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kaihacker

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Reply with quote  #1 
This thread has become very slow to load so this thread has been discontinued and the discussion has been continued on a new thread...Deflation, Inflation, Stagflation 2.0

Here is a link to the new thread:

http://sdcia.websitetoolbox.com/post/deflation-inflation-stagflation-2-0-6877369____________________



EDIT ADDED
____________________

THERE HAS BEEN MANY POSTS OVER THE LAST YEAR ASKING IF THERE IS A GOOD OVERVIEW OF THIS ISSUE.  CONSIDERING THIS POST HAS 1500 POSTS AND COUNTING I UNDERSTAND HOW IT WOULD BE HARD FOLLOW. 

HERE IS A OVERVIEW THAT I FEEL PRESENTS THE ISSUE VERY WELL:

http://dailycapitalist.com/downloads/inflationdeflation.pdf

IT IS SEVERAL PAGES LONG BUT THAT IS MUCH SHORTER THAN THIS THREAD.

THE WRITER OF THE PDF ABOVE LEANS TOWARDS INFLATION. 

IF SOMEONE HAS A SIMILAR COMPREHENSIVE ARTICLE WHICH PRESENTS THE DEFLATIONIST ARGUMENT PLEASE PM ME AND WILL ADD IT TO THIS FIRST POST AS WELL.

_______________
ORIGINAL POST
_______________

Over the past few months or reading I have been convinced that even though the govt/fed is trying to crank up the money supply we are still in deflation.  I also believe that all the govt action will eventually lead to inflation. 

My question is...how do we know when this is happening.  Or even better...about to happen?

(end of original post)
_____________________________
links to topics:
Austrian economic views of velocity
List by country of inflation rates
Why is CPI different than prices we see
Deflation myths
Information on Hyperinflation
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Gene Hacker

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ptiemann

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Reply with quote  #2 
I agree with your expectation for the future.

*When* will it happen?

Look for indicators like Fannie Mae softening on the 4-loan limit. How many (new) indicators do we have happen that tighten money supply? How many indicators that things get easier?

By the way: I raised $91k in 0% credit cards in January (12 months term), with no or limited balance transfer fees. Those $91k came from only 5 CC applications; 1 rejected, 4 positive. To me this is a positive indicator.

After reading the Fannie Mae related post on Friday, I forwarded it to my mortgage broker friend, and he'll get back to me on the details how to get a 9th or 10th property mortgaged.

-Peter

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kaihacker

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I seem to me the problems isn't so much that banks don't want to lend...the bigger problem is that people don't want to barrow right now.

People don't want to buy houses right now....they are afraid to buy a new car right now because they are not sure of their job...  Savings rates are increasing.  Businesses are kind of in the same position.  They are not expanding.  Most are contracting.  They aren't in the market for financing right now.


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Gene Hacker

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ptiemann

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Reply with quote  #4 
Did you see junior member norris' last post?

http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=3286392

I will sell a SFR soon and see how fearful people are. In November 2008 I had no problem selling, but I do admit that the labor market has changed since then.

I know several people who would like to refinance. A co-worker who spend 150k on a remodel and wants to finance the bill with a new 1st loan (DTI problem). Several investors who have large equity in rental properties but face problems getting a HELOC (4 property limit).

-Peter


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kaihacker

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Reply with quote  #5 
I agree there are some investors out there right now that want to barrow...I am just think the masses seem to be "clinching" much more than they have been. 

I am just looking for more data driven indicators rather than anecdotal evidence. 

I remember a post in the past from Robert, full of economic/monetary indicators which he used to figure out that cash was the place to be this fall.  I searched the archives but I could not find the post.


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Gene Hacker

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siamcat1

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Reply with quote  #6 
Quote:
Originally Posted by kaihacker
I seem to me the problems isn't so much that banks don't want to lend...the bigger problem is that people don't want to barrow right now.

People don't want to buy houses right now....they are afraid to buy a new car right now because they are not sure of their job...  Savings rates are increasing.  Businesses are kind of in the same position.  They are not expanding.  Most are contracting.  They aren't in the market for financing right now.



