Deflationary Spiral CALL...by NathansEcoEdge

[icm63]

http://economicedge.blogspot.com/2009/08/week-in-charts-buckle-heck-up.html

Lots of charts...balancing view !

To prove my point, I’m going to show you the week in charts courtesy of the St. Louis Fed. This week, however, I’m issuing a WARNING. The evidence in these charts points to the beginning of a DEFLATIONARY SPIRAL. The PPI data comes out next week and will be a key piece of evidence in this regard. The results of a deflationary spiral will be UGLY if entered.

1988
1989

That’s a pretty clear picture to me, one of DEFLATION at work. It is accelerating, not decelerating. That is a HUGE divergence from what’s occurring in the equity markets and from what you hear on television from the supposed experts.

I think we are on the precipice of a self-reinforcing deflationary spiral. The data is historic. The disconnect between the data and perception is historic. The Fed is attempting to do a magic trick by printing their way out of debt – it’s a trick that has NEVER worked throughout the history of mankind and will not work to create real growth now.

Debt is the ball, keep your eye on it and you’ll see through the Fed’s attempted magic trick and slight of hand!


SELL YOUR GOLD.....to me at $650 USD


EJ and Fred/Metalman(TinMan/PlasticMan).. please de bunk !

NOTE: This not my position. However I am short term $USD bullish !

[bpr]

EJ and Fred/Metalman(TinMan/PlasticMan).. please de bunk !

NOTE: This not my position. However I am short term $USD bullish !

I can't speak for the gurus here, but I agree with both positions.

I think the difference is in time horizon. Itulip doesn't typically make short-term calls, as evidenced by the rarity of trading advice.

This post (http://www.itulip.com/forums/showpost.php?p=115987&postcount=871) in the select section is an indicator, however, of the Itulip position. Note the chart annotation: "Get ready for another round of Deflation talk."

Note to Fred: They're here.

Itulip is talking long term, sometimes 10 or more years out.

Take a good look at the preceding ten years on those charts (yours and Fred's). 5+ years of 2.5% or more inflation is not unravelled by two or three (or maybe TEN) quarters of deflation. When you consider the modus operandi of the financial industry over those years ("liar loans," artificially low interest rates, and high rates of Mortgage Equity Withdrawals), one can see that the inflation was itself unjustified, were our currency more strictly regulated.

Here's (http://www.itulip.com/forums/showpost.php?p=102512&postcount=11) a great MM post that points out the lengthy decline in the GBP; it's implied, I think, that the USD decline will take many years.

There is the (IMO) remote possibility (yet frequent talk) of a geopolitical event that would hasten the process of dollar devaluation, but the fact remains that no currency stands that can readily replace the dollar's reserve status in the short term (say, eighteen months, minimum). Absent such an event, unravelling the USD denominated debt and restructuring economies to surpass the US will take bureaucratic time.

If your time horizon is infinite, being right is all that matters.

In the world of investing -- especially short trading -- if you get the timing wrong, you get the whole call wrong.

Not sure if I'm interpreting correctly, but this is how I read it, and things are only confused when trader-oriented threads are mixed with Itulip thesis concepts. It's counterproductive, because trading requires a specific time horizon; the thesis does not.

I believe that the thesis will work out over the long term. There is no other comprehensive, cohesive and coherent explanation for what's happened over the last ten or so years and how it will eventually play out. Between now and the day of reckoning, however, there may be many opportunities that run contrary to the thesis.

EDIT: This post (http://www.itulip.com/forums/showpost.php?p=116276&postcount=12) by rjwjr puts it more succinctly and illustrates it with the Peak cheap oil chart: up then down then up then down... with higher ups and higher downs every time. That's inflationary over the long term, while there may be periods that appear deflationary along the way.

To the gurus: am I getting it?

[babbittd]

Everyone knows that food and energy prices spiked in the Spring into early Summer of 2008. Prices have declined (and this is true almost across the board for commodities), but not below Q4 2007 levels when the economic event began. PPI less food and energy is up since Q4 2007.

edit: This chart is yet another that says it all:
http://i29.tinypic.com/2iv1d91.gif

[sunskyfan]

I agree with the Deflation call and the USD call.

