"China also bought 590,000 tonnes of aluminium, 159,000 tonnes of zinc, 30 tonnes of indium and 5,000 tonnes of titanium, said Yu, who works in the National Development and Reform Commission's industry department." Now that metals prices have rebounded, though, will the stockpiling continue, even at high prices? Or was it a case of bargain shopping at everyday low prices?

There are several components of demand. There's real economic demand (you need the stuff to make other stuff). There is investment demand (you're buying it in order to make a profit from what you think the price trend is. There is also pure speculation, and it's possible that some middle-men were flat-out speculating by buying alongside China's State Reserve Bureau (sort of like the banks and brokers in the U.S. buying Treasuries ahead of the Fed late last year to improve Q4 earnings).

But if you're trying to figure out the ultimate direction of certain base metals prices (or commodity prices in general) you have to also consider the currency in which they're priced. Or, as my colleague Dan Amoss writes, "You also want to consider what Ben Bernanke and Tim Geithner will do to debase the dollar in the coming years. If you're a foreign creditor facing with this constant portfolio decision, which has higher marginal utility? Is it 1.) US$2.32 or, 2.) one pound of copper?"

Dan is referring to a pretty handy economic concept. Marginal utility is the economist's attempt to quantify how much satisfaction or benefit you get out of each additional good or service you buy. You have probably heard the term "diminishing marginal utility" more often.

An easy way to understand this is that while one cheeseburger may satisfy your appetite (and your craving for animal fat), four cheeseburgers gobbled down in a row are neither useful nor terribly good for you. They might even be bad (although as an American, we are reluctant to concede this point).

In Dan's scenario, U.S. dollar holders will ask themselves if each additional dollar owned is more useful. Given the fact that the U.S. monetary authorities are making so many dollars, it's pretty clear that each additional dollar added to supply makes each existing dollar less useful. It is not very satisfying to see a methodical reduction in the purchasing power of your savings.

If Dan is right, then stockpiling real assets (even during a relatively weak economy) makes more sense that stockpiling U.S. liabilities. Or, as Dan says, "The Chinese will probably go with #2, especially because copper (and oil, and iron ore) can be stored and used in infrastructure projects to keep the population somewhat placated with infrastructure jobs," says Dan.

He adds that you should look for the Chinese to stockpile resources on the dips in commodity prices, while selling/divesting of U.S. Treasuries into the rallies that come with 'safe-haven' buying. That sounds right to us. But the only catch to the plan is if Treasuries fail to rally on safe haven buying.

On that score, the Treasury market seemed to survive last week's big auction without a huge spike in yields. If the economic news remains neither bullish nor exceptionally bearish, then we reckon Treasuries could rally (prices up, yields down), providing a discrete exit opportunity for certain large investors.

Incidentally, we still haven't seen much in the Australian press about the long-term consequences of government deficits. That's probably because most people are accepting the government's case that Australia's borrowing (and its deficits) will be temporary. We're not as sure. And besides, there are some serious questions about how structural deficits affect a country's currency, its credit markets, and its interest rates.

Those are just some of the questions we hope to take up at our upcoming debt symposium/summit, which will precede the first Australian screening of I.O.U.S.A. We've even picked a date, booked a venue, and secured a cracking panel of experts to train their eye on Australia's very own addiction to debt. Stay tuned for your official invitation!

Meanwhile, did you see that China has astonishingly and rather conveniently discovered some 3 billion metric tonnes of hematite and magnetite iron ore? It's apparently true, and probably comes in pretty handy during the current stagnated annual price contract discussions with Aussie iron ore producers BHP Billiton and Rio Tinto.

As you know, China is the world's largest steel maker and thus the largest importer of iron ore. Chinese geologists claim they have found Asia's largest iron ore deposit ever in Benxi city, which is in the northwest province of Liaoning. The good news is that the deposit is said to be about 2.5 miles long and 1.8 miles wide and could, officials say, have a mine life of 50 years-if a mine is built.

The bad news is that the resource (not a reserve because it's not know if it can be produced economically) is buried around a mile underground. That's a long way down, or a long way to lift iron up, if you prefer, and if you're strong (which China is).

Contrast that with the Pilbara, where the stuff seems to lying around waiting to be found in the hundreds of millions of tonnes by any Tom, Dick, or Kerry. That's right. Iron Ore Holdings, owned by Kerry Stokes, told the ASX yesterday it was increasing by 50% its estimate of its mineral resource at Iron Valley in Western Australia.

