Hi Andrew
Good post regarding real terms. I feel that the argument regarding longer term investing relates to opportunity cost and the "local" vs international opportunities. If I was a US investor with a sizeable bank balance, I would be concerned regarding the effect of the USD decline on the real terms of my investment opportunities. The USD Index has declined by a third since 2002 which would be worrying. I would be looking to diversify into some international exposure if I was in that situation (in fact one of the reasons that I ceased trading US equities was the effect of the USD decline on total profits when repatriated back to Australia and better opportunities elsewhere. Small investors without the ability to diversify into international and hard commodities exposure may find their real wealth declining quite considerably. Those with foreign earnings (non USD) can take advantage of the situation to buy local assets cheaper.
The strength of the BRIC countries and the gradual rise of their middle class over the next 30-40 years will probably support the continuation of the commodites supercycle over the longer term. I feel that this can only be good for the "commodity currencies" of Australia and Canada, and will probably support our economy for the longer term. The big caveat for myself is that there may be large geopolitical shocks present regarding energy and commodities.
MBL
I can see that you are a fan of Shilling and Prechter's work regarding the impending deflationary spiral for the US and world economies. It might be argued that when the US situation is examined in relative isolation, that they are correct and that in fact the deflationary process has begun via the declining USD purchasing power. Whether that takes into account the multifocal economic growth spots (mainly due to demographics of a young population and rising standards of living) of the BRIC countries (Brazil, Russia, India and China) is arguable. My thoughts are that they have a predominantly US centric view.
Appropriate investment is dependent upon a timeframe analysis and is age dependent. The needs and timeframe of someone in their twenties is very different to someone in their sixties. It is impossible to state that when deflation may occur and investors need to be watchful and aware. However to simply go to cash may be a real problem if hyperinflation does occur, (as it usually precedes deflationary spirals historically), as cash will be devalued quite quickly. Much faster than other hard assets (physical assets such as commodities, precious metals and land). I think it was Andrew that posted that the preferred medium of exchange in Zimbabwe (a country currently experiencing hyperinflation), at the moment is grain.
Its all food for thought and my thoughts are that ultimately a broad macro view is a risk management tool and protector of wealth not a creator of wealth per se. There are times when the macro climate will encourage the use of leverage and there are times when it would be more prudent to be risk averse. It ultimately depends upon individual circumstances.
As an aside MBL, I might suggest that if you want serious discussion that you adopt a less abrasive and blunt tone in your posts. The tone of forum posts can be easily misinterpreted and offense given when none was intended. Perhaps using terms such as I feel or I think rather than being dogmatic may improve your relationship with forum members
Cheers
Shane
Good post regarding real terms. I feel that the argument regarding longer term investing relates to opportunity cost and the "local" vs international opportunities. If I was a US investor with a sizeable bank balance, I would be concerned regarding the effect of the USD decline on the real terms of my investment opportunities. The USD Index has declined by a third since 2002 which would be worrying. I would be looking to diversify into some international exposure if I was in that situation (in fact one of the reasons that I ceased trading US equities was the effect of the USD decline on total profits when repatriated back to Australia and better opportunities elsewhere. Small investors without the ability to diversify into international and hard commodities exposure may find their real wealth declining quite considerably. Those with foreign earnings (non USD) can take advantage of the situation to buy local assets cheaper.
The strength of the BRIC countries and the gradual rise of their middle class over the next 30-40 years will probably support the continuation of the commodites supercycle over the longer term. I feel that this can only be good for the "commodity currencies" of Australia and Canada, and will probably support our economy for the longer term. The big caveat for myself is that there may be large geopolitical shocks present regarding energy and commodities.
MBL
I can see that you are a fan of Shilling and Prechter's work regarding the impending deflationary spiral for the US and world economies. It might be argued that when the US situation is examined in relative isolation, that they are correct and that in fact the deflationary process has begun via the declining USD purchasing power. Whether that takes into account the multifocal economic growth spots (mainly due to demographics of a young population and rising standards of living) of the BRIC countries (Brazil, Russia, India and China) is arguable. My thoughts are that they have a predominantly US centric view.
Appropriate investment is dependent upon a timeframe analysis and is age dependent. The needs and timeframe of someone in their twenties is very different to someone in their sixties. It is impossible to state that when deflation may occur and investors need to be watchful and aware. However to simply go to cash may be a real problem if hyperinflation does occur, (as it usually precedes deflationary spirals historically), as cash will be devalued quite quickly. Much faster than other hard assets (physical assets such as commodities, precious metals and land). I think it was Andrew that posted that the preferred medium of exchange in Zimbabwe (a country currently experiencing hyperinflation), at the moment is grain.
Its all food for thought and my thoughts are that ultimately a broad macro view is a risk management tool and protector of wealth not a creator of wealth per se. There are times when the macro climate will encourage the use of leverage and there are times when it would be more prudent to be risk averse. It ultimately depends upon individual circumstances.
As an aside MBL, I might suggest that if you want serious discussion that you adopt a less abrasive and blunt tone in your posts. The tone of forum posts can be easily misinterpreted and offense given when none was intended. Perhaps using terms such as I feel or I think rather than being dogmatic may improve your relationship with forum members
Cheers
Shane
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