Deflation - Welcome to America.

Discussion in 'Economy' started by Zander, Feb 4, 2010.

  1. Zander
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    Zander Platinum Member

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    What do you call it when Stocks, Bonds, Real Estate, and Commodities all fall in value at the same time? It is called DEFLATION. That is what is happening right now. Brace yourselves, it is about to get very ugly.......You cannot spend your way out of debt. You cannot tax your way to prosperity.

     
    Last edited: Feb 4, 2010
  2. RodISHI
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    RodISHI Gold Member

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    Who is it going to get ugly for and why?
     
  3. Toro
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    Toro Diamond Member

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    It's also called "correlation trades."

    This is being driven by the problems in Europe. Sovereign collapses are scary, and are deflationary. This is likely to continue for awhile. We'll see what the ECB and the member governments do.
     
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  4. Zander
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    Zander Platinum Member

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    We have a number of deflationary events occurring all at once: a massive credit contraction, sovereign debt implosions abroad, and asset bubbles bursting in real estate and equities. Add in economic uncertainty from massive deficit spending, high unemployment, and higher tax rates and it looks pretty bad for investors.

    So, who will get hurt? Everyone and anyone who holds real estate, commodities, stocks, or bonds will be hurt by declining asset values. The only safe asset is cash. Despite the media's talking down of the US Dollar, the greenback should rally (it has risen around 10% in the last 3 months and is on an uptrend) especially in times of worldwide uncertainty and when the Euro is facing a major problem with Greece, Portugal, and Spain. The smartest thing to do is move all your investments into T-Bills (via treasury direct) or a Treasury money market account. I wouldn't sell your home unless you planned to anyway, but if you have a taxable brokerage or mutual fund account, 401K, or IRA invested in stocks or bonds, it might be wise to move into T-Bills or other "Federally backed" bonds with a duration of 90 days or less.
     
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    Last edited: Feb 4, 2010
  5. Neubarth
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    Neubarth At the Ballpark July 30th

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    For some reason I am long DXD and also long short term treasury notes. That is not the position for a Liberal. Something is wrong with my Liberalism. I am beginning to feel that I am a phony. Alas, I am dismayed. Could I be a total charlatan?
     
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  6. The Rabbi
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    The Rabbi Diamond Member

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    If you post here regularly it is a strong indication.

    I would have thought gold, as a safe haven, would be up. To see all asset classes decline is troubling. But I wouldn't make too much out of one day.
    And where is all the inflation we've been promised?
     
  7. Toro
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    Toro Diamond Member

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    Gold declined sharply in the fall of 2008 when markets were collapsing. I view gold as a reflation asset, not as an asset of fear, though gold did perform better in the winter of 2009 as markets plunged to lows. It may be that with the sovereign debt crises, which I believe is just beginning, gold will rebound. But Zander is correct. Debt crises are deflationary, and despite what gold bugs tell you, deflation should be bad for gold. I believe that the ultimate end game is that all fiat currencies will debase, and gold will eventually hit new highs, but it is clear that the market is telling us that gold is right now a deflation asset.
     
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  8. Neubarth
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    Neubarth At the Ballpark July 30th

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    Gold is just a pretty yellow metal. Gosh, I can feel myself becoming more conservative as we approach midnight. What is it with the midnight hour?
     
  9. Zander
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    Zander Platinum Member

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    We'll get inflation, eventually. But we need to work out these deflationary forces first. Credit contraction is severely deflationary - there is literally 100x more credit than currency. The Credit market crashed -that is DEFLATIONARY. The Fed has been trying to fight it with quantitative easing and low interest rates, but they are running out of steam and the crisis' in Greece, Portugal and Spain aren't helping. Deflation is usually swift and brutal. But once it is done, it's done. Then we can deal with inflation.

    Gold is not a hedge against deflation but inflation. During deflationary periods the only safe place is Treasury -Bills or hard currency. Plenty of Banks will fail with severe deflation, so you might want to keep some currency on hand in case we have a run on banks. It probably won't get that bad, but it never hurts to be prepared.

    I am confident that we will come through this, but not without a lot of pain.
     
    Last edited: Feb 4, 2010
  10. RodISHI
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    RodISHI Gold Member

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    We don't have any IRA's, cash, etc. but, when we did I always considered T-bills and federally back bonds the best investment and the safest for large amounts. Then truthfully knowing what I have seen already I find the fed hard to trust at this point so I'm not sure if I had cash that is where I would personally put it. I think at the moment that is the way a lot of folks feel.

    We spent everything we had developing the mine. Just from my perspective looking at things as a non-investment type person if I had any cash to invest (I would consider that money I really was not concerned with) I would put it into more secure type projects here at home. Small and light manufacturing that would produce low amp appliances that could be ran with 12 volt or natural gas and projects like that, natural food products (GMO free seeds), private primary schools. Anything that could help people get to work in local communities and be good long term for the communities is what I would want to put money in if we had any.
     

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