I think what you need to consider in the potential scenario ahead is "stagflation". Where you have rising unemployment because of a recession, coupled with inflationary prices we're already exposed to. We can see deflation in the housing market, which is most likely the only place we will see it. And the cost of goods everywhere around us, from stamps to gas to insurance to taxes to a million different consumer products, have been so jacked up that they are at a stage where they're on the edge. So, if unemployment were to start it's hit on the economy, we may find ourselves in a tight squeeze. I don't think the unemployment factor will be something we see in the short-term because of how well our companies are doing in terms of revenues (aided by the tax cuts). But if these companies see less demand for their goods on the horizon, that's when a stagflationary scenario may start to set itself up. As far as where to put your money, I'd like to get people's opinions on these: Currencies - not sure which ones. Any standout countries that would weather it better than others, even prosper as ours turns down?? Gold used to be the place to flock to, but is it really still the place to flock to?? Platinum?? Utility, pharmaceutical, drug companies, alcohol and tobacco companies?? Since the government passed that law on ethanol (don't remember the finer details), when we start to assimilate and incorporate that into the producer and consumer, do you think those companies (I'm aware of Mexican and Brazilian presence here, South African also) would prosper and grow?? One more thing....if the government were to step in somewhere, say a year or 2 or 3 from now, in an attempt to spur the economy, what sector/s might interest it?? *assume it'll wind down it's military powerhouse* (I feel it's a big assumption, but I'm just curious)
when you hit stagflation what you have is a scenario where capital goods [houses, cars, etc] are losing price quickly... the currency is loosing price quickly and consumer goods are losing price not so quickly, so in the perspective of one who earns in dollars they seem to be rising in price... it's basically the worse of both worlds, your capital is worth less everyday but your food is worth more...
As I recall, imported goods rose in price very quickly in the early 80's, to the point where if you sold a 1 yr old used Mercedes you could sell it for more than you paid for it. Food is going to jump dramatically this year because we'll be using it all to make ethanol to burn in our SUV tanks instead of using it to feed the poor and feed livestock. I'm sorry, but why aren't we just MANDATING a 40 or 50 mpg fleet avg and making 100 mpg cars for everyone to drive. Ok, you could say it will take time, but why aren't we even trying? I think the hyperinflation will be in full swing by 2010 after the middle East and Asia have their own currencies. Once they have that, the dollar can be allowed to seek its own level, and will, as everyone tries to unload them.
I like that quote, could you provide any links you frequent where you monitor the currency agenda in the middle East and Asia??
Just the fact that they are talking about doing it by 2010 tells me that I better be ready for it well before there. If things get nasty, they could move sooner, or if the dollar appears stable or they can't get ready in time, it might be later, but either way, I think it means the end of the dollar as the worlds reserve currency, and that will mean other nations won't want nearly as much of them in reserve, which in turn means they will need to buy something ith the ones they have or lend them out, possibly taking repayment in goods or other currency like euros in the meantime. Asia - ACU http://english.chosun.com/w21data/html/news/200601/200601130018.html Middle East - GCC http://www.zawya.com/Story.cfm/sidZAWYA20070227042640
http://elitetrader.com/vb/showthread.php?s=&threadid=85101&highlight=inflation Zimbabwe is reported to experience the greatest inflation rate in the world (about 1000 %) during year 2006. Sometimes the historical record is a guide for handling inflationary episodes. I suspect owning land and a house is a good hedge against inflation and a family can live in the house also. <IMG src=http://www.lmmfao.com/media/ebay/mystery-toilet-paper.jpg > Toilet paper, $ 417 per single two-ply sheet. A roll costs $ 145,750 (Zimbabwean dollars). Might toilet paper be a good investment during hyperinflationary periods?
I spent 3 months in Nicaragua during 1988... I remember going to the pulperia [small grocery store] with 20 million cordobas and being able to buy a coke [in a plastic bag with a straw] and some gum... the other thing that called my attention was when my mom changed a $100 bill into corbodas in the black market, and she got two bags full of money... [you could only buy/sell dollars in the black market in those days]. The exchange rate was something like 10-15 million per US dollar, and it got adjusted several thousand per day...
Greenspan has always said the greatest danger is : deflation That is why Fed lowered rates so much..... The US has a 200 year history of financial soundness....no other country even comes within 150 years of that.....dollar will fluctuate but don't worry about it... Do you really believe a central banker is going to get out of dollars and buy some "pretend" currency from Middle East??? No transparency ....no liquidity......no hope... The currency defaults over nite and central banker is taken outside and hung on Bank sign..... Remember Russia default???? Remember France nationalizing banks in early 80's??? Central bankers job is to maintain interest rate on money....not to lose that money..... SteveD
Greenspan has always said the greatest danger is : deflation ****************************** monetarists are scared to death by deflation... they don't understand it, they can't bail out of it with their printing... it's kind of a bogeyman... based on some very illogical economic models, with very long explanations that look good on paper but don't reflect too well on reality. For the consumer... cheaper prices are always a good thing... ******************************* The US has a 200 year history of financial soundness....no other country even comes within 150 years of that.....dollar will fluctuate but don't worry about it... ******************************* define financial soundness...??? ******************************* Do you really believe a central banker is going to get out of dollars and buy some "pretend" currency from Middle East??? No transparency ....no liquidity......no hope... ******************************* Well yes. in the hypothetical scenario that the Arabs would take no other currency for their oil... the central banks will dump their dollars for the alleged middle east currency. ******************************* The currency defaults over nite and central banker is taken outside and hung on Bank sign..... ******************************* No. He just prints more money and blames the crash on the market and lack of intervention from the central government.
deflation can be a very serious problem. When people are going to get less for goods in the future no one is wiling to invest good money to produce them now. Especially if you have rapid deflation and a long time to market. For instance would you buy a fixer upper right now if it is going to take a year to rebuild? Instead you look for ways to lose the least. Farms shut down. Factories shut down. Farmers were not even willing to ship their livestock and produce to market at points during the great depression. People were starving in the cities and Farmers had surplus crops in the countryside. (at least according to my required reading in College.)