Inflation; Bad, Good or Great

By: Sol Palha | Sun, Jul 8, 2007
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"Bankers know that history is inflationary and that money is the last thing a wise man will hoard." ~ William J. Durant 1885-1981, American Historian, Essayist

Many would simply characterise inflation as a very evil force; hardly would think of quoting it as good and almost no one would think of calling it great. However let's stop here for a second and just examine the above statement. In a round about manner is that not reflective of the way most individuals think when they enter the markets; almost all of them think they will win; very few think they will lose some money and even less think that they could potentially lose it all. In reality most have lost it all at some point in time and generally speaking the majority fall into the losing category (80% plus of the players in the markets lose); only 9-11% of the players are said to really win and actually hold onto these winnings. Only 1-3% of all players or so fall into the category that continually take home spectacular wins, thus investor's end up experiencing exactly the opposite of what they anticipated. Hence on the same token one could argue that inflation for most falls in the bad to evil category, for a few it falls into the good category and for tiny sub faction of the population it falls into the great to spectacular category. The crux of the matter is whether one has positioned oneself to deal with this so called evil or whether one is just sitting on the sidelines hoping for divine intervention.

Inflation can be viewed in same terms as a disaster; to most it's a complete end of everything to a few a disaster is nothing but a hidden opportunity knocking in disguise. Indeed almost every disaster that has taken place has indirectly produced spectacular wins for the players who positioned themselves properly. We at the Tactical Investor have come to this conclusion; inflation is only a disaster for the UN positioned player; to the rest its nothing but a splendid opportunity.

Inflation is defined as increase in the supply of money in other words it basically debases the currency; the value of the currency depreciates as more dollars are now chasing fewer goods. However when a currency is being debased other assets rise in value to more then compensate for this debasement. Were it not for inflation Gold bugs, real estate players, base metal investors, investors who took huge positions in Uranium and so on would not be sitting on such spectacular gains.

The picture above is a chart 6 year chart of the Dollar and in that time frame the dollar has lost approximately 33% of its value; for those who stood on the sidelines crying it's an absolute disaster the consequences have been rather tragic. However for those that took action this ruthless debasement of the dollar was a blessing in disguise. You ask how? Well as they say a picture speaks a 1000 words and we have several so let them do the talking.

Copper up over 600%

Housing index gained 280% before this sector started to crash. As with any investment one has to know when to buy, when to hold and then when to fold. Individuals that invested in property made even more because their gains should be based on their down payment. In some cases individuals put down nothing and in most cases were able to put down 10k or less and walk away with the house. Thus if they sold the house say 2 years later for a gain of 100K they actually netted 1000% in profits and not say 33% if they bought the house for 300K.

Gold up over 126%

Palladium up over 125%

Platinum up over 216%

Silver up over 183%

XAU index up over 166%

Uranium up a stunning 1400% plus.

Conclusion

We could list even more sectors such as Steel, Nickel, Zinc, Lead etc which have all experienced huge gains, in many cases over the 400 percent mark. Now the picture changes, does it not and the question really comes to down this. Are you sitting on the right or wrong side of the fence? If you are sitting on the right side of the fence inflation actually looks pretty bright for look how it rewarded those that invested in the right sectors; if you were just standing around doing nothing you got whacked on the head. We at the Tactical Investor have always embraced inflation and continuously positioned ourselves to benefit from its so called evil effects. After all one man's disaster is nothing but another's opportunity.

The true question should not be based on inflation but on human nature. For centuries upon centuries one common theme keeps reoccurring; give a man chance to cheat and he will do so without blinking an eye. It's not inflation that's the problem its human nature. In the Golden era individuals who were entrusted with Gold found ways to shave small amounts of gold and then lent out money based on the original value imprinted on those coins; this was just another form of currency debasement.

Without inflation many an investor would not have been able to leap so fast into the super rich category based on just a few well placed bets. There would have been no internet boom, no housing boom, no mega bull market, no huge run up in Precious metals and commodities prices and the list is endless. Yes these huge moves are always followed with a bust cycle but then if you are out of this sector in time the bust really does not affect you at all does it. In addition as one market is topping another is putting in a nice bottom formation and getting ready to begin its long run up. In the end it all comes to down to planning and positioning yourself. Inflation bad, we hardly think so but we do think that ignorance is extremely dangerous and one of the most expensive and useless assets to have. A paralysed body is painful situation; a paralysed mind is a monumental tragedy.

"There are plenty of good five cent cigars in the country. The trouble is they cost a quarter." ~ Franklin P. Adams 1881-1960, American Journalist, Humorist

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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