Hi All,

Never posted on iTulip before, but been reading it for awhile. Great place, helps to cut through the crap of mainstream media and get a lot of insight to what is really going on.
Iím an amateur and try to improve my understanding of markets and economy. I have rare moments of clarity, but more often than not it goes back to confusion
Iím experiencing one of such moments of back to being confused and if somebody can take a few moments to connect a few dots for me Iíd really appreciate it

Here it goes:
  • Unwinding of leverage.
The picture I had in my mind just a few days ago was like this: there are a lot of highly leveraged institutional and individual investors out there, economy is tanking due to housing mess, sooner or later the extent of problems will become apparent to everybody, stock market will go down, decline in stocks will be self-reinforcing and will lead to margin calls, liquidation of assets and as a result decline of all asset classes across the board. After the overall decline the assets classes will decouple and commodities in general and gold in particular will do well in the inflationary environment that follows.
The picture above made sense and the drivers of the above were high leverage and poor fundamentals. Now after the Feds move this week I started to get a sense that many people think that the Ka phase is over and we are already in Poom and that gold is already decoupled and is surging ahead, etc. Perhaps I donít appreciate the power of the rate cuts and how it influences things, but I fail to see how the highly leveraged situation with recession looming is going to change because of the cuts.
Any insights?
  • Risks to banks and financial instruments
I read many times that the risks are significant and that in certain scenarios a lot of banks can fail and even things like ETFs arenít solid. So the thinking goes that one shouldnít invest in FXEs and GLDs of the world, but buy physical stuff
I confess that I never clearly understood why such companies as Vanguard or Fidelity for example will fail and itís another one of mine missing dots. The same goes for FXE, GLD, etc.
  • 401K scenarios
401Ks allow doing tax-deductible saving and essentially amounts to instant 30% initial return. The problem is choices of investments are very limited. Letís say all one can get that makes some sense in the current environment is a money market fund. Does it still make sense to do it or the inflation will get so bad that itís better to pay the tax and buy gold or foreign currencies or whatever? I canít quite calibrate it.

Thanks in advance