Inflation and the Commodities
Ok, I've been a part of DailyPaul for quite a while now and IMHO some of the smartest minds in economics and finance hang out around here.
My question to you all is this.
Since it is very likely that we will eventually see inflation/hyperinflation at some point in time due to all of the "liquidity" being pumped into the system, what effect will all of this inflation have on the price of stocks in the stock market?
Yesterday I purchased some shares of DXO, A powershares double long crude oil ETF. My thinking is that as inflation drives up the price of commodities, as is expected with silver and gold and other precious metals, the value of this ETF should eventually increase as well.
Am I correct in my assumption, or is my logic flawed? I'm open to some constructive criticism and education. I'm doing all I can to protect my family from the storm on the horizon.
I always tell people to buy
I always tell people to buy actual commodity.
Reason:
If oil doubles to $84. per barrel, that means the dollar is half as valuable, well say you buy an oil stock, 1000 shares @2.29 per share and the oil commodity is at $42 per barrel, and gas is 2.00 per gallon, milk is 3.00 per gallon, and a whopper is 2.25,
then,
Oil goes to $84. per barrel, gas is 4.00 per gal, milk is 6.00 per gallon, and a whopper is 4.50, and your stock did GREAT and went to 3.30 per share...well, guess what, you lost money because everything you are going to buy was doubled, and you only "made" 70%.
as a rule of thumb, you can use silver and a gallon of gas as a bench mark of reality.
in other words, in 2000 when silver was about 5.35 per oz. and gas was about 1.20 per gallon milk was 1.10 per gal, and hamburger was .99 per pound, one piece of silver would buy roughly
4.5 gallons of gas
about 4 gallons of milk
about 5.3 lbs of hamburger,
then in 2008, when silver went to 21.00 per oz. you could still buy
4.5 gallons of gas
4 gallons of milk
about 5.3 lbs of hamburger,
so with silver you never lost value, the dollar amount just increased.
I personally am getting rid of ALL of my "dollars" and buying gold and silver.
true. now there will be SOME
true.
now there will be SOME fluctuation between commodities. but if a person is monitoring the relative values, then it's easy to spot.
if some unknown force is driving up silver, then the silver to gold ratio changes, or the silver to gas ratio changes, or the silver to hamburger ratio changes....
a person watching that would know that perhaps to ease off the silver purchases, perhaps exchange a little more for something else.
Playing devil's advocate...
If the middle class is wiped out (happening) and trillions of dollars has evaporated, I hope you can wait till 2025 for a profit.
I don't see a supply and demand problem in the pipeline, do you ? After all, they can only charge what people have, not much.
Yes
Thats's the point.
It's a measure of value.
Gold has always and will always be accepted.
IT IS REAL MONEY.
People will accept it in exchange,
as they know others will accept it as a medium.
There is no magic to it. It works.
Better start doing some
Better start doing some research on leveraged ETF/ETN "slippage" and do it fast.
I considered DXO myself a while back, then googled "slippage" and started reading...I decided to stay away from it.
Also, do some reading about why ETNs are riskier than ETFs, especially in this environment.
Can you give us the cliff
Can you give us the cliff notes version of "slippage"?
...
here's some blog/forum postings on the subject
http://marginalizingmorons.blogspot.com/2009/02/etf-daily-co...
http://tickerforum.org/cgi-ticker/akcs-www?post=76182
You are investing in cash basically
you are buying a promise that you will be paid when it is time to collect. I am no economics major, but believe you should invest in tangible assets, not in a letter that gets sent to you every month to tell you how much you have made. If the dollar crashes, do you think they will actually say oh wait we owe this person some money? Invest in something that you can hold in your hand. Good luck.
Those who expect to reap the blessings of freedom must. like men, undergo the fatigue of supporting it.-Thomas Paine
The R3volution requires action, not observation!!!!
The DXO is very risky ...
It was very close to collapse during the dive ...
If oil drops a substantial amount in a single month ...
There is a risk that it will not be able to reset ...
Having said that ...
At this price ...
As long as you know it is a risky play ...
I would say it is not that bad of a play.
Personally ....
When I speculate ...
I go to extreme volitility which is in the financial markets right now ...
The DXO may be a good play by late fourth quarter this year.
WAHOR!!
http://www.dailypaul.com/node/48994
WAHOR!!
http://www.dailypaul.com/node/48994
thank you ... captain
thank you ...
captain kirk...
for that...
highly inside.....
look at the market...
you are thw smartest man I know...
"When governments fear the people there is liberty. When the people fear the government there is tyranny."
-Thomas Jefferson
I am more concerned about the return of my money than the return on my money. --Mark Twain
“A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.” (Prov. 22:3; 27:12 KJV)
Hey McCain-----┌П┐(◣_◢)┌П┐
on gold/silver -- question
If we look at the dollar index as a rough inverse transition to gold and silver we all should be feeling darn good if you are invested these items.
