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View Full Version : Fed cuts dollar, Fire sales vs FIRE sales, Duh-flation, and Bezzle shrinks again - Eric Janszen



EJ
12-16-08, 01:36 PM
http://www.itulip.com/images/santa.jpgFed cuts dollar, Fire sales and F.I.R.E. sales, Duh-flation, and the Bezzle is shrinking... again

US consumer swan song means cheap now, cheaper later, then expensive -- it’s all about supply; there's never just one financial fraud, so check your docs; Duh-flation: Monetary policy is political not mechanistic; Rate cut follies: the Fed cuts the dollar

March 30, 2000 we were the first to note (http://www.itulip.com/urgentmessage.htm#NASQAQ) that a chunk of the money supply that John Kenneth Galbraith referred to in his 1954 book “The Great Crash 1929” as the bezzle, derived from the word embezzlement, grows when money is free flowing during a boom and no one is motivated to ask why. The bezzle shrinks when, after a financial bust investors start counting up the money they have left only to discover that not only has Mr. Market taken away a good amount but another pile was stolen by crooks. For Bernard Madoff’s hapless investors, if allegations turn out to be true, the amount left over appears to be zero and the bezzle an astonishing $50 billion, a new record for a single incident.
To the economist, embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or even years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in -- or more precisely, not in -- the country's businesses and banks. This inventory -- it should perhaps be called the bezzle -- amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression this is all reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks. - John Kenneth Galbraith, 1954
With the collapse of Bernard Madoff’s world class self-described Ponzi scheme this week, the bezzle shrank by $50 billion. The news on the story today is that the scheme looks to be a garden variety racket that anyone could have discovered if they’d applied the simple rule that if the returns are too good to be true, then the investment is probably a scam. But human nature being what it is, too good to be true is what everyone wants, so scams go undiscovered for years. That is especially likely in the case of a scam that is big enough to pay off regulators.

Ten years after Galbraith’s 1954 book, the $50 billion just lost in a single instance of embezzlement represented the entire U.S. net capital inflow of foreign assets in the first quarter of the year 1964. In Q1 2008 that number grew 10 times larger, to $465 billion. However, in a stunning turn, in the following quarter that sum fell to $26B. But I digress.

As I pointed out back in March 2000 writing for Bankrate.com (http://www.bankrate.com/brm/news/investing/19991129f.asp?keyword=), revelations of fraud are a standard feature of all financial bubble periods. Also, financial frauds are like cockroaches, there’s never just one; you can bet millions of hedge fund investors are pouring over their investment docs this week.

In 1954 US GDP was just over $3 trillion versus $13 trillion in 2008 -- or is it $12 trillion, or $11 trillion? At the rate the US economy is collapsing, guessing at this year’s GDP is like trying to toss watermelon into getaway car chased by cops on truTV. Until the FIRE Economy finishes burning out, we won’t know how much of the US GDP was credit industry bezzle extracted from the Production/Consumption Economy, that is, how much economic growth measured as GDP came from actual production versus the portion “earned,” if that is the word, by financial firms by swapping inflated assets back and forth.

The latest data from ECRI indicate that the US economy on track to contract to near its pre-FIRE Economy level. Already automobile unit sales are back to 1983 volumes. A full retrace of the FIRE Economy puts US GDP around $6 trillion, less than half 2007 GDP. I don’t expect that to happen; a solid portion of the technology-driven New Economy is real, so a decline to 1995 levels, around $9 trillion, is more likely, near the scale of decline experienced during The Great Depression. That may sound dire, but then when I told readers three years ago that the housing bubble was going to collapse and send the financial system and economy into the worst crisis in 70 years, that sounded dire, too.

US consumer swan song: Cheap now, cheaper later, then expensive -- it’s all about supply

Early next year expect a Great American Consumer Fire Sale to follow on the heels of the Great American FIRE Economy fire sale of financial assets that began in 2006. While the FIRE Economy fire sale was in houses, stocks, and all bonds but US Treasury bonds, with particularly heavy depreciation in securitized debt, The Consumer Economy Fire Sale starting in Q1 2009 will be familiar to anyone who lived through the 1980 to 1983 recessions when the Volcker Fed slammed the economy in a three years of contraction with rate hikes that created double digit unemployment and brought inflation down from over 12% to under 0% -- yes, resulting in a brief episode of actual deflation. Ask any old-timer coin dealer that survived it. Armageddon for them, nirvana for the FIRE Economy.

