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<p>[QUOTE=&quot;JCB1983, post: 1323920, member: 23885&quot;]I am clearly over my head in a discussion with this guy.&nbsp; I was trying to point out my reasoning behind my bullish beliefs in Physical PM&#039;s.&nbsp; This was his response.</p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p>***So you are convinced that your inflation expectations are more accurate than the expectations of the market? </p><p><br /></p><p>First off, there are a variety of direct bets on inflation that are traded in the OTC market. The simplest is just an inflation swap where you swap some interest rate for actual inflation. If you have enough credit these are zero-cost derivatives so your potential upside is unlimited. You could make a billion dollars with no initial investment. Too bad your credit isn&#039;t good enough. Then there are real rate swaps (similar) and asset swaps based on TIPS bonds and other global inflation-linked bonds. You probably can&#039;t trade any of those either.</p><p><br /></p><p>Then there is the question of numeraire. You believe the dollar is going to collapse against what? (note that the direct inflation bets are bets with baskets of goods or GDP deflator as numeraire). So far you have the dollar collapsing against precious metals. Your buying physical metals is a very feeble way to play the collapse of the dollar against physical metals as you can get vastly more leverage in very liquid derivatives (if you want to make a billion $, you need leverage).</p><p><br /></p><p>For differeent numeraires:</p><p><br /></p><p>Gold: </p><p>Buy call options on gold futures. For instance, I can buy a call option on 2500 December 2012 gold futures for $4000. Say that the dollar collapses and gold goes to $5000/oz. I will have turned my $4000 investment into (5000 - 1650) * 100 = $335000. Your puny plan of buying physical gold turns $4000 into $12000 so my plan is better than your plan by a factor of 30 if the dollar is going to collapse.</p><p><br /></p><p>Bonds:</p><p>Inflation expectations are built into bond prices. Ten year treasuries are currently trading at 2% yields. This is completely contrary to expectations of hyperinflation destroying the dollar. If you believe that inflation will be (say) 40% then expect that Treasuries will sell to yield at least 30%. Then a current treasury selling at 100 should drop in price in a year from 100 to about 14. </p><p><br /></p><p>They don&#039;t sell put options that low but I can buy an 80 put for about $1000 on the contract a year out. If inflation really did pick up to that level, my 80 put would be worth (80 - 14)*$100000 = $6.6M so now my inflation bet of $1000 turns into $6.6M which is way better than the gold call. You want ultra-short the dollar, OTM put options on bond futures contracts is seriously ultra-short. Call up Interactive Brokers. Send them some money and they will fix you right up with some of these.</p><p><br /></p><p>Foreign Currency:</p><p>It depends on the foreign currency and generally the typical YA poster who believes in USD collapse also believe in the collapse of all other fiat currencies, which is to say all other currencies. Again, the best way to play this (for joe retail investor) is call options on futures contracts. I&#039;ll let you figure that one on your own. </p><p><br /></p><p>Now, for some advice here...</p><p><br /></p><p>You don&#039;t know anything about economics or global macro trading so going all-in on an extreme global macro bet is just not a good idea. Think you are George Soros? The current global macro scenario is just not what you think it is. The current world problem is Europe. The situation over there is largely controlled by the Germans. The Germans have this collective phobia of inflation because of their inherited memory of Weimar. They won&#039;t let inflation happen even if it means destroying Europe&#039;s economy. They are so far out in left field on this it makes me ill. Meanwhile, the US Fed is sitting on an enormous pile of assets. The Fed balance sheet is like $3T or something (too lazy to go look). It&#039;s enormous. Hyperinflation doesn&#039;t happen in places where the central bank is sitting on a huge pile of assets to fight inflation (if you don&#039;t know why or understand that, you have no business making inflation macro plays). The Fed can suck down the money supply in a very short amount of time should inflation become a problem. </p><p><br /></p><p>Really nobody smart or educated is worried much about extreme inflation. Deflation is a serious worry particularly now that govts are way over-borrowed so fiscal stimulsus is impossible. The Europeans are even trying to lock the door on fiscal stimulus if it means deficits. Monetary stimulus is about at the end of its resources.[/QUOTE]</p><p><br /></p>

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