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Sunday, November 2, 2008

Barry Ritholtz Podcast

There is a terrific interview with Barry Ritholtz of the Big Picture this week on the Financial Sense Newshour website. Barry is one of my favorite bloggers and is also someone who's opinion I have come to respect, because he has been dead on since I began reading him over two years ago. He is interviewed by one Eric King, who I don't know anything about. The interview becomes contentious at times because Mr. King is a hyper-inflationist and a gold pumper, and Barry says we are going to go through a phase of deflation due to deleveraging before the inflationary effects of the "helicopter drops" will become apparent. I'll let you listen and draw your own conclusions.

Looking at a weekly chart of the dollar (Mr. King argues about fundamentals, but readers of this blog know that the chart tells you what you need to know), it is quite obvious that the collapse in commodity prices is due to the rise in the dollar. Anecdotal stories about supply and demand don't change this. We are clearly in a deflationary cycle, and as Barry points out, there is know way to know how long it will last or how high it will go. Nobody knows how much more deleveraging needs to happen, and until it stops, the dollar is going to keep rising as credit is being destroyed faster than it is being created. It is also pretty apparent from the relative strength line on the bottonm that when the dollar shoots up rapidly, prices of everything declines, including equities.

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