" .... A few weeks ago I discussed speculation and investment. The good speculator buys low and sells high (not necessarily in that order). He has a basic understanding of economic value, and he knows when goods are over valued and when they are under valued. Here is a situation tailor-made for the rational speculator.
The rational speculator must always consider two aspects of the situation. 1) Are goods undervalued or overvalued? What is the fundamental situation? 2) And then given the fundamentals, what are the other speculators thinking? Have they correctly anticipated the bullish (or bearish) situation and discounted it in the price? If this is so, we have been preempted, and there is no opportunity for profit.
But what we have now is the perfect case for the rational speculator. The Fed is tripling the money supply. That means that prices are going up, not by 10% or 20% but by 200%. (When the CPI broke the 10% per year barrier 30 years ago, it created a hysteria in the country. The media screamed "double digit inflation." The price of gold was rising $50 per day. What do you think will happen when the media are screaming "triple digit inflation?") This allows plenty of room for profit. Now has this 200% price advance been discounted by other speculators? Just the opposite has happened. The vast majority of the speculators in the markets are shorting to beat the band. They believe the "deflationists" and they expect lower prices.
To use an analogy, goods are like a stone in a child's sling-shot. The child is riding in a convertible which is traveling up a hill at 200 mph. Then the child pulls back on the sling. What is going to happen to that stone? It is going to shoot ahead even faster than 200 mph. In this analogy, the speed of the convertible represents the long term rise in prices dating back to 2001; the pull-back of the sling represents the short term decline in prices from March to December 2008. Do you see what is going to happen? ...... "
From the article "Explosion" by Howard S. Katz (March 23, 2009) which is worth reading in full at http://www.gold-eagle.com/editorials_08/katz032309.html
