John Mauldin, Jim Rickards and Harry Dent debate “Inflation or Deflation?” This is probably the best video I’ve seen in 3 years – yes, it’s that good. Watch it. Particularly Jim Rickards from 4:50 onwards.
The mistake I made 4 years ago – trying to foresee how the GFC would play out – was the potential impact of Government (and regulatory) policy. It had always been a curiosity to me, when looking at the US markets, how much traders and investors hung on every word from Alan Greenspan. Was he that good a forecaster?
No, he determined how much money there was in the system – and hence how much everything was worth.
The GFC taught me two things. Firstly, I had to re-evaluate what money actually was. Because only when you understood that, could you understand what value is. And money is debt. And the more money and the higher the velocity of money – the higher prices will go. And that’s for equities, property, collectibles, salaries … everything.
Secondly, the GFC taught me that Government and Regulatory policy could have a huge impact – not just on the amount of money and debt. But on how much vested interests could control the economic system and maintain the status quo.
If you were a reckless businessman and you ran your business into the ground whilst paying yourself astronomical salaries and bonuses – that didn’t mean you went out of business, got fired by your investors and spent the rest of your life destitute – a cautionary tale for everyone else.
Likewise, the system theoretically has an unlimited balance sheet (central bank) that can and will be used to cover over mistakes, bad investments, poor judgement, reckless behaviour. And so the “bad actors” will not be punished and the system will not be allowed to re-adjust naturally.
But I still have a hard time wrapping my brain around how far the “system” will go to save itself. How far Government will stray from the basics of protecting us and implementing good laws, to interfering in economic growth and the natural behaviour of markets.
So, to the video. Will we experience deflation, inflation/hyper-inflation or one after the other?
If we experience deflation then you want to hold cash. Get out of assets, get out of debt, just hold cash waiting for the bottom and once-in-a-lifetime bargains.
But if we experience inflation/hyper-inflation the last thing you want to hold is cash. You want to hold assets, gold and debt is OK too.
Listen to 3 of the greatest minds and contributors to this debate – John Mauldin, Jim Rickards and Harry Dent – in the video and make up your own mind.
For me, the missing part of the equation, is that we’re on the edge of when things don’t work as they are supposed to. When we have excessive debt the rules change. It’s like Einstein imagining how the world changes if he were travelling on a beam of light, at the speed of light – the normal rules of how the universe operates change.
That’s where we are. We’re through the looking glass. The normal correlations have started to reverse. Fed Policy that used to generate predictable outcomes, like economic recovery, no longer work as they used to.
And this video highlights those two opposing views. Rickards: we have not reached a limit and there is more that the system can do to correct itself. Dent: the market is always right and will stop going up when we can’t find any more suckers to buy.
Good luck with your Emini trading.