I quite often receive many emails and comments from readers all over the world that are something to this effect:
"You are (insert preferred insult) for thinking that there could be anything but hyperinflation after the Federal Reserve increased the monetary base by 100%. You are an even bigger (insert preferred insult) for thinking that gold or silver could dare to go down, because of (insert random exogenous occurrence that said person is attempting to apply to an already existing price movement) - you are crazy!"
Many emails as such. Others simply suggest to me a creative means of dying or killing myself, others seem to have the "Oxford Dictionary of The Nastiest Names to Call People Who Dare to Question Your Choices, Even Unknowingly" sitting right at hand.
Of course I get the odd "nice" communication whereby someone will simply state - hey, I think you're wrong and here's why. I appreciate those - I generally will reply to those.
Anyway, I have been picking my brain to answer a question for myself. Even though I do provide evidence that - to my own financial decisions - is very compelling, why would someone vent off in a violent rage and resort to name calling or sending some piece of data which I have just refuted not 2 weeks ago (but it MUST be right because they send it in all caps!) to try to cancel out the existence of my argument?
I think I've got it figured out. Sort of.
One of the largest areas of study I focus on is investor psychology, and more specifically, investor mood. heightened/overextended levels of optimism tell me to watch out if I would think of trading to the upside, and extreme levels of pessimism tell me to look for a good long entry.
I think investor psychology has a lot to do with the type of email which I receive, and is a reflection of overall investor mood. Think of it like this:
Generally people come to a conclusion about something very early on, and even just having such a conclusion mentally can be extremely hard to change. However, if you add in the emotional element of money plus the innate anxiety created by lack of information in finance markets (which causes herding), and you have your answer.
The majority of people who are making such comments are those who long ago decided to commit to the long side of gold or silver - and most likely made their major entry somewhere mature in the uptrend and are hoping/relying on someone to come along after them who will be willing to pay a higher price. Not nearly as overextended as real estate in 2006 or dot-com stocks in 1999, but the concept is similar (and please, future over-reactors, don't attempt to argue this by saying "This is nothing like those times" - No, it isn't to the same level, but the same elements of investor psychology are there).
As such, I believe that most investors are stuck in this sort of pattern: Getting some information, drawing a conclusion on that information, making a decision (i.e. buying or selling), going to as many places as possible to validate that decision.
The majority of investors out there who read Kitco and various other online publications are not looking for a new idea - those type of people give their money to a fund manager and usually let them worry about "new ideas". These investors are going to these places to find validation for a decision that is already concretely established in their head, and they have generally already acted on it. I can literally feel their relief when they read yet-another-gold-bug's article on how gold will be $5,000.00 /oz by 2011. Even if the evidence is the exact same as the evidence of the person who yesterday said "gold will be $2000.00 / oz by 2011".
And so when some compelling evidence is presented that shows that said decisions might actually be wrong, or mis-timed, etc, the defense mechanism immediately kicks in and a reaction takes place. Generally the reaction correspondence will include at least one of the reasons that led them to the initial decisions (in their mind) to buy or sell - i.e. "the Fed is printing too much money", or "Gold doesn't go down during depressions", etc. That is why the reaction is very heated and defensive, even though it is not as though I have specifically directed my content towards them, only indirectly towards their idea.
In conclusion, I have come to realize that I rather enjoy receiving these emails as it simply re-affirms the overwhelming strength of the herd mentality that exists in the various markets which I study. As such, each correspondence of such a heated degree is simply another notch of emotional-extremism which tells me that my contrarian views are thus, still contrarian. Again, it is a small affirmation, but one that brings a smile to my face nonetheless.
And finally, I must address the title of this post, because it hasn't really been much of a nightmare for inflationists so far.
I read a very interesting article this morning about Obama proposing a new and higher tax on financial institutions. It goes by the name of "The Financial Crisis Responsibility Fee". The short of it is, any financial institution with over $50 Billion in assets (including insurance companies, not just banks) would have to pay this additional fee. Even if they didn't receive TARP directly.
This is highly deflationary, just as all government interventions in banking policy eventually become. If you add this on top of heightened FDIC fees, another new proposal linking risk (i.e. too much credit versus assets) to bank executive pay, and government forcing banks to reduce banking fees, the end result will be this: With or without the Federal Reserve's direction or force, interest rates on loans will go up to make up for lost revenue from these government programs. As a result, defaults will increase, total new loans will dramatically drop, and the deflation of total money will accelerate.
Come to think of it, we are already seeing some of that now.....
This will, as I have said many times previous, bolster the current USD rally which should take it over 90 on the index before a major corrective period. If you haven't, we suggest selling all risk assets (US stocks, corporate bonds, etc) and moving them into cash for the mid-term as the largest credit contraction in human history begins its long journey. I'm not selling my PM's, which I stopped accumulating over a year ago, but I'm sure as hell not buying right now... When I am, you'll be the first to know (besides my metal broker!)