Bill Cara: The need to understand reflation, Wed., Nov. 30, 2005, 11:25 AM

« No need to panic over gold price weakness today, Wed., Nov. 30, 2005, 9:52 AM | Main | The cost of ETF's has just increased, Wed., Nov. 30, 2005, 12:21 PM »

November 30, 2005

The need to understand reflation, Wed., Nov. 30, 2005, 11:25 AM

In yesterday's Toronto Star, the second page viewpoint of Canadian journalist Slinger hit home with me: Bush, Iraq and Canada: Killing us softly with his lies"

[Excerpts have been removed as I agree with several readers who stated that my reprinting Slinger's comments is in fact promoting politics. That is not my intention.]

Rather than seeing this Slinger article as more Bush bashing, let's sit back and ask ourselves, what is happening between the contract between the Little People and their elected representatives?

How is it that we can vote these people into power and have them do so little to inspire our confidence in them?

I think the situation is worse today than at any point in the past half century, which is to say in my lifetime. Slinger is correct in that the stakes are bigger. The battleground has now moved to Manhattan, the seat of American capitalist power.

Is this situation just the natural fall-out of war? If so, traders need only look back to the end of the Vietnam War to see what happened to inflation in the United States, and elsewhere, and the global price of precious metals.

Yes, the current situation is worse in many ways because the next conflict could easily be The Big One. Gold reached $800 in 1980. I think before 2010, it will exceed $1,000. Like you, that's not because I want it to.

More importantly, I am now starting to look at reflation, and how the U.S. Treasury is trying to buy its way out of the dire straits faced today by the Administration.

Reflation (mostly via money supply, but also including the policy of having lower than inflation-stabilizing increases in interest rates) will be the only possible course of action for leaders in the U.S., regardless of who sits in the White House or atop the Federal Reserve Bank.

Understanding the concept and implications of reflation will help traders. You will see the importance of seeking to accumulate shares of companies that are creating real wealth, with believable earnings (not accounting manipulations), and the payout of real dividends (not return of capital distributions).

As far as Slinger's article about Bush, no, I don't think the President is crazy, but I do think he has had an agenda, and now finds himself in a bad spot. I'm pulling for him, really. We all ought to be.

But mostly, we deserve to know what's going on. We have a right and a duty to protect ourselves and our capital, which can only follow from our receiving timely and accurate information from our elected representatives.

p.s., When I removed the quotes from Slinger (above), it was only the third time I can recall removing material from a blog. Since I must have published 3,000 blog articles, that's not a bad record. I find it beneficial not to have an editor, but there are times I should re-read my material. In fact, often I have returned to an old article, and I'll say to myself, wow, did I really write that? The point is I know I did, but I do it so quickly I am not fully conscious at times that the words come out as they do.

Posted by Posted by Bill Cara on November 30, 2005 11:25:45 AM | Category: The Big Picture

Discourse

Frankly, a putridly written article. I'm no Bush apologist and was solidly against the Iraq adventure but you can't indict the man on the crap that Slinger slings.

Posted by: MarkM at November 30, 2005 12:05 PM [link]

Mark, I knew that the Slinger article would offend. My point in referring to it is that a feature writer for the country's largest newspaper (by circulation) is given a prominent top of page 2 spot for basically mirroring the thinking of the newspaper's readers. There is a growing disconnect between the Little People and the persons we elect, and we are not the problem.

When we turn to gold as a hedge, what are we really hedging against? Isn't it really our discontent and fears.

This morning I was watching the stream of cars bringing young children into the daycare facility in a building on the next lot. These weren't just automobiles; when observed in a procession, they had all the look and feel of a WW2 tank squadron, marching into battle. I mean all that was missing were missile launchers. These were not family vans -- the Caravans -- these were almost Hummers. LOL. Some of them are (truly) H2 Hummers.

What possesses a Mom to drive her children around in a tank other than fear, and the need for protection.

I used to think that SUV's were a response to EPA laws -- building a class of vehicles that did not have to meet the mileage standards of the family auto -- but now I have to think that the car makers had it right. They were being pushed by the marketplace to create a vehicle that rode higher and stronger than the traditional family car.

And now Hummer is introducing an inexpensive H3, which is basically a family-priced tank. And I suppose their designs call for cheap retrofitting of armored floor plate for the next phase of the war that Slinger (and many others) fear.

I wish this stuff was out of comic books, Mark, but I'm afraid it's more real than some of the Administration's recent economic data.

Cordially,

/Bill

Posted by: Bill Cara at November 30, 2005 12:42 PM [link]

Bill......I too am not a Bush apologist. However, if your site starts to get political, you will lose a lot of readership. We can read the B.S. of the political pundits like Slinger in the Star, G&M, NYT, etc. I for one read your blog because I find it informative and instructive on finance, investing, etc.
Please don't make me turn you off. I have already unsubscribed from others because they feel they must get into politics.

Posted by: davpac at November 30, 2005 12:56 PM [link]

Bill-

I get far too much from your insight to "turn you off" as davpac "threatened". I don't mind a well-reasoned piece. Room for everyone in the debate. However, Slinger's article was sophomoric and I don't think printing it served you or the site well, that's all. Some politics, on point, are fine. Money and politics are close bedfellows. Your points re fear and hedging were much better supported without the Slinger crutch.

Best,

Posted by: MarkM at November 30, 2005 3:04 PM [link]