The major difference between the 1980 to 1983 recessions and the one that started in Q4 2007 as iTulip alone forecast in Oct. 2006: the Fed created the 1980 to 1983 recessions on purpose. This one is running on its own, out of control, with no apparent obstructions – fresh sources of credit, cash, or income -- to brake the fall.

Many retailers, especially discount chains, have already cut prices to cost. Shopping with the wife at a nearby Mall this past weekend we spotted tumbleweeds rolling down the isles of full price, brand name retailers while discounters offered goods Made in China, Indonesia and other lands at absurdly low prices.

The shoppers marveled. They felt rich, no doubt, as they snapped up the well crafted goods using cash and credit earned at an exchange rate value they may not see again for many years, unaware of the ephemeral quality of the precious purchasing power they wield this holiday shopping season in the final act of a 35 year consumption fantasy financed by other peoples' savings.

The spectacle evoked images of ill fated vacationers picking fish up off the exposed sea floor at Bali resort beaches before the tsunami waters rolled back in to drown them, and the story of the young girl who happened to learn about tsunamis in school the week before and, recognizing the danger, talked her family into running for higher ground. I could not help thinking that a year from now many shoppers, blissfully unaware of the economic calamity that awaits them, will wish they’d understood the perversely low prices as a warning of economic trouble ahead and saved their money for later.

The holiday retailer strategy: those left with the least inventory after Christmas live to fight another day. Then the first half of 2009 goes like this.


After Christmas sale 20% to 50% off
Liquidation sale 50% to 80% off
30% to 40% of retailers go out of business

Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods import supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation.

Leading us to the latest installment of the inflation versus deflation debate.

Duh-flation: Monetary policy is political not mechanistic

It's about time to give up debating inflation and deflation with anyone who does not distinguish between asset prices in the FIRE Economy and commodities, goods, services, and wages prices in the Production/Consumption Economy. It’s a waste of time, like arguing with your dog. He doesn’t speak human, so everything you say to him sounds just as incomprehensible as everything he says to you, the human equivalent of woof, woof, woof. Simple ideas do get through, however, like holding the door open and barking “out!” to indicate it’s time to go pee.

In that spirit, we offer up a video located by eagle eye iTuliper LargoWinch created in 1933 to -- get this -- sell the American public on the benefits of inflation. In so doing we can demonstrate a principle even the most diehard deflation spiral believer can comprehend: government can create inflation if it wants to. It's just a matter of whose ox gets gored.

Before we show it to you, we'll first watch the opposite sales pitch from 1980 that is more familiar to readers, at least to those of us who grew up in the Reagan era when inflation overspread the land. It’s a movie starring Milton Friedman selling the public on disinflation, that is, a falling rate of inflation. (Stay with me, here -- it’s not that complicated. Inflation, whether in assets or commodities, is a positive rate of inflation such as 1% or 10%. Disinflation is a falling rate of inflation such as from 5% to 2%. Deflation is a negative rate of inflation such as -10%.)

Why, you ask, did the public have to be sold on the idea of lowering inflation? Wasn’t the torment of inflation obvious? Not to the man on the street. During a high inflation but below hyperinflation nominal wages go up, prices go up, interest rates on CDs go up, home prices go up. Everyone feels richer because inflation creates the illusion of increased value, at least if wages keep up -- except financial firms. They get their ass kicked as the purchasing power of income generated by capital gains on interest bearing contracts disappears. Wage and price contracts within the Production/Consumption Economy, however, can adjust to much higher rates to inflation without incident, up to a point – up to a 40% annual inflation, provided the inflation does not spiral out of control. Low inflation rates benefit the FIRE Economy far more than the Production/Consumption Economy.

What the Fed had in mind in 1980 that had to be sold to the public was tough medicine: high interest rates and three grueling years of recession. The government had to make the case that the pain was worth it.


