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Why Hyperinflation Isn’t Coming to the U.S.

Politics / HyperInflation Sep 21, 2010 - 05:41 PM GMT

By: Mike_Stathis


Best Financial Markets Analysis ArticleFor more than two years now, many Americans have heard warnings of hyperinflation from the large consensus of misguided individuals, whose agendas serve as the basis for their ridiculous claims.

Much of this nonsense has come from the gold bugs and perma-bears, although it is often difficult to distinguish between the two.

Sprouting from this group of fear-mongers is a larger number of naïve followers whose mission is to also be inducted into the media club, while they too profit from selling gold ads and other financial arrangements made with gold dealers.

Many of these individuals spend their entire day watching CNBC and blogging, so as to feed off of the daily smoke-and-mirrors, because they know that millions of sheep continue to watch this trash, despite the fact that CNBC and other financial media establishments are arguably more responsible for your investment losses than even Wall Street.  

But it’s important to keep in mind that financial experts don’t spend their days giving television interviews, attending investor conferences and rehashing the daily drama from the financial media. These are marketing activities. Real financial professionals are doing research and servicing their clients. And those in the financial industry don’t spend their day blogging, unless they are starving for business.

Regardless of their position along this feed chain of deceit, they are all opportunists. They’ve been trying their hardest to pump up the price of gold, while making ludicrous claims of imminent hyperinflation and a Zimbabwean-like currency devaluation for the dollar.

Some of them know these myths are nothing more than complete fabrications of deception designed to profit from their sheep audience. Others actually believe their mentors who have attained a celebrity status within the media, despite their lack of credibility.

But reality does not matter to them. They understand the power of numbers. If something is repeated over and over, most people will believe it. This is one of the most basic tricks used by America’s media monopoly. My advice is to spend less time listening to what you hear and more time researching the full track record of the so-called experts in the media.

Most of the lackeys at the bottom of this feed chain of deceit don’t even have a track record. Many have never managed client funds. The only research they do is reading what they come across in the print and broadcast media and adapt it as their own analysis.

This depiction of reality further explains why I have been banned from the media, ignored, and in most cases banned from the Internet, for I threaten to destroy this grand party of deceit from which Wall Street, the media and the gold bugs continue to feast. And they’re feasting on your money.  

Ask yourself whether these individuals deal in gold or receive compensation in some manner from pumping gold as an investment. Look at all the blogs and websites posting gold ads. That’s what you call pure agenda. If you think you will ever get the truth when agendas are present, you are a bit naïve. 

The financial media does not want to expose you to the insights of individuals who are dedicated and capable of helping you because YOU don’t pay their bills; Wall Street does, so the media serves the agendas of Wall Street. This is why you keep losing money.

As a result of the pervasiveness of these extremists found throughout the Internet, print and broadcast media, most of Main Street missed out on the biggest stock market rally since the Great Depression.

If this includes you, don’t you think it’s about time you made some changes?

The media floods you with hacks whose only mission is to sell you gold. Many gold bugs continue to insist that gold is headed to 10,000 or higher, and that the dollar will fall to zero. Others have insisted that gold will never again fall below $1000.

The volume of these ridiculous claims about gold is endless. And their lackeys, which are spread throughout the Internet mirror these delusions when they write articles. It’s truly become a circus show of followers. I call it the media Macarena

I suppose when you stand to benefit by pumping up an asset, the ridiculous claims have no end if you lack integrity. The problem is that as ridiculous as these claims are, the more you hear them, the more you will believe them. The solution is to choose your sources carefully. 

These are just a few examples illustrating the misguided propaganda being spewed out into the media by individuals with clear agendas.

In the end, by positioning these individuals as experts, the media fulfills its mission to Wall Street because Main Street will eventually revert back to side with Wall Street once the views of the extremists fail to pan out. 

This is how the game is played. And in the meantime, the extremists line their pockets. Wall Street also lines its pockets. And of course, as a paid whore to Wall Street, the media lines its pockets. Everyone wins in this game of deceit except you. But ultimately, you are to blame because you empower the media by providing an audience. 

