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Inflation or Deflation?

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Both, Hoye and Faber seem somewhat puzzled. That they both think the Dollar might go up makes me a Dollar-Ueber-Bear. I think Hoye is wrong in claiming that Weimar Germany just printed money. I am sure (and remember having read about it) that there was an orderely German credit system in place that bought German treasuries en masse. The claim that we saw a huge bull market in commodities also seems flawed. When you compare the leading commodities indices with current M3 then you'll see that commodities in relation to M3 are possibly 8 times cheaper than in 1960, and maybe still four times cheaper than in 1980.* So where is this huge bull? We're possibly not a quarter through yet in terms of prices. Just MHO.

 

* This discrepancy is quite in line with Bubbs $400 oil prediction, by the way.

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Faber sees gold going down to $650-$700

 

He previously said that it was going up.

 

Is he right this time?

 

 

 

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Faber sees gold going down to $650-$700

 

He previously said that it was going up.

 

Is he right this time?

 

Oh well another years wage off the STR fund would have been better staying in property :lol:

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Faber sees gold going down to $650-$700

 

He previously said that it was going up.

 

Is he right this time?

I don't see oil getting any cheaper, ever. All commodities will track its price.

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Just got a delivery of Oil today full tank it'll cost about £700 and odd pounds I remember when a full tank used to cost about £100 thats gotta hurt people that increase in less than 10 years. :o

 

But I still think theres going to be some real deflation horror stories as well as inflation. :huh:

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Just got a delivery of Oil today full tank it'll cost about £700 and odd pounds I remember when a full tank used to cost about £100 thats gotta hurt people that increase in less than 10 years. :o

 

But I still think theres going to be some real deflation horror stories as well as inflation. :huh:

 

Thanks for that :( you have just reminded me that I need to order mine for the winter, did you buy it from a dealer or one of these http://www.yobco.co.uk/ types of groups that have sprung up over the last few years?

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I welcome Bob Hoye opinion and follow lots of his arguments. However when he talks about the magnitude of the commodities 'bubble' he uses fiat currency measures, while the previous bubbles he refers to were under a gold standard (with fractional reserve banking mind).

 

These to me do not seem to be a fair comparison, using Gold as a base many commodities certainly far out performed gold's 3-4x move (in USD) but I just don't see how the fundamentals of say Oil and valid adjustments just to keep pace with the expansion of the monetary base are factored in?

 

If $10 Oil in 1998 wasn't an ultra depressed level what would Mr Hoye suggest is?

 

I do buy into a lot of the deflationist points, but I also look at the fundamentals for most commodities being pretty strong over the medium to long term (Oil being the prime example). Unless we are going to see the money supply contract in a pretty dramatic fashion (enough to offset the upward price pressure on Oil) I do not see significant (another 10% maybe?) down side to say Oil, Gas, Gold, Silver.

 

Sure gold could go to 650 (I don't see it that low) but that makes it all the better time to dollar cost average imo

 

What do you guys think?

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IMO it is interesting that all 4 guests (over the two shows) basically agree that at least long term gold should be a good investment. The more deflationistic ones see it going down first though.

 

On another note, I am also not sure if Hoye is right on interest rates in a boom bust cycle. Faber made sense, but was not very specific. Maybe he got scared out of all his Asian investments recently and therefore now preaches the less demand story.

 

IMO China will go through the mother of all depressions. But that won't mean deflation in commodities since the government will use their savings to prop up the economy. They will build a lot. Just like the Hoover Dam etc. back in the 1930s.

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Deflation in home products and services. Inflation for imported goods and services dependant on them. Currency devaluation. Gold is not a good investment I think - just a retainer of PP. Better to invest your money abroad in countries with savings and current account surpluses.

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After listening to the debate, I hear most of them predicting a slump in commodities as well as assets, as the bust phase follows on from the boom. Most have in mind a time line with a deflationary stage hitting everything in the short [medium] term followed on by a a re-assertion of the commodity bull in the long term. They also see monetary metals continuing to do well.

 

The takeaway for POG is to expect further drops [buying ops] against the dollar as it strengthens in contrast to weakening asset prices. Medium/long term they see fundamental problems with the dollar. The implication here is for gold to strengthen as it regains its monetary function. POG would become an irrelevance then and we would be looking at the purchasing power of gold itself. I found Hoye's point, based on historical precedent, about gold being necessary to re-liquidify the banks interesting.

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I'd love to hear Jim Rogers remarks to these views. I know Rogers is a fundamentalist but I'm not sure anout his credentials to discuss monetary influences. I haven't finished listening to the prog yet but seems to me so far into BH's piece I agree with Ares that he pays no attention to the monetary inflation under the current fiat system when assessing the price increases of commodities so far.

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I would love to hear what Jim Puplava has to say. They "covered" the inflation/deflation thing a few weeks ago, but frankly I thought they did not do it justice and instead attacked a straw man.

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I'd love to hear Jim Rogers remarks to these views. I know Rogers is a fundamentalist but I'm not sure anout his credentials to discuss monetary influences. I haven't finished listening to the prog yet but seems to me so far into BH's piece I agree with Ares that he pays no attention to the monetary inflation under the current fiat system when assessing the price increases of commodities so far.

Bob's point, as a market historian, is that what the CB's are trying to do have been done in the past.... with the same outcome; each time banks have tried to reflate, they have failed in preventing a deflationary bust.

 

I think it is more complicated this time. There will be a deflationary bust, with a temporary strengthening of the dollar. But eventually the inner contradictions of the dollar/fiat, which we all know so well, will lead to the deflation of the dollar itself [inflation in prices].

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What did Bob Hoye mean when he referred to Gold re-liquefying banks

 

I didn't understand that bit - how does that work?