<object height="344" width="425"><embed src="http://www.youtube.com/v/J2yLzISKKHA&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>
5 minutes and 45 seconds


Sold! Let’s turn off the printing presses and kill the bad inflation! Thanks, Dr. Friedman, for selling a central tenet of the FIRE Economy – low inflation -- to the masses. (No hate mail from the Friedman fans out there, please. I'm a fan, too. But that does not change the fact that the FIRE Economy ran under the banner of Free Markets, with Friedman as the lead academic. Today it runs under the banner of Change.)

Now we go to the opposite case, back in 1933. A privative version of a FIRE Economy had a run in the US from 1925 to 1933. After it collapsed in 1929, asset price deflation spilled over into the Production/Consumption Economy in the 1930s. As unemployment increased to 25%, drastic anti-deflation policy was called for, the very opposite of what Friedman sold 47 years later in 1980. In 1933 Production/Consumption Economy leadership was elected in the person of FDR, and deflationary monetary policy followed by FIRE Economy leader President Hoover was about to change.


<object height="344" width="425"><embed src="http://www.youtube.com/v/99Dzdc1H0wM&hl=en&fs=1" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" height="344" width="425"></object>
Runtime: 10min 32 sec.

This movie tells us two things. One, that FDR’s planned inflation program (see Ka-Poom Theory is a Rhyme not a Repeat of History (http://www.itulip.com/forums/showthread.php?p=2905#post2905)) was, like the anti-inflation program of the 1980s under Reagan, not expected to go over well with the public, but for the opposite reason. The anti-inflation program was executed at the expense of wage earners in the Production/Consumption Economy for the benefit of FIRE Economy interests. Conversely, the anti-deflation program that started in 1933 was intended to accomplish the opposite, to kill off the remnants of the 1925 to 1930 FIRE Economy for the benefit of the Production/Consumption Economy. The movie was an attempt to inoculate the public from the onslaught of self-serving advice issued by the purveyors of the FIRE Economy, "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate . . . purge the rottenness out of the system," not to mention the howling that issued from holders of bonds, soon to be wiped out, or gold, soon to be subject to confiscation. (Note to gold owners: a critique of the FIRE Economy is not an endorsement of pro-inflation policy. Here at iTulip we avoid "four legs good, two legs bad" over-oversimplification for readers who are interested in understanding what we refer to as The Inexorable Logic of the American Political Economy.)

This, readers, is why you see Treasury bonds at 0.00% and gold over $800 versus $400 where the deflation spiral believers earlier this year forecast the price to be by now. Treasury bond and gold prices reflect portions of a vast pool of money fleeing the collapsing FIRE Economy into the two assets that perfectly split the two political risks that now confront investors. One, that the new administration will persist with marginal and ineffective policies to fight asset price deflation which will thus continue to spill over into the Production/Consumption Economy and, two, that either the new administration will change course or another administration will execute drastic and effective anti-deflation policies once unemployment levels become politically untenable. My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner.

Keep an eye out for a YouTube video then lamenting the scourge of deflation and promoting an old idea re-tread and marched out as a modern monetary policy cure – new again as in 1933 – inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold.

Remember when you see that video that you heard it here first.

Also, look for the deflationists to begin changing their tune as they catch on to the deal. They will modify their old forecasts of a wage and commodity price deflation spiral to call for a period of deflation followed by inflation without acknowledging their shift to iTulip Ka-Poom Theory. Count on it.

Rate cut follies: Fed cuts the dollar

Back in February we expected the Fed to stop targeting price of money and instead the quantity after cutting rates to 2%.

Zero Bound Diaries: Is Bernanke Volcker's Mirror Image? (http://itulip.com/forums/showthread.php?t=3223)
The Bernanke Fed will use interest rate policy to stay in the low inflation/stable price zone until they see the high deflation zone approach at which point they will start to target monetary aggregates, not interest rates, much as Volcker Fed did to get out of a high inflation zone, but in reverse (http://www.frbsf.org/education/activities/drecon/2003/0301.html).

