Thought 20111024 – Crash or No, Inflation vs Deflation

Thought 20111024 - Crash or No Inflation vs Deflation

Crash or No Crash – The all important – “inflation or deflation” question

This question is important because, in order to adopt the correct investment strategies we need to try to anticipate if Stock Markets will:

1. Crash and Burn – A Crash is a Crash – you have lost money;
2. Trade Sideways – read negative “Real” returns – easier to know you have lost money as you know that if the DOW & S&P are at the same level in 2011 as they were in 2000 you have obviously lost after adjusting for inflation, whatever that may be;
3. Go up in “Nominal” terms but not in “Real” terms – harder to evaluate if you have or have not lost money, since the markets have gone up dramatically and yet, their rise may not have exceeded the real adjusted www.shadowstats.com inflation rate.  This is what happened in Zimbabwe, where share prices rose to Trillions of Zim Dollars in a few years, but declined when measured in Dollar, Euros, Gold etc; or
4. Go up in “Real” terms – can only happen if Fiat currency party comes to an end and the Global Economy is Healthy.