So i haven’t posted for a few days as… well.. frankly it seemed to just be more of the same. Markets diving, politicians procrastinating and dropping the ball, Germany saying “nein” to just about everything and, of course, the obligatory eurozone finance ministers meeting that resulted in absolutely nothing (or actually to be fair even worse as they seemed to manage undermine every part of the so called grand solution they had put together just over a month earlier).

Things all in all were not looking good.

And to be fair they still aren’t. However what we have had today is the first sign of a global response to this crisis with the 50bp cut by the ECB, Fed, BOE and BOJ. It seems the situation was so bad, money markets so frozen and close to massive systemic collapse that only a coordinated liquidity injection by every major central bank was enough to kick start the system back into life. If this doesn’t scare you into considering how bad things have got then well.. nothing will.

So will this work? Well the exact analogy to what has happened today is that you’ve had a man who has had a heart attack and the doctor is now administering CPR. The first shock he is given (austerity) didn’t work. A second shot (EFSF) didn’t result in any meaningful improvement so a final massive shock is applied – and the patient shows sign of life. But the key question is will this final shock revive the patient onto a path of recovery or is the final death throw before he finally expires. On the basis of the markets reaction today the patient is at least still alive. What I suspect markets will want to see now though is a meaningful follow through from the major eurozone countries and the ECB to back it up. Apart from anything else if the leaders once again try to muddle through, ignoring the obvious signs they are leading the world into a second great depression, then Obama, China and the rest of the world would be perfectly in their right to throw up their hands and say “you know what – you can just default and to hell with it – we’ve tried everything else”.

What do I think will happen? Well I am quietly optimistic this might be the first sign people have at last understood what is at stake here. I expect the ECB to start lending to the IMF, and then the IMF lend directly to countries in trouble (Spain, Italy etc). Its a bit of fudge as the ECB might as well just give the money direct to the countries but if it gets around the German “nein” issue then as the route of least resistance I expect it will be taken. I next expect some serious further steps will be taken to create a true fiscal union (what Germany really wants) to be announced at the next EZ leaders meeting. Finally I expect even more austerity to be imposed in just about every major western economy combined with massive QE by central banks in the new year.

The one thing I would say though is that if what I say above comes to pass and this is the genuine start for the recovery for the eurozone then what today has done is shown very clearly that governments will adopt ultra loose monetary policies well into next year to try to , effectively, print their way out of the situation. And what does liquidity and more money mean people? Liquidity means inflation and inflation if you’re not careful will _kill_ savings and create massive social unrest (you didn’t think more money would mean higher wages did you?).  So what to do? Well the best traditional hedges against this are gold, commodities in general, and physical assets such as property or art. Why? Well if there are only a finite number of resources and the money supply has massively increased (i.e. people have more of it) then each will be able to bid higher and higher sums to acquire said resource. I’m just saying….

We live in interesting financial times.