Bitcoin's Bull Should Fear Its Other Scarcity Problem

As the value of this asset class rises, generating price spikes becomes increasingly difficult.

The Theory behind Bitcoins

The supply of Bitcoins was set from the start at 21 million.

That means, in the words of its pseudonymous founder Satoshi Nakamoto, it should ultimately be "completely inflation free" - making it a far better store of wealth than assets whose real value declines over time.

That's in theory, at least.

Digital currencies are still a tiny share of the world's investments

With the price of Bitcoin climbing as high as $34,792 Sunday (3.1.2021) and putting the value of all coins in circulation at around $647 billion, there is a different scarcity problem looming larger.

It is easier to think about this in terms of asset allocation.

World equity and bond markets  = $217 trillion

World equity markets = $103 trillion

World bond markets = $114 trillion

Bitcoins = 18.6 million coins = $647 billion.

Cryptocurrencies = $884 billion

Investment Gold = $3 trillion

If investors in aggregate decide to put just 0.1% of their stock and bond portfolios into Bitcoin right now, that represents an additional $200 billion or so, chasing the same pile of 18.6 million coins that have been mined to date - enough to push the price well over $40,000.

In that sense, the roller--coaster ride that Bitcoin has ridden in recent years looks almost sedate.

At current prices, all the digital Bitcoins in circulation are equivalent to about 0.6% of the $103 trillion market capitalization of the world's equity markets.

That is higher than the 0.4% allocation when the crypto price last peaked on Dec. 18, 2017 and much higher than levels shy of 0.1% that have prevailed at times since then - but it looks a whole lot less dramatic than the 79% run-up in coin prices from their last peak.

The success of cryptocurrencies tends to eat itself

The problem for digital bulls is that the success of cryptocurrencies tends to eat itself. 

As the value of the asset class rises, the shifts away from more conventional investments needed to provoke price spikes get larger and larger.

Bitcoin versus Gold

Bitcoin on its own is worth about 6 times the 56 million ounces of metal represented by all the contracts outstanding on the Comex 100-ounce gold contract.   

The world's biggest gold ETF, SPDR Gold Shares, holds about $72 billion of the yellow metal.  

Add in other forms of private investment gold and you've got about $2.87 trillion worth of metal -  but much of that is in the form of bars and coins that aren't easily liquidated when investors want to tweak their portfolios.

Turnover of digital coin derivatives 

Turnover of digital coin derivatives in the September quarter came to $2.7 trillion, according to Tokeninsight, a research company.  

That is not all that far behind the run rate of the world's biggest equity markets.    

The value of all shares traded in Japan in 2019 came to just $5.09 trillion, according to the World Federation of Exchanges, enough to make it the third-largest equity market on that basis.

Hedge Maze

Far from looking like a hedge against equity markets, the correlation between Bitcoin and the S&P is stronger than for many stock indexes.

Why would you choose to allocate a slice of your stock and bond holdings into a digital currency, instead of more conventional assets?

Once momentum stops driving the price higher, as it inevitably will, the best argument is still the hope that it might balance out the swings in your broader portfolio.  The prospect of Bitcoin becoming that sort of negative beta asset is the most promising way for it to become something more useful than a dice game for investors.

Unfortunately there is still little sign of that happening.  These days it looks not so much like a hedge against the gyrations of the equity market as a leveraged bet on the same movements.

• The correlation between Bitcoin and the S&P 500 index was 0.767 over the past year - somewhat closer than the link between the S&P and the FTSE 100 index, and substantially tighter than that between U.S. and Hong Kong stocks.  
• Gold's correlation with the S&P 500 was a far lower 0.299, while the Bloomberg Barclays U.S. Treasury index of total sovereign bond returns posted a prized negative beta of minus 0.036.

Crypto will only grow up if and when it finds a different driving force to the animal spirits that govern equity markets.  If it really wants to be an alternative asset to stocks and bonds, it needs to start behaving  like one.

https://www.bloomberg.com/opinion/articles/2021-01-04/bitcoin-price-surge-creates-a-different-scarcity-problem

January 4, 2021 by David Fickling

Bitcoin Price Surge Creates a Different Scarcity Problem - Bloomberg

Bitcoin’s Bulls Should Fear Its Other Scarcity Problem

As the value of this asset class rises, generating price spikes becomes increasingly difficult.

Inflation versus Deflation

Inflation and hyperinflation

By the time the popular Venezuelan government called for next economic measures to end rampant hyperinflation at the end of 2018, the local currency had become virtually worthless.

After 80,000% inflation over the previous year, it took more than 6 million bolivars to buy a loaf of bread - that is, if you could find a store that had a loaf of bread in stock.

After more than a decade of economic mismanagement, the financial meltdown has become so bad that by the late 2010s, clean water distribution had slowed to a trickle, and gravely sick citizens were dying in make-shift hospitals, unable to get the treatments that were keeping people alive in almost every other country in the world.

It is nearly impossible to index prices and salaries in the chaotic world of hyperinflation, and consequently, no one is left untouched by uncontrolled inflation. 

• From the top 1% to the poorest of the poor, an economy in crisis eventually hurts virtually everyone.  
• But it's the most vulnerable who suffer the most.  When the cost of a loaf of bread exceeded the total monthly minimum salary in Venezuela, those at the bottom of the economic ladder had to face the worst aspect of economic hardship:  starvation.  Millions ended up fleeing across the border as economic refugees to Colombia and Brazil.

Hyperinflation has ravaged countries as diverse as Germany, Mexico and Argentina - even China during the Yuan dynasty, where too much paper money in circulation led to uncontrolled inflation.  In Germany's postwar Weimar Republic, in 1923, inflation became so bad that the government had to resort to issuing postage stamps worth fifty billion marks and people had to use wheel barrows to carry enough cash to make simple household purchases.

Deflation

The economic crisis in Japan at the beginning of the twenty-first century was marked by severe deflation, where a chronic decline in prices led to decades of sluggish economic growth.

When deflation was accompanied by a sharp decline in consumers - with the total population in Japan expected to decline precipitously by 2050 - the crisis in Japan appeared to be just as intractable as the inflationary crises in Venezuela and other parts of the world.  