If that’s the case, the main trick for investors going forward is the figure out when to stop watching interest rates because the Fed is targeting money aggregates. Obviously this is made more difficult by the fact of the Fed no longer issuing official broad money aggregate (M3) data. My gut says the switchover occurs when the Fed funds rate drops below 2%, but perhaps the Fed has switched over already.
As the chart below shows, the Effective Fed Funds Rate today stands at 0.14%.


http://www.itulip.com/images/fedfunds121608.gif


Despite appearances, a cut in the target rate is not merely symbolic. Rate cuts still have a reflation role: they cause the dollar to depreciate.

A quick review of this year's rate cuts so far and a forecast.

Jan. 22, 2008: 4.25% to 3.5%
Stock futures fluctuate violently after Fed cuts interest rates (http://blog.oregonlive.com/breakingnews/2008/01/stock_futures_fluctuate_violen.html)

U.S. stocks were expected to plunge Tuesday after the Federal Reserve, responding to a growing financial market crisis, slashed interest rates 0.75 percentage point.

Dow Jones industrial futures, down more than 500 points, or more than 5 percent, before the Fed move, were fluctuating violently an hour before the start of trading, gave up much of their improvement and were down 427, or 3.53 percent, at 11,679 shortly before the opening.

The Fed's move was unsurprising, given that world stock markets were falling precipitously the past two days, and that U.S. stocks had tumbled last week amid growing fears of a recession in the United States. Still, the markets remain quite anxious, not sure that even interest rate cuts will lift an economy slammed by an ongoing housing and credit crisis.

The Fed's decision to cut its federal funds rate to 3.50 percent and the discount rate, the interest it charges to lend directly to banks, came a week before the central bank's regularly scheduled meeting, a sign that the Fed recognized the seriousness of the world financial situation.

Jan. 30: 3.5% to 3%


Stocks fall after expected rate cut (http://www.nj.com/business/index.ssf/2008/01/stocks_fall_after_expected_rat.html)

A still-anxious Wall Street closed lower Wednesday, sacrificing the advance it made after the Federal Reserve cut interest rates half a percentage point. Investors collected profits after nearly three sessions of big gains, unwilling to leave money on the table amid ongoing economic uncertainty.
It wasn't surprising that the market pulled back, having suffered months of losses and having driven the Dow Jones industrials up more than 470 points so far this week ahead of the late-day downturn.
Mar. 18, 2008: 3% to 2.25%
Strong Finish for Markets After Fed's Rate Cut (http://www.nysun.com/business/strong-finish-for-markets-after-feds-rate-cut/73147/)

Wall Street stormed higher today as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve's decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank's benchmark fed funds rate is now at 2.25% � its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.
Apr. 30, 2008: 2.5% to 2%
Stock Drop After Fed Rate Cut (http://www.businessweek.com/investor/content/apr2008/pi20080430_995337.htm)

Bernanke & Co. trimmed the Fed funds rate target to 2.0%, but lack of clarity about future moves caused confusion in the markets

The Federal Reserve delivered what Wall Street expected Wednesday afternoon by cutting the key interest rate by a quarter percentage point to 2.0%. But its murky statement dampened the enthusiasm and the early rally in stocks, leaving investors confused about what to expect next.

At the start of the session Wednesday, stocks were buoyed by a preliminary report showing that first-quarter U.S. gross domestic product rose by a better than expected 0.6%, and ADP's private employment index that showed a 10,000 rise in payrolls in April.

Then at 2:15 pm ET, the policy-setting Federal Open Market committee lowered its target on the federal funds rate by 25 basis points to 2.0%, as well as the discount rate by 25 basis points to 2.25%.