This deposit is only 97 metres below ground. It's surrounded by big projects by BHP, Rio, and Fortescue. And the company says it reckons its sitting on a 132 million tonne resource-which is up from the 88 million tonnes it believed it had just three months ago.

Proving up a resource into a reserve-and seeing your share price benefit because of it-is the name of the game for the iron ore juniors. Despite the big Chinese find, we reckon the Iron Valley story is where the Big Picture meets the Little Juniors (or where the rubber meets the road, if you prefer).

At the right prices, stockpiling commodities makes sense to people who will need them later anyway and already have too many U.S. dollars. And if prices aren't right...if..in fact...commodity prices decline (either because of slow economic growth or a halt in stockpiling) then commodity stocks probably fall a bit too...which makes those very stocks-especially the smaller ones that need capital and JV partners-the next logical candidates for acquisition or accumulation.

Dan Denning
for The Daily Reckoning Australia

• Australian Iron Ore Shares on China’s Menu
• India Beats China to Walk Away With 200 Tonnes of IMF Gold
• Have the Chinese Stopped Industrial Stockpiling of Raw Materials?
• China Performs a Kind of Financial Alchemy
• Chinese Steel Price to Rise in Wake of Coal and Iron Price Hike

A smattering of articles in recent weeks has highlighted the stockpiling of metals by the China State Reserves Bureau. The Bureau scarfed up 329,000 tonnes of copper in February and 375,000 tonnes in March. This buying has partly fuelled copper's 47% rise year-to-date (it's tied with lead for the biggest gain so far) and its 70% rise from a low of around $2,800 in December of 2008.

Couple this with additional stockpiling of metals like aluminium, nickel, zinc, and tin, and you could make a case that China is trying to back its currency with metal. After all, that would be consistent with the call in March by People's Bank of China Governor Zhou Xiaochuan for a global reserve currency that was not the U.S. dollar. Also, a currency backed by a basket of commodities would certainly have more tangible value than a currency backed by a basket case of basket case currencies (yen, dollar, euro, Yuan).

But the story is probably simpler that a great global currency end game. Copper prices fell by 70% from their July 2008 high to their December lows. Trading depreciating U.S. dollars for copper at rock-bottom prices is a great trade. It's especially great for a nation that plans to electrify itself (which takes a lot of copper) and be a world-leading producer in hybrid cars (which also takes a lot of copper...and a lot of rare earth metals, by the way).

So is China laying the foundation for a commodity currency backed by stockpiled metals and minerals? Probably not. It's just stockpiling minerals and metals while prices are low. And to the extent that the move has anything to do with a currency, it's not China's currency. It's the U.S. dollar.

The Chinese economic planners realise they have made themselves strategically vulnerable to dollar devaluation by owning so much long-term U.S. Treasury debt. The U.S. government is loading up on debt. It intends to pay it back with printed money. This classic devaluation punishes long-term bond holders whose principal is thrashed by inflation.

Besides, since Chinese companies (State-owned and otherwise) keep getting rebuffed trying to take equity stakes in foreign resource producers, it's better to take the Jim Rogers approach and just by the stuff directly and not bother with Wayne Swan and FIRB.

Does any of this benefit Aussie resource producers? Well, yes. Chinese stockpiling of metals has lead to a seven percent rise in aluminium prices in the last month and a nearly twenty percent gain in much maligned zinc prices. As we showed in a Diggers and Drillers e-mail update two weeks ago, Aussie base metals producers have surfed the Chinese liquidity surge into commodities to double digit share-price gains.

Liquidity surfers beware!

The trade only makes sense for would-be stockpilers if prices on the Comex and the London Metals Exchange remain attractive (rock bottom). If speculators try to climb on board the stockpiling bandwagon, it's going to make for a really volatile trading market. Copper for three-month delivery lost 3.6% in London trading on the LME. And on the Shanghai futures exchange it fell even further, down 5% in yesterday's session.

My my my. Let's think about this, shall we?

This situation isn't exactly the same as the across-the-board rally in all asset classes that began in 2003 after Alan Greenspan cut U.S. short-term rates to 1% and left them there for awhile. But it is absolutely the same in one particular aspect: U.S. monetary and fiscal policy is fuelling inflation in certain asset classes, and probably not the asset classed policy makers intended.

