Wayne's Next Big Economic Prediction - Inflation, High Interest Rates, Weak Dollar

[cel]

I agree that we will be getting hyper inflation and all that goes with it but my question is - with every country in the world in the same over bought credit as we are it seem as though all countries are going to tumble. How will that affect us?

[cel]

One of Obamas top advisors made a comment "never let a good crises go to waste". When people are scared the gov. can grab more power and remove more freedoms. I think this economic cesspool may not be totally planned but they will extend it as long as possible.

[idontknow]

Originally Posted by Jim Richards

snow tires

and their hard assets!

[304065]

Wayne,

OK, that's like predicting the sun will rise.

Oil has fallen. Gold, despite the hand wringing of the Ron Paul crowd, is a non-event. Show me the inflationary tendency in all that?

Retail just experienced one of the worst quarters from a comparables standpoint ever, and the results are about to hit.

So the idea that the current loosening of the money supply will suddenly result in too many dollars chasing too few goods and services just does not make any sense in the near term. Ask anyone you know, without exception, most people are concerned about their continued employment, their compensation and their earnings power in the future. People with that mindset tend not to spend, they tend to save.

Sorta like Japan during the "lost decade"-- 0% nominal interest rates and open market activity couldn't get the consumer to stop saving and start spending to jumpstart growth. Culturally we're different, but that is the mood here anyway.

After the '29 crash the money supply contracted for FOUR YEARS. The lack of availability of credit made the depression worse and worse. And it is that contraction that Bernake-san is fully aware of and attempting to prevent.

So unless you can call it within a quarter or two, sure we'll flip over out of negative growth and into positive territory, and sure consumer prices will begin escalating again. But that's like predicting an economic cycle, much like Buffett during the time of "irrational exuberance-" he was directionally correct but his timing was off by years.

And timing is EVERYTHING.

[Big Ed]

Originally Posted by Axeman

I predict ... hyperinflation... These are my predictions! An I agree with Wayne, I'm not only keeping the P-cars, but will buy more with the deflation.

Hyperinflation or deflation? Hedging your predictions? Or just predicting monetary volatility?

[svandamme]

I predicted a melt down 2-3 years ago , on the basis that the socio economics on a global leval cannot continue... more people , wanting more , with nothing added to the mix(the planet)... We've been overusing natural resources to increase quality of life since WW2, and as such have borrowed at increasing interests against the future of or next generations.


my prediction: inflation and interests will Jo-Jo at increasing rates, this is just the tip of the iceberg when you look at it in terms of the past 50 years, vs the next 50 years... This ain't the real meltdown yet, this is just a little earthquake as a warning sign for the about to blow vulcano... and like volcanoes, it could get really serious next month, in 6 months, a year, or 10 years...Personally i think in 10 years, not months, but it depends on the crazy factor, of the likes of Russia, North Korea, and those like it..

The only investment worth doing, is land, you want lots of it, in one place, fertile, natural springs, woodland, farmland, Think self sufficient living.
Build something on it that can take a beating, that can be defended, that has power sources locally, wind, water, geothermic, sun... And have everything you need in place for very rough times, skills, tools, raw materials...

Since i have no cash to spend on land worth getting, i'll do the next best thing... buy a house

[Axeman]

Originally Posted by Big Ed

Hyperinflation or deflation? Hedging your predictions? Or just predicting monetary volatility?

Deflation for the next 12 months or so then going into hyperinflation after that. I think Obama will try to keep the bubble economy going with the coming "mega stimulus package" of $1 trillion, once that doesn't work, they'll probably go for a $2 trillion stimulus 6 months later..hell at this point just print like $50 trillion and throw dollars out of helicopters, except it won't buy you anything anymore..not even a oil filter for my 911 from Pelican!

[Cal44]

Heres a prediction. Oil. I reckon an exchange traded fund would do it. Its to cheap, something is wrong. If you listen to the tree huggers and oil is so rare then it should be $200.00 a barrel not $40.00 a barrel. Running out? Sure we are.
I never believed in conspiresies but something doesn't smell right. I live in SoCal and at $5 a gallon to $1.95?
Oh'....by the way, less traffic drove the price down.........ya right.
Forgive my mispells

[Jim Richards]

snow tires

[Normy]

well, Wayne...


-Considering how much money we've just printed, it is a real guess when inflation is going to hit:

2009?

Its' a certainty that inflation is going to resurge. But the real question is WHEN-

Want to make money in the long term? Invest in the financial sector right now. Put about 30% of your coin in this, and perhaps 20% in real estate. That's what I've done. Of course, I'm long-term since I'm young.

N!

[competentone]

Originally Posted by Normy

well, Wayne...


-Considering how much money we've just printed, it is a real guess when inflation is going to hit:

2009?