Over history since 1980 ish when the USDX has been around 89 gold has been around $350-400 -- When the USDX hit a low around 72 gold peaked around $1050 in 2008
Well ... lets look at where we are now..... instead of a starting point of $350-400 with the dollar index at 89 we are around $915+
I say sky is the limit and back to 72 should give us a rough guess of $2750
What do you guys think gold will be worth if the dollar index falls to 80 or 75 perhaps 65 or lower with prices already at $915+
Patriot4Liberty1776
Its all about the dividends.
That's the difference between investment and speculation. An investor will buy stocks for the dividends they pay, a speculator hopes he can sell the stocks at a good profit.
I would stay away from the gold and silver ETFs though. If you want to own gold and silver, I'd take delivery of the actual metal and put it somewhere safe.
http://brits4ronpaul.blogspot.com/
http://lpuk.blogspot.com/
http://northwestlibertarians.blogspot.com/
I definitely agree.
I definitely agree. Gold/Silver ETF's are suspect. But what if exchanging goods and services for physical gold/silver isn't so easy? Wouldn't it be good to have other equities you could sell for the inflated FRN's, or whatever "Sanctioned" currency the FED hands us in it's place?
Thanks for the insight about Dividends. I never considered that. Looking at Peter Schiff and Europacific Capital for overseas companies with good dividends.
Things are only impossible until they are not.
-- Jean Luc Picard
Things are only impossible until they are not.
-- Jean Luc Picard
Good questions.
"What if exchanging goods and services for physical gold/silver isn't so easy?"
That's not a problem so long as someone is willing to exchange your metals for FRNs. You can expect to sell gold/silver for way over the official spot price on ebay.
"Wouldn't it be good to have other equities you could sell for the inflated FRN's, or whatever "Sanctioned" currency the FED hands us in it's place?"
Some businesses are doing OK - or even great - in the current economic climate. Do you have stock in Smith & Wesson? A local shoe repair company? Tinned meat manufacturer? A company that has landed a huge government contract?
http://brits4ronpaul.blogspot.com/
http://lpuk.blogspot.com/
http://northwestlibertarians.blogspot.com/
It's not the stock's price
but its value that will matter. Take the example of Zimbabwe where prices have risen a zillion-fold. Is something worth a zillion Zimbabwean dollars worth any more than the same item worth one Zimbabwean dollar before the inflation began? The only way to gauge if the real value of an asset or investment has risen or fallen is to see how much it would buy of some representative "basket" of goods and services. In other words, if all prices rise simultaneously, where have you gained?
My idea in owning gold is that it will retain its value in the face of inflation and even experience gains above the inflation rate if there is much panic buying.
http://www.preparednessequipment.com
New Hampshire and Ecuador
I understand your point.
I understand your point. What I am trying to ascertain is if stocks are subject to a rise in prices such as gold, silver and other commodities are expected to. My expectation is not to "gain" FRN's, since I know that the process of inflation is simply devaluing them, rather, I am attempting to invest various portions of my cash into things that will keep pace with inflation and thereby, be a "store of wealth". I suspect that stocks are the most risky of investments at this time and I'll probably put some more of my cash in other commodity and agricultural based ETF's. I know most around here are into silver and gold, but I don't want all my eggs in one basket.
Things are only impossible until they are not.
-- Jean Luc Picard
Things are only impossible until they are not.
-- Jean Luc Picard
Correct
Commodities will rally hard.
There is an expectation that end 2009 Hyperinflation will begin.
Watch the break out in 10 year Bonds. This is a key indicator.
Keep in mind a general rule for Gold/Silver purchases.
Paper = default
Hold Precious Metals IN HAND.
There will be plenty of default occuring. ETF's etc beware.
Groups:
Precious Metals
Agriculture
Energy
Base Metals
Good Luck
(I am in Silver)
Why has Silver lost 20% in just 2 weeks?
Why did Gold drop from 1007/oz to 900/oz in just 2 weeks?
Timeline
It all depends on your timeline.
And your ability to understand the economic situation we are in.
The markets are TOTALLY MANIPULATED.
www.gata.org
The COMEX paper price is false and just like the American Dollar standard, it is in it's death throws.
The Fiat system is at it's end and all dollars are about to be repatriated back into Gold/Silver as well as other commodities.
20% movement works BOTH ways.
Which way is it going on the YEAR line ? Which way is it going over the 5 Year line ?
And more importantly... WHY.
Don't be scared to buy precious metals, be scared NOT to buy them.
Good luck.
Thanks for the input.
Thanks for the input. Indeed. All my PM is in hand. Just a little nervous about the Crude ETF. Been following Butler's advice on silver.
Things are only impossible until they are not.
-- Jean Luc Picard
Things are only impossible until they are not.
-- Jean Luc Picard