Friday, May 29, 2009

it’s now clear that Paulson is betting big on inflation in the coming years

TO BE NOTED: From Don Fishback’s Market Update:

Is Mounting Debt Creating The Potential For Inflation?

With the massive collapse in bond prices, and the consequential rise in rates, all due to the potential for ratings downgrades, due to the nonstop printing of money, some pretty savvy people are preparing for a big bout of inflation.

So what does that mean for the stock market? Well, it’s not as bad as you might think, if you’re a bull. If the Fed encourages inflation, and then does nothing to stop it, stock prices can actually rise … a lot. The problem is that your buying power can get eroded from inflation faster than you make money from the increase in stock prices. What happened in Zimbabwe is an extreme example, as it has had one of the best performing stock markets on earth, rallying thousands of percent in a month! The problem is that the cost of living was going up even faster.

The dilemma with inflation, at least from a strict stock-market-direction perspective, is when the monetary authorities decide to shut the spigot and reverse the inflationary printing of money, the result is usually quite bad for the market. That’s what happened in the U.S. at the end of the 1970s/early 1980s. When the Fed sees signs of inflation, who knows what they’re going to do with respect to reigning all the money they’ve created. Heck, according to this Reuters article, the Fed thinks authorities need to start planning now what they’re going to do for when inflation returns. Start planning now? That confirms it; they really are making this up as they go.

Me personally? I think that there’s still a pretty good battle going on between the inflationary effects of the global printing of money and the deflationary effects of the persistent collapse in real estate prices. Who is going to win is still an unanswered question, although John Paulson’s bet seems to be that the global quantitative easing is going to win out.

– Don"

And from The Pragmatic Capitalist:

TOP digg

Stringing together the recent SEC filings of John Paulson, the billionaire hedge fund manager, makes one thing clear: he is betting big on the reflation trade. Paulson’s latest 13-F filing shows large positions in Anglogold,Kinross gold ( KGC 20.22 ↑3.59%), Gold Fields (GFI 13.58 ↑3.82%), market vectors gold ETF and the S&P gold ETF. More interesting is a recent filing by Paulson to start raising money for a hundred million dollar “real estate recovery” fund.

At first, the news of large gold purchases early last month were seen as potential armageddon plays based on Paulson’s big bets on the collapse of the economy last year, but it’s now clear that Paulson is betting big on inflation in the coming years.


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