Money Supply

[stockstradr]

Here’s my spin on the deflation vs. inflation debate. I suggest you read Rich (as in our mighty Piggington.com leader) and Roubini on this topic and its effect long and short term on commodities (very enlightening).

We have strong deflationary forces that will likely dominate short-term. Agreed.

However, the Fed has opened its lending window to investment firms, commercial banks and insurance giants. In some weeks this exceeded 100 billion.

That fiscal stimulus is clearly inflationary…but rate spread data proves those financial institutions are still NOT lending out that money to other financial institutions. In other words, the traditional process of the fed pumping money into the larger financial system via lending to front row firms isn’t really functioning, even though that lending is now going to a much broader range of front row financial institutions.

Plus we got consumers hoarding cash, dramatically reducing spending, pulling money out of financial markets, and even maxing out equity lines of credit (pulling money out of banks). Even corporations are maxing out their revolving credit lines with banks, hoarding cash. Also, no more money coming into consumer pockets from equity re-financing.

So one might conclude that short-term the deflationary pressures are DOMINANT; yet, there is tremendous latent (and excessive?) fiscal stimulus (fed lending) that is held in check by the locked up financial markets not lending to each other. Plus we got those multiple other inflationary pressures held TEMPORARILY in check by the global recession. Plus you can expect the fed will cut rates again, soon.

Finally, we have the BIG QUESTION: when will the world start dumping dollars and trading into something else (gold? Euros? RMB?), as the dollar is unseated as the world’s de-facto reserve currency. That effect will be extremely inflationary for the dollar (more dollars released and less parties holding them or using them in financial transactions)

So let’s integrate all these factors.

CONCLUSION: short-term during this nasty global recession (12 to 18 months) we may well see CPI figures drop to zero or even go slightly into deflation territory….but watch out, because the inflationary pressures are bottled up, and when they explode all hell’s gonna break loose against the dollar.

So either mid-recession, or as the recession ends, we could move into rapidly accelerating decline of the dollar, and that will likely continue for YEARS AND YEARS.

This is why I cut gold back to 25% of portfolio, awaiting some potential better pricing on gold as this recession gets really ugly and deflationary pressures heat up. At the bottom of the recession buy gold and buy oil and dump dollars. That’s a winning strategy.

[peterb]

Deflation seems to be the order of the day. I see it just about everywhere. I would normally agree that in this kind of contraction, nothing would escape its vortex. But, we are seeing a gigantic bubble of credit bursting. And this has a historical track record of valuing gold higher while most everything is dropping, which makes its real gain even greater.

Since this goes against my gut feeling, I have kept my gold allocation at 30%,(I was up to 50% in early Sept) but I will be adding to it in the coming weeks and months if it shows strength.
Until then, it’s all US$.

Well, maybe a few shorts and puts….a guys gotta have a little fun.

[peterb]

Deflation seems to be the order of the day. I see it just about everywhere. I would normally agree that in this kind of contraction, nothing would escape its vortex. But, we are seeing a gigantic bubble of credit bursting. And this has a historical track record of valuing gold higher while most everything is dropping, which makes its real gain even greater.

Since this goes against my gut feeling, I have kept my gold allocation at 30%,(I was up to 50% in early Sept) but I will be adding to it in the coming weeks and months if it shows strength.
Until then, it’s all US$.

Well, maybe a few shorts and puts….a guys gotta have a little fun.

[peterb]

Deflation seems to be the order of the day. I see it just about everywhere. I would normally agree that in this kind of contraction, nothing would escape its vortex. But, we are seeing a gigantic bubble of credit bursting. And this has a historical track record of valuing gold higher while most everything is dropping, which makes its real gain even greater.

Since this goes against my gut feeling, I have kept my gold allocation at 30%,(I was up to 50% in early Sept) but I will be adding to it in the coming weeks and months if it shows strength.
Until then, it’s all US$.

Well, maybe a few shorts and puts….a guys gotta have a little fun.

[peterb]

Deflation seems to be the order of the day. I see it just about everywhere. I would normally agree that in this kind of contraction, nothing would escape its vortex. But, we are seeing a gigantic bubble of credit bursting. And this has a historical track record of valuing gold higher while most everything is dropping, which makes its real gain even greater.

Since this goes against my gut feeling, I have kept my gold allocation at 30%,(I was up to 50% in early Sept) but I will be adding to it in the coming weeks and months if it shows strength.
Until then, it’s all US$.

