Excerpt from Colin Twiggs Trading Diary. Good read + charts, its free.
We remain in the high-risk period following the end of the third quarter. The Dow is also testing its key resistance level of 10000, while the FTSE 100 and ASX 200 are testing their key level of 5000. Upward breakout would confirm a bull market, while respect of these levels would warn of a secondary correction.
12 of the largest episodes of hyper-inflation in the last 20 years were caused by financing huge public budget deficits through money creation and he concludes that the tipping point for hyper-inflation occurs when government deficits exceed 40% of expenditures.
US budget deficits of 40 per cent or more are projected for 2009 and 2010, a clear warning despite the current credit contraction. If hyper-inflation occurs, traders would want to be short on bonds and long on real assets such as stocks, precious metals and real estate. The recent surge in gold indicates that inflationary fears are growing.
