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Connacher is a growing exploration, development and production company with a focus on producing bitumen and expanding its in-situ oil sands projects located near Fort McMurray, Alberta

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Message: Inflation/Deflation!

Inflation/Deflation!

posted on Dec 19, 2008 04:11AM

The, in my opinion, crux of the current situation with oil, boils down to whether we are going to ultimately experience inflation in the world economy or deflation.

Until recently, I would have come down on the side of inflation. However, the argument for deflation is becoming stronger. The only asset class that does better in a deflationary environment is gold and the US$. Though, at present, I still by a slight margin come down on the side of inflation, in my opinion, the argument for deflation is becoming stronger.

The argument regarding the integrity of the US$, has merit. However, a perusal of all other major currencies reveals that in a relativistic sense, the US$ is in better shape than virtually all other currencies. This does not mean the US$ is in good shape. Merely that it is likely that the US$ is in better shape than all other currencies. If such is correct, then it is quite possible that oil will remain weak in a relativistic sense.

Neither rapid inflation or deflation is desirable. However, given the option, inflation would be much kinder to all hard asset classes, such as oil.

Brian



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