The lack of clarity in the Fed's statement about whether or not Bernanke and his crew plan to take a breather in their monetary easing campaign and a less fervent than expected stance toward inflation spurred confusion in the markets. Even more importantly, it sent a signal to currency traders that the firming of the dollar seen in recent weeks wasn't justified. The dollar promptly dropped, while bonds rallied on expectations that interest rates will remain depressed.
Oct. 8, 2008: 2% to 1.5%
(http://www.nj.com/news/index.ssf/2008/10/despite_emergency_rate_cut_sto.html)
Despite emergency rate cut, stock market tumbles (http://www.nj.com/news/index.ssf/2008/10/despite_emergency_rate_cut_sto.html)

NEW YORK - Wall Street extended its huge decline today as an emergency interest rate cut failed to alleviate investors' fears that the paralysis in the credit markets will set off a global recession. The Dow Jones industrials, already down 875 points this week, fell another 150, and all the major indexes were down sharply.
Oct. 29, 2008: 1.5% to 1%
Fed Rate Cut Does Little For Stocks (http://www.channel3000.com/save-money/17828644/detail.html)

Interest Rates Lowered Half Percentage Point

Wall Street got the interest rate cut it wanted, but still turned in a baffling late-day performance, shooting higher and then skidding lower in the very last minutes of trading as some investors rushed to cash in profits after the market's big advance.

The Dow was up nearly 280 points after the Federal Reserve slashed a key interest rate by half a percentage point, but another bout of last-hour volatility wiped out the advance. Some analysts said hedge funds were cashing in their gains, while others said some investors were giving a bleak interpretation to the Federal Reserve's statement on the economy that accompanied its half-point rate cut.

The Dow closed 74 points down at the 8,890 level. The broader market indexes have ended the day mixed.
Finally, our forecast for Dec. 16, 2008.
Dec. 16, 2008: 1% to 0.5%
Fed rate cut sinks dollar and stocks, boosts gold

The Federal Reserve reduced the Fed Funds interest rate to the lowest in history. The weak dollar sent oil and gold higher, while stock prices fell.

The rate cut was seen as largely symbolic as the Effective Funds Rate has not been higher than 0.5% since the rate cut to 1% on Oct. 29, 2008. As of Dec. 16, 2008, the effective rate was 0.14%, close to zero.

Rumors that the Fed is considering further unorthodox and radical monetary policy as interest rates approach zero sent the dollar down. Further weighing on the dollar was the revelation of the collapse of the $50 billion Bernard Madoff fund, run as, in Maddoff's words, a Ponzi scheme for many years under the noses of regulators.

Gold continues to outperform all other asset classes as it has since 1998.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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Chomsky
12-16-08, 02:54 PM
Thanks EJ. This had some of the most colorful and evocative imagery of any recent post.

Chris Coles
12-16-08, 02:56 PM
I had just come in from the village Christmas Carol singing only to see the FED statement showing their aiming point of 0 -1/4% rate range target.

You told us this would happen EJ and it now has..... Merry Christmas Everyone!

Mega
12-16-08, 03:13 PM
Thank You Eric
I enjoyed this no end and it was as clear as day to me. I was wondering what O-Ban-a crew might do & the 1933 video given me an idea.

They allow asset deflation..claim its REAL deflation..then do as the video.....then say that they need to up the money printing to "Kill" the deflation.................then as the inflation comes they bit by bit up rates...........till we get to a 1977-79 type perod were they do a "Volcker"?..................I know you say its differant this time but they must stop the inflation they made?

Or do you think they let Gold float?

Cheers
Mike

jtabeb
12-16-08, 03:49 PM
The major difference between the 1980 to 1983 recessions and the one that started in Q4 2007 as iTulip alone forecast in Oct. 2006: the Fed created the 1980 to 1983 recessions on purpose. This one is running on its own, out of control, with no apparent obstructions – fresh sources of credit, cash, or income -- to brake the fall.



Are you sure about this part, that is this reccession is NOT a deliberate policy choice by the FED?

"This one is running on its own, out of control, with no apparent obstructions – fresh sources of credit, cash, or income -- to brake the fall. "

I absolutely agree, and that begs the question WHY? WHY has there been no policy response to arrest the decline? Could it be that the decline IS supporting a policy objective and that once the policy ojective is met, policy could change. I mean, you would not want to enact policies that would coutervene policy objectives, until those policy objectives had been met, right?

I would observe three things.

1. This ression has destroyed the Hedge Funds that are the alter ego of the bond vigilanties of yester-year, AND on the international front, destroyed the Russian Oligarcs.

I would argue that these were the coordinated policy objectives acheived by this recession.