• In a country with persistent deflation, consumers will simply stop buying goods and services as prices decline expecting to get a better price at some point in the near future.  
• Likewise, companies also tend to delay investments in new plants and machinery when they think prices for their products will soon decline.  
• In deflationary environments, companies try to find ways to reduce input costs, often leading to a reduction in salaries.  The lower salaries then translate into even lower consumer spending, completing the vicious circle of deflationary economic crisis.

The solution is to change long term expectations

The problem with too much deflation, just like to much inflation, is that growth screeches to a halt because of the economic uncertainty both problems create.

In periods of crisis, however, central banks are often unable to change the perception in the minds of consumers and business-people that there will be no end to the vicious cycle of inexorably rising or declining prices.  

The solution for deflation, as for hyperinflation, essentially involves finding a way to change long-term expectations - not an easy task in an economy out of control.

Neither too hot nor too cold

Like the Three Bears' porridge, an economy should be neither too hot nor too cold.  

Neither acute inflation nor acute deflation are positive for sustainable economic health.

Despite the desire of some populist leaders to have a high inflation rate of 3 or even 4%, most economists recommend a "just right" inflation rate of about 2% per year.

Fighting excessive deflation once interest rates have been reduced to zero

Fighting excessive deflation is in some ways more difficult than fighting hyperinflation.

During inflationary times, there is basically no limit to how much central banks can raise interest rates.

But in the battle against deflation, once interest rates have been reduced to zero, there is little that central banks can do to stimulate further growth.  

The two things that can be done once interest rates reach zero are:

• negative interest rates or 
• quantitative easing.

Disinflation

By WILL KENTON
Updated Sep 12, 2019


What is Disinflation?

Disinflation is a temporary slowing of the pace of price inflation.

It is used to describe instances when the inflation rate has reduced marginally over the short term.

It should not be confused with deflation, which can be harmful to the economy.


KEY TAKEAWAYS

Disinflation is a temporary slowing of the pace of price inflation.

Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.

A healthy amount of disinflation is necessary, since it represents economic contraction and prevents the economy from overheating.


Understanding Disinflation

Disinflation is commonly used by the Federal Reserve to describe a period of slowing inflation. 

Unlike inflation and deflation, which refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.

Although sometimes confused with deflation, disinflation is not considered problematic because 

• prices do not actually drop, and 
• disinflation does not usually signal the onset of a slowing economy. 

Deflation is represented as a negative growth rate, such as -1%, while disinflation is shown as a change in the inflation rate from 3% one year to 2% the next.

Disinflation is considered the opposite of reflation, which occurs when a government stimulates an economy by increasing money supply.

A healthy amount of disinflation is necessary, since it

• represents economic contraction and 
• prevents the economy from overheating. 

As such, instances of disinflation are not uncommon and are viewed as normal during healthy economic times.

Disinflation benefits certain segments of a population, such as people who are inclined to save their earnings.


Causes of Disinflation

Several main reasons can cause an economy to experience disinflation.

• If a central bank decides to impose a tighter monetary policy and the government starts to sell off some of its securities, it could reduce the supply of money in the economy, causing a disinflationary effect. 
• Similarly, a contraction in the business cycle or a recession can also cause disinflation. For example, businesses may choose not to increase prices to gain greater market share, leading to disinflation.

Disinflation Since 1980

The U.S. economy experienced one of its longest periods of disinflation from 1980 through 2015.

During the 1970s, the rapid rise of inflation came to be known as the Great Inflation, with prices increasing more than 110% during the decade. The annual rate of inflation topped out at 14.76% in early 1980. 

Following the implementation of aggressive monetary policies by the Federal Reserve to reduce inflation, 

• the increase in prices slowed in the 1980s, rising just 59% for the period. 
• In the decade of the 1990s, prices rose 32%, 
• followed by a 27% increase between 2000 and 2009, and 
• a 9% increase between 2010 and 2015.

Stock Performance During the Period of Disinflation from early 1980 to 2015

During this period of disinflation, stocks performed well, averaging 8.65% in real returns between 1982 and 2015.

Disinflation also allowed the Federal Reserve

• to lower interest rates in the 2000s, 
• which led to bonds generating above-average returns.

The Danger of Disinflation

The danger that disinflation presents is when the rate of inflation falls near to zero, as it did in 2015, raising the specter of deflation. 

Although the rate of inflation turned negative briefly in 2015, concerns over deflation were dismissed because it was largely attributed to falling energy prices. 



[Some economists view the near-zero rate of inflation in 2015 as a bottom, with the expectation, or hope, the rate of inflation will begin to rise again. As of Jan. 2018, the rate of inflation stands at 2.1%, with projections for an increase to 2.38% later in the year.]


https://www.investopedia.com/terms/d/disinflation.asp

Tug of war between Deflation and Inflation: the most Challenging Investment Climate today

A Central Banker’s Worst Nightmare


#Inflation and Deflation

From a mathematical perspective, inflation and deflation are two sides of the same coin.

• Inflation is a period of generally rising prices. 
• Deflation is a period of generally falling prices.

Both are deviations from true price stability, and both distort the decisions of consumers and investors.

• In inflation, consumers may accelerate purchases before the price goes up. 
• In deflation, consumers may delay purchases in the expectation that prices are going down and things will be cheaper if they wait.

To investors, inflation and deflation are bad in equal, if opposite, measure.

But, from a central banker’s perspective, inflation and deflation are not equally bad. 

• Inflation is something that central bankers consider to be a manageable problem and something that is occasionally desirable. 
• Deflation is something central bankers consider unmanageable and potentially devastating. 

#Central banks fear deflation more than inflation

Understanding why central banks fear deflation more than inflation is the key to understanding central bank monetary policy today.

1.  Central bankers believe they can control inflation by tightening monetary policy. 

• Generally, monetary policy is tightened by raising interest rates. 
• Since rates can be raised to infinity, there is not limit on this tool. 
• Therefore, no matter how strong inflation is, central banks can always tame it with more rate increases.
• The classic case is Paul Volcker in 1980 who raised interest rates to twenty percent in order to crush inflation that had reached thirteen percent.  
• Central bankers feel that if the inflation genie escapes from the bottle, they can always coax it back in. 

2.  Central bankers also believe that inflation can be good for an economy.  

This is because of something called the Marginal Propensity to Consume or MPC.   The MPC is a measure of how much an individual will spend out of an added dollar of income.

