The Dollar's Spike 10-06-08 mpg Passport's Burbank warns of deflationary bust Special Note -- A quote...." Passport generated big returns last year betting against subprime mortgages. The fund has also been investing in energy and basic materials companies in a bet on global economic growth and rising demand from countries like India. Other hedge funds took similar positions based on this fundamental idea, betting against financials in the U.S. and against the U.S. dollar while going long energy and other commodities. -- bold/underline by webiste editor It appears that a very LARGE number of hedge funds figured Bernanke could pull a rabbit out of the hat and inflate his way out of the current crisis. However, it's beginning to look as if Bernanke couldn't inflate his way out of this total catastrophe even if he threw a trillion dollars a day at the deflationary wave that's currently towering over the US and world economy. As a result of this massive unwinding of over leveraged positions, ALL the commodities and financials are plunging in price while the dollar is getting a deflationary "flight to safety" boost forcing the hedge funds to cover their short positions thereby causing even more of a dollar surge. This state of affairs will not last for very long the way things are going (think Weimar Germany). And this is one of the surest signs that the chances for an actual depression have substantially increased, the fact that so many smart people were caught believing this would be just another re-play of the late sixties and early seventies stagflation. You can include this website editor in that prediction, but it has been pointed out repeatedly on this website that each ten year cycle has caused a substantial - per capita, inflation adjusted -- increase in the debt levels in the US which could result in a "sudden shift" or "adjustment" to the economy. This appears to be it, a massive, uncontrollable deflationary spiral. If Bernanke manages to pull the US economy out of its deflationary death spiral (a big if) you will see inflation in this country like you have NEVER EVER seen it before. Proving the hedge funds were right in their prognostications -- one or two years too early.....an unfortunate and extremely expensive matter of ill timing for them. - mpg |