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  • docjoe999 docjoe999 Mar 12, 2010 12:07 PM Flag

    Great inflation versus deflation

    debate here, a must watch.

    http://finance.yahoo.com/tech-ticker/the-great-%22inflation-or-deflation%22-debate-mish-vs.-dr.-doom-441196.html?tickers=^DJI,TIP,TLT,TBT,XLF,UUP,GLD&sec=topStories&pos=8&asset=&ccode=

    These are two of my all time favorite market gurus, Marc Faber and Mish Shedlock.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Interesting stuff doc.

      The bigger threat no doubt is deflation, so that is why it won't happen, the government won't let it happen. So, look for mild inflation... that is what the government prefers to keep to pay previous debts... which it has a ton !!!

      The weak euro dollar will keep a tailwind at the US dollar and keep it from falling. While low interest rates and a weak economy will keep the dollar from inflation. Don't expect much deflation to happen, in spite of the fact that RE prices will come down, a strong dollar will keep commodity pricing up.

      In the long term, I think the US dollar and the US are in bad shape. I don't know what happens with Europe, but in the end, the Asians kick our butts... economic speaking.

      Sorry, that's my take.

      • 4 Replies to rgneckow
      • I find it funny that I mention where inflation is, commodity based items, and everyone lectures me on inflation and commodity based items. Yes, I know food and energy are up, but that's not a huge part of the average American's budget.

        Housing is usually the big ticket item, and that is WAY down. A buddy of mine just bought a 5 bed room, 3500 sq foot house in a Dallas suburb for $210,000.

        As for RG's comment, "The bigger threat no doubt is deflation, so that is why it won't happen, the government won't let it happen."

        Deflation's cause is always decreased consumption, so how is the government going to get consumers to continue consuming? The truth is that it's not the government but the federal reserve who has the power, and they have done their part.

        But so did the Japanese central bank, and Japan still had deflation. The prescription is the same, flooding the system with capital and cutting interest rates to 0%. So the real question is why do you all think that a solution that didn't work in Japan, will work here?

        Washington and the Fed. thinks that they have "solved" the problem. All they did IMO was kick the can down the road.

        The point of all this maneuvering is to devalue the dollar. By giving 0.1% interest, there is incentive to move out of cash and into stocks, commodities, and bonds.

        But the read of the day was from Barry Riholtz. See the link: http://www.ritholtz.com/blog/2010/03/accounting-fraud-short-sellers-the-sec/

        A 2000 page bankruptcy report on Lehman's showed what I have known and been saying all the time: the cops are on the take. The SEC, accounting firms, rating agencies, and media analysts are totally incompetent in valuing businesses. Only the short sellers, the most hated of the bunch, have a modicum of common sense.

        The average Joe stock picker looks at Lehman's and thinks "What a mess", but I am here telling you that it's not just Lehman's. The entire banking system is built on the same sand Lehman's is, and the correct value of the banking system is at least 90% less than it currently is.

        GE, with a market cap of $181 billion, is every bit as technically broke as GM was two years ago. If not for low interest loans backed by the U.S. government, GE would have declared bankruptcy.

        There is only so long this balance sheet con can go on. People need to ask themselves why the stock that they have invested in is any different than Lehman's and at the end of the day, most won't. They just hope that they same sorry case of losers who missed Lehman's will work for their protection. It's not going to happen.

        And what will happen when the con falls apart? People will move from stocks back into dollars, and the increased demand for the dollar will make it stronger. And a stronger dollar will mean lower commodity prices.

        Oil is the great example in the commodity market. The price today is the same as it was in 2006 when we had one million bpd spare capacity. Now we have five million bpd spare capacity. The reason oil has gone up then has nothing to do with supply and demand, and it has everything to do with people moving from dollars to commodities like oil for safety's sake. That trend can easily be reversed.

