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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (2176)	6/9/2003 12:50:50 PM
From: Perspective	Read Replies (3) \| Respond to of 4905

Nope, my scenario has one and only one critical requirement: that the Fed will resort to any and all measures at its disposal in an attempt to keep the positive feedback of a deflationary price spiral from engaging. Scenario #1 - If the other countries don't cooperate, the dollar gets hammered vs. other world currencies. The dollar-based price of everything necessary to live soars. Scenario #2 - If the other countries do cooperate, the dollar doesn't crater vs. currencies, but it craters vs. everything necessary to live - global hyperinflation. For many moons now I've pondered which would win: inflation or deflation. The answer is: both. Deflation will decimate general corporate profitability and employment levels, and the Fed's guaranteed response of ever-increasing liquidity will insure a runaway inflation. It will require that we eventually take our medicine in the form of positive (market-determined) real interest rates again, but not until the folly of easy money is fully demonstrated. Note that the US, Japan, and now Europe are all on board in the bonfire of the currencies, and China continues to be content to peg their currency to the dollar, receiving a tidal wave of green US confetti in return. This favors outcome #2, which means that there's nowhere at all to hide in any financial asset - real things are the only way to go. I can't stress it enough - get real - get gold, commodities - stay away from paper. If it can be printed, it will be devalued. This is a case where "Don't Fight the Fed" actually holds true. If the Fed wants inflation, it can make inflation, and you'd better believe it. What it cannot do, however, is increase corporate profitability, employment, or standards of living through its (misguided?) policies. BC