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Gaining from the Inflation/Deflation Conundrum

Stock-Markets / Financial Markets 2011 Dec 17, 2011 - 07:02 AM GMT

By: DeepCaster_LLC

Stock-Markets

Best Financial Markets Analysis ArticleAmid the Chaos of the Financial Markets and The Economy, One Essential Key to Successful Investing in 2012 is Clear as a Pure Toned Bell.

That One Key Reveals itself to us upon considering just a very few facts.

Via its promise to keep interest rates low until 2013, The U.S. Fed is already engaging in (and prepared to engage in more) QE 3. For example, Operation Twist does provide more liquidity by lengthening Treasuries’ Terms.


The Swiss National Bank is committed to printing unlimited amounts of Money to keep the Swiss Franc from appreciating.

And the Bank of England launched a 75 Billion Pound QE 2 just this past Fall.

And even the ECB, which has for now refused to increase its bond-buying, is engaging in its own Operation Twist and Rate Reduction. (We forecast the ECB will eventually print Euro-Bonds, thus further devaluing the Euro.)

The Key Point is that all these Actions Create Great Monetary Inflation, which is a Surefire Invitation to Great Price Inflation.

But there are Great Price Deflationary Forces at Work as Well.

The Great Debt Destruction Derby which was manifest recently, for example, in the Mega-Bankers “agreeing” to take a 50% Haircut in the Greek Debt Restructuring Package (and which is also manifest in similar programs around the developed world like e.g. the HAMP Programs in the USA in which a portion of Homeowner’s debt is written off) has only just begun!

And Economies around the World are Slowing and that too is quite deflationary.

So The Question is what will it be going into 2012 and beyond – Inflation or Deflation?

One thing is sure; we will continue to have Monetary Inflation – the Central Banks have promised us that.

But what about Price Inflation? Given the aforementioned Massive Existing Deflationary Forces, will Price Inflation be a problem?

The answer is Yes, very much so! But Why? and Where?

The Fundamental Reality (essential for Investing Success going forward) is to see that the Deflationary Forces are limited primarily to certain Sectors while the Inflationary Forces affect others.

To broadly (and somewhat over-simply) identify them, many Financial Assets (e.g. European Sovereign Bonds and most Stocks) and, beginning very recently, Basic Materials critical to Economic Expansion (e.g. Copper and other Building Materials) have begun to either deflate in price or “appreciate” at a slower rate and will continue to do so for the foreseeable future.

In contrast, Essential Tangible Assets in relatively inelastic and increasing Demand (e.g. certain Agricultural Products, and, subject to Caveats, Energy, as in Crude Oil) either are (as Crude Oil), or can be expected to, appreciate in price. That is why Deepcaster plans to make a specific recommendation next week which we expect will appreciate dramatically as a result of this trend.

In sum, the Fundamental Reality going forward is that we expect to have Inflation in some Key Sectors and Deflation in others, so it is essential to consider the Inflation versus Deflation issue on a Sector by Sector basis.

So overall which Sector Forces are Prevailing? The Price Inflationary Forces or Price Deflationary Forces?

Overall Price Inflation (i.e. Fiat Currency Purchasing Power Debasement) is already Prevailing. Indeed, it is already threshold Hyperinflationary.

How do we know this? For the U.S., we know this from looking at The Real Numbers, for example.

**Shadowstats.com calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider

Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)

Annual U.S. Consumer Price Inflation reported November 16, 2011
3.53%     /     11.12% (annualized October, 2011 Rate)

U.S. Unemployment reported December 2, 2011
8.6%     /     22.6%

U.S. GDP Annual Growth/Decline reported November 22, 2011
1.51%     /     -2.89%

U.S. M3 reported December 3, 2011 (Month of November, Y.O.Y.)
No Official Report     /     2.74%

Note that annual U.S. CPI at 11.12% is already Threshold Hyperinflationary.

Similar “Real Inflation” Numbers (as opposed to Bogus Official Numbers) can be found in other developed and emerging economies with Fiat Currencies.

The aforementioned Real Inflation Numbers imply that considerable Purchasing Power Degradation for certain Fiat Currencies is either already occurring or is on the Horizon. Therefore, with a view to profiting from this trend, we recently recommended shorting one of these.

A consistent and profitable approach is to invest in securities where Total Return (Gain Plus Yield) is likely to exceed Real Inflation (see Note 1 below).

As well, acquiring Gold and Silver because they are Real Money with Profit potential and with no counterparty risk (N.B. quite unlike Fiat Currencies) is the Ultimate Refuge from Degrading Fiat Currencies.

But Gold and Silver are under ongoing Price Suppression attacks from a Cartel (See Note 2) of Mega-Bankers.

Therefore, profit maximizing-Investments in Gold and Silver rely on Good Timing and wise choices as to the Form of the Investment (See Note 3 below).

In sum, proper Sector Evolution and Selection to take advantage of Inflation or Deflation (as the case may be) is important for Wealth Protection and Profit.

Best regards,

By DEEPCASTER LLC

www.deepcaster.com
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© 2011 Copyright DeepCaster LLC - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

DEEPCASTER LLC Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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