Investment banks have gotten fat off the land since 1982, when the great U.S. bull market got its start. Their business has multiplied many-fold, and their earnings have soared into the stratosphere, to a level far higher than any other sector.

The longer the rally persists, the more dangerous it becomes.

On one hand, the deflationists are claiming that given the extremely high debt levels in the West, further inflation is impossible. On the other side of the argument, many proponents of inflation are calling for Zimbabwe style hyperinflation. In this business, everyone is entitled to their opinion; however it is my contention that we will get neither deflation nor hyperinflation. If my assessment is correct, once business activity picks up, our world will have to deal with high inflation.

Let’s get this straight.

Household credit is shrinking…
Profits are shrinking…
Employment is shrinking…
Housing values are shrinking…
The wage base is shrinking…

But the recession is over!

Whoa… how is that possible?

When the “Great Crash” came in 1929, it came in October. So, too, did the infamous “Crash of ‘87.” And last year, during a tortuous October that led to even lower lows in the months to come, the Standard & Poor’s 500 Index lost 19% of its value in just 30 days.

Is the rally over? Not at all! The world’s bankers say the economy is recovering. Investors believe them; they’re bidding up stocks.

All the factors that set the fertilizer bull market in motion in the first place are still here. Populations are still growing. Diets are shifting toward more fruits, vegetables and meats — all fertilizer intensive. As Potash CEO Bill Doyle says, “This will continue to put pressure on global grain supplies, as farmers are being challenged to produce more with land and water resources that are shrinking on a per capita basis.”

Deflation and the price of Gold. Give yourself an extra point for spotting the trick question. It’s already tripping up plenty of would-be answers. Because gold must fall during deflation, since it rose so much during the inflation of the 1970s – right?

With the Rally Nearly Over the Germans are Buying Gold.