Wednesday, April 22, 2009

Hoisington - Must Read

Hoisington Investment Management has there 1st quarter letter out. It is a must read surrounding the inflation deflation debate. They lean heavily in the deflation camp. Thanks goes to Pete.

Want to make a clarification. In my latest letter I said that I don't think the consensus of inflation in the short term is correct. I pointed to large deflationary forces and my belief that inflation is a 2011 story or beyond. This is not consensus thinking. I said that if it we get inflation in the short term (next two years) it will not be because of money supply increases but most likely because of a decay in trust in the currency itself. (similar to risk premium going up for stocks driving prices down).

So I have been asked, does this change my opinion in gold. The answer is no. I think gold wins in both scenarios because deflation will cause the system to weaken further, trust decline, and flight to safety in gold is likely to only increase. If we have inflation, gold also goes up. It is why the only commodity I like is gold and I hold it. I do believe the odds are decent that we could potentially fall below 800 if the equity markets catch between 740 and 805 like I think they will before turning lower later in the year. In the next 24 to 30 months I think gold has a high probability of seeing 2000 an ounce regardless of inflation or deflation.

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