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ST
10-30-08, 01:40 PM
I was thinking about what the POOM might feel like here in the U.S.

My generation has grown up always thinking that if you don't really need something right away just wait and the price will come down. For instance, in 1986 approximately when I was in grade 9, I recall my parents buying me an Apple IIe computer when I was growing up in Canada. They paid about $2300 CDN if I recall (!)

Now, I've grown up in a deflationary boom like many of you so the thought was always, 'just wait'... the price of that tv or laptop will come down....just wait...only buy if you really need it now - at least those who subscribe to the 'living below your means' lifestyle like me would have had that mentality.

When the POOM comes and I believe it will, the mindset will be to buy everything you need for the long term right away for fear of prices rising in the future. In fact, my own personal strategy would be to make a lot of money on inflation hedges which I would expect to turn into a bubble, exit those and take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term.

Of course, this also depends on your income. I understand that debt devalues during inflation. I am assuming no income and that my income would only come from investments and therefore someone who has no income stability would prefer to purchase things outright, not knowing if income will cover debt in the future. And, in fact, preferably own no debt.

If you had an income you would expect that wages would rise to some level and as that article that Fred posted recently, there would be some inflection point where it would make sense to keep paying debt at a greater percentage to minimize your real costs and pay down debt.

The point is that as U.S. residents switch to this mindset, I think this is how the velocity of money zooms domestically and how inflation feeds upon itself. Of course, this is not a self contained system - thankfully. So I am hoping that inflation doesn't get above 40% a year for the few years proposed in Ka-Poom and that not only could one try to preserve their wealth but use it as an opportunity.

Thoughts?

photoncounter
10-30-08, 09:37 PM
When the POOM comes and I believe it will, the mindset will be to buy everything you need for the long term right away for fear of prices rising in the future. In fact, my own personal strategy would be to make a lot of money on inflation hedges which I would expect to turn into a bubble, exit those and take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term.

Assuming you have a stable income, wouldn't it be better to buy a car or other long-term things (I am not sure about the house yet) in the dis-inflationary period like right now and ideally just before the POOM (if you can time it, that is). I would assume this would be the time when one would find a good deal on the price of the item as well as interest rates. During the POOM, you can pay off for this item with worthless dollars. Whereas during the POOM, the interest rates and cost of the item, both would be high. Am I right ?

Nicolasd
10-30-08, 09:48 PM
When the POOM comes and I believe it will, the mindset will be to buy everything you need for the long term right away for fear of prices rising in the future. In fact, my own personal strategy would be to make a lot of money on inflation hedges which I would expect to turn into a bubble, exit those and take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term.



Steve,

Inflation hedges will never turn into bubble simply because one of the ingredient for bubble creation ---gov't participation and related regulation--- will not materialize.It would be counter productive for governements to encourage inflation hedges against the currency they are defending tooth and nails

Search Itulip for a more precise definition of bubble from EJ

c1ue
10-31-08, 09:57 AM
I'll give you a real life example:

In Russia, even though it is now abundantly clear that the real estate bubble has popped and the golden years of oil prices are likely past, people are still spending.

Why?

They have been conditioned both by the ruble devaluation in the 90s and more recent inflation that there is no point in saving money.

Thus even with times getting more difficult, people are still buying at levels even Americans (those without credit cards, anyway) would find unsustainable.

Now how to take advantage of that? :p

jtabeb
10-31-08, 04:45 PM
Am I right ?

I don't know if you are right, but I'm already doing EXACTLY what you said

jtabeb
10-31-08, 04:50 PM
When the POOM comes and I believe it will, the mindset will be to buy everything you need for the long term right away for fear of prices rising in the future. In fact, my own personal strategy would be to make a lot of money on inflation hedges which I would expect to turn into a bubble, exit those and take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term.



Steve,

Inflation hedges will never turn into bubble simply because one of the ingredient for bubble creation ---gov't participation and related regulation--- will not materialize.It would be counter productive for governements to encourage inflation hedges against the currency they are defending tooth and nails

Search Itulip for a more precise definition of bubble from EJ

I Do not agree with EJ on this and here is why, the FED can print but it can't control (directly) where the money goes.

Could I not use Easy consumer credit to buy gold or silver? If I can do that, why would other people be unable to do so?

What about if the gov buys my CDS at face value? Could I not then take the cash and go buy gold or silver? Couldn't many people (banks, hedge funds, finacial players) do this?

It only takes one counterexample to prove a premis false. I could think of 2 counter-examples in about 2 seconds, so I don't buy the premise.

jtabeb
10-31-08, 05:05 PM
When the POOM comes and I believe it will, the mindset will be to buy everything you need for the long term right away for fear of prices rising in the future. In fact, my own personal strategy would be to make a lot of money on inflation hedges which I would expect to turn into a bubble, exit those and take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term.


