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To: reaper who wrote (225190)	3/4/2003 11:15:47 AM
From: Perspective	Read Replies (1) \| Respond to of 436258

All you have to do is look at the money supply to realize that we do indeed have monetary inflation. Of course, we have all the following simultaneously: 1. monetary inflation - money supply is surging, outstripping the growth in real goods for which they can be exchanged 2. deflation - debt has permitted creation of excess capacity and unsustainable levels of demand, resulting in collapsing pricing on finished goods relative to basic commodities 3. low interest rates - rates can be set, explicitly or implicitly, by the guy controlling the monetary yardstick. Print tons of money in the short end, it can artificially lower rates through players engaging in carry trades, even as the purchasing power is reduced. This is the negative return on your money that I (and all the responsible net creditors in the system, including many senior citizens) have been complaining about. Punish the responsible savers. Way to go, AG. In my view, just as we need to consider RMS (root-mean-squared) inflation figures, we need to view deflation/inflation differently. People consider the 1980s-1990s to be a period of falling inflation, but it wasn't. Prices may have been rising on finished goods, but they were falling for all the basic inputs. Now we have entered a period where the inputs are rising, and the finished goods are falling. The K-wave produces a see-saw effect, with the pivot on the see-saw placed between the inputs and the outputs of industry. The pivot for the see-saw is capital - equipment - and intellectual property. During K-summer, prices for finished goods rise and the inputs fall, as capital equipment and intellectual property are applied for maximum benefit. But in K-winter, excess capacity of plant and IP erode their value and the value of corporate equity, and the see-saw reverses. Finished goods prices fall, and the inputs rise in a relative sense. If the monetary base is stable, these are the only effects you would observe. Given a collapse in money supply, general monetary deflation results. Given a jam in money supply (like we have now), general monetary inflation results. The price impacts and the interest rate impacts can move relatively independently if the monetary base is not static. BC

To: reaper who wrote (225190)	3/4/2003 11:20:33 AM
From: Perspective	Respond to of 436258

In other words, gas is rising due to an unwillingness on the part of producers to stick their necks out and add capacity AND due to the explosion in money supply. Gas is low enough in capital/IP intensity that its price would rise in a deflationary environment given a static money supply. I'm realizing that successful investing can be achieved merely by recognizing which industry groups have relative pricing power. Go long those with pricing power, and go short those who lack it if you wish to avoid overall market exposure. In K-summer, that says go long capital and IP-intensive companies (technology) and short commodities and their producers. In K-winter, reverse the trade: go long commodities and their producers, and short the capital and IP-intensive companies. BC