• The idea is that if you give a poor person a dollar they will spend all of it because they struggle to pay for food, housing and heath care. 
• If you give a rich person a dollar, they will spend very little of it because their needs are already taken care of, so they are more likely to save or invest that dollar.  
• Based on this, poorer people have a higher MPC. 

3.  Inflation can be understood as a wealth transfer from the rich to the poor. 

• For the rich person, his savings are worth less, and his spending is about the same because he has a low MPC. 
• By contrast, the poor person has no savings and may have debts that are reduced in real value during inflation. Poor people may also get wage increases in inflation, which they spend because of their higher MPC.

4.   Therefore, inflation tends to increase total consumption because

• the wealth transfer from rich to poor increases the spending of the poor, 
• but does not decrease spending by the rich who still buy whatever they want. 

The result is higher total spending or “aggregate demand” which helps the economy grow.




#Deflation hurts the government in many ways

Deflation is not so benign and hurts the government in many ways.


1.  It increases the real value of the national debt making it harder to finance.

• Deficits continue to pile up even in deflation, but GDP growth may slow down when measured in nominal dollars. 
• The result is that the debt-to-GDP ratio can skyrocket in periods of deflation. 
• Something like this has been happening in Japan for decades. 
• When the debt-to-GDP ratio gets too high, a sovereign debt crisis and collapse of confidence in the currency can result.

2.  Deflation also destroys government tax collections. 

• If a worker makes $100,000 per year and gets a $10,000 raise when prices are constant, that worker has a 10% increase in her standard of living. 
• The problem is that the government takes $3,000 of the increase in taxes, so the worker only gets $7,000 of the raise after taxes.
• But if the worker gets no raise, and prices drop ten percent, she still has a ten percent increase in her standard of living because everything she buys costs less. 
• But now she keeps the entire gain because the government has no way to tax the benefits of deflation. 
• In both cases, the worker has a $10,000 increase in her standard of living, but in inflation the government takes $3,000, while in deflation the government gets none of the gain.

#What is good for government is often bad for INVESTORS.

For all of these reasons, governments favor inflation.   It can

• increase consumption, 
• decrease the value of government debt, and 
• increase tax collections. 

Governments fear deflation because

• it causes people to save, not spend; 
• it increases the burden of government debt, and 
• it hurts tax collections.

But, what is good for government is often bad for investors. 

In deflation, investors can actually benefit from

• lower costs, 
• lower taxes and 
• an increase in the real value of savings. 

As a rule, inflation is good for government and bad for savers; while deflation is bad for government and good for savers.

#Flaws in the thinking about inflation and deflation by the government and economists

There are many flaws in the way the government and economists think about inflation and deflation.

The idea of MPC as a guide to economic growth is badly flawed.

Even if poor people have a higher propensity to consume than rich people, there is more to economic growth than consumption. 


1.  The real driver of long-term growth is not consumption, but investment. 

• While inflation may help drive consumption, it destroys capital formation and hurts investment. 
• A policy of favoring inflation over deflation may prompt consumption growth in the short run, but it retards investment led growth in the long run. 
• Inflation is a case of a farmer eating his own seed-corn in the winter and having nothing left to plant in the spring. Later he will starve.

2.  It is also not true that inflation is easy to control. 

• Up to a certain point, inflation can be contained by interest rate increases, but the costs may be high, and the damage may already be done. 
• Beyond that threshold, inflation can turn into hyperinflation.  

3.  Hyperinflation

At that point, no amount of interest rate increases can stop the headlong dash to dump money and acquire hard assets such as gold, land, and natural resources. 

• Hyperinflation is almost never brought under control. 
• The typical outcome is to wipe out the existing currency system and start over after savings and retirement promises have been destroyed.

#Central banks favour inflation over deflation:  Its Implications

In a better world, central bankers would aim for true price stability that does not involve inflation or deflation.

But given the flawed economic beliefs and government priorities described above, that is not the case.

1.  Central banks favor inflation over deflation because it

• increases tax collections, 
• reduces the burden of government debt and 
• gooses consumption. 

If savers and investors are the losers, that’s just too bad.


2.  The implications of this asymmetry are profound.

• In a period where deflationary forces are strong, such as the one we are now experiencing, central banks have to use every trick at their disposal to stop deflation and cause inflation. 
• If one trick does not work, they must try another.

Since 2008 central banks have used

• interest rate cuts, 
• quantitative easing, 
• forward guidance, 
• currency wars, 
• nominal GDP targets, and 
• operation twist to cause inflation. 

3.  None of it has worked; deflation is still a strong tendency in the global economy. This is unlikely to change.  The deflationary forces are not going away soon.

• Investors should expect more monetary experiments in the years ahead. 
• If deflation is strong enough, central banks may even encourage an increase in the price of gold  in order to raise inflationary expectations.

4.  Eventually the central banks will win and they will get the inflation they want.

• But it may take time and the inflation may turn into hyperinflation in ways the central banks do not expect or understand. 
• This “tug-of-war” between inflation and deflation creates the most challenging investment climate in 80 years.

The best investment strategies involve a balanced portfolio of hard assets and cash so investors can be ready for both. 

The Downfall of Money. Risks of Hyperinflation.

#The risks of hyperinflation in the U.S. today.

Today’s problems in the U.S. economy, too much debt and too little growth, are identical to the problems confronting Germany in 1921. 

• Then, as now, the solutions were mainly structural. 
• Then, as now, the politicians refused to compromise on solutions and looked to the central bank to paper over the problems. 
• Then, as now, the central bank accommodated the politicians.

Central bank independence is largely a myth and only appears to be a reality during stable economic times.

• But when the legislative and executive branches become dysfunctional, as they are today, and when debts and deficits spin out of control, as they appear to be, then central banks must bow to the politicians and monetize the debt by money printing. 
• This is what happened in Germany in 1921–23.

Something similar may be starting to happen in the U.S. today.

• The U.S. is not yet at the point of no return that Germany reached in 1921. But it is moving in the same direction. 
• It has a dysfunctional political class and accommodating central bankers. 

You want to know about the warning signs of hyperinflation before its most virulent stage wipes out your savings and pensions.

Mark Twain once wrote, 
“No occurrence is sole and solitary, but is merely a repetition of a thing which has happened before.” 






#Weimar hyperinflation

Weimar hyperinflation offers a historic guide to something that has happened before and that may repeat in the U.S. under remarkably similar conditions.