        Despite this surplus capacity being on both the EIA and IEA websites, some knuckleheads here choose not to believe the numbers. This is the investor equivalent of covering one's ears and screaming "la, la, la, la".

        So the real question in the inflation-deflation debate is not about food and energy prices today but about asset prices. Is corporate America lying about asset valuations as badly as Lehman's did? If you think they aren't, then feel free to not worry about deflation.

      • I find it funny that I mention where inflation is, commodity based items, and everyone lectures me on inflation and commodity based items. Yes, I know food and energy are up, but that's not a huge part of the average American's budget.

        Housing is usually the big ticket item, and that is WAY down. A buddy of mine just bought a 5 bed room, 3500 sq foot house in a Dallas suburb for $210,000.

        As for RG's comment, "The bigger threat no doubt is deflation, so that is why it won't happen, the government won't let it happen."

        Deflation's cause is always decreased consumption, so how is the government going to get consumers to continue consuming? The truth is that it's not the government but the federal reserve who has the power, and they have done their part.

        But so did the Japanese central bank, and Japan still had deflation. The prescription is the same, flooding the system with capital and cutting interest rates to 0%. So the real question is why do you all think that a solution that didn't work in Japan, will work here?

        Washington and the Fed. thinks that they have "solved" the problem. All they did IMO was kick the can down the road.

        The point of all this maneuvering is to devalue the dollar. By giving 0.1% interest, there is incentive to move out of cash and into stocks, commodities, and bonds.

        But the read of the day was from Barry Riholtz.

        A 2000 page bankruptcy report on Lehman's showed what I have known and been saying all the time: the cops are on the take. The SEC, accounting firms, rating agencies, and media analysts are totally incompetent in valuing businesses. Only the short sellers, the most hated of the bunch, have a modicum of common sense.

        The average Joe stock picker looks at Lehman's and thinks "What a mess", but I am here telling you that it's not just Lehman's. The entire banking system is built on the same sand Lehman's is, and the correct value of the banking system is at least 90% less than it currently is.

        GE, with a market cap of $181 billion, is every bit as technically broke as GM was two years ago. If not for low interest loans backed by the U.S. government, GE would have declared bankruptcy.

        There is only so long this balance sheet con can go on. People need to ask themselves why the stock that they have invested in is any different than Lehman's and at the end of the day, most won't. They just hope that they same sorry case of losers who missed Lehman's will work for their protection. It's not going to happen.

        And what will happen when the con falls apart? People will move from stocks back into dollars, and the increased demand for the dollar will make it stronger. And a stronger dollar will mean lower commodity prices.

        Oil is the great example in the commodity market. The price today is the same as it was in 2006 when we had one million bpd spare capacity. Now we have five million bpd spare capacity. The reason oil has gone up then has nothing to do with supply and demand, and it has everything to do with people moving from dollars to commodities like oil for safety's sake. That trend can easily be reversed.

        Despite this surplus capacity being on both the EIA and IEA websites, some knuckleheads here choose not to believe the numbers. This is the investor equivalent of covering one's ears and screaming "la, la, la, la".

        So the real question in the inflation-deflation debate is not about food and energy prices today but about asset prices. Is corporate America lying about asset valuations as badly as Lehman's did? If you think they aren't, then feel free to not worry about deflation.

      • That is why I think Canandian $ and Australian $ is pretty good hedge tool.

    • If you discuss with Deflation with consumer who buys grocery in the household, she/he will think you are crazy! -:)

      According to my wife, here are two items for illustration I regularly buys from warehouse club

      (1)One jar of honey, price in 2006 $6.50, now $10.50
      (2)One bag of 10 LB Onion, price in 2006 $4.00, now $6.50

      No need to give you more example such as GAS! -:)

      Deflation MY #$%$

    • Doc, whether or not inflation or deflation in the type of things I'm looking at, one cause of it has little to do with events in the US ...atleast from a demand POV.

      But keep in mind, inflation can be for two reasons and we might see both having an effect in the US.

