And while there is a great deal of debate regarding the root causes of hyperinflation, most Economists believe that it is caused by a massive and rapid increase in the supply of money, which is not supported by growth in the output of goods and services. This results is an imbalance between the supply and demand for the money (including currency and bank deposits), accompanied by a complete loss of confidence in the money, similar to a bank run.

With the recent announcement by the Federal Reserve that they plan to pump an additional $1 trillion into the U.S. economy in the near future, it’s no wonder that hyperinflation seems to be on the minds of many traders these days. One such trader, Zachary Oxman of TrendMax Futures believes “We are facing what I think is one of the most aggressive inflationary periods in our country’s history. The minute these commodity markets sniff inflation, things are going to go through the roof and the dollar is going to get whacked.”

So could the recent run-ups in gold, oil, copper and many agricultural names be suggesting that hyperinflation (or at least very high inflation) is just around the corner? well….the financial markets certainly seem to be acting that way.

And as the media continues to focus on sinking home prices and higher unemployment, we think members should look past the commentary heard on the business channels and focus on what the financial markets are forecasting.

In the U.S, the hyperinflationary trigger will not likely come from within the nation. It will most likely come from outside. Eventually, China, Japan, and/or some other nation, will see the endlessly increasing American deficit spending as a threat to the viability of the U.S. dollar. In response, they will reduce their purchases of treasury bills or start selling them. This is likely to bring America to its knees. China has already recently been talking about the creation of a new reserve currency and moving away from the U.S. Dollar as the world’s reserve currency. China holds vast amounts of U.S. debt in the form of U.S. dollar denominated treasury bills and bonds. As the Chinese begin to diversify away from the U.S. dollar the dollar is likely to fall. The Chinese on’t want this to happen overnight as they know it will destabilize world markets which purchase their goods, but it is a good bet they will start reversing their U.S. debt holdings no matter what we do. It is not a matter of “if”, but, rather, of when.

If and when inflation begins to appear on the scene the U.S. Federal Reserve is likely to move aggressively to squash rising inflation by raising interest rates swiftly. This could cause the current recession recovery to come to a screeching halt and even cause a second and possibly worse recession. Time will ultimately tell if the Federal Reserve and World Banks can walk the tightrope of low interest rates and pumping tons of currency into markets to turn this global recession around and the long term effects that increasing debt, currency devaluation will have relative to inflation.

So where to put your money if inflation is coming?

To Gold or Not to Gold?

Gold is deemed to be one of the best places to put money in times of inflation as it is a real tangible asset but right now Gold is up considerably since the stock market’s big drop last fall. In late October gold was below $750 USD/Oz. and has risen to around $955 USD/Oz. today. Seasoned veterans of the gold wars know that the governments and central banks are arrayed against gold are not fair fighters and they will fight to keep gold values in check and currency values high so there may be a short term ceiling for gold in the $1000 USD/Oz. range. But, if hyperinflation happens gold may go much higher.

What about Oil?

Oil prices rose to six-month highs to nearly $63 ppbl Wednesday on optimism that the U.S. is emerging from a severe recession. We expect oil to continue higher as the global economic recovery continues. Also, there seems to be an inverse relationship with oil and the U.S. Dollar. In 2008 we saw a sliding and weak dollar through the first half of the year as oil prices rose precipitously and peaked at $147 ppbl in early July of 2008. As oil prices dropped the U.S. Dollar rose. If we believe that the U.S. Dollar should weaken over time as U.S. debt increases and the Federal Reserve keep printing money and pumping it into the economy, effectively devaluing the dollar, then oil prices should rise as the dollar eventually weakens. So oil should be a pretty good play right now if we believe that scenerio to be true.

Considering the markets generally move 6-9 months in advance of the economy, we think the following sectors and stocks should be considered NOW, BEFORE inflation begins to show up in the Consumer Price Index (CPI), Producer Price Index (PPI) and with the “talking-heads” on TV. If members wait until evidence of inflation begins to shows up in the data, we think the inflation expectations could already be largely reflected in the prices.

Oil & Energy Stocks

Gold & Mining Stocks