Deflation and Inflation Posts

Understanding the deflation/inflation circumstance of the market is absolutely critical. In inflation typically the dollar weakens and commodities spike. In a deflationary situation the dollar strengthens and just about every non dollar asset, including stocks and commodities, declines. Below are the top two posts that looked at both sides of the coin. We should, from the research I have done then and since, see substantially more deflation before we eventually see significant inflation. Thus, while sentiment is getting so negative that we are setting up for another probably substantial bear market rally somewhere along the line, this is not the environment in which to buy and hold stocks yet in my opinion. (Note that I have learned from my MOS and POT purchases earlier in the year that no stock, even POT, is a buy and hold in the early stages of a bear market. Especially this one. Lesson learned... as I have described on previous posts.)

Buy and trade perhaps but with a lot of caution and with one finger near the sell trigger at all times. In a bear market shorting makes more sense... with caution when we are deeply oversold. We have to break the 200 day Moving average before one can even seriously start talking about a new Bull Market. I think that is still a long way off.

The deflation, according to Prechter, is still early in its stages. I agree with him and he has been the most accurate of anyone I have seen, though Roubini and others have been quite good as well. We are unwinding 25 + years of easy credit with a mania spike in the last few years. That easy credit led to enormous inflation and the collapse back down must be accompanied with tremendous deflation. The government bailouts and interest rate lowerng have been attempts all along to combat the deflation. However, there is no way they can do it. Too big. They may prevent a total meltdown. Maybe. The cost, in the long run, will probably be further inflation of the dollar.

For those who have not read it I do recommend Conquer the Crash by Robert Prechter. I recently signed up for Elliott Wave International's paid service. For 60 bucks a month (money back guarantee cancel anytime etc.) I get the kind of insight that the pros get. These guys ARE the leaders of this whole theory... not the also rans... and I read somewhere that every major investment house has an Elliott Wave professional in this market. Conquer the Crash and Elliott Wave Principle come free with the subscription. I had already read both several months ago and they are excellent.

Please note that I do not have any affiliation with these guys. This is not an ad. See for yourselves if you like them if you want. Or don't... up to you. I just recommend them from personal experience. The theory is fascinating and provides a framework for what is going on.

Here were the two posts from before. They are also now under the top posts at right
Inflation
Deflation


"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.