Its' a certainty that inflation is going to resurge. But the real question is WHEN-

Want to make money in the long term? Invest in the financial sector right now. Put about 30% of your coin in this, and perhaps 20% in real estate. That's what I've done. Of course, I'm long-term since I'm young.

N!

Most of the "financial sector" is in trouble because of all the bad loans out there and due to the fact that the collateral (the real estate backing the loans) is not worth the face value of the loans.

The problem is that when price inflation kicks in, the financial sector may see the collateral backing the bad loans (the real estate) come back to the loan face values, but -- and this is really important to understand -- the financial sector will be killed by the very price inflation that most are expecting will "help" them.

The value of the financial sector's loans -- which represents mostly lending at long-term fixed interest rates (even the variable rate loans normally have upper caps) -- will be essentially "worthless."

The financial sector has lent "expensive" dollars, they will be paid back in "devalued" dollars.

When the price inflation rate is higher than the interest rate the "financial sector" is receiving on their loans, the financial companies will be losing money.

Whether deflation or inflation, most of the current financial industry is "screwed."

It is not an area I'd suggest putting money in -- other than perhaps for some sort of "greater fool" trade.

[stealthn]

Yes but it's a dry inflation......

Believe me you haven't seen the bottom yet, over the next three years things will even get worse, way worse. I would say this one will take 10 years to get back to where the economy was 2 years ago. But I'm still going to to enjoy this forum, on my dial-up connection and 386

[svandamme]

example of the crazy factor in action, Russia is bickering with Ukraine about gas prices, cuts the gas
Europe sort of hinted that things should not go unresolved in an attempt to protect it's own gas supply..
what is Russia doing, it cuts the gas supply to Europe as well... Right in the middle of winter, when there's a serious cold front going around...

Belgium is not immidiately affected since we get our gas mostly from other sources (north sea),
but i'm sure a lot of people will feel the pain over this, over some old school soviet tactics that nobody saw coming when the Berlin wall fell , or when Yeltsin had his big moment with the tanks ..

There will be more of this kind of crap in the future, a lot more
Those with resources will indirectly own those without

[tabs]

Thank you for stating the obvious.

[quaz]

Wayne, I think you definitely are on the right track, but are missing a few pieces to the puzzle. I have been going back and forth with a few friends/colleges of mine on this and all we can conclude is the world will forever be changed by these events. Anyway, here are a few things to take into account.

Back in December 2007 I bought a new 2008 GTI. On the day I was picking it up there was an R32 next to my car on the show floor waiting to be picked up as well. So I was giving my car the once over and then heard over my should "so how do you like your new car?" in a thick German accent. I talked to the gentleman for a while and we both talked about how we liked our new cars for a while, but that is kind of irrelevant. What was relevant was he was not a US citizen and the car was not going to be driven in the US. It was going directly on a shipping container back to Germany where the car was made. Why? With the exchange rate it was cheaper to buy it in the US and ship it back to Germany than to buy it in Germany.......that is when I knew Europe is heading for some serious trouble. They are still headed for it.

So why do I think this? Well how long can you sell about 40% of your products at a loss in a foreign country before you have to raise the price? But wait you can't raise the price because then you wouldn't be price competitive. That doesn't make any sense either because the cost to produce a car anywhere in the world is about the same right? Right now cars made in Mexico, the US, Japan and China are, but not Europe. The value of the Euro is at is highest point in relation to all those other currencies now. This is great for Europe's buying power, but it is slowly killing them on the back end. At some point that will catch up with the manufacturing companies in Europe and they will have to do major layoffs and cutbacks about equal to the US or maybe more. The result will be lower interest rates to stimulate the economy and a deflated Euro. The real poop has yet to hit the fan over there, but it will soon.

How do I know this and why do I think this is coming? History! This has happened before to us when the US dollar was strong. It is a major reason (along with many others) why manufacturing went to Mexico, Brazil, and Canada. This is a hedge against the US dollar. At the same time it basically keeps all those currencies linked to the US dollar. I have been in international business for many years so I understand the importance of securities, interest rates, bonds and treasuries. However, never forget what makes economies go round and round, consumers! Ultimately they are what really matter.

One more thing here on inflation. We have already had hyper inflation and are now going to going through a deflation period. In California you have not noticed it because everything there is inflated from the rest of the country anyway, but here are some examples of what has happened in the last 6 years in the Midwest. On average a 2 bedroom 1100 sq foot house that was worth about 80-90K in 2000-2001 is now worth 150-160K. That is 100% inflation in less than 10 years. Trips to the grocery store which used to cost $80 now cost $160. That is 100% inflation in less than 10 years. The price of a value meal at a fast food place was previously $3 and is now $6. That is 100% inflation in less than 10 years. Just about every cost I can think of has doubled in the last 10 years and it has all been driven by the price of oil. If oil remains below $60 per barrel thing will quickly continue to deflate.

