Street goes mad

January 17, 2008

Let me see if I understand, people are depressed about a coming economic recession so they panic sell everything in exchange for… cash? That may be a natural instinctive response but it makes no sense in an inflationary cycle, especially when a stimulus package is on the way from Congress and the Fed has promised deep rate cuts. Why the hell would you hold US dollars when inflation is higher than it’s been in decades?

I’m not arguing in favor of buying the entire economy, but certainly commodities and precious metals should not be sold at the same rate as home builders and financial companies. China will eventually raise the value of its currency and there will continue to be strong demand for oil and food. Forget what the idiots on Wall Street are saying, they are just trying to stop their firms from hemorrhaging money in favor of better investments overseas.

If the home mortgage fiasco doesn’t bankrupt you conventional wisdom on the street will. The irrationality of the market is how your opportunities for profit are made. All investments are not created equal, the last thing you want to do when inflation is increasing is hold cash or low yielding bonds.

There are too many people who are simply not accustomed to movements on the down side. It’s a bear market, it happens, get over it. It’s not the end of the world.