      As we've seen in the last few years, physical energy, metals/minerals, and gold demand are not nearly so effected by goings on in the US anymore.

      Unless you can make the case that the US and OECD is going to fall off the edge if the earth in terms of the economy and reduce oil demand by something more than 5 million b/d within the next 2 or 3 yrs, the EM's are there to more than make up for it. And OECD demand is even less important for most other resources.

      And I would note my recent posts WRT met Coal and Iron ore prices along with todays news RE potash prices that Musk posted.



      So I have no doubt that the US RE market might be weak and CRE will weaken further along with pricing for certain consumer goods like LCD TV's, clothing, and Barbie dolls but when it comes to things like food, and other commodities, you have to look to the rest of the world to see what might be going on.

      IOW, US inflation rates might have very little to do with what happens economically within the US.


      Hmmm, I might even have to reconsider on the price of Barbies should they be popular in LA.

      But that's just run of the mill garden variety inflation that's based on supply demand fundamentals for raw materials and energy.

      The real inflation kicker comes a little later and that has to do with Faber's concerns WRT deficits and the Fed's increased need to print because their simply won't be the demand for the amount of bonds necessary to finance the shortfall in fiscal revenues for the years to come.

      Only question is if the markets might start to discount this secondary driver of inflation that is purely monetary ahead of time.

      So keep an eye on what China and India are willing to pay in USD's for it's raw materials ....as well as the quantities they are buying.

      One more thing....gasoline prices might well be going up now because of industry shutting down of domestic refinery capacity so fuel prices could be going up for both int'l and domestic reasons.

      Isn't it strange to see a potential for inflation in fuel prices (as a result of domestic factors) in one of the weakest markets for fuel?

      as bearish as I am for prospects in US and the OECD, I would hate to even ponder how much more bearish I would have to be in order for me to think overall global price deflation was in the cards... but who knows, maybe there's hope for you.

      Wins

      • 1 Reply to winsabokk
      • Man, Winny, you just don't get it. When I ran an office, sure there was costs for energy and real estate, but they were minimal.

        MY BIGGEST COST BY FAR WAS LABOR.

        Energy cost me around 1% of revenue, and rent was 5% at most. OTOH, labor was close to 50%, and I am sure my situation was hardly unique.

        Clearly with unemployment higher, the pressure to pay higher wages is less.

        I just talked to a restaurant owner who says that his business does best when real estate blows up. He said that the real estate folks are great waiters because they know how to handle difficult customers and put on a happy face.

        And how much of your monthly budget is devoted to commodities that you currently need? For the most part, that is limited to food and energy, and I would be shocked if that made up more than 25% of your monthly expenses.

        What I would ask Faber is if gold is so damned great because of its limited supply, why isn't land better?

        <but when it comes to things like food, and other commodities, you have to look to the rest of the world to see what might be going on.>

        That is ridiculous, Winny. You think U.S. labor costs have nothing to do with food prices? I guess those blueberries pick themselves.

        Midwestern U.S. floods had a lot more to do with corn prices than Indian demand.

        <The real inflation kicker comes a little later and that has to do with Faber's concerns WRT deficits and the Fed's increased need to print because their simply won't be the demand for the amount of bonds necessary to finance the shortfall in fiscal revenues for the years to come.>

        You guys don't even get the deflationist argument. To us, Faber's scenario would be orgasmic in comparison to the one we see.

        The reason that there is going to be continued demand for U.S. T bills and bonds is because bonds are the only asset class that have the chance to give you a positive return. With deflation, all other asset classes give you a negative return. A 1% return looks pretty good when all other classes are giving you -10%.

    • BTW -

      This socialism from England is far too liberal. Just about anybody whom can land on their shores over there can immidiatly receive housing, food, transportation and HC.... for free.

      Something has to give there... and it will. The Brits are on a coarse for massive failure, it's just a matter of time before something will give first... the Empire or the programs.

