Liquidity flood in 2009

The gated liquidities that FED created are sitting in the bank vaults, waiting to wash more bad debts on their balance sheet. OBM is promising that another rescure packege in the 2009. This says that government can not tolerate deflation of asset bubble they have created over the last 2 decades.

Any further deflation will cause reduced tax receipts on personal income, property tax, unablement to pay for the muni bond's principle and interests and the total bankruptcy of FED and local governments.

So monetary inflation is the only weapon left for the FED to fight for the asset class price deflations.

The question is which side is going to win? FED of market force?

The answer is clear, for short term, we may see market stablized in dollar's term, but long term, when this hyper-inflationary force to crash USD, FED will default and the end is the same. We will face deflation eventually. A new currency will rise that wipe out the wealth from citizens. It is said the debts have be to paid in one form or the other. Hyper inflation is one form of it, and deflationary depression is the other with real wealth transfer on the debts.

In 2009 we will continue to face the deepening of economy malaise. We will also see the pumping action of federal reserve bank that will lead hyper-inflation in the second half of 2009 that will last for at least 3-5 years.

It is time to invest in commodities. Oil, food stuff, precious metal and related stocks will have a fabulous returns in the years to come. Investing is really about put money on the stuffs that its fundamentals are solid.

What are things with solid foundamentals?

To understand that, one has to see the economy in two sections: one is the real economy which produce the real goods and services and the other is the financial system and monetary policy.
We have real economy that is priced with bubble financial system that leads to high prices, in stocks, bonds and real estates. We measure the wealth using USD. Wrong, wrong and wrong....

We need reverse thinking, the real wealth is the products people can not live without. We need to measure the wealth using real stuff that accumulated. In that aspects, most financial components are over valued, USD, stocks, bonds, etc.

So when there are flood of liquidity in the banks' vault, where do you put your paper money (soon to be worth much less): Commodities.

Happy investing and happy holidays season.

We will talk about this one by the end of 2009 to see what is correct and if any thing is wrong. I doubt I will be wrong.

天下無馬 in the X'mas Eve.