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« The USD Bounces As Gold and Silver Tumble: That’s what we want! | Main | Agnico Eagle: Correction Underway »
Saturday
Jul282007

Inflation: Is it worth the gamble?

We are not keen on using margin for investment purposes but what if the current economic situation suggested that it was worth a punt?
Inflation 28jul07
When we look at the everyday things we do we can see that prices are heading north at a brisk pace When we do a rough and ready survey we come up with the following: Coffee; 1.5 to 1.65 is a 10% increase. Bus; 1.35 to 1.50 is a 11.11% increase, Local taxes; 1500 to 1650 is a 10% increase, Newspaper; 1.70 to 2.00 is a 15% increase. Computers are getting cheaper but to us the perishables such as cartridges, ink and paper are not. Food, power and mortgages have all gone up considerably so at a guess we would put inflation at between 8% and 9% per annum.

Please do a rough check in your area and write and tell us what you come up with, this will give us a few reference points to use as guides to what the real figure might actually be.

This is not meant to be a political rant it is more a sort of investigation into a possible opportunity. It goes like this: if the stated figure for inflation is 3%, but the real rate is much higher and we can borrow money for say 5% or 6% per annum, then it makes sense to borrow money and put it into hard assets such as gold and silver, which should grow at the same rate as inflation or better. We are constantly reading that the printing presses are working 24/7 and that the money supply is expanding at between 8% and 16% per annum depending upon just how desperate your government is to meet its ever-growing obligations. Here in Britain where almost half the work force is employed within the public sector, the governments liability in terms of commitment to those people’s pensions is astronomical and growing exponentially. A short while ago we read that the commitment was £683 billion or £40.00 per week for every working person for the next 23 years. This figure was disputed by one of the larger accountancy groups who put the figure at twice that of the governments estimate.

So just how will they deal with it? Well they have asked the employees to work longer and so put off the fatefull day when they have to pay out, but the unions met the suggestion with a resounding no vote. What is plan B then, you ask?

Plan B is inflation. The only way that we can see to get the government partially off the hook is to dilute ferociously what they owe the people. Those on fixed incomes will suffer as their spending power diminishes on a daily basis.

Its sad for us to look into the future like this and see rampant inflation, though it is tempting to borrow now and invest the cash into preciuos metals with the view that those hard assets will outperform the interest payments on the loan.

No matter how good the idea we don’t like to be 'up to our necks in it' as things don’t always go as expected. However we may well look back on this period of history with each nations currency playing ‘devaluation equals competitiveness’ and wish that we had had the courage to strike while the iron was hot.

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Reader Comments (4)

My company rents a large Ryder truck, once a year. I pay for the fuel, so that is not the reason that the charge this year went from .93 cents a mile to 1.34 per mile. This happenened in 8 months. a 44% increase. Same truck, same number of days, same milage!

July 30, 2007 | Unregistered CommenterDan Kubly

Well, 44%! So we now need something with negative inflation to bring the increase back down to the 8% level!

July 31, 2007 | Unregistered CommenterGold Prices

Due to the floods in the UK the insurance companies have announced that the premiums for all householders will rise by 10%. Another driver for the inflation rocket!

August 3, 2007 | Unregistered CommenterGold Prices

This is what Ben Bernanke had to say today:
While inflation had been high recently, Bernanke said expectations of future inflation had held steady or eased, import prices were moderating and commodity prices had fallen.
Those factors, along with the softness in the economy, "should lead to rates of inflation more consistent with price stability," he said. "I think the evidence is now in that the inflation problems are moderating and look to be returning to price stability at a reasonable pace," Bernanke said in response to a question.

This is all caused by market contraction. In my personal research I must back this up, although I'm not a fan of the Treasury and its 'market talk'.

Finally, a comment regarding the rise in flooding insurance premiums, this 10% is purely based on the remuneration of the most recent year(s). So when the risk of flooding (global warming) increases and remunerations rise, so does the premium.

To give another view; Car insurance premiums are going down in the Netherlands, due to lower expenditure on car crash renumerations. It has very less relation to inflation, but to a larger extend with the lower amount of car crashes.

Please make sure you tell the whole story instead of screaming: Gold Gold Gold !!!
Keep it clean.

regards

October 15, 2008 | Unregistered Commenterde Graaf

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