Phantasmix

This is a re-post of an active commenter from The Big Picture blog.

“I believe there is serious misconception about what is occuring and what will occur. First and foremost, the threat forward going is not inflation or stagflation - it is deflation.

Although it is true that inflation has been understated, the cause of the inflation has been poorly analyzed. Compare M1 to M3 and you readily see that this is not monetized inflation but debt-expansion inflation.

Debt acts just like money to a point - and that point is insolvency. Debt will say that my CDO is worth $1.00, but insolvency shows that the market values my CDO at $0.27. What happened to the inflation within the CDO? It evaporated, as all mirage capital must eventually disappear.

Debt said my house was worth $500,000. Insolvency and debt contraction says it is worth $400,000 or less.

Debt said all those casinos being built in Las Vegas were worth millions, that New York office buildings could support negative cash flows, and that that copper was worth an all-time high.

False perspective can drive a false demand, leading to a bubble - a bubble being that portion of the price of an asset that is simply driven by debt - i.e., Ponzi fincance. Anyone remember 1973 and 1974 when we perceived an oil shortage when none had occured? Or when all those builders paid premium prices for undeveloped land because low interest rates had caused an artificial demand for housing?

Misallocation of assets. That is what has occured. The decoupling of the world is an illusion - serious recession in the U.S. would lead to world recession, and all those high-flying commodity prices would come tumbling down along with it.

Debt contraction is a deflationary event, and it is the threat of deflation that is propelling the Fed to slash rates - which they will continue to do until we reach a real negative interest rate.”

Posted by: Winston Munn | Jan 17, 2008 9:29:37 PM

Notice, it was written in January of this year. I’m not seeing much deflation yet, but maybe I’m looking in all the wrong places?

In the past, industries whose profitability rose 12 months following the rise in the US dollar were:

1. pharmaceuticals
2. food products
3. insurance
4. household products
5. commercial banks
6. tobacco companies

These are consumer driven industries……

All of the major commodities trade in US dollars. If the US dollar is rising you can bet that the global price of commodities is falling. This fact is often overlooked when investors try to find reason for share value declines. Crude oil and gold have recently fallen from record highs. These drops correlate directly with the rise in the US dollar. We are in the heat of the American economic slowdown. As the ripple effect from the sub prime fiasco continues to expand, we urge all of you to remember the following statement: The United States fell first and fell the hardest. The world will look to them to rebound just as strong and just as fast.

PinnacleDigest.com

Silver spot price is down about $2 overnight (about 15%), while gold is down about $16 or 2%. The rumor has it that some hedge fund in Hong Kong is forced to liquidate its holdings, particularly silver.

Tomorrow silver stocks must sell off, by at least 15-20%. I will be catching that knife.

I’m even happier about selling SLW early on Thursday. In part, it was pure luck, in part it’s all the lessons I learned - don’t get too greedy. Too many times I got stuck with a stock for a nickel. A profit is a profit.

I will be buying SLW again. Not SLV. I don’t like that ETF, seems to me it’s more like paper than a mining stock. Well, I know SLW is not truly a mining stock, but what I mean is SLW is much more real to me than a certificate, which is what ETFs are. You can, of course, use ETF for day trades, but sometimes when I get stuck with SLW, my mind is at peace because I know it’s okay. They make money and they’re real.

Other than this, I don’t have any strong candidates for tomorrow, just a watchlist of about 15 stocks. Will have to see what they do in the morning.

Maybe you’d like to know this…

Historically, silver was used for daily transaction, for smaller amounts; gold - for storing wealth and for larger transaction.

Photo credit: re_birf

We’re moving away from cash, it’s mostly virtual money now. If you were working at a bank - and had access to computers - I wonder how hard would it be to add a zero to select few bank accounts? Nobody needs to lose the money, just a few accounts would gain some. What’s the harm? Well, if you were to do that, you’d just dilute everyone else’s money a little bit, inflate. It would be sort of a localized Fed injection of money.

I thought about it after watching “America: Freedom to Fascism”. Even IRS (!) of all things has trillions of missing money every single year, so they just write it off as “undocumented expenses”.

Official retail gasoline prices say that in 1965 a gallon of gas cost $0.31 in the U.S.

Pre-1965 American quarter contains 0.18oz of silver. Today 0.18oz of silver is worth about $3.50, and 31 cents of the same silver-backed coins has 0.217oz of silver. At current spot price it’s about US $3.93 or the the average cost of a gallon of gas in the U.S. right now.

So in terms of silver the cost of a gallon of gas has remained constant. It’s the fiat money numbers that are going up. As more bank failures and additional money injections are expected, I think silver and gold will continue to increase in dollar price. I’m converting a portion of our savings into gold and silver to store value, not to make money.

It makes me so mad to think that I worked all these years and saved - all for nothing. This is my other nightmare, and while all of us should be horrified by inflation, I have personal experience with it which makes it all that more painful to watch. In fact, I along with about 150 million other people had lived through a period of hyperinflation. Really really don’t want to experience anything remotely close to that.

At present rate of inflation in North America (as U.S. CPI index went up 1.1% last month, that’s 13% annualized), your money’s worth will be halved in about 5.5 years.

Inflation is my other financial nightmare as I mentioned and I’ll talk about it more. Theme of the week will be inflation.

The Fed finally admitted that the inflation is higher than previously announced. Even the lemur is surprised!

LOL i just think this vid is funny lame tie-in with the money topic.