Despite the widespread identification of “Weimar” with hyperinflation, few investors know the detailed history and political dynamics that led to Germany’s catastrophic outcome.

• The facts that Germany had recently been defeated in the first World War and bore a heavy debt burden in the form of reparations to France, the U.K. and other victorious powers are necessary background.
• You may also know that communists and proto-Nazis fought street battles, led regional rebellions and engaged in assassinations of high-profile political figures.

 But even this backdrop does not tell the whole story.


#Rudolf Havenstein, the director of the Reichsbank, the central bank of Germany. 

Most accounts of the Weimar hyperinflation focus on Rudolf Havenstein, the director of the Reichsbank, the central bank of Germany.

• Havenstein had control of the printing presses and was directly responsible for the physical production of the banknotes, eventually denominated in the trillions of marks.
• At one point, the Reichsbank printed such huge volumes of currency that they were physically constrained by paper shortages. 
• They even resorted to printing on one side of the banknote in order to save ink, which was also in short supply. 
• Havenstein is routinely portrayed as the villain in the story the man whose money printing ruined the German currency and its economy.

#The culprit was the political leadership

• Yet the culprit was the political leadership that refused to compromise on the structural reforms needed to restore growth to the German economy so it could begin to deal with its debt burden.
• Politicians looked to the central bank to paper over their problems rather than fix the problem themselves.  
• Havenstein is not an autonomous actor out to destroy the currency. 
• He is simply the handmaiden of a weak, dysfunctional political class who refuse to make hard choices themselves.

This insight, is of the utmost importance as you try to assess the risks of hyperinflation in the U.S. today. Investors like to point fingers at the Fed for “printing” (actually digitally creating) trillions of U.S. dollars out of thin air; they maybe not totally correct.







Read:

The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class, by Frederick Taylor. This is the best and most thorough account of the Weimar hyperinflation yet and is likely to remain the definitive history.  Read this to understand exactly what happened, and why a repetition in the U.S. is a real possibility today..

The Day the Dollar Died

The first 12 hours of a U.S. dollar collapse! http://inflation.us

Hyperinflation Nation

US faces one of biggest budget crunches in world – IMF

US faces one of biggest budget crunches in world – IMF

By Edmund Conway Business Last updated: May 14th, 2010
98 Comments Comment on this article

Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.

Read the details here:
http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/


So does all of this mean the US is Greece? The answer, you might be surprised to hear, is no. Now, it is true that the US has some similar issues to Greece – the high debt, the need to roll over quite a lot of debt each year, the rising healthcare costs and so on. But it has two secret (or not so secret) weapons.

• The first is that unlike Greece it is not trapped in a monetary union. The US, like Britain and Japan, can independently control its monetary policy; it can devalue its currency. These are hardly solutions in and of themselves, but they do help make the adjustment a lot easier and more gradual. 
• Second, the US has growth. It remains one of, if not the, world’s most dynamic economies. It is growing at a snappy pace this year (in comparison to other countries). And a few percentage points of GDP make an immense difference, since they make those debts much easier to repay.

Finally, some might be tempted at this point to cite the fact that the US has the world’s reserve currency in the dollar as another bonus. I am less sure. There is no doubt that this has made the US a safe haven destination (people buy US bonds when freaked out about more or less anything), and has meant that America has been able to keep borrowing at low levels throughout the crisis. However, the flip side of this is that because it has yet to feel the market strain, the US also has yet to face up properly to the public finance disaster that could befall it if it does not do anything about the problem. America is not Greece, but if it does not start making efforts to cut the deficit within a few years, it will head in that direction. The upshot wouldn’t be an IMF bail-out, but a collapse in the dollar and possible hyperinflation in the US, but it would be horrific all the same. America has time, but not forever.

Asset Allocation and Economic Hedging in Various Economic Environment

Asset Allocation

This is also referred to as economic hedging and can be defined as a conservative method of diversifying assets so they will react different under various economic conditions.

Successful investing can be based on 4 key characteristics as follows:

• Discipline
• Patience
• Historical Prospective
• Common Sense Strategy

Reasons for using asset allocation:

• History repeats itself
• No one can predict the future – not even the experts
• Comfort in knowing you have not painted yourself in a corner
• Acts as a hedge against financial risks you cannot control

To protect against risks, the risks must first be identified and then investments set up to diversify around them. Listed below are the main types of economic environments.

• Hyper Inflation (100%+/year)
• Double Digit Inflation (10%+/year)
• High Inflation (5 to 9%/year)
• Normal Inflation (2 to 4%/year)
• Recession
• Depression

Now lets look at a couple examples of how various investment types do in these differing environments.

In a depression we see the following:

• Stocks go way down (85-90%)
• Real Estate – Also tends to go down
• Interest Rates – drops to very low rates
• Unemployment – this goes way up
• Property – material things tend to lose value
• Bonds – These do well, as bonds tend to vary inversely with interest rates.

Recommended investment in a depressed economy then would be high quality, intermediate term (2-4 year), discounted corporate bonds.

On the other hand in a Hyper-Inflation economy the situation would be completely different.

• Stocks – do well for a while, then collapse
• Real Estate – depends, because it is often bought with debt
• Gold – this has done well in keeping its value in hyper-inflation conditions

Of note, the last time the US was in a hyper-inflation economy was during the civil war. However several other countries have been in this situation in recent years.

Now that we know how the environment can affect different investments, let's look at what investments are best for each environment and how to protect your investments in these changing economic times with economic hedging.

http://www.nassbee.com/wealthy/asset_allocation.html

Economic Hedging

Following our discussion on asset allocation, below is a list of the best types of investments for each type of environment.

Economic Environment	Best Investment
Hyper Inflation	Gold
Double Digit Inflation	Real Estate
High Inflation	Real Estate / Stocks
Normal Inflation	Stocks
Recession	Cash
Depression	High Quality Corporate Bonds

How you will allocate your assets will depend on if you are in or near retirement as well as other personal circumstances. Below are two basic allocation structures. You should review your own needs to decide what type of allocation meets your needs best.

Aggressive

Cash	Bonds	REIT	Stocks	Gold
15-20%	15-20%	30%	30%	2-5%

Retired

Cash	Bonds	REIT	Stocks
25%	25%	25%	25%

(These percentages can be vaired slightly to fit in 2% Gold for better hedging.)

