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Friday, August 20, 2010

How Long Will Deflation Last and Then What?

Question:

Real quick, the last time we spoke you mentioned to put our money in cash because of deflation and the banking collapse, but if we hit inflation in a few years would we need to then move it out of cash. I thought I remember us talking about inflation taking place closer the six year mark.

Let me know what you think.


Answer:

When it comes to predicting when scoundrels will be outed and then pull out all the stops to screw everyone regardless of whether it's obvious or not, it becomes a very difficult prediction indeed. There is no substitute for watching and being vigilant. Having said that, my guess would be 2-3 years but perhaps as long as six. The markets should hit bottom in about six years.

In answer to your question, yes at some point it will be appropriate to move out of cash. A likely sign will be that everyone will think you're crazy for doing so because everyone will be in agreement that deflation is the future and that there is no way inflation could re-emerge. Just the opposite of what it is now. Right now everyone knows that inflation is the future and thinks its crazy to be in cash. The only thing consistent about everyone following the crowd is that they always end up being wrong when it comes to investing.



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