[Swiftwater Gazette] Inflation Anyone?

[Bill Effros]

You are treating stock markets like commodities markets -- they are very 
different.

The value of Enron stock or GM or Chrysler will never return to what they 
were.  How can you ride these stocks back up?  Maybe Wal Mart or Google 
stock will inflate, but not enough to make up for all the stocks that are 
today worthless.  To invest in the market you must believe some new 
companies will be built the size of Enron, GM, Chrysler, Ford,...combined!

So what would those new companies be?

You are throwing good money after bad.

If you think there will be inflation, play the currency market, or invest in 
gold.  "Riding the market back up" is more of the same gamblers' 
mentality--if I keep betting my birthday in the lottery, eventually it's got 
to come in.  No it doesn't.  Neither does the stock market.

B
----- Original Message ----- 
From: "Brad Haslett" <flybrad at gmail.com>
To: "Letters to the Editor" 
<swiftwatergazette at mailman.theswiftwatergazette.com>
Sent: Saturday, May 30, 2009 7:55 AM
Subject: [Swiftwater Gazette] Inflation Anyone?


> For my own personal sake, I hope the author of this Reuters article is
> correct (see below).  I rode the market down and plan to ride it on
> the "way up".  The market really isn't poised to "go up" based on
> earnings, it's just that it is denominated in dollars and the massive
> debt we're taking on will continue to batter the dollar for years to
> come.  Commodity prices, especially oil, will "rise". If I had a
> crystal ball, I'd be out on my yacht today instead of driving a
> Volkswagen to my parents, but some things are painfully obvious.
> Hellooooo, inflation!
>
> Brad
>
> -------------
>
> Global Markets Weekahead: Return of inflation?
> Fri May 29, 2009 2:28pm EDT
>
> By Natsuko Waki
>
> LONDON (Reuters) - Surging oil and commodity prices coupled with a
> falling dollar are prompting some investors to brace for a return of
> inflation, which would benefit equities and damage most government
> bonds. Inflation -- which in the short to medium term benefits
> equities and risky assets because of rising prices -- had all but
> disappeared after the global economy fell into recession and commodity
> prices sank last year.
>
> However, signs of a global economic recovery -- which next week's
> manufacturing and service sector surveys and other data could
> reinforce -- are leading to a renewed surge in energy and commodities
> and the outperformance of inflation-protected debt securities over
> benchmark government bonds.
>
> Oil prices are nearly double their four-year low in December. The
> Reuters-Jefferies CRB index, a global commodities benchmark, has hit a
> six-month high while the Baltic Dry Index, which tracks rates to ship
> dry commodities, has risen more than 320 percent since the start of
> the year.
>
> To exacerbate matters, the dollar is on track for the worst monthly
> performance since December 2008, which could further fuel buying in
> dollar-based commodities.
>
> The return of inflationary forces at a time the world is grappling
> with the threat of deflation, could prompt investors to invest in
> assets such as stocks because rising prices erode the value of cash.
> Already struggling government bonds, apart from inflation-linked debt,
> could come under further pressure.
>
> "We're in a reflation trade. Confidence is off its low from March and
> asset prices are rising. The beneficial period will continue until we
> find reasons to be pessimistic again," said David Miller, partner and
> head of alternative investments at Cheviot Asset Management.
>
> "People are getting out of the dollar, into commodities, into
> equities... Selectively there are reasons to buy commodities in a
> portfolio."
>
> Miller said while the commodity supercycle might not materialize,
> crisis-related factors such as the absence of farmers credit are
> constraining supply and pressuring prices.
>
> The renewed surge in commodities is boosting related stocks. In
> Europe, basic resource stocks have risen by 45 percent this year,
> compared with a four percent rise in the pan-European FTSEurofirst 300
> index.
>
> And investor flows support the move. According to fund flow tracker
> EPFR Global, fresh money found its way into commodity and energy
> sector funds in the week to May 27, with these funds posting inflows
> of $303 million and $153 million respectively.
>
> Next week's U.S. personal consumption expenditure data -- the Federal
> Reserve's favorite measure of inflation -- is likely to show however
> that price rises remain moderate in the short term.
>
> Purchasing managers surveys in manufacturing and services sectors and
> U.S. jobs data would be key in offering the state of the global
> economy. Central banks from Britain, the euro zone, Canada and
> Australia decide on interest rates.
>
> BOND ROUT
>
> Government bond markets could become a source of destabilization for
> investors next week given rising concerns about burgeoning Western
> government debt. The U.S. Treasury alone needs to borrow a record $2
> trillion in 2009 to help fund a $1.8 trillion fiscal deficit.
>
> Falling government bond prices are pushing up yields, which also
> affects long-term borrowing costs for governments as well as
> businesses and threatens to choke off an economic recovery.
>
> U.S. Treasury Secretary Timothy Geithner, who visits China next week,
> is expected to reassure Beijing that the Obama administration will
> move swiftly to get its debt under control.
>
> Buying by Asian nations, including China, is crucial in maintaining
> the stability in the U.S. Treasury market. A weakening dollar is a
> double-edged sword for buyers as it makes Treasuries cheaper in the
> long term but it erodes the value of their current holdings in the
> short term.
>
> The benchmark 10-year U.S. Treasury yield rose as high as 3.7538
> percent on Thursday, its highest since November.
>
> The 10-year U.S. breakeven rates -- the yield gap between
> inflation-linked bonds over equivalent nominal government bonds
>
> -- have risen to 1.8760 percent, compared with around 0.2 percent at
> the start of the year, reflecting the view that fears of deflation
> have subsided.
>
> "Investors are realizing that by investing in an inflation-linked
> product... they are able to mitigate the risk that these anticipated
> inflationary pressures pose," said Jonathan Gibbs, fund manager at
> Standard Life Investments.
>
> "The combination of a complex mix of inflationary and deflationary
> forces at play in the global economy and the great uncertainty which
> is likely to prevail, means that diversified risk is more important
> than ever."
>
> (Editing by Andy Bruce)
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