ABG

Coming Inflation To Boost Stocks, Gold

It would have been more accurate to call the "Predictions" section of this article "Numbers I would not be surprised to see." It is, of course, impossible to exactly predict future events, but, as a general idea, I think the nominal number estimate will, nevertheless, prove fairly accurate. Remember, nominal numbers must be converted to real numbers, by appropriate inflation adjustments. Failing to adjust those numbers is one way in which statistics can be used to lie to people.

The reason I have used nominal numbers is not to tell you that the stock market is going to be the absolute best place for your money. It won't be. Rather, it merely illustrates that money in the stock market will do a lot better than money stashed in a bank account, under your mattress, or in bonds. The worst possible long term investment, right now, in spite of the current cash mania that has temporarily engulfed the world, is cash.

Coming Inflation To Boost Stocks, Gold

You are describing real values for the DOW, not nominal values. Neither the real value of gold or the DOW will jump as much as the nominal value. Indeed, DOW 27,000, three years from now, assuming the level of inflation is consistent with that described in the article, means a real value in line with your prediction, after subtracting inflation.


On Nov 05 08:47 AM Beabaggage wrote:

> Ridiculous to believe that inflation, especially the 70's -80's type
> inflation we are in for due to the massive monetary stimulus going
> on that has no end in sight, will be good for stocks. Gold/Oil/Commodities?
> yes. Stocks? heck no, we are looking at Dow 4500. People are still
> far too bullish, thinking it's over it's over. it is not. The massive
> stimulus will just make another bubble and you can bet it will be
> spent on hard assets. This actually may be good for realestate.
> Would you rather own a hotel or Kellogg Stock trying to raise prices
> to keep up with soaring costs? The monetary base is growing exponentially.
> This plus federal stimulus world-wide, low interest rates and shrinking
> sources of commodities and food will make the next decade the most
> inflationary of all time. Loss of faith in company financials and
> management will push people into cash, with rates low, they will
> start to chase yield, great for oil, gas, other commodity stocks
> with good yields.

Coming Inflation To Boost Stocks, Gold

It is far more difficult to predict the price of the DOW or gold or anything else, tomorrow, than it is to project forward for 3 years.

Coming Inflation To Boost Stocks, Gold

I don't think it is impossible to predict approximate minimum prices, several years forward. The current price of gold could have been calculated in 2000, simply by taking the money supply in 2000 and increasing the price for 8 years, in line with the increase in the money supply. Then, one could have simply added a modifier in the form of two smaller factors -- increased world political instability, increased difficulties in mine production due to the exhaustion of easily tapped mines. The same is true for the DOW, prior to the current crisis, except that, with the DOW, you would exclude the political instability factor.

Since it is almost certain that current money supply trends will continue, or become more pronounced in an Obama Presidency, it is rather simple to predict the minimum gold price in three years. The unpredictable events are where the + symbol comes into play...


On Nov 05 09:47 AM Rhett wrote:

> Nobody but nobody can come close to projecting the price of anything
> in 2012. But for now, gold is about to jump. You heard it here first.

Coming Inflation To Boost Stocks, Gold

I-Bonds are tax deferred for up to 30 years. That is a long time for Hank Paulson to wait for his money.

1929 All Over Again?

It is the S&P 500 P/E Ratio (Trailing 12 mos.) and it is 25.7, rather than the 25.6 noted in the article. That was a typo. The source is Business Week magazine August 13, 2008.

Our Coming Depression

Interesting article, but, in my opinion, incorrect.

In comparison to what was done in the wake of the Great Depression, policy makers are now reacting in an opposite, but equally excessive fashion. The current problem is a crisis of trust (lack thereof) and NOT of liquidity.

Central bankers do not seem to understand this, and are flooding more and more liquidity into the market. Attempting to micro-manage the economy is a huge mistake, and the Federal Reserve will, hopefully, be closed down because of what they are now creating. But, before that happens, they will trigger inflation levels that we have not seen in the developed world, since 1923.

The current decline in the stock market is temporary. Soon, it will go up, again, in nominal terms. Paper money, however, including especially the U.S. dollar will become worth less and less. The world is awash with money that cannot be productively put to use. Instead of sending out an army of auditors to close all shaky banks in order to raise levels of trust, central bankers are sending out paper money.