Thoughts?

This is how many countries operate (Argentina for example).

My point is we have been doing this for YEARS in the US. Only it has been a credit based "rush to buy" vs a devaluing curriency "rush to buy". The mechanism will change but the effect will be the same, except people won't rush to buy toys and cars (unless inflation gets REALLY bad) but will instead rush to buy required items (true inflation hedges). It's only when inflation is REALLY TERRIBLE that poor inflation hedges (tangible ones that are leveraged with credit) get to go along for the ride.


In fact, my own personal strategy would be to make a lot of money on inflation hedges which I would expect to turn into a bubble, exit those and take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term

That's my plan and I have been doing it for the last 5 years. I think I need about 5 more years before I can take some of that money and purchase a house/apt outright, a car, etc... anything you need / want long term.

In conclusion, I've not only thought about this, I've been ACTING ON IT.

I don't trade actively. I really only add to my positions that are consistent with the above.

Results so far? +600% total return in 60 months, not bad AND I can sleep at night. I know I could possibly do better to trade more activly but for me slow and steady wins the race (and I sleep MUCH better this way).

ST
11-02-08, 01:21 AM
I tend to agree that the Fed cannot control where money goes. I am also of the mindset that Asia will ultimately return to high growth at some point and that will impact commodities (i.e. inflation hedges).

As EJ has said they (China) have not had a recession in 30 years - 'what do you think they will do if they have one?' My guess is that based on their exceptionally high savings rate, the gov't has plenty of room to encourage continued infrastructure build out and has hardly even began major attempts to boost domestic consumption.

If a bubble in inflation hedges is not possible because of the lack of gov't acquiescence, how then did it occur in 1980? Certainly it can be reversed under some circumstances, but prevent it from occurring across all related equities and physical commodities? Worldwide price controls would not surprise me at some point, however, as a temporary measure.

600%? very nice. Would you share with us what general type of inflation hedges you remain allocated in?

jtabeb
11-03-08, 12:14 AM
I tend to agree that the Fed cannot control where money goes. I am also of the mindset that Asia will ultimately return to high growth at some point and that will impact commodities (i.e. inflation hedges).

As EJ has said they (China) have not had a recession in 30 years - 'what do you think they will do if they have one?' My guess is that based on their exceptionally high savings rate, the gov't has plenty of room to encourage continued infrastructure build out and has hardly even began major attempts to boost domestic consumption.

If a bubble in inflation hedges is not possible because of the lack of gov't acquiescence, how then did it occur in 1980? Certainly it can be reversed under some circumstances, but prevent it from occurring across all related equities and physical commodities? Worldwide price controls would not surprise me at some point, however, as a temporary measure.

600%? very nice. Would you share with us what general type of inflation hedges you remain allocated in?

Seriously just two.

Rode the real-estate bubble from mar 02 to dec 04, then bought 50/50 physical gold and silver with the proceeds. that's it. Like I said, I don't trade much. (allocation by dollar amount as in 50% bought gold, the other 50% bought silver).

For full disclosure 600% was based on when gold was $950 and silver was $20, So I am off that percentage now (based on COMEX, based on EBAY I'm still right there ;) )

touchring
11-03-08, 01:17 AM
I tend to agree that the Fed cannot control where money goes. I am also of the mindset that Asia will ultimately return to high growth at some point and that will impact commodities (i.e. inflation hedges).

As EJ has said they (China) have not had a recession in 30 years - 'what do you think they will do if they have one?' My guess is that based on their exceptionally high savings rate, the gov't has plenty of room to encourage continued infrastructure build out and has hardly even began major attempts to boost domestic consumption.

If a bubble in inflation hedges is not possible because of the lack of gov't acquiescence, how then did it occur in 1980? Certainly it can be reversed under some circumstances, but prevent it from occurring across all related equities and physical commodities? Worldwide price controls would not surprise me at some point, however, as a temporary measure.

600%? very nice. Would you share with us what general type of inflation hedges you remain allocated in?


The situation in China is quite different from the USA or other developed nations. Life for the majority of people is quite tough, even jobs are scarce. Even in 2007, i believe that 1 in 5 graduates can't get a job even half a year after coming out of school.
http://www.impactlab.com/2008/01/13/china-20-of-university-graduates-jobless/

The majority of people are used to tough life, unlike in more developed nations. If the going really gets tough, people can go on ramen day and night and this will hit domestic spending badly.


http://upload.wikimedia.org/wikipedia/commons/thumb/5/56/Instantnoodles.jpg/714px-Instantnoodles.jpg

phirang
11-03-08, 12:09 PM
China is going to get bent over in about 2 weeks... :D