Over the past 30 years, average yields for these types of investments has been about as follows:

Investment	Avg Yield
Cash	4%
Bonds	7%
REIT	8%
Stocks	10%

For the retired plan then this would have yielded a safe 7.25% annual return. For the aggressive investor it would closer to 8%.

Rebalance

In order to keep the advantage of asset allocation you should rebalance your investments every year. When this is done is not important as long as it is done at least once per year. By taking profits from the investment types that are doing well and putting the money in those that are down, you are buying low and selling high without any emotional input that may cloud your decision. Rebalancing should then be done as follows:

• Periodically (at least once per year)
• If there is a major change in your life
• If there is a major change in the financial market

http://www.nassbee.com/wealthy/economic_hedging.html

The Future of Gold, the Dollar, and More

The Future of Gold, the Dollar, and More
By Jennifer Schonberger
December 11, 2009

The dollar has had a huge effect on the stock market's moves this year. As the dollar has depreciated, many stocks have climbed higher; the logic is that a weaker dollar will boost the bottom lines of companies such as McDonald's (NYSE: MCD), Aflac (NYSE: AFL), and Coca-Cola (NYSE: KO), all of which derive a substantial portion of their revenues from abroad. The depreciating dollar has also boosted commodity prices and associated commodity stocks such as Freeport-McMoRan (NYSE: FCX) or Newmont Mining (NYSE: NEM), serving to lift the market.

As we approach 2010, what is the future of the dollar, and what are the implications for the asset prices that move inversely to it? What does it all mean when it comes to rebalancing the global economy and our economic relationship with China?

For some insight on all this, I spoke with the man who had the foresight to call the financial meltdown in 2006: Peter Schiff, president and chief global strategist of Euro Pacific Capital and author of the newly updated book Crash Proof 2.0.

Schiff believes the dollar is on a long-term downward trajectory, and that it could collapse if the government continues its current policies. That has implications for the stock market and gold, which he thinks could go to $5,000 an ounce.

Here's an edited transcript of our conversation:

Jennifer Schonberger: You've been bearish on the dollar for some time. Do you still stand by your bearish call for the greenback?

Peter Schiff: Yes. I think the dollar is going to fall for years. It's not going to fall every day, or every week. There are going to be periods of time where the dollar rallies -- that's how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there's always going to be hope that the dollar is going to recover, based on "maybe the Fed will raise interest rates," "maybe the U.S. economy will improve." But none of that is going to help the dollar. I think the dollar's fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it's a grim fate.

Schonberger: If the dollar does remain weak, as you expect, what are the implications in terms of rebalancing the global economy?

Schiff: Part of rebalancing the global economy is going to necessitate a lower dollar. The reason the global economy is so out of balance is because the dollar is artificially strong. It's been propped up by foreign central banks, and this enables Americans to import products they really can't afford. So if we want the global imbalances to be solved, it's going to require a lower dollar -- and that's what's going to happen. The longer foreign central banks artificially prop up the dollar, enabling Americans to keep spending borrowed money, the worse the global imbalances are going to get.

Schonberger: You recently wrote, "While [China's] peg [to the U.S. dollar] certainly is responsible for much of the world's problems, its abandonment would cause severe hardship in the United States." Why?

Schiff: It would cause hardship in the U.S., but it's something that we have to deal with sooner rather than later. By propping up the U.S. dollar and by carrying U.S.-dollar-denominated debt -- U.S. Treasuries, mortgage-backed securities -- the Chinese have kept interest rates and consumer prices artificially low. Americans have been able to benefit from that in the short run because their mortgages, car payments, and credit card payments are lower. They can go to stores like Wal-Mart (NYSE: WMT) and get those everyday low prices. But those prices aren't because of Wal-Mart, they're because of China.

When the Chinese government removes all those subsidies, there's going to be an immediate benefit to the Chinese people, because they're suddenly going to see lower prices and more access to capital. In America, we're going to have the rug pulled out from under us ...

Schonberger: The dollar is central to the relationships of other assets' prices. There is an inverse relationship between the dollar and equities. Do you expect that linkage (between the dollar and equities) to continue into next year?

Schiff: Remember, there's an inverse relationship between the dollar and the price of everything, because as the dollar loses value, you need more dollars to buy anything. That's true for an ounce of gold, a barrel of oil, a bushel of wheat, or shares of stock. So you're always going to see prices rising as the dollar is falling. That's what's happening now.

Now at some point, inflation could be so problematic that it drives interest rates up substantially, and as inflation gets bigger and bigger, the prices that tend to react more quickly will be things like food and energy. So if U.S. corporations suddenly see the cost of their long-term debt or short-term debt jump up and their customers don't have any money to buy their products because they're spending all their money on food, then ultimately you could see falling stock prices as the dollar is falling.

Schonberger: Speaking of relationships, you expect gold to go to $5,000 an ounce, correct?

Schiff: Yeah. It could go higher than that, but I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place. Now if the government were to reverse course -- if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months -- then gold would probably not get to $5,000.

But I don't think they're going to do that. Based on what the Fed is saying and doing, they're going to keep interest rates at practically nothing for as far as the eye can see. The U.S. economy is not recovering. All we're doing is spending stimulus money. The minute you take away the stimulus, all the GDP growth, all the jobs that are associated with that stimulus spending, will vanish. So they can't take the stimulus away without destroying the phony recovery. So if interest rates are going to stay low and they're going to keep printing money, the only thing that's going to happen is the dollar is going to fall until it all of a sudden collapses ...

Schonberger: So then you're actually calling for a collapse in the dollar relatively soon?

Schiff: Relatively soon, yes. Maybe not tomorrow, but I think it will happen soon. I think it will happen before Barack Obama leaves office even if he's only a one-termer. The first initial collapse in the dollar will be about a 50%, 60%, or 70% decline in dollar value. That collapse will usher in the new leg -- the much more severe leg of our economic downturn. Not only will we have a financial crisis, but we'll also have a currency and economic crisis.

Hopefully that will be the tough medicine, the shock that finally causes Congress and the Fed to abandon its current policy and start doing the right thing. If it doesn't -- if they respond to that big drop in the dollar by creating more inflation, and if they fail to raise interest rates aggressively and withdraw liquidity -- then they will turn the dollar into confetti. Then we will have hyperinflation. If we go down that road, gold prices aren't just going to $5,000, they'll go to $50,000, or $500,000. I hope that cooler heads will prevail before we go down that road, but from this point that's still a possibility if we don't change policies.