Accordingly, we do not face a deflationary depression of the type that you've described, at least not yet. Rather, we face the very real prospect of Wiemar Germany style hyperinflation. Both forms of economic excess are terrible, but the latter is worse. Depending on policy maker's reaction to hyperinflation, however, we may yet get into the worst Great Depression in history.

Curing the Credit Crisis: A Better Alternative Plan

Yes. Left-coaster, I do want to fix blame. Blame MUST be fixed upon the guilty. Those that caused so many problems for everyone else cannot be allowed to prosper, by being subsidized by the rest of us.

Moral hazard is not only theoretically bad, but it also can cause recessions and depressions, both inflationary and deflationary.

Anger and resentment by the majority of the population must be capped by appropriate remedial action to insure that those who caused these problems do not walk away "scot free". If that is allowed to happen, loss of faith in our way of life will course through the population. Faith is what determines, ultimately, whether or not there is recessions, depressions or boom times, not the mathematical amount of money that we throw at a problem. Indeed, money is merely an abstraction, representing storage units for past work that give you the right to purchase someone else's work in the future.

Loss of faith will torpedo the American economy more thoroughly than any amount of bailout money can fix, no matter how we give it out as gifts to financial institutions or others. You cannot simply throw money at this problem and hope it goes away, as the Bush Administration apparently wants to do.

This problem needs to be solved in a way that appears fair to the American people. That includes fixing blame upon the guilty, recognizing incompetence, and insuring that there are some consequences for bad or inept behavior.

I do not claim to have the perfect plan. It is only a framework for an alternative. Some comments to this article are very good, and could improve the basic concept. However, simply printing and then throwing money onto a problem, like this, without imposing any consequences, subsidizes of incompetence and malfeasance. That will injure the soul of our nation a generation, or, maybe, longer.

Curing the Credit Crisis: A Better Alternative Plan

Invest On Fundamentals,

I disagree. It is clear from what Bernanke said, that the Treasury intends to pay very near full price, if not full price. You ought to do some research yourself.

The Federal Reserve has already been paying very close to full price, with respect to very similar mortgage backed securities that Mr. Bernanke has polluted its balance sheet with. They take a very small "haircut" to the par value, but it is insignificant compared to the nature of what they have accepted in exchange for good collateral in the form of Treasury bills.

We must not rush out and do the first thing that comes into the minds of Paulson & Bernanke. They have both already been proven to be wrong, time and time again. There is no reason to believe they are correct, now. They had 1 year and 2 months to come up with a well planned vision of what to do, and to bring it to Congress. Why, then, the rush?

The problem is that they had no vision, then, and they have no vision, now. Their "plan" is is just plain wrong headed. Far more permanent damage will be done by rushing into throwing away $700 billion, than can possibly be done by debating the issues adequately.

Curing the Credit Crisis: A Better Alternative Plan

dbjn, I agree that the mismanagement of the American economy has been bipartisan, over 21 years, and not the fault of Republicans alone. That being said, George Bush (not necessary alot of other Republicans -- Senator Bunning and Ron Paul being Republicans also!) has run a crony capitalist administration, with little regard for right and wrong, and high regard for satisfying the greed of those who are his allies.

Curing the Credit Crisis: A Better Alternative Plan

Jakester, you make a very good point. Limiting bank insurance to the contracted amount of $100,000 might be a better choice. We might use the extra funds to give some type of limited insurance up to $100,000 in money market accounts.

You comment illustrates the thoughtfulness of the American people, and their willingness and courage to think for themselves! It also shows the need to take the time to debate even the best intentioned rescue plan, in order to make sure it is workable and wise, rather than ramrodding it through Congress.

What Effect Will Hyperinflation Have?

There are differences between America, today, and Germany of the early 1920s. For one thing, the German mark was not the international exchange currency back then. The British pound was. The fact that so many foreign nations are dependent on the value of their U.S. dollar reserves means we will get more a lot help from abroad than the Germans got.

So, the article does not propose that we will have hyperinflation of the same extent as Weimar Germany. Weimar Germany is simply the most studied example of hyperinflation. I consider rates of 20-30% per year to be hyperinflation.

I don't see the dollar at 1 trillionth of its present value by 2011. But, I do think that a 75% devaluation is very reasonable, given the circumstances. Weimar Germany is used as a model, in this article, not for the numbers, but, rather, for the type of behavior leading to high inflation.