It’s easy to take an extreme view of things. You can either preach that the stock market is great, or that it’s poised to collapse. Forget specific forecasts. And forget knowing when to shift gears. Extremists only know one gear; panic mode or manic mode. You can make a career of this sales pitch as so many in the media club have done.

What’s most important is to know when to shift gears. It’s also important to know when to just stay away altogether. This isn’t something you’re going to hear from the so-called experts who sell securities and gold because they are merely in the business of sales.

The reason I have spent time discussing this is because I want you to understand that the same tactics have been used by many of the same people to spread ridiculous myths of hyperinflation, all for the purpose of selling you gold.

As I have discussed on numerous occasions beginning with America’s Financial Apocalypse, gold isn’t a hedge against inflation. My 3-part series “Fool’s Gold”pretty much drove that point into the ground. 

Second, I discussed the fact that hyperinflation is a virtual impossibility in the U.S. for a variety of reasons. I explained many of these points in my article entitled “Don’t Bet on Hyperinflation.”

Now I’m going to go over some additional reasons why hyperinflation will not occur in the U.S.

Many feel hyperinflation is a certainty due to the printing frenzy by the Fed. Upon first glance, this seems plausible. However, once you use stop and think for a moment, you’ll realize it’s a ridiculous assertion.

Why? First of all, the banks have held most of this newly printed currency so it hasn’t reached consumers. It’s a well-established fact that bank lending during this economic collapse has been much lower than in previous recessions, dating back to the Great Depression.

Since consumers account for about 70% of the U.S. economy, how can the U.S. experience hyperinflation if consumers aren’t receiving the dollars printed by the Fed?

The banks are using this cash to make risk-free profits via buying U.S. Treasuries. Of course, investors don’t hear this from the financial media, but I can assure you this is what is happening. It should be obvious.

Interest rates ~0% for two years or longer won’t in itself create massive inflation. Ultimately, the money has to be made available to consumers. This is basic economics, but for some reason I’ve never heard this point mentioned anywhere. 

Despite what you may have heard, the fact is that oil rather than gold, is the best hedge against inflation, specifically oil securities that pay good dividends. Dividends are the most important thing to own during bear markets. And oil is the best asset to own during inflation. That’s why I like oil securities that pay nice dividends like oil trusts.


Commodities generally provide a good hedge against inflation. But oil is much better because it's more than a commodity. It’s got the dollar-oil link going for it that’s so critical to the U.S. economy. This vital economic link enables the U.S. to export inflation throughout the globe (see here for a discussion on the dollar-oil link).

But let’s assume a magical fantasy occurred; the U.S. experienced hyperinflation. Oil would eventually soar to millions or even billions of dollars per barrel.

So if anything, investors should want to own oil because it’s directly linked to the dollar. The next best things to have if hyperinflation were to occur in the U.S. would be food, water, guns and bullets, but not gold.

Furthermore, you need to ask yourself the following question. If gold is such a great investment, why is everyone trying to sell it to you?

If in fact gold is such a great investment, why are gold companies forking out millions of dollars to TV and radio hosts to endorse it?

Wouldn’t gold dealers want to hold onto it for themselves if it’s headed to $5000?

If it's still such a great investment, after having already quadrupled in price in the past ten years; if all these guys out there love it so much why are they so desperate to sell it to you?

Why don't they just hold on to it? 

You certainly don’t see great companies like Microsoft spending millions of dollars for advertisements trying to convince you to buy the stock, but we are now seeing a huge ad campaign by General Electric. Think about it. If you know about the problems GE is having, it should be clear what’s going on. The same can said of gold.

The reason is quite simple. Gold dealers know gold prices are driven by supply and demand. Unlike securities and most other investments, supply and demand for gold is only based on hype; fear, panic and greed, along with market manipulation of course.

In contrast, supply and demand for securities is based on valuation, which is assessed by comparing business risk versus cash dividends, cash flows and earnings growth.

