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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (14872)	2/11/2002 2:01:32 PM
From: Maurice Winn	Read Replies (3) \| Respond to of 74559

* Inflationary deflation *<I hope tomorrow is not The Day, and that all speculators will have an opportunity to seek redemption and change their ways towards the gods of work, thrift, family, and knowledge, and forsake the idol of effortless wealth.> Good morning Jay, well, it's Tuesday and the world is still on its axis [if I can use that word in civil company]. If we have words mean something, [which is useful in discussions], inflation means the consumer price index rising. I don't think we include the sharemarket but we would include gold and other products, goods and services. So, I can see that within the overall context of deflation, which is definitely a major worry and why the governments [Japan and USA in particular] are printing more money like there's no tomorrow [which they fear there might not be]. They are printing flat out to swamp the place with dosh and low interest rates so that people go shopping. They are going shopping for gold, CDMA phones and have cut back dramatically on wealth effect purchases since their portfolios were smashed to a tiny fraction of what they once thought they were worth. They are not popping another bottle of Bollinger in their supermarket trolley to celebrate the next million dollars. Deflation is when prices of products, goods and services are dropping. So, there can't be a deflationary inflation or an inflationary deflation other than in the sense that by printing a very big stack of low interest rate cash to encourage everyone to go shopping instead of sitting on their little hoard in their mattress, Uncle Al and whoever does the job in Japan are setting the scene for a rapid inflation as mountains of money look for something to own. At the moment, due to equity shell-shockedness, they are figuring that gold is the best speculative bet. Which is sad for them because gold will be as much a wild ride down as the dot.bomb and telecosmic black hole. Speculation is still speculation. Uncle Al, as soon as the markets have turned and financial implosion is obviously not going to happen, will race interest rates back up again to show people that they should not go berserk on the upside having escaped the maw of global depression and collapse. Gold's price will go back to the cost of production plus a modest profit. Those who buy on the way up will have to play the dot.com game. Get in early and get out at the peak when they ring the bell to tell everyone that the party's over. Since they never seem to ring the bell, people keep waiting for it to ring and down they go. People are being sucked into another bubble. This time a gold bubble instead of a tech.stock, telecosmic and dot.con bubble. It will be as financially damaging to the naive as those bubbles. It is deceitful to blame Uncle Al for the sharemarket bubble. The bubble was purely in the heads of the crazed, just as the gold bubble will be purely in the heads of the crazed. By blaming Uncle Al and inventing inflationary-deflation, fools and the ignorant will be sucked in and lose their money. That's assuming the gold bubble even happens. A lot of people will be shorting it on the way up, selling futures etc. I will have to do that. I'll sell gold for delivery in 2004 - I'll allow for some inflation. Uncle Al won't be able to pull all that new liquidity out of the markets so although there is currently deflation, we'll get inflation once the recovery starts. He'll stomp it very quickly, so I doubt it'll get out of hand, but there'll be some moderate amount. Which is, of course, not inflationary deflation. That's my theory. The idol of effortless wealth has abandoned the irrationally exuberant. They are back at work [with lower-paying jobs, no expense account, no Dom Perignon, no first class travel, saving money by paying their mortgages in the time-honoured way, though they have refinanced at lower interest rates and done a bit of shopping to boot]. Watching for a selling point on gold, as it too obeys the age-old rules of economics, with speculation followed by collapse back to the age-old costs of production plus a competitive profit. Mqurice