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kaskoosek (99.76)

knock knock who's there? Mr. Hyperinflation!!!

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2

November 25, 2008 – Comments (3) | RELATED TICKERS: SLV , RJI , DBC

Wealth destruction is on the way,

The tide is turning, and momentum has shifted the other way.

Fiscal spending that will not generate productivity, coupled with budget deficts that are unsustainable (DEBT/GDP) will cause prices to explode. Ooh I am afraid that prices will fall. Stop talking nonsense. This is an opportunity of a lifetime due to very low prices and the only way fools can conserve their wealth.

Transfer of wealth is already happening from the people who are sitting on huge amounts of cash to the people in debt, but in a very subtle way. 

Fools these are the recomended picks to conserve your wealth.

Recomended picks for investing rather than only Caps.

DB Commodity Double Long (DYY)

iShares Silver Trust (ETF) (SLV)

Rogers Intl Commodity Agriculture (RJA)

Rogers International Commodity Index (RJI)

POWERSHARES DB CMDTY IDX TRA (DBC)

GS Connect S&P GSCI (GSC)

 

3 Comments – Post Your Own

#1) On November 25, 2008 at 1:49 AM, OtherOracleOfOMA (99.58) wrote:

"Ooh I'm afraid that prices will fall"

The prospect of a general, accelerating fall in prices should startle you. It's impossible to have a recovery in a deflationary environment. Credit defaults destroy money, so the fall in prices drives up interest rates in real terms. Normally, increased saving drives interest rates down, investment becomes more attractive, and growth resumes. In the present environment, that is not possible.

Read this.

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#2) On November 25, 2008 at 2:24 AM, kaskoosek (99.76) wrote:

"Until there's a large fiscal stimulus package, demand will continue falling"

This is from the article you wrote. I think that people are already expecting a large fiscal stimulus, and actually it is already happening through bailouts.

This is why eventhough credit is tightening, price of gold which is positively correlated with inflation is going up. People expect inflation in the future which is why investors are buying gold right now.

There is also another senario that you have failed to mention which is "how do you expect the government to pay back its debt".

Taxes will not be enough, and in my mind the only possible way of repaying is by inflation. Rates are already low, meaning government is trying to reinflate credit, which in some way or form would lead to people buying back T-Bills. If this does not work and the government fails to re-inflate the bubble, then the only possible way is through the Central Bank directly providing loans to the government. This is hugely inflationary, akin to a printing press

 

 

 

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#3) On November 25, 2008 at 2:41 AM, kaskoosek (99.76) wrote:

"Rates are already low, meaning government is trying to reinflate credit, which in some way or form would lead to people buying back T-Bills."

I will re-word. By reinflating the economy (through lower rates), government debt would decrease in real terms. Usually what has sustained the US government prior to this crisis was foregn governments buying T-Bills eventhough there was the risk of inflation. These governments were will to pay the price at that time. Would we expect them to continue buying at the same rate or actually liquidate them. I think the question here is impossible to answer without a crytstal ball.

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