Sunday, July 5, 2009

What would the tipping point day look like?

Honoring the Fourth, I have been wondering what a tipping point day might look like in the credit/FX markets. One thing we have seen is that things can sink very quickly in a day or two.
I think we might see a combo credit/FX crisis. Something like the 10-year yield up 100% in two days, USD down 40%, S&P crashing 15%, gold and oil up 20-50%.
This will be the day the music dies.
It will also affect every single aspect of everyday life: the banks will shut down, people will start to hoard food, gasoline and medicine which will lead to shortages very quickly in our over-optimized JIT inventory world. Ambulances and police cars not running. Looting, riots, etc.: all the things you now see on TV happening in the third world will happen here. The US will not be a fun place to be then.

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