Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Greenspan's Fiscal Solution: Inflation

By

Commodities and precious metals will likely outperform in an inflationary environment. Despite investors' caution, gold is still in the early stages of a bull market.

PrintPRINT
First, let me say that last night's Minyanville Summer Soiree was a great success. I feel honored and privileged to be part of such a great community. As Toddo likes to say, his guiding philosophy is to surround himself by "people who are good at what they do, but better at who they are." I think he's done a great job in doing that.

Now on to some items of the day. The Wall Street Journal published an op-ed piece by former Fed Chairman Alan Greenspan this morning. The key message was that the US government has essentially zero default risk due to its printing presses, but US Treasurys aren't free of interest rate risk. Should Treasury net debt issuance double overnight, the credit risk would stay the same, but the government would be paying much higher rates. He offered 1979-1980 as an example where the yield on the 10-year note surged almost 400 basis points within a matter of months.

Greenspan mentioned a few ways out of our fiscal problems. We can't grow out of it, he says. The only ways are through "politically toxic cuts, or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation."

And therein lies the strategy for our politicians: significant inflation. It's the path of least resistance! Literally. With the engineered CPI numbers kept low, let's try to inflate our problems out of this mess. Whether or not it works, that's another story for another day.

Now what's the strategy for investors? I believe in an inflationary environment, all asset classes will rise. That's including the S&P 500. But commodities and precious metals will likely outperform. With gold hitting a new all-time high, I know some investors are nervous about purchasing the yellow metal. But considering how many investors aren't exposed to gold, this is still indicative of the early stages of a big bull market.

Regardless, there are also many gold mining plays that have yet to play catch-up. Jaguar Mining (JAG), for example, is one to consider as it has yet to reach new highs. Seabridge Gold (SA) is also another long-term play that offers more than an ounce of gold for each shareholder! I like those numbers.
< Previous
  • 1
Next >
Position in JAG, SA, gold stocks

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE