Jordan Roy-Byrne's article featured in Financial Sense last week examines various types of inflation and gives graphs, facts and his thoughts on future trends. He concludes:
It is my belief that the Fed's recent cut is the wake up call that will finally stimulate rising inflation expectations. Moreover, the public awakening towards inflation is coming at a time when monetary inflation, commodity inflation, currency inflation and wage inflation, already at significant highs, are set to rise even further.
He predicts a sharp acceleration when gold breaches $1,020 per ounce - itself a price level about 38% higher than today.
Although his remarks have most relevance for an American audience, it is worth remembering the recent Telegraph article (5th October) that forecast sterling dropping even faster than the dollar. Our determination to be as financially reckless as our Transatlantic cousins may result in our facing similar problems.
The good news? Our enormous holding of US Treasury stock may turn out to have been a reasonable investment, in sterling terms. The bad news? Perhaps we should have put that money into bonds denominated in a stronger currency. The Euro, maybe?
9 comments:
That is just going too far.
Firstly, let's hope inflation sets in as then my mortage will disappear and my gold investments will do even better than they have done these past 2 months (35% growth).
However, to suggest the Euro is solid is to misunderstand the market.
The market can see the anlo-saxon economies about to tank and will vote against their currencies...where to go? The yen is toppy thanks to the carry trade and the Yuan is regulated..er...stuck aren't they?
So they go to the euro; by going to the euro they make the break up of this flase currency all the more likely. Then the D-mark can come back and the world can start to return to some currency balance.
All very trikcy me thinks; but don;t say the euro is a strong currency, that is just fanciful in the extreme!
Thanks, CU. I was flying a small kite at the end there and you've come in most effectively. (What's that kite-fighting game called?)
It'd probably be better for me to talk about relative weakness, rather than relative strength. Aren't the pound and the dollar weaker than the Euro? Isn't that why Iran is asking to get paid for oil partly in Euros?
Interesting you mention the DM - considering what I've been learning about gold reserves.
CU - PS: The currency I had at the back of my mind was the yen - can the Japanese hold down their interest rates indefinitely?
UK inflation: significant, perhaps, that Badger Darling is eliminating indexation of capital-asset cost basis for CGT purposes ...
Currency: have always thought the "pricing of commodities in $" is of symbolic importance only (which is not entirely trivial, I accept).
For many years the FX markets have been highly liquid and you can quote / buy / sell oil (or any other commodity itself traded in liquid markets) in any of the major currencies - the arb is near-perfect (= 0) at all times. Look at gold on Bullionvault, for example.
Saying Iran wants to be paid in € is no more than saying Iran would rather be long € than long $, which it can achieve with great ease, irrespective of whether oil is 'denominated in $'.
Hi Nick: point taken. But isn't this diversification a signalling that a number of countries are preparing to depose the dollar as the world's reserve currency?
Could you elaborate on the first point about CGT? I was under the impression that indexation had been scrapped already, replaced by a tax that tapered down to 10% depending on length of ownership.
Sackers - (a) yes - I'm just not sure that commodity 'price-denomination' has much to do with it per se. And, incidentally, as I understand it the key thrust of diversification of reserves for many countries is a 'flight to yield' - which may be sought in $ equities, for example as well as assets in other currencies. Moving to the former may not have quite the same damaging impact on the $ - which (given the vast holdings of $ assets of China / Korea / UAE / Venezuela / etc etc) may be quite important to them.
On second thoughts then, I suppose that the significance of selling newly-produced commodities for € (or whatever) has a nice, gradual dilution effect on the % of their reserves held in $ over time, without any sudden movements.
(b) - seek qualified advice ! which ain't me. But I read that indexation relief is being scrapped: I believe it runs concurrently now, with taper relief, each on its own respective side of the break year (1998). But its elimination may not be particularly significant after all. I guess we are all trying to get to grips with the small print.
Thanks Nick, those are really useful answers. The conversion of US debt into equity held by foreigners is somthing I've been thinking about - Warren Buffett pointed out recently that from next year (I think), America will begin to suffer a net deficit on investment income, i.e. paying out more dividends on her own equities than she is getting from abroad. And then he who pays the piper calls the tune.
I'm beginning to realise that what interests me is not money and investments per se, but the potential results of losing financial control. The history of Europe and Western Christianity was altered because Henry VIII didn't inherit his father's control of cash.
Sovreign powers will always be tempted to make a raid on something or someone, when they reach the limits of their curent resource-base !
Sovreign powers will always be tempted to make a raid on something or someone, when they reach the limits of their curent resource-base !
That's what's worrying me more than anything else. Whatever you have may simply become forfeit.
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