Numbers, deflation, inflation
Some recent numbers of interest from the WSJ:
In a these times, it doesn't hurt the average person with gold or even cash sitting around at a modest return. Stocks are problematic as demand declines and companies continue to batten down the hatches. Still, a solid consumer-based stock, best with a dividend, should survive well enough.
As noted previously, one school of thought was to go all-in on government long term bonds, which you see above have done very well.
IMPORTANT: TIPS can lose principal in deflation. They are great during inflation, however. The WSJ says zero coupon bonds, aka strips, are better since return is locked in and the dividends are reinvested at that rate. Of course, then what do you do if inflation takes off? It is not easy for real people to jump in and out of investments, most of us have jobs.
Hedging seems a good plan. Perhaps, have some TIPS and some cash. If deflation appears, take a hit on the TIPS, but the cash will balance it. Then, when it looks like the high inflation is coming, buy TIPS.
If we slide into deflation, cash is king, the opposite of its status during inflation. You can see the money changers who deal in credit do not want deflation. Here, if you can find a pleasant return or good dividend, that may be the smartest thing. In deflation, you will want to have your money in US cash, the opposite of the threat I have been harping about. We are at the crossroads.
To paraphrase Hamlet, there is much provenance in the fall of a rate. It is not be now, it be later. If it not be inflation, it will be deflation.... And so on. One has to hedge one's property. Prepare for both events, as both will come. If not now, later.
If you speculate and guess right, you come out way ahead.
One of the early mega-wealthy Russian tycoons ordered thousands of Lada cars, with the help of a down payment garnered from friends, as he was certain the Rubble would crash, and I mean crash. It did and he purchased the cars for pennies on the old Rubble as the contract price was in inflated currency. This would be akin to actually getting a fixed mortgage before an inflation.
So, defense and offense is good. Waiting in line for the shearing is not, as you can be whip-sawed in both directions.
- Gold SPDR ETFs in first six months of 2010: up $7.4 billion
- Long Term Treasury Bonds 1/10 to 8/1/10: + 15.5%
- S&P from his 1/07 to 8/6/10: - 28.35
- Home price average from 2006 to today: - 29.1%
- 2010 Consumer Price Index: +1.4% (projected: +1.5 to 2%)
In a these times, it doesn't hurt the average person with gold or even cash sitting around at a modest return. Stocks are problematic as demand declines and companies continue to batten down the hatches. Still, a solid consumer-based stock, best with a dividend, should survive well enough.
As noted previously, one school of thought was to go all-in on government long term bonds, which you see above have done very well.
IMPORTANT: TIPS can lose principal in deflation. They are great during inflation, however. The WSJ says zero coupon bonds, aka strips, are better since return is locked in and the dividends are reinvested at that rate. Of course, then what do you do if inflation takes off? It is not easy for real people to jump in and out of investments, most of us have jobs.
If we slide into deflation, cash is king, the opposite of its status during inflation. You can see the money changers who deal in credit do not want deflation. Here, if you can find a pleasant return or good dividend, that may be the smartest thing. In deflation, you will want to have your money in US cash, the opposite of the threat I have been harping about. We are at the crossroads.
To paraphrase Hamlet, there is much provenance in the fall of a rate. It is not be now, it be later. If it not be inflation, it will be deflation.... And so on. One has to hedge one's property. Prepare for both events, as both will come. If not now, later.
If you speculate and guess right, you come out way ahead.
One of the early mega-wealthy Russian tycoons ordered thousands of Lada cars, with the help of a down payment garnered from friends, as he was certain the Rubble would crash, and I mean crash. It did and he purchased the cars for pennies on the old Rubble as the contract price was in inflated currency. This would be akin to actually getting a fixed mortgage before an inflation.
So, defense and offense is good. Waiting in line for the shearing is not, as you can be whip-sawed in both directions.
Labels: deflation, hyper-inflation, TIPS
posted by Gene | 8:49 AM
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