2. It may have taken 20% intrest rates in the 1980's to arrest infaltion, but because the debt levels were so much higher today, a mere 5-6% FF rate did the trick.

3. The above two are CONSISTENT with a deliberate policy objective set forth by the administration and that makes me question STRONGLY the concept that this was merly and accident.

as an aside (Tin-FOIL HAT TIME), why was Lehman sent 20,000 leagues under the sea when every-single other entity was bailed instead of "failed". Could this have been a descision to support a policy choice vs just a simple "oversight" or temporary idealogical imperative?

I have more questions than answers for these observations, but that does not mean that I think we should not AT LEST address these issues.

V/R

JT

goadam1
12-16-08, 04:11 PM
Uh, stocks are up with gold. So....

mercerbear
12-16-08, 04:24 PM
Nice piece EJ....I may actually try to scoop up durables at bargain prices this spring for the future.


It's about time to give up debating inflation and deflation with anyone who does not distinguish between asset prices in the FIRE Economy and commodities, goods, services, and wages prices in the Production/Consumption Economy. It’s a waste of time, like arguing with your dog. He doesn’t speak human, so everything you say to him sounds just as incomprehensible as everything he says to you, the human equivalent of woof, woof, woof. Simple ideas do get through, however, like holding the door open and barking “out!” to indicate it’s time to go pee.


Haha, I thoroughly enjoyed that paragraph. It is getting old.

jtabeb
12-16-08, 04:26 PM
Uh, stocks are up with gold. So....

Yep, seems to me policy ojective achieved (does that mean bottom is in, not sure, but I think so).

Remember, I'm saying the ploicy objective was targeting a GROUP of players in the finanical markets, not an asset class.

ASH
12-16-08, 04:29 PM
Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods import supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation.

...

My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner.


Passages like these help me prepare psychologically for what the next several years will look like.

I have gone from rejoicing that I have job security for what looks like about 2 years, to worrying about what will happen after 2 years. I'm worried about my friends.

I had been planning for the fire sale, but now I am thinking harder about what is worth buying at the fire sale.

ProdigyOfZen8
12-16-08, 04:33 PM
DJIA rose 359.61 today after you posted this. I assume the market will have a run up and then gradually decline toward the 5000-7100 level.

phirang
12-16-08, 04:34 PM
Yep, seems to me policy ojective achieved (does that mean bottom is in, not sure, but I think so).

Remember, I'm saying the ploicy objective was targeting a GROUP of players in the finanical markets, not an asset class.

Wrong: capital is capital. "They" love hedge funds: they move money quickly to where "they" want it to go.

In the good times, everyone makes money.
In the bad times, only the smart and "established" make money.

Bernanke's job isn't to crush hedge funds: it's to have them do his dirty work for him. he's the general, and they're the nco's.

metalman
12-16-08, 04:40 PM
Uh, stocks are up with gold. So....

i caught that, too. ej forecast a cut to .5% vs to a range of 0% to .25%.

the if, then was...

if no cut then stocks fall hard

if to .75 then stocks fall

if to .5 then do nothing

if to .25 then stocks rally

if to 0 then stocks rally hard

did anyone forecast 0 - .25?

metalman
12-16-08, 04:40 PM
DJIA rose 359.61 today after you posted this. I assume the market will have a run up and then gradually decline toward the 5000-7100 level.

i'm going to kick myself for not taking short positions at the close.

goadam1
12-16-08, 04:41 PM
Finally, our forecast for Dec. 16, 2008.
Dec. 16, 2008: 1% to 0.5%
Fed rate cut sinks dollar and stocks, boosts gold

The Federal Reserve reduced the Fed Funds interest rate to the lowest in history. The weak dollar sent oil and gold higher, while stock prices fell.

The rate cut was seen as largely symbolic as the Effective Funds Rate has not been higher than 0.5% since the rate cut to 1% on Oct. 29, 2008. As of Dec. 16, 2008, the effective rate was 0.14%, close to zero.

Rumors that the Fed is considering further unorthodox and radical monetary policy as interest rates approach zero sent the dollar down. Further weighing on the dollar was the revelation of the collapse of the $50 billion Bernard Madoff fund, run as, in Maddoff's words, a Ponzi scheme for many years under the noses of regulators.