In this case, the Fed's quantitative easing policy is designed to drive-down borrowing costs and free up credit. What's happening, though, is that U.S. creditors are abandoning the long-end of the yield curve of the bond market and flooding the short-end (when they aren't bidding up commodities). Fewer creditors want to lend the U.S. government money for 30-years. More are willing to do it for 90 days, even if yields are low, just for the sake of having a liquid, near-cash investment in a still dodgy financial landscape.

You can see this vividly by looking at two-year charts showing the yields on 90-day T-Bills and 30-year Treasury bonds. Check them out below. Bloomberg reports that according to data from the U.S. Treasury Department, China bought $5.6 billion in bills in February and sold $964 million in longer-term notes. Its preferences are clearly changing. You'd expect the 90-day T-bill to again approach zero, and 30-year yields to rise. And in fact, that's exactly what the chart shows.

90-Day T-Bill Rates Again Approach Zero

30-Year Rates Bounce as U.S. Creditors Factor in Inflation

These two charts are bad news for Uncle Sam and probably good news for Uncle Kevin. For the U.S., the shift in borrowing to shorter-term notes and bills makes future borrowing needs extremely interest rate sensitive. Every try rolling over a $1 trillion in debt when interest rates have doubled? And remember, future borrowing needs are massive, with the Congressional Budget Office predicting a deficit of $1.4 trillion next year and nearly $10 trillion by 2019.

If creditors aren't willing to fund U.S. deficits, then the Fed will. And that means printing money. This has two effects. One, it drives up interest rates on longer-term bonds even more (making long-term financing expensive) and it accelerates the flight out of U.S. debt into tangible assets.

Either way, funding U.S. deficits with borrowing-whether its long- or short-term-is the prelude to dollar devaluation. The only way that money gets paid back is through money printing. There is a remote possibility that new taxes could cover the interest expense on U.S. debt. And in case you missed it last Friday, the U.S. Environmental Protection Agency officially classified carbon-dioxide and several other so-called greenhouse gasses as threats to public health.

This reclassification gives the EPA authority to regulate threats to public health under the U.S. Clean Air Act. More likely is the passage of a bill in the U.S. Congress to institute a "cap-and-trade" system on carbon dioxide in which carbon dioxide "polluters" could bid for permits that allow them to emit a certain amount of CO2.

The folks in the Obama administration reckon a "cap-and-trade" regime on CO2 could generate anywhere from $500 billion to $1 trillion in new government "revenues." And the best thing of all is that it won't look like a tax increase. It's a new regulation that imposes upon business the real cost of producing CO2 emissions.

If you think for a minute that those costs won't be passed on to consumers, though, you are obviously brain dead and not reading this at the moment (RIP). Consumers will bear the brunt of a cap-and-trade system with higher energy costs. And that's if the higher costs don't put energy producers out of business altogether. After all, it's not hard to imagine the government imposing a "cap-and-trade" system that raises production costs, but simultaneously capping retail electricity rates (howling voters freezing in their sub-prime prisons).

Do these people really hate coal that much?

You can see that all across the world, the effort to prop up asset values with more inflation is having a widening circle of negative unintended consequences. To keep all that borrowing from being immediately inflationary, governments are grubbing like addicts for new sources of "revenue" that don't arouse the ire of the population. And they don't seem to care if they wreck the economy in the process.

Which brings us to Uncle Kev. Australia's future borrowing needs look small compared to Team America's. Right now, the Aussie government reckons that the deficits as a percentage of GDP will be around 2% in the upcoming budget year and 3% in the year following. That doesn't sound so bad, does it?

In the U.S., the CBO projects the 2009 Obama budget will produce a deficit 13.1% of U.S. GDP. Even under an optimistic scenario, the ratio only declines to 9.6% by 2010. The trouble with deficits is that they become part of the public debt. And the public debt as a percentage of GDP is already at 74% in the U.S. and climbing.

Granted, it's been much higher in other countries (like Japan) and not led to a collapse deficit financing. But each country's case is particular. And what we'd say here is that the long road to national debtor status begins with running annual deficits out of "necessity." The real trouble with short-term deficits is that they add up, year after year, into long term debts.

Speaking just before Reserve Bank Governor Glenn Stevens confessed that Australia was in a recession, Kevin Rudd-in that tortured parlance that he has mastered-said, "The truth is this - the global economic recession makes it inevitable that we'll have a recession in Australia which means that, as we frame the budget, we're going to have to make even stronger our economic stimulus strategy because unemployment will rise even further."

What on earth does that mean?

