How to Make the Most of the Crisis - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 12 January 2013
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
The recent US fiscal cliff deal unfortunately did not solve very much. Mostly, it kicked the can down the road. In March, the US government will have to agree to a new legislation to deal with the heavy spending cuts to take place. In addition, the debt ceiling will need to be raised, increasing the prospect of the repeat of August 2011.

All indications based on the current political climate imply that there will be another fight between politicians. Most likely, if a solution is reached, it will happen at the last minute, and possibly delay bigger decisions until later. This is certainly what has happened in the past couple of years in these situations.

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From an investor's perspective, what should we do in the next couple of months? How should we position ourselves to make the most of the crisis due to appear in the next couple of months? The good news is that these US political crises are very short term in nature, and are very unlikely to have a negative impact over a long period.

What this means is that in the short term (i.e. leading up to the crisis and until it is solved), markets will certainly be on edge. The longer the crisis drags on, the more the markets will suffer. But once it is solved, markets will recover. It will work in a similar way to what recently happened; i.e. markets fell in the last two weeks of December, and recovered in January once a deal was agreed.

As investors, we should look for buying opportunities if this crisis drags the markets lower. In fact, the more markets fall due to the crisis, the better the buying opportunity will be. Even though US political issues have little to do with Indian stocks, the Indian markets will certainly be dragged lower due to the crisis, and there will be buying opportunities.

In the weeks to come, we'll know more about how likely a crisis is to develop. As of now, there has been little news in terms of solving this crisis, so it is likely that a crisis will occur. We'll keep writing nearer to the time and identify opportunities to enter the markets.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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1 Responses to "How to Make the Most of the Crisis"

Amal

Jan 13, 2013

Absolutely agreed -- the fiscal cliff is a non issue because US politicians have to solve it. The US culture is a spending economy -- just like the Indian culture is religious in nature --imagine the Indian govt not providing for facilities to promote religious activities - be it amenities in Kumbh mela or Amarnath yatra ... All hurdles to provide these facilities would be overcome -- similarly the fiscal cliff will finally prove to be a small uphill road not a cliff at all!!... More debt will be created - somehow or the other.

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