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hedi

One Thing Is Absolutely Clear.

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nobody really has a clue which way this is going. least of all the markets.

if it is inflation then gold goes up.

if it inflation then stock markets historically go down

if it inflation then gilt yields go up.

if we are at the bottom and the green shoots are real, then gold should go down.

if the markets are worried about great inflation then gilt yields should be rising well above their present levels.

it seems that each part of the financial equation can be disected and made to make sence. but when stood back from and looked at as a whole, something is very wrong. things are not fitting together as they would be expected to do in more normal times.

each camp is talking its own book, while ,or so it seems, ignoring everything around it.

it gets harder to read as the days go by.

for me personally i really dont know which way this will settle itself. but for me the elephant in the room is debt. and hearing most commentators it seems that the elephant has the same tailor as the king with no clothes. people dont seem to see it. as a result i dont think that it is being addressed at all.

inflation and deflation arguements are very helpful and useful, but from what i can tell the men at the central banks and govenments around the world seem to be in as much denial about the debt problem as they were about a spectulative property bubble.

for me, untill i can see signs that they have understood there is a problem. i find it hard to decide which way to turn. i know its an unbelievable thought that they could not be aware of this problem. but lets not forget these people genuinely believed that property only ever went up.

in conclution i feel a little bit down about it all. are we about to go through another denial phase, and will it last as long as the one on the property boom.

.

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nobody really has a clue which way this is going. least of all the markets.

for me, untill i can see signs that they have understood there is a problem. i find it hard to decide which way to turn. i know its an unbelievable thought that they could not be aware of this problem. but lets not forget these people genuinely believed that property only ever went up.

in conclution i feel a little bit down about it all. are we about to go through another denial phase, and will it last as long as the one on the property boom.

Hedi: The only thing one can do right now is to sit back and watch the children play..... Batten down the hatches, watch the slow motion car crash -- and try and do ones best to mitigate losses. Should have sold all 2nd homes by now, if not 1st home unless fully paid for years ago......

It's going to be one hell of a ride...... downwards, Japan-style.... ish.

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Guest DissipatedYouthIsValuable

On the bright side, it gives a few of us a bit more time to position well.

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Heidi,

You're right, the problem is debt. This is a 'balance sheet depression'. Consumers are spending less and saving more, they are paying off debt, and/or saving in case they loose their jobs. Healthy companies are doing similar, getting rid of excess inventory, paying off debt, getting rid of staff, and reducing capital expenditure.

This is healthy and this is what the 'market' (or Mr Market to some) wants to happen. This is deflationary in terms of the price of goods going down (generally) at the moment (although necessities like food and energy may go up in price, this will have a further deflationary effect on non-necessities, as there is less money left over to pay for them).

In an environment like that, cash is king, and if you still have a job, then your purchasing power increases. So does the burden of debt however. Both banks and govt love debt. Banks use it to invest and govts use it to spend (buy now pay later).

So, they are trying their utmost to create inflation to 'boost' the economy. I'm sure they'll get the hang of it and we'll have it. The problem comes when people loose faith in the purchasing power of a currency. Then they try to get rid of the currency asap and buy physical items. The velocity of money goes through the roof and hyperinflation commences...which causes more people to get rid of money etc,. For example, if prices double every day (i.e. purchasing power reduces by 50% per day) you'll want to get paid each day, then spend it that same day, the person who you buy the item from wants to also spend it on that same day, so he/she spends it immediately...a bit like a game of pass the hot potato.

This whole crash thing was very easy to predict, provided you have time to read, and are prepared to not follow the herd. Now there is so much meddling, it is difficult to say which way this will all go. Hyperinflation, nothing to worry about, one last big bubble before a huge crash in 7 - 10 years....who knows. My take is that the bulls, bears, inflationists, deflationists, gold bugs, equities bugs, bond traders will all take a bit hit at very different times - flexibility is too rigid, fluidity is the key!

I'll sit back, watch the fireworks, and prepare to protect my little stash of cash.

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