I am not sure that the coupling of gold is so strong. When gold is no longer a hedge but a panic play strange things may happen. "Who needs a gun when no one can get ammunition?" ... that sort of thing.

[thedanimal]

The burden of proof is on Nathan to debunk iTulip, not vice versa. There is no track record for Nathan - he started posting in late 2008. A few charts does not a compelling thesis make.

[sunskyfan]

The burden of proof is on Nathan to debunk iTulip, not vice versa. There is no track record for Nathan - he started posting in late 2008. A few charts does not a compelling thesis make.

I am not sure that either are in a debunking contest. I would find it difficult to come to the conclusion that itulip was wrong and irrelevant even if the inflationary surge does not come. Don't fall into a deterministic trap in a non-deterministic problem :).

[thedanimal]

I am not sure that either are in a debunking contest. I would find it difficult to come to the conclusion that itulip was wrong and irrelevant even if the inflationary surge does not come. Don't fall into a deterministic trap in a non-deterministic problem :).

icm63 specifically called on EJ & Fred to "de bunk" (sic).

I agree with your second sentence!

[metalman]

http://economicedge.blogspot.com/2009/08/week-in-charts-buckle-heck-up.html

Lots of charts...balancing view !



1988
1989



SELL YOUR GOLD.....to me at $650 USD


EJ and Fred/Metalman(TinMan/PlasticMan).. please de bunk !

NOTE: This not my position. However I am short term $USD bullish !

nothing new here.

http://www.itulip.com/images/deflation_whackamole.gif

two dozen articles here over 10 yrs debunk this kinda junk.

how about this one, right on the front page?

Does USA 2009 = Argentina 2001? Part I: Falling economy reaches terminal velocity - Eric Janszen (http://www.itulip.com/forums/showthread.php?p=106493#post106493) http://www.itulip.com/forums/../images/peso150.jpg (http://www.itulip.com/forums/showthread.php?p=106493#post106493)June 26, 2009, iTulip

• Slowed by green parachutes
• Bond market suspends disbelief
• Why China is nervous
We have all heard that the U.S. economy cannot go the way of Argentina in 2001 when foreign investors expressed lost confidence in the government by refusing to roll over maturing short-term government bonds. Money fled the country as foreign currency reserves dwindled. A balance of payments crisis facilitated by investor panic led to the very outcome investor’s feared: the world’s largest ever sovereign bond default, a collapsing currency, and hyperinflation.


http://www.itulip.com/images/bartoninflation.jpg

[rjwjr]

I don't have the "whack-a-mole" graphics capability of Metalman, but I do agree with his point in that EJ and the gang have debunked the deflation theory on multiple occasions, and if recollection serves me correctly, with greater confidence each time.

bpr mentions that there may simply be a time horizon issue between the (short term) deflationist calls and the (long term) inflationist calls. Although he argues that point persuasively, I think he inadvertently belittles the incredible iTulip record as to both accuracy of prediction AND TIMING. In my experience, they not only get it right, they have an uncanny knack of increasing the strength of their language and the confidence of their convictions with amazing timing. If my understanding of recent posts is correct, they have recently reached one such point of conviction regarding the virtual impossibility of a deflationary spiral, the imminent end of disinflation, and the beginning of inflation anew.

icm, I don't think they can do much further debunking. Their current posts already speak for themselves on that topic...in spite of what a few deflationary zealots continue to espouse.

That's my take anyway.

http://gopherdance.com/img/gofer3.gif

[icm63]

This forum is still a DEBATE... and thats nice !

BUT I see more MESS on the horizon, that will poor cold water on the progress to inflation POOM !

Commercial Real Estate explosion
http://www.calculatedriskblog.com/2009/08/fed-delinquency-rates-surged-in-q2-2009.html

http://www.calculatedriskblog.com/2009/08/fed-lending-standards-tighten-loan.html

The slump in CRE investment is just getting started ...

Remember GOLD little slump (disinflation) from $1000 to $750 on the initial sub prime SLUMP...thats gonna be nothing when the big boy loans on CRE fall down..more disinflation to come !

[pianodoctor]

I hope so! I would love a much cheaper entry point for my next gold purchase.

