Inflation, deflation, gold and currencies

[vincecate]

Currently I am 95% in cash waiting for more clarity on market direction. Any other views?

Foreign holdings of US Treasuries was down $16 billion in the most recent report. Not sure it has ever gone down before. I believe that at some point people will not want to hold US bonds, and as they get cash when their existing bonds come due there will be a flood of new cash, resulting in hyperinflation. So maybe I am extra sensitive to this drop. But maybe this is the start of a very important event.

http://www.treasury.gov/resource-center ... ts/mfh.txt

[RDRUNR]

Difficult to read the markets at present
Currently I am 95% in cash waiting for more clarity on market direction. Any other views?

Richard

Richard, here is my view:

I still firmly believe silver and gold (especially) are in a bubble that is fragile and could easily flash crash downwards to the $500- 750 oz level in 12 months time; taking with it the majority of speculators. Like in the 80's gold crash, you couldn't sell it as it was falling too fast; no one wanted it. Thus, those holding $1500oz gold that think they could sell for $1400oz if it starts to fall might be in for a shock.

I think the US Dollar is a good bet/investment. I've invested in the USD and I'm not even American! (about $100k). It's a buy now when it's low perfect storm. (Gold high = sell, dollar low = buy). I do not think at all the US will inflate their way out nor will be in a period of any large scale inflation. The USD is seen a THE SAFEST RESERVE CURRENCY in the world (expect to those who horde gold). People are getting out of the stock market and buying US Treasuries show this belief to be true as well.

Europe (where I live right now), is in much worse shape than your media is telling you. People here ARE NOT buying gold/silver, they are hording/saving cash and not buying products. Retail and banks are hurting quite badly while the average person is trying to reduce their debt load and/or save cash.

Like you, I am 99% in cash, waiting on the sidelines, ready to jump in, but I fear the markets (and especially gold/silver) are no place for a retail investor right now.

[vincecate]

Like you, I am 99% in cash, waiting on the sidelines, ready to jump in, but I fear the markets (and especially gold/silver) are no place for a retail investor right now.

I think Higgie is also mostly cash. If many people think cash is good, then expecting hyperinflation is the contrarian play.

If the US is forced to keep printing money, then there is a real danger of inflation/hyperinflation. The US spends nearly twice what it gets in taxes and for a couple of years now the difference has been made up by the Fed making new money. Do you think the US government will fix the deficit? Do you think the rest of the world will fund the US deficit (most recent report is foreign holdings down and much of the world has troubles)? How could the US not be forced to keep increasing the money supply? What steps are there that could protect the value of the dollar, like in 1980 raising interest rates to 20% and selling gold at record prices? In 1980 the value of US government gold was very sizable compared to the deficit but today it is tiny. So back then selling some gold at $800 really helped protect the dollar. Today if they sold gold it would probably cause less faith in the dollar.

http://www.treasury.gov/resource-center ... ts/mfh.txt

[richard5za]

I think Higgie is also mostly cash. If many people think cash is good, then expecting hyperinflation is the contrarian play

Higgie is mostly in cash, about 99%; he posted his position recently

I think you have put your finger on the difficulty, Vince. The USA monetary authorities must want to inflate their way out of their financial mess rather than allow deflation to take root. The question is whether they will have that option?

There is currently a real possibility of a deflaionery implosion in Europe I believe, simply because the Euro is not a fiat currency, and unlike the USA where individual states have to budget within a framework of rules, each country in the Eurozone is automonous.

If Europe goes into serious deflation, the next question is whether the USA is bound to follow suit. I don't know for sure, but I think this would be the high probability, that the USA would then deflate.

So there's some different forward scenarios. The deflationery hedge is cash, which is where some of us are. The inflationery hedge is gold, silver, real estate property, top class antiques, etc The currency hedge is more difficult. There's been a run into Swiss Francs for instance, also Yen.

If deflation is the direction that the global economy will take, then gold is in a bubble; if there is going to be serious inflation then gold at $ 3000 even $ 5000 is quite possible.

All this is probably not helpful beacuse I am not offering a solution.

I reckon you can see inflation coming and take action to protect your position. What you can't see coming is a crash. My strategy is to limit my exposure to a crash and watch the markets. Hope this makes some sense.
Richard

[jdcpapa]

If consumption continues it's decline, deflation is not far behind.

Regards,

[jdcpapa]

I find it quite intriguing, given present public sentiment, that as of January of 2011 the Fed has actually reduced it's position in public debt over the last decade from 15% to 9%.

Regards,

[vincecate]

I find it quite intriguing, given present public sentiment, that as of January of 2011 the Fed has actually reduced it's position in public debt over the last decade from 15% to 9%.

And they did this by counting Fannie Mae and Freddie Mac debt as private debt?

[richard5za]

A storm coming?

I always keep an eye open for the options expiration on the Comex metals market; so often there is shorting or heavy selling around this time; this I see is next week so perhaps some action coming on gold and silver?

I am interested in the growing predictive rhetoric for gold. Wells Fargo says gold is in a bubble, but JP Morgan says gold will be $ 2500 by the end of the year. Both could be right of course. Which market gods they talk to to get these glimses of wisdom I have no idea.

After last weeks hectic volatility on the equities markets this week is a bit dull. Oh! Well! Tomorrow is options expiration on equities and if margins are increased again could set up some very interesting action. So perhaps a storm coming? If you asked me to guess a possible date for a very sharp sell off, I would choose 24 or 25 or 26 August. Pure speculation on my part of course; might be another dull week.

But it could change the usual nature of the Comex options expiration on metals next week!
Richard

[RDRUNR]

Like you, I am 99% in cash, waiting on the sidelines, ready to jump in, but I fear the markets (and especially gold/silver) are no place for a retail investor right now.

I think Higgie is also mostly cash. If many people think cash is good, then expecting hyperinflation is the contrarian play.

1. If the US is forced to keep printing money, then there is a real danger of inflation/hyperinflation.

2. Do you think the US government will fix the deficit? Do you think the rest of the world will fund the US deficit (most recent report is foreign holdings down and much of the world has troubles)?

3. How could the US not be forced to keep increasing the money supply?

4. What steps are there that could protect the value of the dollar, like in 1980 raising interest rates to 20% and selling gold at record prices?

From my perspective some answers to your questions:

1. Printing money is not inflationary, spending it is. Thus far not all of tarp has been spent, QE1 and QE2 haven't been spent.

2. Yes I do. Seems the world population (even China at billions) believe more in the US and it's economy than 100 million Amercians do.

3. By budgeting responsibily. They will be forced and it will suck, but in the end, US will be stronger than ever.

4. The US Gov't showing some backbone to cut spending, raise interest rates and in turn this would restore confidence.

"If many people think cash is good, then expecting hyperinflation is the contrarian play". Seems like many are majority are running the opposite way and betting against the USD, thus those in cash are true contrarians, those in PMs are followers.

[richard5za]

Storm may be early

A few minutes ago at 11.10 GMT the DAX was down 4.03% the FTSE 100 down 2.16% and Dow futures down 1.37%

Gold had pushed through $ 1800 and was sitting at 1806

Looks like some action could be earlier than I thought