There is a scene in the film Wall Street in which the main character Bud Fox, played by Charlie Sheen, is about to be carted away by the Feds for insider dealing, and a colleague of his comes over for a quiet word. He says “Man looks in the abyss, there’s nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.”
I bring this up because it seems to me that the leaders of the G20 are also staring into the abyss, and they are yet to find their character.
The abyss we face today takes the form of a deflationary depression not unlike that of the 1930’s and our leaders are playing a very dangerous game of chicken.
My guess is that for the time being they will continue to muddle along and make political hay, but when push comes to shove (something which can’t be too far off) they will attempt to counter the natural deflation of the depression with massive coordinated money printing. By my estimates they will need to print around $6 trillion and in doing so they will turn a deflationary depression into an inflationary one.
What does this mean for the markets? Well short-term it probably means we will see the trend of ‘Everything Down, The Dollar Up’ continue, but longer term it means we will see a very pronounced trend of ‘Paper Down, Things Up’.