Deflation - Welcome to America.

[Zander]

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.

February 4, 2010
Dow 10,002.18 -268.37 -2.61%

Nasdaq 2,125.43 -65.48 -2.99%

S&P 500 1,063.11 -34.17 -3.11%

10 Yr Bond(%) 3.6100% -0.9300

Oil 73.21 -3.77 -4.90%

Gold 1,062.80 -48.60 -4.37%

 

[RodISHI]

Who is it going to get ugly for and why?

 

[Toro]

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.

 

[Zander]

Who is it going to get ugly for and why?

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.

 

[Neubarth]

Who is it going to get ugly for and why?

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.

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?

 

[The Rabbi]

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?

 

[Toro]

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.

 

[Neubarth]

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?

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?

 

[Zander]

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?

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.

 

[RodISHI]

Who is it going to get ugly for and why?

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.

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.

 

[RodISHI]

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?

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?

[ame=http://www.youtube.com/watch?v=JHBCf5ioge0]YouTube - Wilson Pickett - In the Midnight Hour (live)[/ame]

 

[Neubarth]

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.

I don't see Greece a little fart of a country with a very small industrial base being a real threat to the Euro. That would be like us claiming that Quatemala could bring down the North American Union. Tain't gonna happen.

 

[SFC Ollie]

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?

I am wondering just how this administration has printed so much cash and yet managed to have zero inflation. Goes against every economist I've ever heard of. Can someone be fudging some numbers somewhere?

 

[Zander]

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?

I am wondering just how this administration has printed so much cash and yet managed to have zero inflation. Goes against every economist I've ever heard of. Can someone be fudging some numbers somewhere?

Ollie, while I think the government is great at fudging numbers (unemployment is a perfect example) , the reason we have not experienced inflation is because "currency" is only a small part of the monetary picture. The amount of "Credit" is approx. 100x larger. When asset bubbles burst "credit" contracts. That is deflationary.

 

[Zander]

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.

I don't see Greece a little fart of a country with a very small industrial base being a real threat to the Euro. That would be like us claiming that Quatemala could bring down the North American Union. Tain't gonna happen.

It's not just Greece, it is Spain, and Portugal as well.

 

[Toro]

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.

I don't see Greece a little fart of a country with a very small industrial base being a real threat to the Euro. That would be like us claiming that Quatemala could bring down the North American Union. Tain't gonna happen.

I don't think Greece is a threat to the euro per se either. The euro will survive, even if Greece gets booted out. Greece has been in default on its debt for about half the time over the past 200 years, so nobody is surprised that Greece is in trouble.

The problem is contagion. Speculators are now going after Portugal, and may go after Spain and Italy next. All this weakens the euro, which was being viewed as a possible alternative to the dollar as a reserve currency.

The euro had been bid up too high, and is still overvalued, based on a purchasing power basis, i.e. what a similar basket of goods between the two places costs. On purchasing power, the euro is worth $1.20-$1.25, but it could fall farther than that. Remember, it was $0.85 a decade ago.

Having said that, I covered a fifth of my euro short position today. It has fallen far, fast. If it continues falling, I will continue to peel off my short.

 

[SFC Ollie]

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?

I am wondering just how this administration has printed so much cash and yet managed to have zero inflation. Goes against every economist I've ever heard of. Can someone be fudging some numbers somewhere?

Ollie, while I think the government is great at fudging numbers (unemployment is a perfect example) , the reason we have not experienced inflation is because "currency" is only a small part of the monetary picture. The amount of "Credit" is approx. 100x larger. When asset bubbles burst "credit" contracts. That is deflationary.

That's why I don't claim to be an economist. I'm lost. But that's ok, I have other strengths.

 

[Toro]

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?

I am wondering just how this administration has printed so much cash and yet managed to have zero inflation. Goes against every economist I've ever heard of. Can someone be fudging some numbers somewhere?

No.

The reason why is more frightening.

The collapse of the housing bubble is enormously deflationary. All debt collapses are. The money that is being printed is being done so to avoid tremendous deflation.

Eventually, we'll get inflation. It is, I believe, the only way that the US will absolve all the debt it will print over the next decade.

 

[The Rabbi]

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?

I am wondering just how this administration has printed so much cash and yet managed to have zero inflation. Goes against every economist I've ever heard of. Can someone be fudging some numbers somewhere?

No.

The reason why is more frightening.

The collapse of the housing bubble is enormously deflationary. All debt collapses are. The money that is being printed is being done so to avoid tremendous deflation.

Eventually, we'll get inflation. It is, I believe, the only way that the US will absolve all the debt it will print over the next decade.

I would tend to agree. Inflating the currency doesn't require an act of Congress. And it has plausible deniability.
When the economy begins to recover and we see more demand then inflation will spark up. Unless the Fed begins to pull back. And their record here is poor.