We think it means that Rudd is already laying the ground work for further transfer payments to Australians which he is going to call "stimulus" and which he is going to claim will help the country avoid recession. But that was the goal the first time around in December, and it didn't seem to work then. So why try again?

Undoubtedly, the people in Canberra who are eager to borrow on your behalf and funnel the money to favoured constituencies will say that the "stimulus" made things less worse (as if a $900 cash payout makes up for the risk of losing your job). They will keep on stimulating until the Prime Minister's poll numbers fall, at which point China will probably be blamed for something to distract the public's attention. Or perhaps the issue will be immigration. Who knows?

Mind you, we're not saying the Liberals look any better on this issue. Across the world, moron politicians on the Right and the Left are trying to spend their way out of a recession that was caused by too much spending. Only an idiot could embrace and defend that strategy. But then, we are talking about politicians here.

The danger here for Aussie investors is that increased government borrowing to finance transfer payments and backstop the commercial property sector will force up interest rates. Higher interest rates are bad for household borrowing, corporate borrowing, and anyone who has a lot of debt to service (which includes a lot of Aussie households).

The secret to any good lie, we remember reading somewhere, is that the number of people who find out the truth is smaller than the number of people who heard the lie once and believed it. Most people are lazy. We hear a good lie once and even if we don't believe it, it sticks in our head. Say it enough and it begins to pass for truth, even if it's absurd.

Australians keep getting told that government stimulus is the way to soften the effects of recession until the recovery takes hold (an event which keeps getting further and further away on the horizon). But this is a lie. The stimulus doesn't solve any of the problems that face the economy. It just keeps people busy and distracted for awhile, while annual deficits and a rising debt (which must be financed by foreigners) become a fact of life in Australia.

The only upside to continued world-wide government ham-fistedness is that the monetary and fiscal insanity heighten the appeal of real assets. This represents tangible wealth for which there is a world-wide market. That's why in the April edition of Diggers and Drillers we resume our look for smashed-down base metals stocks that have exposure to commodity price gains by way of proven reserves of various base and precious metals. It's the best trade of the year so far. Just ask the Chinese.

Dan Denning
for The Daily Reckoning Australia

• China Has Stopped Stockpiling Metals
• Geithner Reassures China that America Takes Financial Obligations Seriously
• Australia’s Currency and its Economy Will Benefit from China’s Stimulus Package
• Chinese Foreign Mining Acquisition Equal to All of 2007
• Everyone is Busily Debasing Their Currency

Consider the statistics (12/31/07 vs. 12/31/08):

Housing - down 18% nationally, by the Case Shiller index, and 30% or more in most major metropolitan areas.

Domestic stocks? Nope. The Dow Jones Industrial Average - down 33%; Dow Utilities - down 30%; Dow Transports - down 21%. S&P 500 - down 38%. NASDAQ - down 40%. And if you were unfortunate enough to have invested in a financial-sector ETF, you lost at least 55%.

Foreign stocks? The Vanguard Emerging Markets Fund, a typical example, came in at minus 55%.

Bonds didn't fare well, either, with the yield on 10-year Treasuries dropping 42%, and 30-year T-Bonds off 38%.

Energy. Uh-oh. Crude oil - down 59%. Natural gas - down 37%.

Industrial metals took a whacking, with copper down 55%, nickel 56%, and aluminum 37%.

Food did a little better than most, which isn't saying a whole lot. Corn - down 17%; wheat - down 24%; live cattle - down 15%.

Enough. You get the idea. Every asset was mired firmly in the red in 2008, right?

Actually, no. The single exception was gold, which was up 5.6%. A modest gain in most times, but a phenomenal performance for a year where everything else tanked.

And if you managed to invest something other than U.S. dollars in the metal, you did even better. Gold rose 12% in euros, 32% in Canadian or Australian dollars, and a whopping 44% in British pounds.

Nor is this an isolated phenomenon. In 2008, gold posted its eighth straight yearly advance. Since the beginning of 2001, it has averaged a better than 16% annual gain vs. the U.S. dollar, 11% vs. the euro, and 17% vs. sterling.

Your financial advisor likely tells you to invest in the stock market and be patient, because over the long haul stocks will yield an average yearly return of 9-10%. Well, maybe so. But it sure depends on how generous your time frame is.

Over the past eight years, gold has added 215% (in U.S. dollars). During the same period, the S&P 500 lost 22%. The DJIA? Down 11%. In order to show a profit with a simple buy-and-hold strategy (ignoring all rallies and dips), you'd have to go back to early 1999 for the Dow, and 1997 for the S&P!

