Playing The Market

The subsections below are dedicated to those who are new to investing and want to learn how to structure themselves in today’s financial markets. The Fed Chairman says that he wants to create inflation because it is “better than deflation”. My investment strategy is based on Bernanke’s desire to buy treasuries and MBS which in turn has unintended consequences such as higher costs of basic materials.

Most mainstream economists today believe that inflation is when prices rise. For example, as David Einhorn recently said, if Apple makes a iPhone with a battery that is twice as efficient and can afford to sell it for the same price and in fact do sell it for the same price, then the government calls that deflation.

Well, inflation isn’t “rising prices”, it’s actually an increase in the money supply. Rising prices is jsut a symptom of inflation. We are seeing an example of this right before our eyes as news anchors talk about the Fed running out of bullets and demand falling even though interest rates are at zero. Another example that supports my thesis is CPI. Ben Bernanke frequently points to CPI to assure everyone that even though he’s adpated his quantitative easing policy, inflation remains suppressed. Maybe it does in CPI, which is an indicator that excludes food and energy, but if you stop measuring the dollar in relation to other currencies and measure it in gold, you’d see that the relationship between CPI and the purchasing power of the dollar are contradictory.

Listed in the subsections below are ways to hedge your portfolio against quantitative easing and a zero percent interest rate policy. I believe that gold and silver offer the best protection to inflation as they have a 5,000 year history that proves that they perform well in that type of environment.


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