Strong words from Peter Schiff.

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. AFLAC is a Stock Advisor recommendation. Coke and Wal-Mart are Inside Value picks. Coke is also an Income Investor recommendation. The Motley Fool has a disclosure policy.

http://www.fool.com/investing/general/2009/12/11/the-future-of-gold-the-dollar-and-more.aspx

The Price Level and Gold

The Price Level and Gold

In each country, the price level at the end of World War II was essentially the same as it was 150 years earlier. Since World War II, however, the path of inflation changed dramatically. The price level rose almost continuously over the past 55 years, often gradually but sometimes at double-digit rates, as in the 1970s. Excluding wartime, the 1970s witnessed the first rapid and sustained inflation ever experienced in U.S. history.


The dramatic changes in the recent inflationary trend should not come as a surprise. During the nineteenth and early twentieth centuries, the United States, the United Kingdom, and the rest of the industrialized world were on a gold standard. A gold standard restricts the supply of money and hence the inflation rate. From the Great Depression through World War II, however, the world shifted to a paper money standard. Under a paper money standard, there is no legal constraint on the issuance of money, so inflation is subject to political as well as economic forces. Price stability depends on the ability fo the central banks to limit the supply of money and control the inflationary policies of the federal governements.


The chronic inflation that the United States and other developed economies have experienced since World War II does not mean that the gold standard was superior to the current paper money standard. The gold standard was abandoned because of its inflexibility in the face of economic crises, particularly the banking collapse of the 1930s. The paper money standard, if administered properly, can avoid the banking panics and severe depressions that plaqued the gold standard. However, the cost of this stability is a bias toward chronic inflation.


It is not surprising that the price of gold has followed the trend of overall inflation closely over the past two centuries. The price of gold soared to $850 per ounce in January 1980, following the rapid inflation of the preceding decade. When inflation was brought under control, the price of gold fell. One dollar of gold bullion purchased in 1802 was worth $14.38 at the end of 2001. That is actually less than the change in the overall price level! In the long run, gold offers investors some protection against inflation but little else. Whatever hedging property precious metals possess, these assets will exert a considerable drag on the return of a long-term investor's portfolio.

#Ironically, despite the inflationary bias of a paper money system, well-preserved paper money from the early nineteenth century is worth many times its face value on the collectors' market, far surpassing gold bullion as a long-term investment. An old mattress found containing nineteenth-century paper money is a better find for the antique hunter than an equivalent sum hoarded in gold bars!

Related:

Dr. Marc Faber on the risk of hyperinflation
http://www.youtube.com/watch?v=bsoIYnuF0eY

Marc Faber ger rid of your cash buy commodities while they are still cheap !!!!!!
http://www.youtube.com/watch?v=qE7xrv7-1MU

Marc Faber "U S will default on debt or enter hyperinflation" 02-05-09
http://www.youtube.com/watch?v=loa92ZG1KV8

The market gives a thumbs-up to printing money

The market gives a thumbs-up to printing money
Posted By: Edmund Conway at Feb 18, 2009 at 19:58:27 [General]

What would you expect a currency to do when a central bank admits it is about to start printing money imminently? The answer you'll find in the textbooks is pretty clear: it will fall, and fall fast. Just look at Zimbabwe.

But that's precisely the opposite of what happened this morning when the Bank of England said that within weeks it will have the printing presses roaring away. In fact, as you can see from the graph here, after the Bank announced this in its Monetary Policy Committee minutes at around 9.30, people started buying, rather than selling, sterling. Why? What on earth has happened in the topsy-turvy world of currencies that makes traders believe a good investment is a currency that is about to become all the more plentiful? Has everyone lost their senses?



The answer is intriguing, and helps underline precisely how counterintuitive is the policy challenge we face in this economic crisis. People are buying sterling not out of economic ignorance or bloody-mindedness but as a vote of confidence in the Bank of England's economic policy. In other words, they believe quantitative easing - the technical term for printing money - will, in the long run, bring the economy back to health, even if in the short run it could devalue sterling.

Meanwhile, the market is punishing the euro (against which I plotted the pound in this chart) because of the European Central Bank's neanderthal approach to monetary policy. Of all the central banks they are the most reluctant to slash interest rates and start up the presses. This could be a big mistake.

The explanation for this, by the way, goes back to the genesis of each continent's respective central bank. The ECB is the spawn of the German Bundesbank. Its history was shaped by the horrific experience of Weimar Germany's hyperinflation of the 1920s, so it is naturally inclined to fear the worst about inflation. The Federal Reserve's big bugbear, on the other hand is deflation, since that was what afflicted the US in the 1930s.

Anyway, the point is that the market believes (today anyway) that the Federal Reserve, which is already well down the road towards money-printing, and the Bank of England are right, and that the ECB is wrong. I happen to agree.

Quantitative easing is a hard sell - I know that from your comments whenever I write approvingly about it! But if handled properly I genuinely believe it could help prevent this from turning into the recession to end all recessions.

Whether you agree with me or not about that, the one thing we can surely all agree on is that, should the Bank of England pursue this course, it must, must be ready to raised interest rates and pull money back out of the economy when it looks as if deflation has really been averted.

You can count on us at the Telegraph to do our best to make sure it does.

http://blogs.telegraph.co.uk/edmund_conway/blog/2009/02/18/the_market_gives_a_thumbsup_to_printing_money

Zimbabwe currency depreciating at fastest rate

Zimbabwe shops stop accepting local currency
Shops in Zimbabwe are refusing to accept the local currency after it depreciated at its fastest ever rate at the weekend.

