Inflation?

For all the money the Fed is supposedly pouring into the banking system to "prime the pump", we are acting suspiciously like we're in a deflationary period right now. Commodity prices look like they are finally starting to go up again, however. And although I hear conflicting statements about the velocity of money, at the rate the Fed is going I will agree we will see inflation before long.

What is that going to mean? With the unemployment rate dismal and projected to get worse, housing continuing to fall, and taxes going up (I speak here about the next year, not the next few weeks) I don't think inflation will be anything to write home about. Hyperinflation smiply would not happen.
However, if we do see a recovery at the end of this year, then all bets may be off. We will have expended too much in terms of getting the economy going again to risk cooling it down, and we may see saving accounts yielding 10% again, as they did in the early 80s. You wouldn't even WANT to know what foodstuffs and energy prices would be like. Is there a middle ground? I don;t see how we can have cake and eat it too... there are simply too many sins in our past that we need to expiate before our economy can be considered normal again.

I wish I had a better forecast ... depression or severe inflation. It is still worth hedging into oil or gold -- but not yet. Once gold goes down to $825 or lower, I would consider it - GLD is a decent ETF there. Oil ETFs like USL or UOY are probably a buy here, and very much so if oil goes below $42 a barrel again. We will see the usual spike in oil prices over the summer and that may be the last real trading opportunity we see in anything that is based on normal circumstances. I would stay away from bonds ... especially state or municipal bonds as I fear more cities will follow Vallejo into bankruptancy to get out of their pension obligations. Lastly, if mark-to-market is rescinded and banks go nuts, buy puts against the general banking industry ETFs once the frenzy reaches it's heights. There is still a LOT of crap that needs to be written off.

My one note of happiness today is that Dendreon is now less than one month from disclosing final results for Provenge from the IMPACT trial. They have said "by the end of April" and seem to be in over-delivery mode lately. Definitely a buy at $4.30ish.

Regards,
Trond