    • Only thing that might save the Brits is Falklands oil but the question remains if there's any there.

      Of course Argentina won't exactly be cooperating.

    • Gotta love the strength of TEVA shares musk.

      I've followed the company for years, owned it a few times... but not for long enough to make the big gains.
      The company seems to do little wrong and just about everything right.
      I'll look to buy some around $60.

      GLTY

    • <<I BELIEVE THAT RUSH, FOX, AND EVANGELICALS SUPPORT THE REPUBLICANS AND THAT ORGANIZED LABOR, HOLLYWOOD AND RIGHT-TO-CHOOSE-LIBERALS SUPPORT THE DEMOCRATS......AND WALL STREET SWINGS BOTH WAYS -- AS ONE MIGHT EXPECT. >>

      Used to also be that the Reps stood for less obtrusive and smaller govt but recent history has shown us that that is not necessarily the case.

      So now we have two parties that appear to want to grow the influence of govt over our lives...albeit in different ways.

      With the Democrats it might be WRT HC, education (content and delivery) and social entitlements, while with the Reps it might also be with education ( content) and with pentagon/military type expenditure.

      The trends are clear, govt expenditure as a proportion of overall spending in the economy keeps growing under both parties and I think this is dangerous.

      Look at Greece.

      not sure where you stand on CO2 as an environmental pollutant (and cause of AGW) but this is another area where govt under either political party appears poised to flex it's muscle though I 'd have to say the Dems scare me much more in terms the extremes they might go.

      The concept of an Climate Change Industrial Complex that is out to profit from this agenda is not lost on me and I fear the lengths that folks like Gore (and some of his current business 'partners' who are former Goldman alumni) and Jones at the CRU in the UK really makes me wonder.


      The fact that the IPCC and the data that they relied on has been totally discredited in terms of it's intellectual honesty and govt continues down this road of regulating CO2 in order to prevent climate change is an insult to our intelligence and a huge waste of resources.

      To the extent Govt wants to improve energy self suffiiciency and reduced reliance on imported energy is fine but CO2 is a totally different issue and an unneeded distraction.

      please don't tell me you agree with CO2 abatement regulation!

    • Winny:

      I will be the first to admit that I am not qualified to assess the relative merits of healthcare systems around the world, much less climate legislation (C02, etc.), nor can I offer any panacea for what ills the American body-politic.

      But I do want to offer the following anecdote: When we left California 4 years ago, my wife and I have a private-pay Blue Cross health plan that cost us $1000 a month... (this was the same plan they want to increase by 34% this year alone). I got to see an in-plan GP for $10 per visit and the plan covered almost nothing else until a $3500 deductible was paid. So I had an annual cost of over $12,000 and if anything serious had happened that cost would quickly have exceeded $15,000. I think that is crazy!!!

      In Brazil I pay around $300 a month. I see the GP and get tests for free. I pay for meds. If anything serious happens I have hospitalization, though in that case all bets are off.

      But, my Brit friends don*t bother with Brazilian insurance b/c they are confident that they acn hop a plane and get into a hospital back home for any special care they should require. My Swedish pal had a pace-maker installed, basically for free, and when the battery needs replacement they will also do that, for free.

      As I get older, I am quickly becoming a fan of socialized medicine.

    • No doubt the news coming the next few days has the potential to rock the markets, gotta be careful here, especially at this resistance point.

      GLTY too

    • Win: *I think technology can make a big difference in cost savings in U.S. HC delivery if only the existing system would be made to compete. And it's not necessarily hi tech solutions that are needed.*

      That is the investment thesis... what are the investments?

      I am aware of a company called Cerner (CERN) that is helping to computerize medical records and otherwise bring digital tech to HC... But having tripled recently,sporting a 37 pe (24 forward pe) and financial profile that is average... I think it way over-valued.

      Other investments to consider?

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