Thanks for all the feedback. I think i understand why all commodities fell - there was deflation taking place- correct? (looking at oil, gold, ag stocks, they fell very hard - counter to inflation). Yet, wouldnt the massive bailouts cause inflation to occur? I still dont understand why this is not reflected in pricing as alot of printing of money happened. POT, USO, GG, etc all look like good buys - are these good if i am to believe that the deflation that just took place was absurdly artificial? It just seems too easy a theory to a layman like me! Why is the majority not seeing this? Why is the guv doing everything it can to deflate everything? At this point, it seems like there is not much left to deflate anymore - if they print more money which they will, inflation kicks in - was the only anchor the last time the rate cut which they run out of room on? PS am i on complete wrong path here?
Imo, re commodities fell, Stuff goes up and down, what is different this time is the amount of debt. Re, printing money causing inflation, worry about that later, there are cures for inflation, not much medicine for deflation. If everyone thinks the price is going down, they'll save cash postpone investments reducing demand causing further price declines.
Commodity prices are a leading indicator. As they have collapsed, you can be sure inflation is not a worry. I believe the last time they fell this hard was in the Great Depression. Gold is the exception: it will at minimum stay where it is, and more than likely rise vs the currencies as the world devalues itself to try to reflate out of this. Before the economy begins to recover, you will have to see a massive increase in the price of gold. Happened in 1933, and again in 1979 - 1980. Current situation is more like 1933: gold will rise, but not the other commodities, in the aggregate. Which also means: don't take on debt. Cash is king. Wait for adding to debt until after you see a sharp rise in gold. At that point, you can cash in the gold, lever it up to buy a house or something.
exactly why i increase the rent year after year and no the cost of living is not going up, but it is going down
Bailouts and printing of money is not causing inflation to occur (yet at least) because that is only one factor. Debt is what you are missing. The net of debt+"money"=inflation. Currently the increasing money is not keeping up with the debt destruction. At the end of the day, you need ever inreasing amounts of debt to be issued to have inflation. The increasing goverment debt ("spending") is not making up for contraction of private debt, the banks have negative cash, so they can't lend, and people when asset prices are falling have no reason to borrow. I think the model (as someone else mentioned) is probably 1930's type scenario where Gold did well a few years after the delfationary period began. --------------------------------------------------------------------------------QUOTE]Quote from amigasearch: Thanks for all the feedback. I think i understand why all commodities fell - there was deflation taking place- correct? (looking at oil, gold, ag stocks, they fell very hard - counter to inflation). Yet, wouldnt the massive bailouts cause inflation to occur? I still dont understand why this is not reflected in pricing as alot of printing of money happened. POT, USO, GG, etc all look like good buys - are these good if i am to believe that the deflation that just took place was absurdly artificial? It just seems too easy a theory to a layman like me! Why is the majority not seeing this? Why is the guv doing everything it can to deflate everything? At this point, it seems like there is not much left to deflate anymore - if they print more money which they will, inflation kicks in - was the only anchor the last time the rate cut which they run out of room on? PS am i on complete wrong path here? [/QUOTE]
My house was just reassessed for 20% less than it was the last time a few years ago. Mortgage rates are at multi-decade lows, and of course Treasury rates are so low that everyone & his brother swears there's a bubble there. So, if you're going to buy a house, assuming you can get the credit you'll be paying far less than you would have a couple of years ago, AND the interest on the mortgage will be a lot lower. Gas is 2.5 bucks lower than it was just this past summer. The wife knows more about food than I do, so I can't comment there. However, my steady brand of wine is down to 7 bucks from 9.99. Cars are down, although this of course is hidden by incentives. Rents, btw, tend to go up when people aren't able to buy houses, like now, because of course they have to rent instead, so demand for rentals goes up. Just as used car prices rise in bad times since folks can't afford new ones. If there's anyone around here who manufactures stuff, I'm sure they'll tell you that they can't push through any price increases. Assuming they're still in business, of course. So, yes, inflation isn't a problem.
Currently the increasing money is not keeping up with the debt destruction. ------------------------ Question. Do you think Paulson chose 700b number at random? Any comment on Obama's 1 trillion number? I wonder what the magic number will be.
Question. Do you think Paulson chose 700b number at random? Any comment on Obama's 1 trillion number? I wonder what the magic number will be. [/B][/QUOTE] --------------------------------------------------------------------- Worldwide credit/weatlth (the loss in wealth is from the loss of credit) is estimated $100 trillion. I'm guessing US might be $25 Trillion, and increasing. The rate of change is important also, not just the size. Like spitting on a bon fire. Reading for you: 1. http://globaleconomicanalysis.blogspot.com/2008/01/deflation-american-style.html 2. http://market-ticker.org/archives/703-Uh-Oh.....-Monetary-Flat-Spin.html
VERY dangerous assumption you're making here ! You're assuming that if inflation kicks in, the FED is going to raise rates to battle it. In normal situations, that would indeed be the case, but in some situations, there are bigger worries for the FED than inflation ! I'm damn sure that if we'd see a sudden leap in inflation, right now, that the interest would NOT be increased. So in short, if you want to go for an 'inflation play', don't do it via interest rates, but just buy some commodity trackers for example (GSG, GCC etc)