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Adam Hayes
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I have worked in the financial markets since 1999 in New York, Chicago, Amsterdam, and electronically. Expertise in listed equity options strategies and volatility sales & trading. Was a Market Maker in options on the AMEX and also worked on the trading floors of the CBOE, CME and EuroNext.
  • Another angle at the inflation/deflation debate. 0 comments
    Sep 3, 2009 2:02 PM | about stocks: GLD, SLV, USO, DIA, UUP

    The (hyper)inflation/deflation debate continues to rage amongst economists and more and more in the news. And at this point in time the answer is still unclear.
    Certain things are definitely priced higher now than a few weeks ago: Oil, Gasoline, certsain food staples, equities (stocks), silver & gold, etc.
    Other things are lower: consumer staples, clothing, hotel rooms, travel, Natural Gas, and so forth.
    I want to touch on one point that appears to be overlooked-- the fact that you can have monetary inflation during an otherwise deflationary environment .. which can actually keep prices of many goods and services stable in general for the short-term, but be potentially disastrous in the long run.
    There is certainly a deflationary pressure on wages which has filtered down to consumers who now are spending less and saving more (if they can) or paying off debt. When consumers don't spend, retailers need to cut prices in order to move inventory. When inventory is not being moved, manufacturing slows and more jobs are lost. All of this will lower both income and the cost of goods. BUT IF YOU NOTICE NONE OF THIS HAS TO DO WITH MONEY OR MONEY SUPPLY!!

    While the above is happening on a fundamental basis, there is Monetary Inflation- increase in money supply, increase in gov't debt and defecit and a devaluation of the dollar as such. This technical inflation is being offset by the above fundamental deflation.

    So what could possibly happen? This bomb could explode when the inflation makes it such that commodities and raw materials sold on the world market become too "expensive" in US dollars to purchase. Manufacturing will grind to a halt.. inventories will disappear because producers won't be able to afford to buy the raw goods needed to make stuff. We won't be able to import finished goods from abroad because our dollars will be worthless.

    Disclosure: no positions.

    Stocks: GLD, SLV, USO, DIA, UUP
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