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May 2013 Commodities, Currencies & Precious Metals
May 2013 Emerging Markets Forecast
May 2013 Dow Jones & Nasdaq Forecast
April 2013 Dow Jones & Nasdaq Forecast
April 2013 Emerging Markets Forecast
April 2013 Commodities, Currencies & Precious Metals
Gold Analysis & Forecast. March 25, 2013
March 2013 Dow Jones & Nasdaq Forecast
March 2013 Emerging Markets Forecast
March 2013 Commodities, Currencies & Precious Metals Forecast |
| Don't Bet On Hyperinflation |
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For several months now, I’ve heard all of this talk of hyperinflation. I’m sure you have too. I’ve seen that word so many times over the past year that I might have even used it without realizing it. As I wrote in the original edition of America’s Financial Apocalypse, “inflation is certainly going to be a very big problem.” I stand by this previous forecast first made in 2006. However, hyperinflation isn’t going to occur. While I may be wrong about some things in the future, I won’t be wrong about this. Quite simply, America would go to war before allowing hyperinflation to set in. It seems as if those who keep talking about hyperinflation are claiming it will occur because they read it elsewhere. So who are the propagators of this ridiculous rumor? They are primarily the gold bugs who are trying to manipulate the gold and currency markets. These are largely the same individuals who fail to realize that gold isn’t a hedge against inflation. On the contrary, it’s a hedge against deflation, as well as during periods of crisis. It just so happens that periods of crisis are frequently accompanied by inflation. Regardless, this hyperinflation scare tactic has spread like a deadly virus, infecting the investment decisions of many naïve investors. I want you to write this down and post it by your computer – the chance hyperinflation occurring our life time is null, goose egg, zero. Yet, so many out there keep trying to scare you with this term. If you look for agendas you’re sure to find them. Ask yourself if these soothsayers deal in gold. Ask yourself if they deal in currencies. If they don’t they could still be trying to manipulate the market. Otherwise they’re only guilty of being ignorant. Either way, they will be proven wrong.
To all those who claim hyperinflation is on the way, I suggest you look up the definition because it’s clear to me you don’t know it. While America is certain to experience a period of very severe inflation, it certainly isn’t going to lead to hyperinflation. While there is no standard definition of hyperinflation, it’s typically characterized by an increase in the inflation rate by at least 50% each year. Many definitions list 30% or more each month.
Regardless what definition you prefer, the cumulative effects of hyperinflation lead to a worthless currency, often in just a couple of years. So do you really think the dollar will go to zero? If so, you’ve probably been listening to the marketers on television and the web who have been wrongly positioned as leading experts. These are the same guys who are plastered all over the media for very specific reasons; being an expert isn’t one of them. The top investment minds are rarely interviewed by the mainstream media. And when they are, you can bet they aren’t there to tell you the truth. They’re there to manipulate investor sentiment in a manner that benefits them. I’ll show you specific examples of this in the near future. And I will use Warren Buffett as an example. But for argument sake, let’s say hyperinflation is a possible outcome. The dollar becomes more worthless each day. Soon, the Treasury starts printing one million dollar notes. Over the next few months they issue one billion dollar notes which won’t buy you more than a soda. Later they start printing $10 billion dollar notes and so on.
You need to understand that hyperinflation occurs with sub-par second and flat out third world nations that have tremendous instability; economically, politically and socially. While some of you might argue that America is currently unstable, it’s certainly not anything like that seen in Argentina, Zimbabwe or Eastern Europe. And it won’t ever be, at least in our lifetime. Those who think Washington would allow hyperinflation simply fail to understand how things work in the real world. In the real world, Washington would find a reason to go to war before allowing hyperinflation to kick in. In the real world, Obama is not calling the shots. But that’s an entirely different topic of discussion. Sure, I know the federal debt is $11 trillion (the real debt is much higher). In fact, based on my forecasts, it could triple over the next decade. And yes, I understand the massive bailouts and the near 0% short-term interest rates. Based on my forecasts, America is going to have eye-popping annual budget deficits for years to come. Only off-balance accounting tricks can’t hide what will be an inescapable decade-long period of massive annual deficits. As well, I expect several trillions of dollars to go towards additional bailouts and stimulus packages over the next couple of years. Washington will keep throwing money into the fire pit until they see signs of improvement. Now stop and take a step back. While America has many problems, it’s still America. It’s still the most powerful nation on earth. Don’t get me wrong. Things are a mess and have been for many years. The working class keeps getting squeezed. Job quality has been in decline for two decades, while incompetence and fraud in Washington and corporate America continue to reach new highs.
