In case you were under the illusions that the US operated completely free markets, this should set you straight. Article goes on to state what we’ve talked about – that governments are between a rock and a hard place, and they will opt for inflation instead of hard landings and debt repayments.
Why keep an eye on government actions? They have the ability to move markets, like it or not – so we have to account for the government in our trades.
Right now, here’s what I see:
- It’s an election year – government will therefore do everything in its power to buoy markets. This includes masking statistics (see yesterday’s post on inflation) and keeping asset prices afloat (if inflation is triggered, so be it).
- Rates are coming down further, dollar be damned.
- Don’t be surprised to see a socialistic, inflationary housing rescue plan pumped through (as everyone figures out Paulson’s plan was pure show.
Of course there is still the risk of deflation, but wait for confirmation before you begin trading on that premise. Right now inflation seems to be taking the day, and what performs best in times of high inflation? You guessed it – gold and basically all commodities. Stocks may appear “flat”, as they were in the 70’s, but if you account for inflation, you’re getting slammed by staying in stocks – especially as pricey as they are now.