You're half right.  Any good credit can get money right now.  And on relatively good terms and rates.  The problem is that the good credits (whether commercial or consumer) are, by definition, conservative and, therefore, justifiably concerned with the state of things right now. For most folks, it's not prudent to be borrowing a lot of money right now based on an extremely uncertain near-term future.  So, for the most part the good credits don't want or need new credit right now.  As you point out, they're stable or contracting in the credit arena.  Unfortunately, it's the marginal credits that really need credit right now and banks, justifiably, don't want to lend to these folks anymore.  A lot of folks who were decent credits a few years ago are now marginal credits and the banks are in no mood to carry these folks anymore.  There's too much risk.  Believe me, good credits have access to plenty of credit right now.  The problem is that there are too many bad credits that just don't qualify anymore.
ogden

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Ptieman, can you tell me the sources you went to get the 91K cash w/ zero percent interest.  If I can get the same deal, you might have just given me the solution in buying another property.

The vacation property community that I have been watching has gone down another 5% the last month.  It is getting to the point where I should get at least a 4-6% cash on cash return.
taddyangle

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Quote:
Originally Posted by ogden
Ptieman, can you tell me the sources you went to get the 91K cash w/ zero percent interest.  If I can get the same deal, you might have just given me the solution in buying another property.

The vacation property community that I have been watching has gone down another 5% the last month.  It is getting to the point where I should get at least a 4-6% cash on cash return.


As go the price so goes the rents.  Any reason to think this vacation property won't go down another 5, 10, 15% before the end of this year?

What is the return if you wait 9 months and the price is down 15%?

My contact in AZ (realtor, but her husband does all my handyman work) told me this weekend that you can buy houses in AZ for $40k.  Granted low end, but why rent low end for $575 a month (2/1) when you can buy something for $40k?

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ogden

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Reply with quote  #9 
I don't value my properties on whether they appreciate or depreciate on a monthly basis. I'm looking at occupancy, rent levels, and 5-10 years down the road. 

All the properties I own are doing well on the criteria I mentioned above and have not been hit hard like some other areas or properties. They are not super inflated like they were last year, but all are above what I bought them 3-4 years ago, and in some cases well above what I bought them for.

The vacation property is in a good up and coming city and in a pretty good location. 

I won't buy this property unless I can get at least 6% return on my cash invested from the rental income.
ptiemann

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Ogden, I would not buy a rental with credit card money, because you will need to repay after 1 yr. And some CCs now have introductory terms for 9 months only!

In the past I have paid down a mortgage with small amounts of CC money, that I was comfortable paying off pretty much any time.

A year ago I took about 120k from credit cards at 0% and 40k at 1%. Obviously around December 2008, I had to pay off those 160k. 2 weeks later, I applied for some cards. I don't think I can give specific recommendations as to what cards to apply for. There are plenty of credit-card comparison sites on the web, and also check FatWallet.com/finance

It may not be possible to get a 0% $80k credit card right now, but if you have an existing high limit card e.g. with BofA, then you can apply for a new card with BofA, you'll get a $10k initial limit at 0%. Then move over available credit from your old card to the new card and voila, $80k at 0% for 15 months.

Chase business cards are great because they don't show on your personal credit report unless you stop paying them :-) This means your true total debt stays hidden.

On the flip-side, it is frustrating to pay off a $50k business card and your utilization does not change according to your credit report.

As said, it may be tempting but I strongly advise against buying rentals with credit card money.

-Peter

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davidoosnk

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Reply with quote  #11 
Problem with idiot banks is they are not lending on the asset, still looking at the borrower. However, interpretaions of borrower qualifications are subjective. Much less so IMO with assets. I have single family properties that cashflow at 1.4 DSCR and banks will not refinance because I can't show via taxes for 3 years that I make 200k a year or so in pure income to make up for the fact that I own quite a few properties. Well as Siam notes in slightly different terms, if I were already netting 200k a year I probably would not be buying properties or seeking out as much credit. The funny thing is a lot of high income earners are being foreclosed on due to stupid investment decisions like buying non-cashflowing properties at ridiculous prices (the opposite of what I am doing). Yet banks in all their wisdom continue to look at the borrower vs. the asset.

BTW anyone who can help solve my refinance problem (basically need to refi a few properties that already cashflow at 10% hard money) let me know I'll pay for solid banker references of loan officers who are given the latitude by their underwriters to lend on the income derived from real estate assets.

David
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Reply with quote  #12 
David,

You sound like your in a similiar situation as I am.  Make a good income with several cash flow properties.  I haven't tried to refinance or buy in years and I hope I don't run into this problem when I do start buying. 