What this means is that gold has no inherent value whatsoever. It doesn’t generate a cash flow based on fundamental economics so it doesn’t generate earnings. There’s no way you can produce an income from gold other than if you are a gold dealer and you sell it to people, unlike silver, which has inherent value. Silver is used extensively throughout industry, so it's an income-producing asset. Gold is not. Gold is kind of like artwork.

One big difference between gold and artwork is that gold is pretty much the same wherever you buy it; it’s considered a commodity. And it trades on global markets. Therefore, unlike artwork, which can command a certain price from one prospective buyer and a different price from another, gold is invariable and trades on a huge market made up of buyers and sellers.

And because gold is the same wherever you buy it, the price reflects what the world wants to pay for it. Because the gold market is global, it’s bought and sold with more efficient or uniform pricing than artwork.

On the other hand, you can get a kid to paint a picture and claim it was painted by an eccentric artist who died last year, take it to an auction in NYC, and it might sell for $100,000.

That same painting, if auctioned off in Europe or China might sell for $500, or maybe even $50,000; no one really knows what it might sell for. It depends a lot on how it’s marketed. It’s also based on individual taste.

Gold pricing is similar in some respects, unless of course people detect fake gold, which I can assure you is all over the globe. Excluding this scenario, because gold is the same wherever you buy it, and because it’s traded on large organized markets around the globe, the price is fixed at any point in time. This is the main difference I see between artwork and gold. Neither has inherent value. They only have perceived value based on supply and demand, but not need or utility.

A great deal of this demand for gold has arisen from many myths propagated by gold dealers, gold bugs and talk show hosts. This is all marketing, similar to the marketing used to sell artwork.

What about the fact that gold has risen nicely for nearly a decade?

Of course it has; it’s been in a bull market just as it remained largely flat for the previous twenty years when it was in a bear market. The price appreciation in gold has had nothing to do with inflation. It’s been rising due to speculation and manipulation of the masses.

Investors have confused the current gold bull market with it being a hedge against inflation. They need to understand the difference. But the gold bull market isn’t going to last forever. And when it cycles back into a bear market, it will remain there for many, many years. So those who hold gold need to have an exit strategy in advance. Otherwise, they will be like investors who bought gold in the late 70s and early 80s at close to $800/ounce, and are still waiting to break even from its inflation-adjusted price of about $2200.

As evidence that I’m not some gold basher, in America’s Financial Apocalypse, I actually predicted gold to reach $1,400 by 2012/14; that was when it was about $600 four years ago. And I said it could reach the $2,000, maybe even $2200 a few years thereafter. But that doesn’t mean it's time to buy now. I made those forecasts when gold was around $600. Since then, the price of gold has doubled. 

Remember, the higher the price of an asset rises, the higher the risk becomes; mainly liquidity risk. This is especially the case with gold for two reasons. First, gold’s bull/bear market cycle is very long, as mentioned. So if you get stuck in gold when it falls from a bull to bear market, you’ll have to wait a long time in order to break even.

Second, as I stated previously, gold has no inherent value. For instance, if you buy shares of Microsoft at $50 and it collapses to $20, you’d still own shares of Microsoft. You would see a loss on paper but it's an income-producing asset, so it has an inherent value. It’s a real business that generates cash flows and earnings. It even provides a nice cash dividend to common shares.

That dividend actually serves as a partial hedge against inflation because you receive quarterly dividends. If you have to wait ten years for shares to rise back to your original $50 cost, you’ll be receiving cash dividends throughout that period, which will lower your cost basis.

Gold is a much different story. If you buy gold at $1,300 and it comes back down to $300, what do you have? Not much. You have to wait many years, maybe decades before you break even. And while you’re waiting, you get no dividends.

That said, gold will still probably continue to go up over the next couple of years, but at some point I can tell you it will deflate back down to $300 or $400. And it's going to stay there for a very long time.

