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World Economic Outlook 2012

The year 2011 will be remembered as the year of the European sovereign crisis. This crisis is not
yet over. On the contrary: The risk for 2012 is that the European crisis will spread across the globe.
The stagnation in Europe and the United States will continue. Along with Japan the major world
economies are in crisis. Step by step this crisis is also affecting emerging markets...
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Most of the trends that can be observed currently have been in place for some time and most likely
will continue so. The longer these trends of rising commodity prices will continue, the more they
become incompatible with rising bond and stock prices. One of these two groups must give in. For
the first group - gold, oil and commodities - to crash, the emergence of a deflationary depression
will be required. This scenario cannot be fully excluded. For the second group - bonds and stocks -
to crash, an outbreak of inflation will do. Over the past decades, and particularly in the past couple
of years, monetary and fiscal policies of the major economies of the world have provided all that is
necessary for hyperinflation to happen. Nevertheless, an outbreak of hyperinflation should not be
considered as a certainty. The world economy finds itself in the curious situation that conditions for
both, inflation and deflation, have been prepared. The world economy resembles a boat on high
sea that has been loaded up with explosives. Either a spark will make the load explode before the
boat will sink or the boat will sink on its own and take all that’s on board down with it to the ground.
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Cash & Currencies
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While confidence in many European countries has been eroding over the past quarters, a loss of
confidence may also happen any time soon when it comes to the United States. In Europe it was
mainly churning that has happened in so far as investors who left Spain and Italy could buy
German bonds. Yet where can investors flee to when confidence in the US begins to erode? Let's
keep our eyes open and watch out where the smart money will run to in the second half of 2012.
Gold? Back into euro bonds? Commodities again? Could it be that when a more realistic
assessment will replace the current tide of prejudice, investors will notice that the one place where
assets sell below value could be Europe? It is better not to pre-program one's mind and make
premature predictions yet let's be aware that when things will change, they probably will change
dramatically this time.
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October 2012

The world economy is in a phase of treacherous tranquility with cracks and tensions all over the
place. No clear investment preference is available and all runs down to the choice between bad
and worse. Over the past couple of years there has been such a build-up of global liquidity that
markets simply cannot recede even if they are clearly overprized. Stocks, bonds, commodities, for
each and every investment item prices are high and given the avalanche of liquidity that has
inundated the markets these prices can even go still higher. The link to sober valuations has
been lost. The investment world is waiting for the final blow-off.
Watch out for the economies to show more signs of economic growth. Instead of being cause for
jubilation, investors should be aware that more economic growth can easily ignite the megatons
of liquidity which central bankers have planted around the world over the past couple of years.
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