Multiple Plays

My favorite NFL player, Peyton Manning, has one of the most interesting pre-snap processes in the league. In the huddle, he presents 2-4 different plays that might be called. Tom Moore, the offensive coordinator, serves as mentor and presents the original 2-4 plays. Upon getting to the line, he assesses the defense and makes a final decision. He and center, Jeff Saturday, bark out the code words for the play and blocking scheme.

In my October 2008 post, Four Potential Outcomes, I presented what I believed to be the four potential outcomes in the near future. Outcome #1, deflation, appears to have already swiftly occurred devasting asset prices in all sectors including commodities. The "missing piece" is that from an Austrian economics perspective, credit and money expansion need to deflate also. As we know, the opposite is occurring on a staggering level.

Option #2, inflation, appears to me to be the "next wave". The Fed and the Obama administration are continuing the "money printing" that Reagan, Bush Sr., Clinton, and Dubya participated in. The difference is that it's being done at unprecedented levels. The "slope" of the M3 curve makes Clinton's "printing" look trivial. The most likely result will be massive hyperinflation. This will drive prices of everything through the roof. As stated in the Oct-2008 post, buy some commodities. Gold is already back near its pre-crash price.

Option #3, the "zig zag", is the sideways movement similiar to Japan from 1990 to present. This involves minor "ups and downs" with no significant growth or contraction. Based on the past six month decline in prices, I would say that this option is already ruled out. The significant drop in prices already in place is more than what I would describe as a "zig zag".

Option #4, "the party continues", is the most fascinating to me because my unofficial survey says that everyone is still "all in" with stocks. The "40-50 something" generation only knows stocks and 401k's. The concept of buying gold coins is so foreign to most and I admit that it was initially to me (just had some more shiny ones arrive yesterday....beautiful!). I believe that the American public hopes for a continuation of the Supersize Me Era. We really enjoyed it and we hope that somehow Obama can keep the party going. Unfortunately, I believe that the kegs have run dry and we'll be forced to shift our mentality to a place it hasn't been in our lifetime. It's best to be proactive than reactive. Reactive can be very painful. Hopefully you have a nice photo album of the era. It will be one to remember.

As stated earlier, Peyton Manning, comes to the line with 2-4 plays. I believe that the American public only has one play. Design your plan with multiple plays and risk weight their probability of occurence. Also, assess your advisor. Tom Moore, Manning's offensive coordinator, has a great track record of success which eliminates Peyton's need to question the play calling. Who is your play caller? Has he/she only presented one play?

Here's my assessment of the probability of occurence:
-Option #1: Deflation (35%)
-Option #2: Inflation (55%)
-Option #3: Zig-Zag (0%)
-Option #4: Continued Bubble Expansion (10%)

The heavier weighting of the inflation outcome has driven me to shift my portfolio strongly towards commodities (oil, natural gas, food, gold, and silver).