I have my own funds to put down a large down payment, but I rather go the route of using bank funds.  I think banks should look at both borrower and asset. 


kaihacker

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Quote:
Originally Posted by davidoosnk


BTW anyone who can help solve my refinance problem (basically need to refi a few properties that already cashflow at 10% hard money) let me know I'll pay for solid banker references of loan officers who are given the latitude by their underwriters to lend on the income derived from real estate assets.

David


I think your best bet would be to talk to some small local portfolio lenders.  When you go into a big bank...the "loan officers" do little more than help you fill out the application.  In a small bank you can sometimes meet with the committee that actually approves the loans.  They are less likely to be as ridged as big banks.

Of course small banks have limited funds.  So you might get denied solely based on the fact that they are not making loans at the moment.  Like anything in this business...its a numbers game.  It might take going/talking to 15 different small banks. 

But if I were you that is where I would start.



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Gene Hacker

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kaihacker

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Reply with quote  #14 
Back on topic to the original post...dose anyone out there know what data indicators to watch to determine if our economy is experiencing inflation or deflation?  Anyone know of a better site/forum to obtain this info?


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Gene Hacker

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siamcat1

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Reply with quote  #15 
Quote:
Originally Posted by kaihacker
Back on topic to the original post...dose anyone out there know what data indicators to watch to determine if our economy is experiencing inflation or deflation?  Anyone know of a better site/forum to obtain this info?



There are two competing definitions of inflation and deflation which folks are arguing about right now.  Some folks say that if the monetary base is expanding then we are experiencing inflation.  Other folks say that we are only experiencing inflation if prices are rising.  We are at an unusual moment in economic history in which the monetary base is expanding extraordinarily rapidly (inflation!), but.... prices are falling (deflation!).  Prices are falling for almost all financial assets, technology, commodities, oil, etc. etc.  But the monetary base is exploding.  Personally, I wouldn't get caught up in the semantics of this issue.  Rather try to understand what's happening and what the implications are.
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Reply with quote  #16 

Gene,

re:  protecting yourself from Inflation and/or Deflation

Historically, the asset class that has been well-correlated with inflation if gold.  The asset class that has been well-correlated with deflation is bonds.

The money movement strategies can vary widely - but essentially you would be moving money into and out of these asset classes through asset allocation, following trends and timing the market, or a combination of both (which I like).

One of my future projects will be to develop a market-timing model for these two events. 

Robert Campbell

PS:  One of the worst things you can do as an investor is to bet on inflation in a deflationary environment.  I think this approached is what contributed to a hefty part of the losses that Peter Schiff took in the last 12 months - which were in the order of 40% to 60% losses.



kaihacker

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Quote:
Originally Posted by siamcat1

There are two competing definitions of inflation and deflation which folks are arguing about right now.  Some folks say that if the monetary base is expanding then we are experiencing inflation.  Other folks say that we are only experiencing inflation if prices are rising.  We are at an unusual moment in economic history in which the monetary base is expanding extraordinarily rapidly (inflation!), but.... prices are falling (deflation!).  Prices are falling for almost all financial assets, technology, commodities, oil, etc. etc.  But the monetary base is exploding. 


Yes the monetary base is exploding but the total monetary supply is decreasing because of the leverage of fractional reserve lending....which is really the key issue in my opinion.

Quote:
Originally Posted by siamcat1

Personally, I wouldn't get caught up in the semantics of this issue.  Rather try to understand what's happening and what the implications are.


Without understanding the "semantics" I don't think I can really understand what the implications are.  My plans will change dramatically if and when we turn inflationary.  That is why I am looking for data driven indicators so I can look for trends or changes in the trends.

Thanks

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Gene Hacker

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siamcat1

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Reply with quote  #18 
Quote:
Originally Posted by RobertCampbell

Gene,

re:  protecting yourself from Inflation and/or Deflation

Historically, the asset class that has been well-correlated with inflation if gold.  The asset class that has been well-correlated with deflation is bonds.

The money movement strategies can vary widely - but essentially you would be moving money into and out of these asset classes through asset allocation, following trends and timing the market, or a combination of both (which I like).

You can develop your own model.

