Financial Meltdown

Nuclear Meltdown:

A nuclear meltdown is a term for a severe nuclear reactor accident. This can occur when a nuclear power plant system or component failure causes the reactor core no longer to be properly controlled and cooled to the extent that the sealed nuclear fuel assemblies – which contain the uranium or plutonium and highly radioactive fission products – begin to overheat and melt. A meltdown is considered very serious because of the possibility that the reactor containment will be defeated, thus releasing the core's highly radioactive and toxic elements into the atmosphere and environment. From an engineering perspective, a meltdown is likely to cause serious damage to the reactor, and possibly total destruction.

Several nuclear meltdowns of differing severity have occurred, from localized core damage to complete destruction of the reactor core. In some cases this has required extensive repairs or decommissioning of a nuclear reactor. In the most extreme cases, such as the Chernobyl disaster, deaths have resulted and the near-permanent civilian evacuation of a large area was required.

A nuclear explosion does not result from a nuclear meltdown because, by design, the geometry and composition of the reactor core do not permit the special conditions necessary for a nuclear explosion. However, the conditions that cause a meltdown may cause a non-nuclear explosion. For example, several power excursion accidents have caused coolant to rapidly overpressurize, resulting in a steam explosion.

Welcome to the latest issue of ECAM. No charts today because nothing has changed. We are still in a bear market and I have no equity positions.

I have been watching with alarm the situation unfolding in the U.S. over the past few weeks. The more I see, the more it becomes obvious to me that the U.S. Fed and Treasury realize they have lost control of the financial system. Like a Nuclear Reactor meltdown, they know they have a financial meltdown on their hands and are doing whatever they can to mitigate the problem

I would equate their actions to date as being similar to a Nuclear meltdown where the only course of action is to introduce control rods into the reactor in the hope of bringing it back under control and avoiding a total meltdown (the famed "China Syndrome"). Everything you have seen them do to this point has not been effective and the reactor continues to meltdown. More control rods will be forthcoming.

It has been a historic few weeks with the failures of numerous investment banks, the takeover of Freddie and Fannie, the bankruptcy of AIG, etc. The recent banning of short selling until 02 Oct in 799 companies (expanded yesterday by a further 32 companies) is another "control rod" that has been inserted into the mess. The question is whether that is enough and where we go from here.

In all honesty, there is no one who can give you a reasonable answer as to where this all ends up. It is possible the "control rods" work and the "reactor" (world's economy) will merely be damaged but functional. It is also possible we go into meltdown and, if so, we revisit the 1930's and experience "Great Depression II".

Over the past week we have seen record equity price movements both up and down, record gold movements up and down, record dollar movements up and down, record U.S. treasury movements up and down, etc. The reason for this is because investors around the world are beginning to panic.

During this time of severe distress I think the most important thing is not to panic. Until the markets are given a week to settle down to the latest "control rods" being inserted, trying to position in one direction or the other is meaningless.

There will be a time when the smoke clears and we see what we have left. At that time I will look to position accordingly. Until then I will remain with my current positions and let this settle out.


As of today, my positions remain as follows:

-50% Fidelity International Bond Fund*
-25% Fidelity Australian Dollar Fund*
-25% Fidelity Euro Fund*

*percentages are as per how funds were originally allotted. Due to market fluctuations and ongoing equity monthly purchases these amounts vary 1-2% from that posted.


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