Well, maybe a few shorts and puts….a guys gotta have a little fun.

[peterb]

Deflation seems to be the order of the day. I see it just about everywhere. I would normally agree that in this kind of contraction, nothing would escape its vortex. But, we are seeing a gigantic bubble of credit bursting. And this has a historical track record of valuing gold higher while most everything is dropping, which makes its real gain even greater.

Since this goes against my gut feeling, I have kept my gold allocation at 30%,(I was up to 50% in early Sept) but I will be adding to it in the coming weeks and months if it shows strength.
Until then, it’s all US$.

Well, maybe a few shorts and puts….a guys gotta have a little fun.

[ltokuda]

I respect Schiff’s views a lot. But I do wonder what his definitions of “inflation” and “money supply” are. If his definition of “money supply” is: cash. Then I think everyone will agree with him. The Fed is eventually going to have to start printing a lot more money to pay for all the expenses.

Whatever definition of “money supply” Schiff uses, do you have any insight on what he thinks the effects will be? I still see the price of houses going down in the near/medium term. But does he see the price of food shooting up? Gold? Oil? Is that what he means by hyperinflation?

[ltokuda]

I respect Schiff’s views a lot. But I do wonder what his definitions of “inflation” and “money supply” are. If his definition of “money supply” is: cash. Then I think everyone will agree with him. The Fed is eventually going to have to start printing a lot more money to pay for all the expenses.

Whatever definition of “money supply” Schiff uses, do you have any insight on what he thinks the effects will be? I still see the price of houses going down in the near/medium term. But does he see the price of food shooting up? Gold? Oil? Is that what he means by hyperinflation?

[ltokuda]

I respect Schiff’s views a lot. But I do wonder what his definitions of “inflation” and “money supply” are. If his definition of “money supply” is: cash. Then I think everyone will agree with him. The Fed is eventually going to have to start printing a lot more money to pay for all the expenses.

Whatever definition of “money supply” Schiff uses, do you have any insight on what he thinks the effects will be? I still see the price of houses going down in the near/medium term. But does he see the price of food shooting up? Gold? Oil? Is that what he means by hyperinflation?

[ltokuda]

I respect Schiff’s views a lot. But I do wonder what his definitions of “inflation” and “money supply” are. If his definition of “money supply” is: cash. Then I think everyone will agree with him. The Fed is eventually going to have to start printing a lot more money to pay for all the expenses.

Whatever definition of “money supply” Schiff uses, do you have any insight on what he thinks the effects will be? I still see the price of houses going down in the near/medium term. But does he see the price of food shooting up? Gold? Oil? Is that what he means by hyperinflation?

[ltokuda]

I respect Schiff’s views a lot. But I do wonder what his definitions of “inflation” and “money supply” are. If his definition of “money supply” is: cash. Then I think everyone will agree with him. The Fed is eventually going to have to start printing a lot more money to pay for all the expenses.

Whatever definition of “money supply” Schiff uses, do you have any insight on what he thinks the effects will be? I still see the price of houses going down in the near/medium term. But does he see the price of food shooting up? Gold? Oil? Is that what he means by hyperinflation?

[peterb]

I’ll give Schiff credit for calling this contraction when it was not the popular thing to do. But, he was dead wrong on decoupling and he has a really sorry excuse for getting it wrong. Also, his book is not that impressive. He’s a generalist. For more in-depth information and analysis, Marc Faber and Bob Hoye are a lot sharper then Schiff. And of coures, Roubini is the most accurate economist being listen to on MSM.

This is looking like a global recession at the very least. And that means everything goes down for a while. All currencies are looking flawed. So the US$ is gaining back some of it’s losses over the last 4 years.
Hyperinflation means a basic collapse of the currency. I dont think we’ll get that bad, but you never know. I would not doubt the US$ losing half it’s purchasing power in a few years, though.
But it’s all relative. If people will not borrow and lenders wont lend, where’s the money going? Nowhere, and thus prices are going down. But, if this changes and all these funds are directed at some asset or some investment, then whatever that thing is, it’s going to rise in price. This is really how we got out of the 2002 recession. The Fed put out free money and it took about 8 months before it started to find a home in RE. Then we were off to the races on RE prices. I suspect that gold may find itself in a similar situation. If it gathers popularity and there’s nothing else rising, cheap money will be forced into it and perhaps oil as well. Especially since all the currencies of the world are being inflated. It’s kind of a natural shift anyway…..too much paper and gold looks safer, and it’s going up in price. So it may feed on itself in that way and become self-fullfilling.

