I received an email from a friend and here is my response. You ought to be able to decipher what the questions were about. These are my opinions of the present situation, and are by no means recommendations.
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1) Voting for McCain…
I really don’t think voting for A or B is going to matter. I’m voting for Ron Paul because I believe that change has to come from going against the herd. I refuse to be partially responsible for either of them being in office.
The odds are in favor of the democrats getting into office and taking over Congress. I’m actually a bit frightened by this, but either situation is grim. Hopefully it will be better than the last 8 years.
2) Deflation / Inflation
This is tricky and something I’ve been trying to better understand. There are many many many factors at work here. We are headed into a MAJOR recession… thus your cutting spending was a wonderful idea. A recession is a drag on the stock market. Many think that after a brief rally it is going to drop much further. I know you are invested at the moment. One way to hedge against a drop is to invest in a inverse ETF fund such as SDS, QID, DXD, or TWM (these are leveraged 2x FYI). These ETFs have saved me much pain. The overall trend in the market is down. Bear market rallies tend to be severe and swift to the upside, while the markets overall continue to decline.
As for Deflation and Inflation what this means is a decrease or increase in the money supply. Generally during inflation when the Fed is creating money prices of everything goes up because there is a surplus of money that has to go somewhere. When the money supply contracts either by the Fed reducing the money supply or debt is paid off. Then prices decrease. However, under a fiat monetary system credit and continued inflation are essential to keep it up. At the moment with the Fed creating TONS of money we are looking at the potential for hyperinflation in the future, which nobody wants. So, the Fed is walking a tightrope between deflation and inflation. I imagine they will lean towards inflation over deflation ultimately. At the moment we are primarily seeing deflation as prices are coming down everywhere (commodities, housing, stocks).
During deflation the market will come down as will all prices. I think that regardless the markets will continue their descent due to the upcoming recession, decrease in consumer spending, decrease in imports and exports, and increase in unemployment. Once the recession takes hold and the effects of the monetary inflation occurring now start to be felt we will probably start to see increases in commodity prices across the board.b With companies facing difficult times I don’t foresee the created money moving into equity markets.
3) War with Iran
The conflict between Iran and Israel is heating up. I received a report that said Israel won’t be doing anything until after the election, but who knows. In this case we would see the value of gold skyrocket, oil go through the roof, and the dollar go through the floor. This is slowly moving from a remote to more plausible reality. I hope this doesn’t happen as the US can’t afford to be involved in another conflict. We are already spread so thin. Because of this and the enormous debt load the US government (its citizens) now carries I fear for the support and longevity of the dollar. At this point I think it important to own some gold and have some money invested in foreign currencies. <Thank you Gary North and Chris Martenson> These are for the long-term and may lose significantly in the short term. There are many uncertainties at the moment.
Oh and least I forget… At this juncture in the Republicans and Democrats are but different sides of the same coin.