Gold continues to outperform all other asset classes as it has since 1998.


uhm???

metalman
12-16-08, 04:45 PM
Finally, our forecast for Dec. 16, 2008.
Dec. 16, 2008: 1% to 0.5%
Fed rate cut sinks dollar and stocks, boosts gold

The Federal Reserve reduced the Fed Funds interest rate to the lowest in history. The weak dollar sent oil and gold higher, while stock prices fell.

The rate cut was seen as largely symbolic as the Effective Funds Rate has not been higher than 0.5% since the rate cut to 1% on Oct. 29, 2008. As of Dec. 16, 2008, the effective rate was 0.14%, close to zero.

Rumors that the Fed is considering further unorthodox and radical monetary policy as interest rates approach zero sent the dollar down. Further weighing on the dollar was the revelation of the collapse of the $50 billion Bernard Madoff fund, run as, in Maddoff's words, a Ponzi scheme for many years under the noses of regulators.

Gold continues to outperform all other asset classes as it has since 1998.


uhm???

uhm what? what's done better than gold?

ASH
12-16-08, 04:48 PM
1. This ression has destroyed the Hedge Funds that are the alter ego of the bond vigilanties of yester-year, AND on the international front, destroyed the Russian Oligarcs.


In my opinion, this theory doesn't wash because this recession is creating much bigger problems for America and the world than it is solving by starving Russia of cash. Is there any country which is not being hurt by the recession? This would really be a case of cutting off your nose to spite your face.

Spartacus
12-16-08, 04:50 PM
My question here is for clothes and high volume items, what number of items are sold in North America and parts of western Europe, and what is this as a fraction of the amount produced?

say 30% of the worldwide volume of manufactured clothes is sold in NA/ WE.

or in other words, 30% of product is sold to 10% of the population.

say this falls by 50%, and for the items that do sell, the price is cut in half.

This wipes out a lot of the profit margin for producers, but 85% of the volume of sales is still intact. Lower profit margin sales to 3rd / 2nd world countries, but it's still 85% of the business.

profit margins will collapse and lots of retail outlets will go under but the availability of manufactured goods should still be fine in the outlets that remain.

High margin and low-volume specialty items may be another story, as they don't have the volumes to fall back on.

phirang
12-16-08, 04:50 PM
In my opinion, this theory doesn't wash because this recession is creating much bigger problems for America and the world than it is solving by starving Russia of cash. Is there any country which is not being hurt by the recession? This would really be a case of cutting off your nose to spite your face.

Crushing Russia's economy is not much of an accomplishment... :cool:

ASH
12-16-08, 04:50 PM
uhm what? what's done better than gold?

Well, I had all my money with this absolute genius named Bernard Madoff, and I've had much better returns with him than gold, since 1998!

ASH
12-16-08, 04:51 PM
Crushing Russia's economy is not much of an accomplishment... :cool:

True, but I'd think this administration would take what it can get, in the foreign policy sphere! :cool:

metalman
12-16-08, 04:53 PM
Well, I had all my money with this absolute genius named Bernard Madoff, and I've had much better returns with him than gold, since 1998!

you bet! and you can try to collect what's left of your $$$ from bernie when he's in his new digs...

http://www.visitingdc.com/images/alcatraz-prison-picture-3.jpg

Spartacus
12-16-08, 04:56 PM
Aren't the oligarchs a pain for Putin, and a pro-western front within Russia?

and crushing them and making Putin's life easier does NOT help any US interest, even the FED's?


1. This ression has destroyed the Hedge Funds that are the alter ego of the bond vigilanties of yester-year, AND on the international front, destroyed the Russian Oligarcs.

goadam1
12-16-08, 04:57 PM
You know what, I don't need things to go to crap and be right on gold. I can't put 7 figures of worth into one asset. It is like betting.

I'm down with some gold. I have some gold.

My point is that the "pediction" was for doom and the market rallied.

If the world is going to muddle along, then I might as well muddle along with it.

Call me a sheeple.

MARKET UP.

I would love to hear explanations.