By Peta Thornycroft in Harare and Sebastien Berger Last Updated: 9:30AM GMT 27 Oct 2008

Empty shelves in a supermarket in Harare Photo: EPA
While millions of Zimbabweans are already going hungry, the move by supermarket owners, who have few goods available for customers to buy, has added to the hardship experienced by the urban population.
Most do not have access to foreign currency, such as US dollars or the South African rand, now demanded by shopkeepers for payment.
A sign outside a supermarket in Harare's wealthy northern suburbs informed the public on Sunday that, like many other shops, it would not accept cheques or debit cards, because they take too long to clear while the Zimbabwe dollar plunges hourly.
Weeping with frustration, a well-dressed woman fled the shop in tears as she was left unable to buy anything, despite having amassed Z$14 billion for her weekly shop. But even cash was useless, and the shop manager told her he was only accepting US dollars.
"I felt really terrible telling her this, she is a good customer, a really nice person, but it is too difficult to sell in local currency," he said. "We don't know how to mark up goods as the Zimbabwe dollar is worthless now."
All his goods except meat and most vegetables were imported from South Africa and, with 75 per cent tax, payable in foreign currency to the government slapped on every item, many basic items cost four to five times as much as south of the border, even with a relatively low mark-up.
"I don't even know the rate for the Zim dollar as it changes by the hour," he said. "We have no alternative but to try and stay alive by charging in US. I am really feeling the strain and I can see customers, and many are old friends, are suffering. Some of them used to be quite well off."
The country's hyperinflation is driven by the central bank creating ever more money to fund the government's activities. Even though the authorities chopped 10 zeroes off the currency in August, its interventions and regulations have created a bewildering array of black-market exchange rates.
For cash notes, which the price rises mean are in appallingly short supply despite the printing presses working overtime, on Sunday £1 was worth around Z$110,000. But for cheque transfers, £1 brought anywhere from Z$8 billion to Z$32billion.
At independence in 1980, the Zimbabwe dollar was worth more than the US dollar, but Robert Mugabe's regime has destroyed the economy, with the slide accelerating in recent years, months and weeks.
John Robertson, an independent economist, said the Zimbabwe dollar's current plunge was unprecedented. "We had seen it losing value at about 25 per cent a day, now it is losing hundreds of per cent an hour. It is now a valueless currency."
A Zimbabwean businessman said: "The Reserve Bank is looting, that is what caused this end-of-game crash. The Zim dollar lost three zeroes in a week. Now you can fly from Harare to Victoria Falls for US 20 cents."
For ordinary Zimbabweans life has become almost impossible. Bank cash withdrawals are limited to a maximum Z$50,000 a day – enough to buy two bananas from street vendors, who are still selling in the local currency, but 0.000625p at the cheque rate.
Companies are only allowed Z$10,000, or half a banana in street value.
Shops have begun refusing to accept Zimbabwean dollars in any form.
A businessman said: "When supermarkets have to start paying their workers in US dollars they will have to close. When the civil servants demand foreign currency wages, then that will be the end of the road for Mugabe."
Southern African leaders meanwhile meet in Harare on Monday for an emergency summit on Zimbabwe's political stalemate. Mr Mugabe, the opposition leader Morgan Tsvangirai and the former South African president Thabo Mbeki will discuss implementing a power-sharing agreement, although hopes for progress are slim.

http://www.telegraph.co.uk/news/worldnews/africaandindianocean/zimbabwe/3264644/Zimbabwe-shops-stop-accepting-local-currency.html

Comment:

The goods and assets can still be bought using foreign currencies. The US dollar and the South African rands are accepted for exchange of goods and services. However, the Zimbabwe currency is depreciating at a very fast rate. It continues to lose its buying power. The Zimbabwe government is printing money at a fast rate to keep the country going. Soon, it will be worthless and even those who are now accepting this currency will refuse to accept this currency.

This Could Destroy Your Retirement: Inflation

This Could Destroy Your Retirement
By Todd Wenning September 10, 2008 Comments (0)

I'm sure none of us has spent time with our grandparents without hearing statements like "I remember when the movies only cost a quarter," and "A thousand dollars sure doesn't buy what it used to."
After a few college economics courses, I simply chalked it up to stuff that grandparents say. Obviously, they just didn't understand the forces of inflation compounded over 40 years.
What a smart aleck But after a recent trip to the grocery store, I caught myself sounding like my grandparents. "Four dollars for milk?" I lamented to my wife. "I remember when a gallon of milk cost $2! And that was just a few years ago."
Without getting into a complex macroeconomic analysis of why milk prices have doubled in eight years, my trip to the grocery store was a valuable reminder of inflation's destructive power.
I don't even want to think about what a gallon of milk will cost when I retire. But I'm still going to want it on my cereal, so it's best to develop a plan now that will let me enjoy my Apple Jacks when I'm 70.

Affording $12 milk in 2040

In May, The Economist reported the average world inflation rate had risen to 5.5%. The U.S. rate is slightly above that figure at 5.6%. In emerging markets like China and India, prices have risen 8% to 10% -- and those are the official statistics.
Try outpacing those rates with Treasury bills. At present, you'd actually be losing purchasing power by investing in most Treasuries.
When it comes to battling inflation, our only good defense is a good offense. That means keeping an appropriate allocation of your portfolio in equities, even well into retirement.
Note that this Vanguard fund is designed for investors currently in retirement. The further you are from your ideal retirement age, the greater the percentage of your portfolio that should be invested in equities.

Bring inflation to its knees

See, prices will continue to rise for the rest of our lives. Equities give us the best chance to not only keep up with inflation, but even stay ahead of it, in order to increase our purchasing power down the road.

http://www.fool.com/personal-finance/retirement/2008/09/10/this-could-destroy-your-retirement.aspx

Hyperinflation Is U-G-L-Y

Hyperinflation Is U-G-L-Y
By Selena Maranjian January 7, 2009 Comments (1)

Do you know what hyperinflation is? It's what you get when inflation gets way, way out of hand. It's happening in Zimbabwe. In fact, what you can buy with a million Zimbabwean dollars right now might cost you twice as much by the time you finish reading this article. The country's inflation rate is estimated (conservatively, according to some) to be around 230 million percent.

You might buy a loaf of bread with a bill that sports 12 zeros on it. A month later, you'd need to add several more zeros. People are having trouble keeping up. It's causing chaos. And it's not a good environment for investors, either.

Fortunately, we don't have it bad like that. Inflation in America has generally been between 2% and 4% per year. In 1979 and 1980, though, it was around 13%, and it was around 9% in the years before and after that. Let's take 10% as an approximation of how bad we might expect it to get in America for a number of years, and see what that looks like, shall we? Let's start with a $5 sandwich in 2008 and see how the price grows at 10% over a decade:

Year..Price
2009 $5.50
2010 $6.05
2011 $6.66
2012 $7.32
2013 $8.05
2014 $8.86
2015 $9.74
2016 $10.72
2017 $11.79
2018 $12.97

Wow -- the price doubled after only eight years. A $20,000 car in 2008 would cost you nearly $52,000 in 2018! That's a big difference.

