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To: Lee Lichterman III who wrote (258234)	8/30/2003 4:00:57 PM
From: Earlie	Read Replies (1) \| Respond to of 436258

Lee: Good comments. I fully agree that it is a complex game. Making it even more difficult to deal with is the fact that an economy can indeed be forced to deal with the worst of both worlds.... i.e., both deflation and inflation can be operant at the same time (like now?) I wish I had answers to your excellent questions, but I don't. What I do know is that at the interface that really counts.... retail.....where the consumer decides to buy or not buy products, things are not going well. I also know that government tax receipts are declining and precipitously at that in some jurisdictions. Recovery? What a giggle. Best, Earlie

To: Lee Lichterman III who wrote (258234)	9/1/2003 10:15:55 AM
From: yard_man	Respond to of 436258

Implicit in your discussion is the same kind of thinking prevalent today and underlying the Fed's target of "price stability." The problem is, of course, prices don't rise equally in an inflationary environment. Not only do they not rise equally, but relationships change -- so while it does appear initially, if one bought the bottom last year on the indices -- stocks are acting as an inflation hedge -- at any point that could break (and not necessarily with stocks going down). Check out Nolands recent piece on the price of some things that are going up quite rapidly. The Austrians are right -- money is not neutral. With an out of control Fed and credit system -- count on three things for the interim: 1) price volatility 2) the exact opposite of what the Fed suppsedly seeks -- price stability -- instead, havoc in the relative prices of goods and services -- havoc between the prices of capital goods and consumer goods -- havoc between the prices of primary and finished goods 3) count on the volatility and havoc in prices above being generally destructive of economic wealth on the whole. (i.e. a continuing poor environment for "discretionary" capital spending) I think the uneveness of the results of inflation make your idea of the potential of profits simply growing in absolute terms (as the currency is debased) -- across the board -- highly improbable. To preserve wealth (notice, I didn't say make a killing -- since as buyers of consumer goods we'll see havoc there) I think you have to identify trends where the prices of products can rise faster than the cost of the inputs under such rapid monetary growth. Commodities do seem to be the first obvious play if the currency is getting debased and production is not going up. Especially the commodities that everyone must have to live and for which the usage is rather inelastic with respect to economic activity. There are probably some providers of essential services that will do well, too, perhaps? Take the time to read this, Lee. Very good stuff and has helped me think about these things ... mises.org

To: Lee Lichterman III who wrote (258234)	9/4/2003 8:00:39 AM
From: Perspective	Read Replies (1) \| Respond to of 436258

Lee, it helps me to think of inflation/deflation not from a price perspective but from a supply/demand imbalance standpoint. Inflation is demand exceeding supply, deflation is supply exceeding demand. The Fed can tinker with the yardstick used to measure it all - the dollar - all it wants, but it can't significantly impact the supply/demand imbalance. We have had inadequate real demand for years now. Aggregate demand has been buoyed by irreplaceable sources of debt. Think of debt kinda like fossil fuels - once that source of demand is wiped out, it's non-renewable. Well, the economy has just run out of non-renewable demand, and real aggregate demand is several percent below the present economy's run rate. Hence the huge deflationary pressures. The Fed can monkey with the yardstick in which activity is measured - dollars - all it wants, but the real economy is in trouble. If it were to start jamming long-term interest rates lower artificially, it could temporarily prop up valuations, but I believe that concept has been discredited. The Fed is in the business of making money (they are a FOR-PROFIT institution) and they would lose bigtime through subsidizing the long bond. What you are referring to is the inflation hedge properties of stocks. The earnings are the numerator of the equation, but the PE is the denominator. So, if earnings are growing 20%, but interest rates move up to 20%, it should be a wash in PE form. The only exception is book value, which would likely track inflation, but we all know stocks don't have book values any more. One needs to recognize this inflation-hedge property, and as a result I believe any prudent bearish strategy involves significant exposure to inflation hedges. Mine is gold. BC