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.

Dollar Bulls and Bears Struggle for Dominance

I should note that they sold $9 billion worth of euros to perform the dollar pump which started on July 15, 2008, but ran out of them last week. Now, they've bought more, but they've got precious few euros left, so they won't be able to do this much longer. Beyond that, the euros are quickly exhausted when you use them up to buy derivatives. Unlike China, the USA does not hold enough foreign currency reserves to really affect the currency markets without the use of leveraged derivatives.

Dollar Bulls and Bears Struggle for Dominance

Sorry, but there are no real dollar bulls, except for simple people who don't know much about the market for currencies. Everyone who understands the currency market is a bear on the dollar. The only bull is the United States ESF (exchange stabilization fund) which sold another $900 million in euros, and is now using them to buy dollar denominated derivatives to keep part of the existing dollar supply from rising. That is the only reason the dollar is showing strength. As soon as they run out of the money, they won't be able to pay interest anymore on a trillion or so worth of dollars, and the dollar will collapse.

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.