Are we in imminent danger of 10% inflation rates? I don't think so -- though inflation rates did recently spike when gas prices were soaring, along with many food prices. These days some are worrying about deflation, although it's not all bad.
Still, a big increase in inflation is often a concern to many, and even now some worry that it might be in our future.

Dangers of inflation

If inflation starts rising, many companies will suffer, and we investors will therefore be affected. We'll be affected as consumers, too. Journalist Robert Samuelson recently described 1979's inflation environment, noting that as prices rose quickly, people couldn't predict costs of everyday items and were concerned that their wages wouldn't keep up. As he put it, "Americans were horrified. ... People couldn't plan; their savings were at risk."

There are signs that prices will stop growing so rapidly in the coming year. Food commodity prices have already fallen. Assuming they keep falling, we'll eventually see prices fall for many grocery items from companies such as Kraft (NYSE: KFT), General Mills (NYSE: GIS), and ConAgra (NYSE: CAG), as well as institutional food services from companies like Sysco (NYSE: SYY). Of course, as the costs of their supplies fall, we shouldn't expect these companies to immediately slash prices. They'll likely amble slowly in their price-cutting, benefiting temporarily from heftier profit margins.

Meanwhile, if gas prices rise again, which isn't unthinkable, that will pressure the entire economy, as it will affect transportation costs for supplies and finished goods. And of course, the transportation companies themselves, such as FedEx (NYSE: FDX), United Parcel Service (NYSE: UPS), and Southwest Airlines (NYSE: LUV), will take a hit.

One way to fight inflation while investing is to seek out dividend-paying companies, which will keep paying you while the economy sorts itself out. Sticking with stocks in inflationary times can protect your retirement.

http://www.fool.com/investing/dividends-income/2009/01/07/hyperinflation-is-ugly.aspx

Hyperinflation: Dollar is key to Zimbabwe survival

Page last updated at 14:31 GMT, Friday, 19 December 2008

Dollar is key to Zimbabwe survival


Many Zimbabweans do not have access to foreign currency

To get (US) dollars I have to do assignments abroad… there are not many Zimbabweans who can do that
Professor John Makombe, University of Zimbabwe

Zimbabweans queue for the new $500 million banknote in Harare

Hyperinflation renders Zimbabwean dollars valueless in days. This man's wife tried to buy maize with their last dollars. But they were worthless. He was forced to beg for food for his children.

By Karen Allen BBC News, Zimbabwe
Last week the reserve bank issued a new Zimbabwean banknote - a $500m bill. Its value changes by the day, but a rough estimate of its worth now is about US $50 (£33).
Its release was enough to see a surge of people flock onto the streets and form huge queues outside the banks. Harare's pavements were gridlocked for most of the day.
But increasingly it is only US dollars that are accepted in Zimbabwe's shops. Petrol stations are among those now turning away people who offer fistfuls of local currency.
Even water bills - for what little clean water there is - have to be paid in hard US cash. And bread is now a dollar commodity in many parts of the country.

'Dollarisation'
There has been a surge in cross-border trade in recent weeks with the lifting of restrictions on US dollar transactions.
Consumer goods, food and cars are being brought across from neighbouring South Africa.

To get (US) dollars I have to do assignments abroad… there are not many Zimbabweans who can do that
Professor John Makombe, University of Zimbabwe

Supermarkets are now stuffed with food, filling shelves that just a month or so ago were empty.
These supermarkets are for Zimbabwe's tiny dollar elite - the type that drive brand new cars into the car parks as others try to fend off starvation. They only accept US dollar bills in these swanky shops.
John Makombe, professor of political science at the University of Zimbabwe, estimates that 80% of the population here has no access to US dollar bills.
"Even I sometimes don't have foreign currency and I'm a university professor. To get dollars I have to do assignments abroad," he says. "There are not many Zimbabweans who can do that."
The value of Professor Makumbe's monthly salary, he reveals, is equivalent to US $30. That is just a little more than the price of a jar of instant coffee in the supermarkets which have become a refuge of the dollar rich.
The "dollarisation" of the Zimbabwean financial system is propping up a collapsed Zimbabwean economy.
But it has created an unwieldy free market where the government, unable to control basic prices, is merely a bystander.
A shortage of change and small US banknotes is now creating a new US dollar inflation.
"Zimbabwe is like a house of cards… one puff and it could come down," says a Zimbabwe-based Western diplomat with a depressed tone. "The problem is… there isn't the puff to blow it down."
It seems to be an accurate observation. Massive food shortages, hyperinflation, cholera and continued political turmoil are a heady cocktail.
In any other country in the world, this combination might have triggered a coup. But not here. People are simply too scared.

Critics vanished
Journalists, human rights activists and other critics of Robert Mugabe's presidency have recently vanished.

Many Zimbabweans do not have access to foreign currency
More than 20 people have disappeared in just the past few weeks - people are terrified.
Reporting the Zimbabwe story is risky for all concerned - not least those on the other side of the microphone.
Not surprisingly many are reluctant to speak out - yet thankfully, some still do. Like Elliot and Molly - a retired couple now living on a small farm, whose geographical details I dare not divulge for fear they are punished for speaking to me.
"Africa needs to be responsible for its own problems," says Elliot boldly. "It's about our own mismanagement… we can't blame former colonies like Britain."
It is a sentiment that runs deep here, though few will speak openly about it.
When I arrived tensions were high following the disappearance of Jestina Mukoko - a prominent human rights campaigner and former journalist, who had allegedly been abducted.
Her safety has been playing on the minds of so many here ever since. Yet Zimbabwe's neighbours continue to offer legitimacy to Robert Mugabe.
Despite a power-sharing deal back in September, he still holds all the cards. He is revered as a liberation hero by many influential figures on the continent, with just Botswana and Kenya breaking rank and speaking out.
One political campaigner for the opposition MDC described the present climate in Zimbabwe as "coerced control" - an environment where intimidation rules.
It means that ordinary Zimbabweans, already enduring so much, may still face the prospect of worse to come - resisting the instinct to revolt with a sense of fear.

http://news.bbc.co.uk/2/hi/africa/7791404.stm