 

Cheers

I have no clue what he meant with that really. It almost sounded as if he thought that banks/central banks hold enough gold such that they can benefit from a rising price. Sounds like an outright joke to me. Rising gold prices will cause some trouble in the banking system IMO.

 

EDIT: typo.

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I have no clue what he meant with that really. It almost sounded as if he thought that banks/central banks hold enough gold such that they can benefit from a rising prising. Sounds like an outright joke to me. Rising gold prices will cause some trouble in the banking system IMO.

 

Yeah - I must admit I found him hard to follow - as far as I could tell he was saying there would big deflation and that after initial falls in the nominal gold price the real gold price would rise - presumably as other asset prices decreased in relation to gold. Right?

 

anyone care to summarise Bob Hoye's argument as I'm not sure I "got" what he was saying.

 

Cheers

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I also don't believe in tightening global liquidity because the trade and current account deficits in the US go down, like Faber does. Let's first wait and see whether this is really the case. My guess is that public deficits will explode.

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Thanks for that :( you have just reminded me that I need to order mine for the winter, did you buy it from a dealer or one of these http://www.yobco.co.uk/ types of groups that have sprung up over the last few years?

 

Thats a new one on me. Fairly sure my little village is not aware of this. Interested if anyone knows whether they actually make much difference to buying power ?

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Money supply expansion (inflation) comes from retail bank lending backed up by central bank liquidity, so how does today's situation point to (hyper)inflation? We know that lending is dropping (off a cliff in some examples, such as the massive mortgage market) and now central bank liquidity is going to be cut off. How is the money supply (and consequently gold) going to massively take off in these conditions?

 

Scramble for cash as central banks dry up

 

"British banks soon could be scrambling for short-term funding once more amid reports that supplies from Threadneedle Street and from Frankfurt may be drying up.

 

The Bank of England explicitly ruled out extending its Special Liquidity Scheme (SLS), while the European Central Bank is reportedly considering tightening its lending criteria.

 

The two central banks have been huge suppliers of liquidity to British banks. The SLS is thought to have provided £50 billion or more, while the ECB has lent banks €467 billion (£378 billion) - much of it thought to have gone to UK institutions.

 

Despite pressure from some British banks for an extension, the SLS will be closed to new applications from the week of October 20, the Bank said. UK banks have been campaigning for an extension to the scheme, under which the Bank provides banks with highly liquid government bonds in return for illiquid AAA-rated mortgage-backed securities.

 

As recently as Friday, Rod Kent, the chairman of Bradford & Bingley, called the SLS “a good idea” and contrasted its temporary nature with the permanence of the ECB liquidity window.

 

The ECB declined to comment on reports that it would change its rules soon, accepting only higher-quality collateral from borrower banks in exchange for cash. At present it accepts securities with credit ratings as low as A-. It also accepts private securities - instruments created by the banks and not traded on any public market. Some ECB officials are concerned that it has become a “dumping ground” for inferior mortgage-backed securities, according to The Wall Street Journal. The reform could come as early as Thursday, when the governing council meets and the ECB makes its monthly interest-rate decision.

 

While money market conditions have improved modestly in the past few months, banks are still hoarding cash. Three-month sterling Libor has been trading at 5.75 per cent, three quarters of a per cent above base rate, indicating continuing stress in the money markets. Before the crunch the margin was 0.1 or 0.2 of a per cent. "

 

 

 

 

 

 

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With all the four people interviewed I would say that there were some points I agree with and others I don't. To me the only person who makes 100% sense is Peter Schiff. I think the eventual outcome has to be currencies that are pegged to the dollar dropping their pegs and the citizens of the countires such as China etc being the beneficiaries. The reason I come to this conclusion because I compare my standard of living to people all over the rest of the world and can only come to the conclusion that my standard of living is far too high. I live within my means on modest income but drive an excessive gas guzling car, can afford the latest consumer gadgets, clothes, holidays meals out etc, I doubt a large factory owner in China has this standard of living (although this i'm only guessing i've never been there). It doesn't make sense to me that after the massive consumption boom that a have participated in over the last decade provided I keep my job in the recession commodities and consumer goods will get cheaper and I can consume even more than I did in the boom if it does maybe I can upgrade the Lexus to a Bentley :lol: . Because of these observations alone I can only forsee holders of Dollars and Sterling in the medium to long term having a much reduced standard of living hence I am 100% on the inflation side of the fence.

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I doubt a large factory owner in China has this standard of living (although this i'm only guessing i've never been there). It doesn't make sense to me that after the massive consumption boom that a have participated in over the last decade provided I keep my job in the recession commodities and consumer goods will get cheaper and I can consume even more

 

I remember travelling in what I thought were remote parts of Laos through small villages and seeing children playing World of Warcraft (online video game) in internet cafe's! I think a lot of people still underestimate how quickly Asia is 'developing' (or wanting to).

 

Sadly I don't think the US will accept a lower standard of living and will attempt to print themselves out of the situation.

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OECD report states that the US economy is not going into recession but will start growing from here.

 

Kinda pulls the rug from under the long drawn out credit freeze and deflation argument doesn't it?

 

If the US does grow from here, I suspect it will be primarily due to the large amount of money they've thrown at the problem (negative real interest rates for last year or more, major tax cuts, cash handouts to public, bank bailouts).

 

Contrast that to the UK - high base rates, tax rises, no public handouts, and now closing down their bank baleouts. ...oh, but they did move the stamp duty threshold to 175k (yippe do dah!). ...all meaning the pound will fall further in value as the economy tanks

 

So if US now grows as predicted, that will also boost Asian growth and stoke global inflation. UK inflation will be even worse due to the weakening pound.

 

Bottom line: UK is in deep trouble, and can expect massive ongoing inflation, ...and so I'm SOOOOOO glad I've got lots of gold and silver :)

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