Where was your money in 2008? Or '07? Or...?

If you're a BIG GOLD subscriber, a significant portion of your portfolio was in physical gold and paper proxies tied to the gold price.

Yes, the gold-producing companies that we follow in BIG GOLD did poorly in 2008, as the frenzied stock sell-off spared neither market nor sector, across the globe. But we held on through the storm, and the miners have rebounded sharply in the past month. We expect that they will be stellar performers in 2009, as the coming inflation that's baked into the American economic cake begins to break out.

And despite the turmoil of '08, our readers always had something to cushion the blow. Gold. We advised buying it and taking it into their physical possession. When a severe shortage of coins and small bullion bars developed in the second half of the year and premiums skyrocketed, we showed subscribers where to buy at the lowest possible markup. For those with sufficient means, we provided detailed instructions for purchasing 100-oz. gold bars on the New York Comex.

2008 was a rough year, for everyone. But it's gone, and if you held gold and its proxies, you did better than most.

Doug Hornig
for The Daily Reckoning Australia

• Should You Put Gold Into Your IRA?
• The Price of Gold is Low – But It Won’t Stay There Forever!
• Price of Gold Today is About Where it Was 26 Years Ago
• S&P 500 Index Total Return Was Actually Negative
• Bear Market to Last at Least Five Years

This will never happen, of course. Automatic withholding taxes are a key source of government revenue at a time, the world over, where liabilities are rising fast. But it would be a lot more efficient than having Canberra, Washington, or London sprinkle out the money on projects that may or may not enrich politicians and their donors.

That is part of the big picture. In the littler picture, news came out yesterday that Chinese GDP growth may not reach the eight percent target set by the old men in Beijing. It will, perhaps, be just six percent growth this year.

Six percent GDP growth-if the number can be taken at face value-is no small feat during a worldwide recession. But China's policy makers have said in the past that in order to meet employment objectives (you need factory work for the millions moving off the farms) the economy has to grow at eight percent.

How will rising unemployment and closing factories affect China's political stability? Hmm. We have no idea. But we do know that according to yesterday's data, China's exports fell for the second consecutive month. They were down 2.2% in November and another 2.8% in December. It's the worst export performance since 1999.

More ominously for Aussie investors who would like to find the bottom in mining shares, China's imports fell 21.3%. As China imports a great deal of raw materials, this is not good news for the Aussie share market. In fact, the market was down nearly two percent intra-day, before finding the courage to close just in the red for the day.

Today, though, some of the world's biggest miners announced cost cutting measures. Rio Tinto is suspending underground work at its copper and gold project at Northparkes in New South Wales. It's also shelving plans for auto-mated trains at its iron ore operations in the Pilbara.

Mining shares are down at the open today. But behind the scenes, it looks like Chinese companies are using the commodity price crash as a chance to secure long-term off-take deals with Aussie companies. "Emerging West Australian iron ore producers are facing renewed Chinese interest in long-term off take agreements before an expected drop in contract prices," reports Sarah-Jane Tasker in the Australian this week. "Hartleys resource analyst Andrew Muir said Chinese steel mills were still looking for long-term off take agreements, but he warned that companies would now be more selective."

This is what Diggers and Drillers editor Al Robinson calls the "Pebbles" phenomenon. While BHP and Rio were engaged in a soap-opera like love/hate fest over conquering the resource world, Chinese banks and steel mills have been diligently sifting through the wreckage of the resource market for projects they want to finance, own, or invest in.

For example, Dow Jones Newswires reports that Gindalbie Metals has received conditional approval of a $1.8 billion loan for its iron ore project at Karara. Gindalbie is also funding the project by selling equity to Chinese outfit AnSteel.

So you see, business is still getting done. Let's not forget this. Someday, this crisis is gonna end. All the things we've discussed here in the Daily Reckoning will have come to pass (perhaps not exactly as we've forecast) and the world will get on the business of life, replacing one financial growth model with something less leveraged and more oriented to the growing places of the world. But just when that it is and whether or not it will be good for investors in Aussie resource juniors this year is unclear.

What is clear? Ben Bernanke is terrified. "Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," Bernanke told fellow terrified people yesterday at the London School of Economics. "More capital injections and guarantees may become necessary to ensure stability and the normalization of credit markets."