I spotted the gold bull market in late 2001, and I invested in gold at that time. I was bullish on gold for many years, but it’s become a very risky asset for entry at these levels. I sold all of my gold between 2008 and 2009 and haven’t looked back.

Now that doesn’t mean I won’t reenter, but right now I have no interest because I understand two things: gold has no inherent value, and the large appreciation has increased the risk.

So, I want to caution investors who might want to buy gold because Glenn Beck or others with similar credibility and clear financial agendas, like the gold bugs say it will protect you against “hyperinflation,” or the “collapse of the dollar.”

As I have been saying since the release of America's Financial Apocalypse, if you buy gold, you should use it more for short-term trading. Trade the volatility, take advantage of that volatility, or use it as a hedge against market declines, but don't just stockpile it without any exit strategy like so many are doing.

So then, if the U.S. is not going to encounter hyperinflation, will it be deflation? Will it be heightened inflation? Will it be both? 

More important, how can investors protect their portfolio and exploit the devastating economics of America’s second Great Depression?

Next time I’m going to address these questions.

The full version of this article can be found here.

Those who read America's Financial Apocalypse(2006) and Cashing in on the Real Estate Bubble(2007) were not only alerted to the catastrophe we see today, but were provided with SPECIFIC ways to profit that have yielded over 100% gains since then. 

If you want access to institutional-level research, analysis and investment guidance, subscribe to the AVA Investment Analytics newsletter today.


By Mike Stathis

Copyright © 2010. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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Shelby Moore
22 Sep 10, 10:43
gold dealers

Stathis wrote:

"Wouldn’t gold dealers want to hold onto it for themselves if it’s headed to $5000?"

Most gold dealers buy more gold and sell it gain, over and over again, thus profiting on the buy/ask spread, keeping their capital account in gold and increasing their gold holdings by up to 50% per year.

I agree with you that hyper-inflation is unlikely.

Note, I do think gold and silver will soon be getting into nosebleed territory and be ready for a pullback, but it is possible to reach higher before that dip comes. I had predicted a +25% move up from the $1200 and $19 levels, before next dip.

22 Sep 10, 12:01

Well, you are half correct. Gold will appreciate for several more years. But it will not collapse back to $300. Within several years, gold will be part [not the only part]of a backing for a new currency. Then gold will trade within small ranges. Those 1971 dollars are doing everyone a lot of good now, aren't they? Buy more gold and silver now and be assured that net worth will be protected. kher,cfa

22 Sep 10, 13:21
Gold and real interest rates

NO mention of REAL INTEREST RATES MIKE? Gold will remain in a bull market so long as real interest rates stay negative and threaten to do so.

It's a hedge against a currency crisis as well....which does not have to come as a result of inflation. gold (more likely then any other asset)is positoned strongly...

How long has the bull in treasury's been going ?

Doesn't take much of an allocation shift from treasury's or equity's (multi trillon dollar market) into ramp gold price up....but hey who cares about that lol

You see Central banks raising interest rates anytime soon....nah me neither....not in a leveraged financial system they will monetize to the moon or use their primary dealers to do it for them

John Smyth
22 Sep 10, 18:40

The one "dirty little secret" that you leave out about gold is that it is critical in the building of a fissionable nuke.

It keeps the "pit" of plutonium from oxidizing.

03 Jul 11, 00:15
dollar down

The money does not need to go to the consumers in order for the dollar to go down in value... the money goes into the system one way or the other. When the fed does QE, the money goes to the banks and into assets therefore causing inflation and the value of the dollar to go down. If the fed announced $500 trillion of QE, your telling me that the market would not sell off the dollar? Come on. You're kidding yourself if you think the $56 trillion in debts in our economy can be paid back in today's dollars. The fed will do QE3, China will lose faith in the US to pay back its debts and sell dollars... causing the dollar to fall significantly. People in this country will then want to spend their money faster before prices increase more... causing the velocity of the money supply to go up significantly. M x V... and the fed/govt have no control on the V part of that equation. Hyperinflation, I fear, is more likely than you all think.

-Economics/Finance grad

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