America’s enormous debt is going to skyrocket….guaranteed. But that doesn’t necessarily translate into hyperinflation. In America’s case, it most certainly won’t; not in our life time anyway. Now ask yourself the following questions. Does America still have the world’s leading economy? Does America still have the world’s leading military? Does America still lead the world in technology and innovation? The answer to all three questions is yes.
However, the gap is closing. And at some point in the future America could find itself in a period of instability that ultimately leads to hyperinflation. But over our life time, it’s not going to happen. Nations just don’t jump from top to bottom over a couple of decades. It takes many decades of devastating financial mismanagement, societal, economic, and political demise. While America has certainly been on this course for some time, it is still nowhere near the levels needed for a hyperinflationary environment. Even if it were, remember that America has the biggest guns, and would certainly go to war to fend off hyperinflation.
One thing is for sure. American living standards have been bumped down considerably more than their two-decade trend of gradual decline. And if this recent deceleration in living standards becomes a new trend, hyperinflation is a very real possibility; but still, not in our lifetime. You should question the motives and/or credibility of anyone preaching hyperinflation. Always remember, extremist views no matter which side of the pendulum are equally dangerous. Perma-bulls are equally as insidious as perma-bears. In order to be a great investor you need to be realistic. You need to know when the tide shifts. But you also need to know by how much. You need to keep an open mind and broad perspective.
Why Am I Making a Big Deal About This?
Why do I even mention the topic of hyperinflation? Because I’ve received countless emails from average Joe’s who’ve been brainwashed by others claiming hyperinflation is coming. As a consequence, they’ve asked me whether they should take all of their savings and buy gold or invest in foreign currencies.
This is a dangerous move for non-professional investors. Trading your dollars for gold and foreign currencies is a sucker’s move for the average Joe because America isn’t going to see Zimbabwe-type devaluation. Therefore, without true hyperinflation, currency trading/hedging should only be a strategy for experienced investors who know WHEN TO ENTER AND WHEN TO EXIT. Otherwise, you’ll get blasted. That said, the real dollar crisis has not yet occurred in my opinion. However, that doesn’t mean that Joe should invest in foreign currencies because it’s still the dollar and it will eventually recover. If you do not understand this, you have either been listening to too many people trying to sell you gold, or others trying to manipulate the currency and gold markets. While I believe the real dollar crisis is ahead of us, the dollar certainly isn’t going to zero or anywhere close to that. Now, it may drop pretty low in the coming years. But it will be temporary. And it certainly won’t fall to zero or close to it because America isn’t going to experience hyperinflation. Any real threat of this will be countered by war.
So if you want to bet on hyperinflation, you might want to look at Europe, Russia or some third world nations. As for America, it’s just not going to happen. Understand this. Anyone can take the most outrageous position on something and given time, it’s likely to occur. As they say, eventually it rains in the desert. All of the doomers who have been predicting demise for fifteen years might look like geniuses now. But the fact is they have no credibility. The very best experts will know when the tide changes. They will know what to watch out for when the early signs appear. So if you are one of those guys betting on hyperinflation in America, you might be right. But it isn’t going to happen in our life time. So good luck. Now, while gold and inflation have no direct relationship, I’m one who believes gold is likely to head considerably higher in the coming years. However, one word of caution. Gold is being manipulated by the big banks, so it could come crashing down from here. I will say this. When you see TV ads telling you to invest in gold; when you see clueless people talking about how gold is set to soar – these are clear signs of danger. They’re contrarian indicators that often signal the end of a bubble. I personally sold my gold, but that doesn’t mean I won’t buy it back. I think it’s very risky to buy-and-hold gold. It is much better to trade the volatility. I’ll discuss gold in more detail in the future. Until then, you might want to read a previous article I wrote that is part discusses gold. Now, if you want to know more about the problems America faces over the next decade and beyond, if you want to know more than 99.99999% of the population about America’s problems (including everyone in Washington) and how to fix them, you should read America’s Financial Apocalypse, (preferably the 2006 original extended version). And if you’re a serious investor seeking to understand the investment process, you must read my new book, The Wall Street Investment Bible, Volume I.
Warning: All of my books are big, long and very detailed, so if you want some quick easy read with no meat, stay clear of my books.
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