[icm63]

Its comming... GOLD is a CROWED TRADE LIKE $USD SHORT IS...a shakeout is comming. BUT if no shakeout by late Nov 09...maybe time to BUY the stuff as NOV to MAR are good months for gold.

This is why, I believe, GOLD has not been $1000 plus for any length of time.

[charliebrown]

i also think there is at least one more "deflationary episode" ahead of us.
i think once china stops buying commodities, and the green shoot myth is over, we will see oil and the commodity complex down hard again, just like in march.

gold is a little different though. besides being a inflation hedge it has some other proprerties, which in my often wrong opinon will spare it some of the carnage that will take place.
1) If you own bullion, there is no counter-party risk.
2) It is easy to store, hide and move a large amount of wealth.
3) If the "redistrubtionists", get hold here in the u.s., we will see higher taxes, and more means testing of benefits. money may move into items that are not counted by the gvt, for the purpose of taxation. any paper assets in a brokerage account are there for the plundering.

p.s. if you have any other ideas for storing wealth i'm all ears.
maybe farmland. checked in northeasther ill, lately and it is still to
expensive. whiskey, cigarettes, etc. problem with whiskey is to buy it legally you have to pay the tax man. Once a black market develops a lot of the federal tax premium will be removed, same with cigs.

[Kadriana]

i also think there is at least one more "deflationary episode" ahead of us.
i think once china stops buying commodities, and the green shoot myth is over, we will see oil and the commodity complex down hard again, just like in march.

gold is a little different though. besides being a inflation hedge it has some other proprerties, which in my often wrong opinon will spare it some of the carnage that will take place.
1) If you own bullion, there is no counter-party risk.
2) It is easy to store, hide and move a large amount of wealth.
3) If the "redistrubtionists", get hold here in the u.s., we will see higher taxes, and more means testing of benefits. money may move into items that are not counted by the gvt, for the purpose of taxation. any paper assets in a brokerage account are there for the plundering.

p.s. if you have any other ideas for storing wealth i'm all ears.
maybe farmland. checked in northeasther ill, lately and it is still to
expensive. whiskey, cigarettes, etc. problem with whiskey is to buy it legally you have to pay the tax man. Once a black market develops a lot of the federal tax premium will be removed, same with cigs.

Amo goes up we have a deflationary period where people feel the urge to horde it. It goes up in an inflationary period where the materials needed to make it go up.

[*T*]

Its comming... GOLD is a CROWED TRADE LIKE $USD SHORT IS...a shakeout is comming. BUT if no shakeout by late Nov 09...maybe time to BUY the stuff as NOV to MAR are good months for gold.

This is why, I believe, GOLD has not been $1000 plus for any length of time.

Gold is still a good hold in a deflation spiral. It is cash-like, so its purchasing power is going to increase in any 'flation. Try not worrying about the nominal price too much and looking more at the ratio to oil, copper, platinum and stocks. While platinum was a better buy a while ago (I wanted to (http://www.itulip.com/forums/showthread.php?t=7030), but didn't find a safe and convenient way to do so) I am still happy holding bullion.

[bpr]

bpr mentions that there may simply be a time horizon issue between the (short term) deflationist calls and the (long term) inflationist calls. Although he argues that point persuasively, I think he inadvertently belittles the incredible iTulip record as to both accuracy of prediction AND TIMING. In my experience, they not only get it right, they have an uncanny knack of increasing the strength of their language and the confidence of their convictions with amazing timing. If my understanding of recent posts is correct, they have recently reached one such point of conviction regarding the virtual impossibility of a deflationary spiral, the imminent end of disinflation, and the beginning of inflation anew.

It wasn't my intention to challenge the iTulip record as far as timing and trading, only to point out that there are two types of discussions happening here: what's going to happen and how to trade it.

When iTulip makes a trading call (e.g. Time to Short Commercial Real Estate; Time to Short the S&P 500; or, more recently, consider taking a small short position on China equities), the timing has an impeccable record.

When iTulip makes a thesis statement, or a macroeconomic call, the timing is hazier: the dollar will be devalued, and inflation is coming, but it may take years, barring a geopolitical event, causing a sudden stop.

Sometimes short-term traders want to reconcile short-term opportunities with long-term macro calls, which is not going to work.

A five-mile detour will not change the direction of a 5,000 mile journey.