For the most part, I've gone along with the supposition that we'd recover from deflation with the immense spending programs getting underway. That the main risk in the long term was the (hyper?)inflation that would result.
Seems to me that with a negative yield earlier this week on the 3-month T-Bills we have confirmed deflation is alive and well. However, just this week gold has jumped from $755 oz to $808 oz. That signals inflation is present. So which is it? And if it's the latter will it be so bad as to warrant physical possession of gold -- meaning a surrogate currency because the Greenback is heating fuel -- or will gold stocks and gold futures suffice as a hedge against inflation meaning the Greenback will survive?
Some (read goldbugs) are suggesting that gold will supplant the greenback in oil trading and for the US govt to make that illegal to whatever extent they can.
The issue of is it deflation or inflation? It's both; printing money offsets the deflation that is currently taking place, so we have a balancing act going on; too much new cash injected into the economy and we have too much inflation and too little brings deflation.
I think it's a see saw battle and I also think that we are in unprecedented times that are extremely difficult to forecast as evidenced by some of the brightest minds on the Street being completely taken by surprise in this credit squeeze. Historically speaking, this is sort of a first.
I think I will buy the ultra shorts, especially SKF on the pull back. Investors are expecting a Santa/Claus rally, and i think they'll get it. The CBOE options equity put/call ratio appears to be rolling over which has signaled market rebounds from oversold conditions in the past. At the height of this anticipated rally I'm going to load the boat with SKF, probably QID as well. I won't be going long on anything.