Robert Campbell





And look at what we see today: treasury and gold prices increasing at the same time.  Treasuries are predicting deflation; gold is predicting inflation.  Bizarre.
siamcat1

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Reply with quote  #19 
Quote:
Originally Posted by kaihacker
Quote:
Originally Posted by siamcat1

There are two competing definitions of inflation and deflation which folks are arguing about right now.  Some folks say that if the monetary base is expanding then we are experiencing inflation.  Other folks say that we are only experiencing inflation if prices are rising.  We are at an unusual moment in economic history in which the monetary base is expanding extraordinarily rapidly (inflation!), but.... prices are falling (deflation!).  Prices are falling for almost all financial assets, technology, commodities, oil, etc. etc.  But the monetary base is exploding. 


Yes the monetary base is exploding but the total monetary supply is decreasing because of the leverage of fractional reserve lending....which is really the key issue in my opinion.




Total bank lending has not contracted.  In fact, per the Federal Reserve, it increased by a small amount in 4Q08.  Thus, I guess you'll have to explain to me how "the total monetary supply is decreasing because of the leverage of fractional reserve lending."  I think we'll ultimately see a modest reduction in bank lending, which will have a multiplier effect, but in total dollars it's unlikely to overwhelm the increase in the money supply via the actions of the Fed and Treasury.
kaihacker

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Reply with quote  #20 
Quote:
Originally Posted by siamcat1


Total bank lending has not contracted.  In fact, per the Federal Reserve, it increased by a small amount in 4Q08.  Thus, I guess you'll have to explain to me how "the total monetary supply is decreasing because of the leverage of fractional reserve lending."  I think we'll ultimately see a modest reduction in bank lending, which will have a multiplier effect, but in total dollars it's unlikely to overwhelm the increase in the money supply via the actions of the Fed and Treasury.


If what you are saying is correct, I am clearly wrong in my thinking.  I am only going off of everything I have been reading...which would make you think there are no loans anywhere getting done.  Obviously if total lending is up there is massive misconception by both the politicians and news media.  I am just trying to figure out where to find the data so I can have a better idea of what is really happening.  

Where do you find total lending stats?  That exactly why I started this thread...there is so much talk but little data. 

I am just trying to figure this all out.

Dose anyone know of any good books on understanding the key indicators?

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Gene Hacker

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kaihacker

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Reply with quote  #21 
Quote:
Originally Posted by RobertCampbell

Gene,

re:  protecting yourself from Inflation and/or Deflation

Historically, the asset class that has been well-correlated with inflation if gold.  The asset class that has been well-correlated with deflation is bonds.

The money movement strategies can vary widely - but essentially you would be moving money into and out of these asset classes through asset allocation, following trends and timing the market, or a combination of both (which I like).

One of my future projects will be to develop a market-timing model for these two events. 

Robert Campbell

PS:  One of the worst things you can do as an investor is to bet on inflation in a deflationary environment.  I think this approached is what contributed to a hefty part of the losses that Peter Schiff took in the last 12 months - which were in the order of 40% to 60% losses.



Robert,

Are there other indicators that you rely on other than the gold and bond market?  Markets have been getting a lot wrong lately. 


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Gene Hacker

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RobertCampbell

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Reply with quote  #22 

Gene,

The markets are never wrong - that's the first rule of investing.

The two indicators that I mentioned have been used for 100 years or more as being good investments for either  inflationary and deflationary environments.

If inflation starts to heat up, gold will tend to go up and bonds will tend to go down.

If deflation is the story, gold will tend to go down and bonds will tend to go up.

There's no perfect system, but these correlations have been more right than wrong over long periods of time.

Plus, it passes the commonsense test as well, which is always a plus.

Robert Campbell

siamcat1

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Reply with quote  #23 
Quote:
Originally Posted by kaihacker
Quote:
Originally Posted by siamcat1


Total bank lending has not contracted.  In fact, per the Federal Reserve, it increased by a small amount in 4Q08.  Thus, I guess you'll have to explain to me how "the total monetary supply is decreasing because of the leverage of fractional reserve lending."  I think we'll ultimately see a modest reduction in bank lending, which will have a multiplier effect, but in total dollars it's unlikely to overwhelm the increase in the money supply via the actions of the Fed and Treasury.


If what you are saying is correct, I am clearly wrong in my thinking.  I am only going off of everything I have been reading...which would make you think there are no loans anywhere getting done.  Obviously if total lending is up there is massive misconception by both the politicians and news media.  I am just trying to figure out where to find the data so I can have a better idea of what is really happening.  

