[Surf n Turf]

Originally Posted by nmap

we are going though a remarkably strong period of deflation. I wonder if the failure of various assets has not destroyed money at a rate even faster than the Treasury and the Fed can generate it.
If we enter a global deflationary cycle, matters will become, quite frankly, bad.
We live in a debt driven economy, and the liquidation of hundreds of trillions (yes – seriously. Hundreds of trillions is not a typo) of debt would destroy the monetary system.

In the month of October 2008, we have witnessed a reduction in wealth, via the stock markets, that is unprecedented in America, and the world. I am reasonably sure that (in constant dollars) it exceeds the “Great Depression”. We have yet to hit bottom, and your observation may be correct. No longer are there “widows & orphans” stocks, nor safe options in which to invest. All areas are at risk.

Originally Posted by nmap

There is another possibility.
The current deflation may be a side-effect of debt and asset liquidation coupled with a flight to safety.
I’ve attached a chart of the U.S. dollar index. Notice the rapid appreciation. This begs the question – why?

In a monetary crises, where does one put one’s money

I am betting (figuratively) that your observation is correct.
The dollar is the least worse place to move money, and it is not that the dollar is up, it is that all currencies (except Yen) are down.
But the dollar will fall. Wait until you see the results on Monday, of this weekends “lets make the dollar weaker” conference – brought to you by the IMF and ??
“The International Monetary Fund believes that emerging countries will become the next victims of the credit crisis and is trying to force through a rescue package within a week to allow such economies to swap their own currencies for US dollars.
While Wall Street has speculated that the swap facility could be worth $1 trillion (£620 billion),”
http://business.timesonline.co.uk/to...cle5004044.ece

Originally Posted by nmap

and I cannot help wondering if that isn’t part of the reason stocks, oil, gold, and other assets continue down. Hedge funds had 30-to-1 leverage, and they weren’t the only entities that used that dangerous tool.
So the present price action may be an artifact of market reaction to unwinding all these positions.

As you know I am interested in Gold / Silver, and have followed both since the Texas Chainsaw massacre that ended March 27, 1980. The current prices for both Gold / Silver are understated (Silver by a factor of at least 4, Gold by 1.5). Although Hedge Funds are involved, I wonder what other “entities” you believe are also using this leverage?

Originally Posted by nmap

Still, based on the present price action, the case for deflation is strong. If prices continue lower, and if unemployment starts forcing wages lower, then we are likely to experience a deflationary spiral that could last for years – or even a decade. Such a period will be memorable, and is likely to share characteristics of the 1929 depression.

I tend to believe that our current deflationary period will be short lived, based on the amount of liquidity being bilge pumped into the economic system. If I am wrong, I may shortly be living in a “McMansion”, and starving to death.