As a final thought, wrap your noodle around this. What would happen to the economies of China and Europe (the only relevant economies in the world at this point) if the US dollar did collapse? We wouldn't be able to afford to buy anything from them, but our country is big enough and we would have enough resources to start producing things in North America again. We could then export things and undercut those countries essentially on price (like China has been doing to us for years now). They would have to drop their prices and essentially devalue their own currency to remain competitive. Big mess to think about.........

So where do I think we are going? I think like others have mentioned we are going into a drawn out recession as people change their driving habits, credit habits and save more money. This will be similar to what Japan went through. We have gotten over the hump of hyper inflation already. Now it is time to pay the piper and contract again until we can afford to purchase things. That is what I think will happen, but things are changing so fast day to day it is hard to predict anything anymore. There are many many many other factors here and don't have the time or energy to blurt them out on this forum, but those are a couple of major factors to consider when looking at the value of currencies. Two factors I have not considered at it would blow all my theories out of the water are war and tariffs. It is ultimately all about buying power and staying price competitive.

[reed930]

Right on cue, Barack Obama announced yesterday that we will be facing trillion dollar deficits for "years to come."

When the rest of the world wakes up and realizes we're basically running the same Ponzi scheme that Madoff was, the dollar will collapse and the dire predictions in this thread will unfold.

[competentone]

Originally Posted by Wayne at Pelican Parts

Some people think gold is an inflation hedge. I think gold is one of the worst investments every. Firstly, it's basically useless - unlike a company it doesn't earn money for you (or like a bond). Secondly, it's affected by supply and demand issues associated with manufacturing and retail. Thirdly, they are still mining gold and finding more of it, so the supply is getting inflated all the time. Gold is in reality a "crisis hedge" not really an inflation hedge.

I think you need to differentiate between a "hedge" and an "investment" when talking about gold.

A hedge is like insurance; it is a position one takes with "protection" in mind. An investment is a position one takes with an expectation of growth/profit.

You are correct when you talk about gold having limited industrial and commercial uses, but gold as money is an extremely important economic use of gold. We are experiencing a "currency crisis" -- fiat paper money is the problem. The economy will need an effective substitute for paper money as it deteriorates in terms of purchasing power. Precious metals have traditionally served effectively as the tool of money in the economy due to the fact that their supply is limited by nature. (The new supply that is mined each year is pretty inconsequential when compared to the new amounts of "paper money" that the worlds' governments create each year.)

I've posted the link to this article before. I would suggest that you take the time to read it if you haven't already. It should help you understand the importance of money in our economy, and should help you understand why things like gold are an effective hedge against the price inflation our economy will be experiencing in the coming years.

Having savings in precious metals is likely to preserve their purchasing power as inflation destroys the value of the world's fiat currencies.

An excerpt from the article:

But man is ingenious. He managed to find a way to overcome these obstacles and transcend the limiting system of barter. Trying to overcome the limitations of barter, he arrived, step by step, at one of man's most ingenious, important and productive inventions: money.

Take, for example, the egg dealer who is trying desperately to buy a pair of shoes. He thinks to himself: if the shoemaker is allergic to eggs and doesn't want to buy them, what does he want to buy? Necessity is the mother of invention, and so the egg man is impelled to try to find out what the shoemaker would like to obtain. Suppose he finds out that it's fish. And so the egg dealer goes out and buys fish, not because he wants to eat the fish himself (he might be allergic to fish), but because he wants it in order to resell it to the shoemaker. In the world of barter, everyone's purchases were purely for himself or for his family's direct use. But now, for the first time, a new element of demand has entered:

The egg man is buying fish not for its own sake, but instead to use it as an indispensable way of obtaining shoes. Fish is now being used as a medium of exchange, as an instrument of indirect exchange, as well as being purchased directly for its own sake.


Once a commodity begins to be used as a medium of exchange, when the word gets out it generates even further use of the commodity as a medium. In short, when the word gets around that commodity X is being used as a medium in a certain village, more people living in or trading with that village will purchase that commodity, since they know that it is being used there as a medium of exchange. In this way, a commodity used as a medium feeds upon itself, and its use spirals upward, until before long the commodity is in general use throughout the society or country as a medium of exchange. But when a commodity is used as a medium for most or all exchanges, that commodity is defined as being a money.

http://mises.org/story/3122

[cel]

Some years back our Federal government passed a law making it against the law to own gold except as jewelry and the price was fixed at $32 per ounce. This law was repealed may be 30 years ago. The Federal government could reinstate this law and make all of your high priced gold almost worthless.