[peterb]

I’ll give Schiff credit for calling this contraction when it was not the popular thing to do. But, he was dead wrong on decoupling and he has a really sorry excuse for getting it wrong. Also, his book is not that impressive. He’s a generalist. For more in-depth information and analysis, Marc Faber and Bob Hoye are a lot sharper then Schiff. And of coures, Roubini is the most accurate economist being listen to on MSM.

This is looking like a global recession at the very least. And that means everything goes down for a while. All currencies are looking flawed. So the US$ is gaining back some of it’s losses over the last 4 years.
Hyperinflation means a basic collapse of the currency. I dont think we’ll get that bad, but you never know. I would not doubt the US$ losing half it’s purchasing power in a few years, though.
But it’s all relative. If people will not borrow and lenders wont lend, where’s the money going? Nowhere, and thus prices are going down. But, if this changes and all these funds are directed at some asset or some investment, then whatever that thing is, it’s going to rise in price. This is really how we got out of the 2002 recession. The Fed put out free money and it took about 8 months before it started to find a home in RE. Then we were off to the races on RE prices. I suspect that gold may find itself in a similar situation. If it gathers popularity and there’s nothing else rising, cheap money will be forced into it and perhaps oil as well. Especially since all the currencies of the world are being inflated. It’s kind of a natural shift anyway…..too much paper and gold looks safer, and it’s going up in price. So it may feed on itself in that way and become self-fullfilling.

[peterb]

I’ll give Schiff credit for calling this contraction when it was not the popular thing to do. But, he was dead wrong on decoupling and he has a really sorry excuse for getting it wrong. Also, his book is not that impressive. He’s a generalist. For more in-depth information and analysis, Marc Faber and Bob Hoye are a lot sharper then Schiff. And of coures, Roubini is the most accurate economist being listen to on MSM.

This is looking like a global recession at the very least. And that means everything goes down for a while. All currencies are looking flawed. So the US$ is gaining back some of it’s losses over the last 4 years.
Hyperinflation means a basic collapse of the currency. I dont think we’ll get that bad, but you never know. I would not doubt the US$ losing half it’s purchasing power in a few years, though.
But it’s all relative. If people will not borrow and lenders wont lend, where’s the money going? Nowhere, and thus prices are going down. But, if this changes and all these funds are directed at some asset or some investment, then whatever that thing is, it’s going to rise in price. This is really how we got out of the 2002 recession. The Fed put out free money and it took about 8 months before it started to find a home in RE. Then we were off to the races on RE prices. I suspect that gold may find itself in a similar situation. If it gathers popularity and there’s nothing else rising, cheap money will be forced into it and perhaps oil as well. Especially since all the currencies of the world are being inflated. It’s kind of a natural shift anyway…..too much paper and gold looks safer, and it’s going up in price. So it may feed on itself in that way and become self-fullfilling.

[peterb]

I’ll give Schiff credit for calling this contraction when it was not the popular thing to do. But, he was dead wrong on decoupling and he has a really sorry excuse for getting it wrong. Also, his book is not that impressive. He’s a generalist. For more in-depth information and analysis, Marc Faber and Bob Hoye are a lot sharper then Schiff. And of coures, Roubini is the most accurate economist being listen to on MSM.

This is looking like a global recession at the very least. And that means everything goes down for a while. All currencies are looking flawed. So the US$ is gaining back some of it’s losses over the last 4 years.
Hyperinflation means a basic collapse of the currency. I dont think we’ll get that bad, but you never know. I would not doubt the US$ losing half it’s purchasing power in a few years, though.
But it’s all relative. If people will not borrow and lenders wont lend, where’s the money going? Nowhere, and thus prices are going down. But, if this changes and all these funds are directed at some asset or some investment, then whatever that thing is, it’s going to rise in price. This is really how we got out of the 2002 recession. The Fed put out free money and it took about 8 months before it started to find a home in RE. Then we were off to the races on RE prices. I suspect that gold may find itself in a similar situation. If it gathers popularity and there’s nothing else rising, cheap money will be forced into it and perhaps oil as well. Especially since all the currencies of the world are being inflated. It’s kind of a natural shift anyway…..too much paper and gold looks safer, and it’s going up in price. So it may feed on itself in that way and become self-fullfilling.

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