72 THE BiG DROP
is that the central banks must cause inflation. Without infla-
tion, sovereign debts are impossible to service and the world
will cascade into outright defaults.
This is extremely dangerous ground for your investments.
On the one hand, you must be alert to deflation, because it’s
the natural state of the world. On the other hand, you have
to be prepared for inflation, because central banks are out to
cause it at any cost. We’ve already shown you how... and will
continue to in the coming months.
The answer is to have a diversified portfolio with a selec-
tion of assets that will do well in all states of the world. We’ve
written elsewhere about inflation hedges that include gold,
land, fine art and hard asset plays such as transportation, en-
ergy and natural resource stocks. For a deflation hedge, you
should have cash or cash equivalents including high-quality
money market funds. But there are potential problems with
money market funds, too.■ Money Market Reform Regulation
Few people know about a regulation the SEC finalized in early
August 2014. It allows money market funds to suspend re-
demptions under panic circumstances. That’s always been true
of hedge funds, but never before true of money market funds.
Money market funds are supposed to be as good as gold.
You’re supposed to be able to get your money back tomor-
row if you want. This change means that during a crisis, you
may call up your bank and say, “I’d like to redeem my money
market fund.”
And they’ll say, “Hey, you and 10 million other people.
We’re suspending redemptions under a new SEC regulation.
Didn’t you see the brochure we slipped into an envelope a year
ago?” You should be aware of the dangers to your money even
in places conventionally thought of as safe.