Or, gold won't go up

So, it may be that we can take off our aluminum caps, or, at least, I can.

Below, find the interesting analysis from the bond side that the fear of inflation is premature.

I did some homework and most sources think of inflation as price increases, not currency devaluation, which can lead to price increases.

For example, England devalued the pound in 1992 and there was no inflation because there was already a recession and there was spare capacity.

When the dollar devalues, this raises prices, on imports. However, this does not seem to be "inflation" per se nor need cause it. I have to work on this and its Saturday night.

In all events, you can count on the decreasing value of the dollar. This can lead to inflation and even the contrarian, here, thinks is will come.

The article from which the excerpt below was taken, click on the title, indicates you have to look at the bond market, which in NY is larger than the equities market, and traders are not in a selling cycle. Now, they can be wrong, but they are specialists and have nice cars.


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By Jon Nadler         Oct 23 2009 11:27AM

...On the theory and debate front, more of the same. Namely, that among all the screams about inflation -as in, here & now- are at least five years premature, and possibly wrong to begin with. Marketwatch's Mark Hulbert sees it this way: "Now, for an opposing point of view. I argued in several recent columns that bonds are particularly vulnerable at current levels, which -- if true -- means that interest rates are likely to go higher. This was for any of a number of reasons, one of which is that inflation is likely to accelerate in coming years. I still believe that. The problem is that I am hardly alone in worrying about inflation. On the contrast, seemingly everyone I talk to these days shares these concerns. This in turn suggests that these inflationary expectations are already reflected in bond prices. And, yet, bonds continue to trade at lofty levels, which is not consistent with high inflation expectations. What do bond traders know that the rest of us don't? It could be that the answer is "nothing," of course. As we saw during the euphoria leading up to the market top in 2007, as well as during the buildup of the Internet bubble during the late 1990s, no group is immune from group think and collective denial. Still, we should never be too cavalier in believing that we know something that the market doesn't. The graveyards on Wall Street are filled with those who had such arrogance. This is especially good advice when it comes to the bond market, which is by far the largest in the world -- much larger than the stock market, in fact. Some of the world's biggest institutional investors, along with many of the brightest minds on Wall Street, follow this market meticulously every day, hanging on every basis-point change in yields. If there were some factor out there that makes bond prices obviously overvalued at current levels, it's a good bet that traders would be selling bonds in droves. That's why I think it's important to take seriously the notion that bonds are not overvalued right now, even though I have previously argued to the contrary. That, in effect, means taking seriously the notion that inflation and interest rates are not likely to go higher anytime soon. One of the more cogent recent analyses of the subject was conducted earlier this week by Joseph Kalish, a senior macro strategist at Ned Davis Research, the institutional research firm. Kalish provided several reasons to expect inflation risks to be low over the intermediate term of less than five years: Excess capacity. Kalish says that any of a number of factors point to high levels of excess capacity in the economy right now -- everything from the unemployment rate to industrial capacity utilization rates to commercial real-estate vacancy rates. Those factors put "downward pressure on the inflation rate," he points out. Cyclical factors. Kalish points out that "following every recession in the postwar period, the inflation rate has fallen." Slower debt growth. The federal government's total debt may have mushroomed over the last couple of years, but this has been more than counterbalanced by deleveraging in the private sector. "Historically," Kalish points out, "when debt growth has been below trend, the inflation rate has declined." High real interest rates. Nominal interest rates may be low, but real interest rates (the difference between long-term Treasury yields and the consumer price index) are at abnormally high levels right now, according to Kalish. High real interest rates "tend to discourage the use of debt and, therefore, excess consumption and investment, which puts downward pressure on the inflation rate." What about higher commodity prices, such as for oil (which is at a 52-week high) and gold (which is at an all-time high)? Kalish acknowledges that they are a concern. But not overwhelmingly so: "Changes in commodity prices have only explained about 18% of the growth in the CPI one year later." To be sure, Kalish acknowledges, inflation is a big risk for the longer-term, which he defines to be further than five years into the future. Over periods less than that, however, his analysis suggests that inflation will remain low. Is there a way of squaring Kalish's arguments with the contrarian-based conclusion that bonds are vulnerable to a decline? I think there is, since his arguments apply to the longer term of up to five years and contrarian analysis is, at best, a short-term trading tool (applying to the next three months, at most). A view that integrates both perspectives would be that, short-term, bonds may have gotten ahead of themselves, relative to their long-term trend. But their resultant short-term vulnerability would not necessarily mean that their overall trend for the next few years will also be down."