BEST OF RICHARD RUSSELL

May 3, 2006

As I see it, this is fated to be a very long period of inflation -- it may last for years, even decades. After all, we had a twenty-year period from 1980 to 2000 when the markets were dealing with deflation or lets call it disinflation. During that twenty year period, bonds enjoyed a big bull market as interest rates declined, and declined again. During those twenty years gold was caught in the grip of what seemed like an endless bear market. Gold ended up either forgotten or despised.

Many students of the markets and cycles believe that the era of deflation or disinflation has ended -- it's over. The new era of inflation has arrived. It was ushered in during the 2000-2001 period when gold hit its bear market low at 250 -- and finally turned up.

What's behind the new inflation cycle? A number of items. The Chinese and Indians and Russians are coming -- or rather they've arrived. A third of the world's population has joined capitalism, and they need oil, cement, steel, lumber, copper, well, you name it and they need it. In fact, there's almost a worldwide panic now to tie up raw materials and sources of raw materials.

Secondly, this is the era of fiat paper money, money that can be churned out by the various cental banks -- money created at will. This junk paper will be needed, and needed badly. It will be needed to pay for raw materials, but most important -- it will be needed to carry the unbelievable mountains of debt, mountains that never stop rising. There's no way all this debt can ever be paid off or even carried by stable economic systems. Forget that. This debt must be carried, handled, by ever increasing amounts of paper. That alone is a basis for perma-inflation. Maybe we've got a new word here -- "permaflation."

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