked to a friend tonight who owns a local oil service firm. I asked him if they had seen any decline in demand for their services with oil falling from $140 to below $100. He literally laughed in my face. He finished by saying that anyone in our area that was unemployed just didn't want to work because the work is there. Oil over time will have more demand than will gold. Over the term of this immediate crisis you may see gold continue to climb, but I believe there will be a changing of the guard to OIL AS THE BEST HEDGE FOR INFLATION.

Now I shouldn't have bought any stock today, but I bought FLR at $60. I am going to hold this one for the long term and think it will see $100 in a couple of years as oil demand continues to grow. I expect to endure pain in the short term. I am using a flat value for my account as a stop. When my account reaches a certain value, I will liquidate everything. If our economy collapses, I want to have CASH.

I hope we don't get there, but if AIG goes----we are in trouble.