Where do you find total lending stats?  That exactly why I started this thread...there is so much talk but little data. 

I am just trying to figure this all out.

Dose anyone know of any good books on understanding the key indicators?


Commentary on the growth in lending (with accompanying stats):
http://bankstocks.com/ArticleViewer.aspx?ArticleID=5604&ArticleTypeID=2

Stats on aggregate lending:
federalreserve.gov
fdic.gov

It's all in there.




kaihacker

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Reply with quote  #24 
Quote:
Originally Posted by RobertCampbell

Gene,

The markets are never wrong - that's the first rule of investing.

The two indicators that I mentioned have been used for 100 years or more as effective investments for either  inflationary and deflationary envirnoments.

If inflation starts to heat up, gold will tend to go up and bonds will go down.

If deflation is the story, gold will tend to go down and bonds will tend to go up.

There's no perfect system, but these correlations have been more right than wrong over long periods of time.

Plus, it passes the commonsense test as well, which is always a plus.

Robert Campbell



I guess my question is...are the gold/bond markets your indicator or your play?

Dose rising gold make you believe there is inflation...or after you determine there is rising inflation you buy gold.

Do the gold/bond markets respond or predict?

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Gene Hacker

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kaihacker

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Reply with quote  #25 
Quote:
Originally Posted by siamcat1


Commentary on the growth in lending (with accompanying stats):
http://bankstocks.com/ArticleViewer.aspx?ArticleID=5604&ArticleTypeID=2

Stats on aggregate lending:
federalreserve.gov
fdic.gov

It's all in there.


Thanks for the links.

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Gene Hacker

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RobertCampbell

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Reply with quote  #26 
I guess my question is...are the gold/bond markets your indicator or your play?

To remake the point, these are the asset classes that tend to be well-correlated with inflation and deflation - thus they are the asset classes you actually invest in.

Dose rising gold make you believe there is inflation...or after you determine there is rising inflation you buy gold.

See above.

Do the gold/bond markets respond or predict?

I would say they respond to changing market conditions.
reijoe

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Reply with quote  #27 
Quote:
Originally Posted by kaihacker
Yes the monetary base is exploding but the total monetary supply is decreasing because of the leverage of fractional reserve lending....which is really the key issue in my opinion.

Without understanding the "semantics" I don't think I can really understand what the implications are.  My plans will change dramatically if and when we turn inflationary.  That is why I am looking for data driven indicators so I can look for trends or changes in the trends.

Thanks


Please explain what you mean here by "monetary base is exploding" and "total monetary supply is decreasing".
reijoe

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Reply with quote  #28 
Quote:
Originally Posted by kaihacker
If what you are saying is correct, I am clearly wrong in my thinking.  I am only going off of everything I have been reading...which would make you think there are no loans anywhere getting done.


Yea, the news is in the business of scare-mongering, it's what sells. There were 364,000 existing homes sold in December 2008, as reported by the national association of Realtors. I doubt everyone had cash to make their purchases.

http://www.realtor.org/research/research/ehsdata
kaihacker

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Reply with quote  #29 
Quote:
Originally Posted by RobertCampbell
I guess my question is...are the gold/bond markets your indicator or your play?

To remake the point, these are the asset classes that tend to be well-correlated with inflation and deflation - thus they are the asset classes you actually invest in.

Dose rising gold make you believe there is inflation...or after you determine there is rising inflation you buy gold.

See above.

Do the gold/bond markets respond or predict?

I would say they respond to changing market conditions.


Thanks for you response Robert.

Do you know of any good indicators that predict monetary inflation/deflation? 



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RobertCampbell

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Reply with quote  #30 

Do you know of any good indicators that predict monetary inflation/deflation? 

None that come to mind, sorry.

Professor Geoffrey Moore did a lot of work in this area.  You might want to Google his name and see what you learn.

Are you watching gold and silver right now?  Both are in rising trends - but I don't think the reason is based on the expectation of future inflation. 

We'll see if these rising trends keep on going - but I wouldn't be surprised if they do because I'm expecting the U.S. and global economies to really start nose-diving in in the Spring.  I think it's become more and more clear every day that the final outcome of this banking/financial crisis is going to be worse than most people imagined.

Did you listen or hear about Obama's speech to the nation last night?  Wow!  If that doesn't scare the hell out of people, I don't know what will.

I think anyone who isn't hoping for the best but planning for the worst right now is just plain nuts.




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