Hussman Funds - Weekly Market Comment: The Outlook for Inflation and the Likelihood of $60 Oil - July 7, 2008

I cannot really see much of any flaw with the reasoning of the article. Feedback is welcomed.

CT

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Hermonta Godwin
Christ The King PCA
Raleigh, NC

I hope he's right.

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Jim
1689 LBCF
Independent Bible Church
North Texas, USA

Big Amen to that.

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Tom Mitchell
Opp, AL
Member of First Presbyterian Church PCA Florala, AL

Open profaneness is the broad dirty way which leads to hell
--but trusting in religious duties is a sure way, though a cleaner way to hell. ~ Thomas Brooks
www.myspace.com/tom_mitchell1960
http://www.facebook.com/profile.php?id=607055102

There's a lot to digest there. One thing that intrigues me is the fact that the booming economies of the developing countries are experiencing actual inflation much higher than we are. So far their boom has maintained higher oil demand even as ours has dropped slightly.

If we were the only major consumer of oil, our drop in demand would have a very immediate impact on the price of oil. But China, India, etc., are soaking up the extra, so to speak.

On the other hand, if the developing countries suffer a crack-up boom of sorts, it will result in recession for them and corresponding decrease in demand. Or, alternatively, if they decide to counter inflation internally, they will end up dropping subsidies on oil consumption and in the end will reduce consumption as well.

One other thing that baffles me is that the Fed seems to be holding firm on actual money supply but wanting traders to think it is eager to inflate. I think it realizes that much of the storm is way out of its control. The main unspoken problem is that the US government has spent a lot more money in recent years than ever before, and that money has largely ended up in other countries' treasuries. Standard Keynesian dynamics don't apply. In any event, my superficial take on the price of oil is that it is relatively less a matter of supply and demand and more a confusion about what the true money supply is. When only a Ph.D. in applied mathematics can understand modern valuation algorithms, and, therefore, markets can't come to grips with the value of assets (as in derivitaves, etc.), it's bound to cause the kind of confusion that allows for a quick run up in commodities. I suppose as things sort themselves out and confusion decreases, the prices will come down just as dramaticly.

So it's a battle between inflationary pressures and deflationary pressures, and how people perceive and respond. But it's a high-stakes one. I know I'd be nervous holding onto contracts that require me to buy oil a year out at today's prices. But then again, I'm nervous about treasury bonds that pay less than apparent inflation. What an amazing spectical!

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R.Vic Bottomly
Providence Reformed Baptist Church, Tacoma, WA

Click to get: Board Rules -- Signature Requirements -- Suggestions?

I think that Oil will come to be denominated in € or some new synthetic currency, therefore the oil price will stabilise at a lower level for the rest of the world as the $ continues to spiral out of control in the medium term, as a result the $ cost will remain high.

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Mike
London City Presbyterian Church
London
England

"Surely, we wish to be orthodox, but we must first learn what real orthodoxy is. Surely, we wish to be progressive, but we must first have a basis to progress from."

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Dan Pemberton
Vacaville, CA

Member, First Baptist Church San Luis Obispo
Formerly ABUSA (We left, so I guess that makes us American Baptists Unleashed!)

To add to the speculation, I bet this doesn't come close to happening. Too wild of a flux. For what it's worth, I expect gas to level off at $7/ gallon in 2 years and be up to $8 in 3 years with a 5%-10% increase yearly thereafter (which is a fine return on investments for any investment)

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Bryan Wiley
Southern Baptist Theological Seminary
Reformed Baptist Church
Louisville, Kentucky

The reason being that these other countries cannot really sell those $. The USA keeps issuing humungous amounts of bonds which is forcing the rest of the world to continually accrete its $.

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Mike
London City Presbyterian Church
London
England

"Surely, we wish to be orthodox, but we must first learn what real orthodoxy is. Surely, we wish to be progressive, but we must first have a basis to progress from."

This is not the first time that a drop in price as described in the article has been speculated. I'll believe it when I see it.

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~Jay~
Husband of ENS, father of J II. | Indian Trail, NC
Currently disabled due to health issues
Communicant Member, Precentor | Presbyterian Reformed Church of Charlotte, NC | Presbyterian Reformed Church

That and the fact that a good number of the members of the 2000-2004 White House Administration have backgrounds in very alternative forms of economic policies.

I know, .

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Dan Pemberton
Vacaville, CA

Member, First Baptist Church San Luis Obispo
Formerly ABUSA (We left, so I guess that makes us American Baptists Unleashed!)