Deflation? Only for the Stock Market

I have to take a moment to pat myself on the back.

Around the start of the new year, I said that deflation was not going to be the main concern, and instead, it would be inflation that was going to be making a comeback. As it turns out, the January numbers are in and CPI inflation is up, not down .  Gold closed at $993 an ounce today and is poised to soon break into new all-time highs. In this way, gold is serving its traditional purpose — as the canary in the coal mine warning all of us that things are not well and that danger, (in this case, inflation) is on the way.

Not everything is going up, however. Yesterday, the Dow Jones closed at a 6-year low. Today it went down even more — so now it’s flirting with its 10-year low. The Dow-Gold ratio, which I’ve talked about before, is rapidly reaching new lows. Dividing the Dow’s close of 7365 by gold’s close of $993 gives us a Dow-Gold ratio of 7.4, which is the lowest it’s been in roughly 20 years.

But it’s going to keep heading down even further than that. Soon, we should be seeing a Dow-Gold ratio of three or even two …

Imagine the Dow at 5000 and gold at $2500 an ounce and you get an idea of what the future holds.

I’m sure Dr. Lacy Hunt is still probably touting this as a great time to invest in long-term bonds. The fact that anyone following such advice is so far experiencing significant losses this year, which are, at times, even greater than the stock market, probably doesn’t even deter her.

I can only hope people are waking up to the insanity of investing in US debt obligations in an environment like the one we’re in right now. The US is not Japan. We’re not going to experience a protracted deflationary period — unless you’ve limited yourself to looking just at prices of housing and the stock market.

Meanwhile, as the banking industry continues its inevitable decline into insolvency, we’re approaching the end of the second stage of deflation. The top headline at today read “U.S. Stocks Drop on Concern Banks Will Need to Be Nationalized.” Citigroup was down 36% today.  It looks like Hank Paulson’s decree that “no one may short them” has not stopped their free fall.

Of course, he would’ve known had he known any history of the American economy. Shorting stocks was banned in the aftermath of the crash of 1929, yet the stock market just kept going down. Ah, well. Guess he should’ve paid closer attention in American History.

For that matter, the next Bloomberg headline reads “Dodd Says Short-Term Bank Takeovers May Be Necessary,” which shows that we’re now talking about following in the footsteps of another failed experiment. Leave it to government to hop from one bad idea to the next. Of course, they’ve got to do that in order to make the powers that got them elected happy.

And that’s why stage-three deflation, where the government goes broke, is all-but guaranteed.

But … there’s still time to invest in gold and silver coins. I’ve also done very well with shares of the gold mining company Barrick (ticker symbol=ABX — which stands to make a great deal of money as the price of gold continues to rise) but I believe people still need to prepare a disaster kit for themselves that includes gold and silver coins. I wouldn’t store these in a bank safety deposit box, though. I think it’s better to keep these at home.

I’ve been discussing the decline of the American economy for years, and the positions I’ve taken are continuing to make me money. If anyone is interested in learning more about how they can protect themselves, I’d encourage them to pick up a copy of my book. Interested parties are also encouraged to contact me directly.

Time is running short to take action, but I can help you with that.

3 thoughts on “Deflation? Only for the Stock Market”

  1. “We’re not going to experience a protracted deflationary period — unless you’ve limited yourself to looking just at prices of housing and the stock market.”

    How about these that we already have:
    1. plunging car prices,
    2. mall massive discounts (some up to 70%, and still does not sell),
    3. cheaper groceries,
    4. cheaper gas prices,
    5. general commodity price plunges.
    6. cheaper iPhones, iPods & other electronics stuff

    If even with these you still say it’s inflation, then I just don’t know what deflation looks like.

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