Simit Patel

Economic Forecast and Best ETF Picks for 2009

Regarding my track record, my trading statement and my picks for ETFs are two different things. I was up over 20% in 2008 and over 30% in 2007. I stick to trading currencies and metals. I encourage those who may be interested in evaluating the validity, or lack thereof, of my analysis to read my other articles, and to see my trading journal at www.informedtrades.com where I keep a log of all my trades.

Money Supply Indicator Supports Deflation Argument

@doubleguns, yes, i would think gold and silver eagles would be factored in if we use MZM as our money supply indicator, as they are redeemable by cash. i believe, however, we are seeing price suppression in the metals market, and thus these coins are not being given their fair value when redeemed for cash. to the extent we are seeing this type of price suppression MZM is probably less deflationary than it seems.

How to Construct a Deflation Proof Portfolio

@ellen, yes no doubt -- i'm still a buyer of precious metals, especially physical ones where we are seeing a shortage and it is difficult to get delivery. hard to justify from trading perspective as we are in a deflationary environment, but from an investing perspective, i think delivery of precious metals is a great idea -- a good insurance policy at the very least.

@patio, demand for US dollars is a key issue as well. right now we are seeing money supply contract and demand for US dollars rising (thus the rise in treasuries and US dollar), though i doubt that will continue. if we see a decline in US dollars and a decline in demand for US dollars, i think we will see stagflation, which will be characterized by declining US bond and equities markets, a weak dollar, rising commodities and precious metals, and rising CPI.

@yblarrr, yes no doubt -- though i think it is quite likely we still have room to go. :)

@sunseeker, this is why i am generally not a fan of US markets. too much regulation makes it impossible to play. unfortunately regulation is a worldwide occurrence. still, i favor opportunities in the forex market, as well as in asia.

Capital Flight Into Yen Is Path of Least Resistance

excellent, excellent analysis. i am short USDJPY though was expecting a bounce off 95; fortunately for me it broke through that, although i am still somewhat expecting a retracement. yen is clearly the path of least resistance and i don't foresee that changing at least until the bull markets in gold and silver resume. even when those do resume i think yen bullishness will still be a favorable wager for the next 4 years.

How to Construct a Deflation Proof Portfolio

@DaveW, thanks for the good words, glad you are finding the articles useful. i am primarily a currencies and commodities trader, but in general i am not in and out of the markets on a daily basis. my 3-4 year outlook is inflationary, so wherever i see inflationary opportunities i trade there and stay there until the trend looks deflationary. so there is a ton of volatility on the yen now but i will stick with it until momentum shifts on the daily chart. i use moving averages as my primary momentum indicator.

@siempresuamor, yes i am expecting congress to put restrictions on many of these inverse ETFs....surprised they haven't done so already. successful speculators though are too ripe of a target for blame, unjustified as it may be, so i would suspect inverse ETF traders to be a target.

@Smarty_Pants, i hear what you are saying. i think the asian ETFs (asian stocks, bonds, and currencies) are good for traditional style investing in this deflation. though gold remains my favorite long-term pick, i think gold holders will be the biggest winners over the next 5 years.

First Comes Deflation, Then Comes Inflation

@JasonC, you raise valid points, though demand for dollar is dropping as well, as will be evidenced by the horrible fundamentals of the US dollar. the US economy's big productive asset was financials. as US financials fall and as deflationary forces create a world in which fewer and fewer assets are denominated in US dollars, demand for US dollars will fall. falling demand, coupled with inflationary supply side actions by the fed, will result in massive inflation.

Randy_H and css1971 noted that deflation can last a while. this is quite right. however, i think the budget deficits are what is going to really bring on inflation sooner rather than later. the US' income is falling, it is only a matter of time before it will not be able to sell more debt, at which point expansion of the money supply is the only way the debts will be repaid. i think we will see inflation resume in 2009.

the other factor to consider is central banks decreasing US dollar reserves, which i think will be a by product of the double deficit and corresponding decreased demand for US dollars. this would suggest inflation even if US banks are not able to lend to US consumers as dollars overseas will be unloaded.