Simit Patel

An Investor's Guide to Hyperinflation

Thanks to all who took the time to respond. A couple of points I wanted to make in light of some of the comments:

1. Yes, I have made wrong calls before. I have never claimed to be perfect and in my opinion, any trader who expects to be right 100% of the time has a poor strategy.

2. With that said, you can see my trade record here: www.informedtrades.com... . I have posted double digit returns since 2006. While there is always room for improvement, my track record has outperformed most, and has beat the rate of inflation as well, thus generating net positive returns.

3. To say I have been dead wrong on all my calls, and that I am the ultimate contrarian indicator, is simply false. The primary call I have made since the beginning of this year is long gold/short 20+ year Treasuries. GLD is up 8.16% for the year with TLT down 12.92% this year. I have also been a big advocate of silver, which is up 21.52% this year. These have been my primary calls. Though I would not play Treasuries due to Fed intervention, I am confident that these trends will continue.

I post all my trades as I make them, and I note all my stop-losses, on my site at the link provided above. You can see my long-term calls on gold, silver, and Treasuries in my commentary on SeekingAlpha and on InformedTrades.com.

Thanks again for all the comments.

What the Conflict in Gaza Means for Financial Markets

Likewise, I would find it abhorrent and negligent in my responsibilities to not understand how geopolitics affects my wealth and my personal financial obligations, which in turn impact my ability to make a better world.


On Jan 12 10:15 PM Razors Edge wrote:

> Welcome to the circus. This little neighborhood conflict will be
> over soon and it is not going to affect anthing but Hamas ability
> to influence. If there was anyone going to get involved further (Iran?)
> they should have done it earlier. It will be over in a very short
> time. Now if Israel can control itself afterwords at the same time
> protecting it's citizens we can get back to some sanity in the world.
> I find it abhorant to even discuss an investment opportunity when
> people are dying on both sides.

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.

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.

Dollar Goes Down Along with Bailout Plan

there are a number of differences between this depression and the last one, though the biggest one is the lack of a gold standard. that is why the previous depression was deflationary, and why this one will be inflationary. there is no mechanism to restrict the central bank from inflating the money supply to death, and every indication is that they seem to be interested in doing just that.

interestingly, though, i think if you priced all assets in gold, this depression would be deflationary as well. so perhaps it depends on what currency you are using when asking whether the depression is inflationary or deflationary.


On Sep 30 12:58 PM Muddling Investor wrote:

> Last time we had Great Depression, we had deflation. Why would we
> have inflation now? Credit is frozen, how do you get money to inflate?
> It's ridiculous. Just look at the dollar strength against all currencies
> yesterday and today.
>
> Disclosure: long UUP.

Time for Global Coordinated Easing

Great article Kathy! You're the best!!! :D

While I am anticipating the Fed to cut -- Fed funds futures are already pricing in a 50bps cut -- I think it would be a terrible move economically, and will only result in dragging out this bear market for a longer period of time, just like the Fed's interventionist policies in the late 20s early 30s dragged out The Great Depression. The government's non-stop interventionist policy is preventing the market from undergoing a natural contraction after Greenspan's follies created an overexpanded money supply. Further inflation of the money supply will only exacerbate the problem.

But yes, looks like a rate cut is coming, and looks like USD short is in the cards. USDJPY is the pair to short, though the gold rally is just getting started....

Trading ERO This Week

@copper1987, very good point. i'm actually trading the spot currency market, was trying to make an ETF/ETN connection for the seekingalpha crowd. FXA or DRR like cjct suggests is probably a better idea.

@cjct, inflation is going to kill the dollar. treasuries may be king for now, but that is because traders are looking at short-term deflation rather than the undeniable amount of money supply expansion the fed is doing, as well as the growing double deficits and the rising default risk of 10 year US bonds. all of this points to a weaker dollar and difficulty for the US in securing debt, which will lead the fed to print its way out of debt. i am expecting a run on the dollar and a lot of inflation over the next few years.

Trading ERO This Week

Just a quick correction that ERO is an ETN, not an ETF. My apologies for the error.