tshk1221

Evidence That Big Inflation Is Coming

I don't think we need these complicated charts and explanations to understand deflation and inflation. Deflation is the correct answer for the current situation due to the following chronogical reasoning.

1. Steep interest rate decrease (9/11 terror)
2. Historic collateral value inflation
3. Historic credit inflation (Money supply to market increased.)
4. Historic credit defaults
5. Historic credit deflation (Money supply to market decreases.)
6. Scarce dollars in the market (Dollars got stronger ever.)
8. Falling prices of goods (=> Mild deflation, We are here now.)
9. Further and further falling prices of goods (=> Hyperdeflation)
10. Prices of goods turning to negative (= Hyperinflation)

Mounting job losses and falling real estate price are the results of depleted money supply in the market.

Is the Second Great Depression Imminent?

Real estate price varies depending on money supply. That we know for sure. Demand increases when buyers have good supply of money. When money supply increases, real estate prices go up and vice versa. In order for us to apply this relative concept of inflation and deflation, we must think reverse. When money supply increases, value of the money goes down, and therefore, real estate appears to be worth a lot more than before in relative to the dollars. (In reality, only superficial value of real estate increased since intrinsic value represented by return on investment actually decreased.=> Real estate bubble). This has been the case for the last 5 years after 9/11 attack. The reverse concept of understanding inflation and deflation should be similarly applied to oil because both asset classes are defined as Limited Resources. Of course, demand is playing a very large part in oil prices. However, the current situation, probably the first situation we have encountered, is that enormous amounts of dollars and foreign currencies are disappearing into the largest credit default holes of the US and international financial institutions, which is being worsened by sudden credit deflation by lenders and banks worldwide. This peculiar situation, albeit temporary yet, is causing significant and sudden deflation in oil prices because dollars and currencies got so scarce and stronger in their value than ever before. This temporary but abrupt deflation in oil prices will not be solved by just simple production cuts by OPEC countries. Only when the dollars and currencies circulate like before (Remember when the gas prices reached an unimaginable peak right before this crisis when money supply was overabundant in the market?) will the gas prices stabilize or increase gradually. The money must circulate in the market, not into the credit default holes of the financial institutions worldwide, either by governments' direct infusion through signficant tax cuts along with other benefits and resumed, extensive but more controlled lending by lenders and banks to businesses and consumers.

Dow Will Equal Gold in 2009

Investment lesson 1:

1. Do not ever touch hot investment vehicle with your capital:

Your capital will burn brightly sincet it was put on hot vehicle, and you will feel rejoyced and satisfied watching the flame from your capital. Gradually or instantly, your capital will turn to ashes.

2. Always touch cold investment vehicle with your capital:

Your capital will stay cold for a certain time. It could be 5 years or more. And, you will feel disappointed for no hot flames right now. Gradually, your capital will start to burn flames out, and you rejoyce over the warmth from the flames.

Which investment vehicle do you think is colder now? Stocks or gold?

Dow Will Equal Gold in 2009

There was a rich merchant in China about 3,000 years ago. The rich merchant became the most rich in China as follows:

1. A big war broke out.
2. People in fear bought gold relentlessly. Gold price skyrocketed. Rice price plummeted.
3. The merchant bought rice at super-low prices.
4. As war drags on and on, people needed rice more and more to feed themselves, and demand for rice skyrocketed, and demand for gold plummeted.
5. The merchat sold his rice to the market for triple digit prices and bought back the gold for super-low prices.
6. The merchant instantly became the richest man in ancient China 3,000 years ago.

Of course, this kind of dramatic and monopolized transaction would not happen in the modern world. However, if you compare US stock market to rice, you will see why this 3,000-year old story still applies today. As time goes on, people's thirst for higher return will come back. People's thirst for return cannot be satisfied with the bank-offered CD rate or treasury rate of less than 3% - 4%. It could be end of 2009, 2010 or 2011, no one knows. However, I'm confident that within the next 5 years, one of the greatest thirst for return will come back to the stock market, and people who bought gold and previous metals now will regret so much for plummeted prices of them and lost return from the stock market.

Tuesday Overview: Confusion and Caution

Curbs-in is way correct. His charts made us confused more and more.

Let's follow the Oracle's path, guys.