Here we are, 525 basis points lower on short term U.S. interest rates, a doubling of the Fed balance sheet to US$2 trillion and growing, and US$750 billion into a TARP that can't cover the rotting corpse of the financial system, and Bernanke told the world yesterday that the basic problem-bank balance sheets impaired by assets they can neither value nor sell-is no closer to being solved.

That seems like bad news.

Bernanke went on to explain the various policy tool kits at the Fed's disposal. You can break it down into three big hammers: lending directly to financial institutions, providing liquidity to key credit markets, and the direct purchase of assets. The Fed has already begun purchasing assets like mortgage-backed securities. But in theory, there is no limit to what kind of assets it may choose to buy and add to the balance sheet. It could even buy gold mines if it wanted.

"You don't really think it's the government's plan to make people poorer do you," one of our sceptical friends asked last night over a cold beer on a scorching Fitzroy Street in St. Kilda. "If they did that, you'd have social chaos. Revolution even. This isn't Batman. Bernanke isn't the Joker. He doesn't want to watch the world burn. He's just trying to start a little inflationary camp fire to fight deflation in financial assets."

"Should I get marshmallows?"

"Be serious. You write to people every day and predict things that...well if they were true, would truly be disastrous. The only reason it's not so monotonous reading the same thing every day is that it's often scary in some new way you've managed to think up. Don't you feel bad for all your fear mongering?"

"No. Do you realise how few people the Daily Reckoning reaches? And on any given day, I have no idea who's choosing to tune in. So we have smash our way through the garbage in the paper to let people know that things are happening in the world that have real consequences. There's a lot at stake. I don't feel bad for trying to highlight that. Plus, daloob."

"What?"

"Look, the answer is no. Bernanke is not trying to burn the world down. Maybe there are some people in government who are happy with that outcome, though. More than you'd like to think. It leaves them stronger and more powerful and the rest of us weaker. I don't know. Disorder is one way of keeping people busy and weak. But no, I don't think Ben Bernanke goes to bed at night plotting ways to turn the world's savers into serfs. But I do think that the destruction of paper wealth is going to be the end result in America and other places. This is how fiat money ends. And fiat money is what we have."

"You say that all the time. But you're going to pay for my beer with fiat money."

"Well, I always pay for your beer. And you never listen. Money is not wealth. Money is a commodity, a simple means of exchange. Paper money that is not backed by something real is not real wealth. It's not capital. It's just paper. And once people lose confidence in it, it's gone baby gone."

"What happens next?"

"Argentina. Weimar Germany. Zimbabwe. Take your pick. Us Americans and Briton and you Aussies as well, like to think it can't happen to us because...well because we have a high opinion of ourselves and the world's most powerful military. But the bills just keep piling up. It's a lousy way to live and a lousy thing to do to your kids. And it just doesn't last forever."

"Unlike your daily reckoning."

At that point, your editor left and returned to his home office to find this plan of action from a fellow reader. We liked it so much-and it's roughly what we have been steering toward for the last few months, that we reproduce it for your benefit. We're tentatively calling it the Emergency Private Pension Plan.

Hi Bill

"I just want to boil things down a bit - the DR can be a bit long winded (But it's free so who cares!) What we really want to know though is how we can retire in luxury within 2-3 years or less - perhaps you could develop the following for us a bit:

1. Now: We are basically in a recession with a tendency for deflation

2. Now: Governments are reflating / printing money to reverse the recession and deflation

3. Now: Governments are reducing interest rates to unprecedented lows - to reflate

4. Within 6 month: When inflation starts to rocket, so do interest rates

5. Within 12 months: When/if the recession "ends" we then get even more amplified inflation there being heaps of cash about

6. Within 18 months: To pay off the massive debts, taxes rocket but production also remains stunted so economies tend into a long slow recession with continuing high inflation again

So from this we conclude what we should do:

1. Now to four months: Expect a choppy Bear Market rally: great for leveraged traders and high dividend quality blue chips: double your money.

2. Four to six months: Swap into gold, puts/shorting and fixed interest securities: double your money in 6 months

3. Up to Twelve months: Swap into rebounding property but keep the gold: double your money again

4. Before 18 months: Cash in again and go into recession/ inflation resistant assets such as staples, telecoms etc, but probably retain 25% of the gold: double your money again over 2 years.

So after multiplying your initial cash by a factor of 16: cash-in, open a gold current account and go and live in luxury in Thailand (Where there's no capital gains tax!)

What do you reckon?

Cheers, SJC

--We'll drink to that.

Dan Denning
for The Daily Reckoning Australia

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