Including: wishful thinking, stocks as an inflation hedge, reflation works...

metalman
12-16-08, 05:07 PM
You know what, I don't need things to go to crap and be right on gold. I can't put 7 figures of worth into one asset. It is like betting.

I'm down with some gold. I have some gold.

My point is that the "pediction" was for doom and the market rallied.

If the world is going to muddle along, then I might as well muddle along with it.

Call me a sheeple.

MARKET UP.

I would love to hear explanations.

Including: wishful thinking, stocks as an inflation hedge, reflation works...

wishful thinking. stocks are not an inflation hedge (http://rack1.ul.cs.cmu.edu/sinflat/).

finster made a great point... the fed got 1mo tbills to 'rise' to 0.03% from 0.00%, 3mo. fro 0.02 from 0.01%, woo hoo! :eek:

got the dollar down to 80.0986 from 81.3300

got gold up to $858 from $830

akrowne
12-16-08, 05:08 PM
I can confirm that things are extremely dislocated with respect to retail...

First off, the price cuts have not actually been that impressive. It seems even liquidators have been reluctant to make deep price cuts... everyone seems to be flirting at a level right around operating margins and hoping "the storm will pass".

When the deals are in fact pretty good, the inventory gets cleaned out almost instantly. Also, small ticket items are vastly more likely to go than big ticket. I was at Circuit City store being liquidated last week and all the sub-40" HD TVs were GONE. Totally emptied out. But above 46" there was plenty of inventory, and the prices were just OK (a bit above internet wholesale in most cases).

In general, high-quality, reasonably-priced consumer electronics and other non-basic goods seem to be rare. You can find cheap crap, and over-priced good stuff, but not reasonably-priced good stuff. A friend of mine who spent 3 months previous travelling in Europe said the retail situation looked much better -- better selection and well-stocked.

It seems to me like most retailers in the US still CAN'T cut prices further. While they fail to do so and move inventory, more of them will go into bankruptcy. Then they'll be competing at liquidation, and prices will probably reach a trigger point and plummet (as you suggest, early 2009).

After that, it isn't clear to me that much new inventory will reappear as it used to. A bevvy of financial and logistical challenges have been added to the world trade arrangements that stock the majority of our retail shelves, plus, the horrible sales track record from the past year will discourage wholesalers from making plans to send goods to the US.

ASH
12-16-08, 05:09 PM
You know what, I don't need things to go to crap and be right on gold. I can't put 7 figures of worth into one asset. It is like betting.

I'm down with some gold. I have some gold.

My point is that the "pediction" was for doom and the market rallied.

If the world is going to muddle along, then I might as well muddle along with it.

Call me a sheeple.

MARKET UP.

I would love to hear explanations.

Including: wishful thinking, stocks as an inflation hedge, reflation works...

I was just being a wag earlier, but I'll take a stab. My stab is: short-term reaction based upon a combination of group-think and the central bank version of "beat the number". As someone else pointed out, if the cut is lower than the concensus forecast, then on the day of the cut the market falls; if it is larger than the concensus forecast, then the market rises. Everybody realizes that this is meaningless, so the day afterwards, it's back to chaotic fluctuation business as usual. At least that's my theory. If this upward movement is sustained, then that will be an indication that today's motion was more significant than simple "beat the number".

goadam1
12-16-08, 05:15 PM
I guess in ten years we will see if 10 shares of spy is more or less than 10 gold eagles. We will count after tax worth (yes the system is rigged).

jiimbergin
12-16-08, 05:15 PM
i'm going to kick myself for not taking short positions at the close.

I'm probably going to kick myself for not taking a larger short position. I guess I have gotten too cautious after the past few months

goadam1
12-16-08, 05:16 PM
1 gold eagle.

jtabeb
12-16-08, 05:17 PM
In my opinion, this theory doesn't wash because this recession is creating much bigger problems for America and the world than it is solving by starving Russia of cash. Is there any country which is not being hurt by the recession? This would really be a case of cutting off your nose to spite your face.

Russia, Venezuela, Iran seem to be hurt FAR worse than we are at present.

And as for cutting off your nose to spite your face, god knows we have done that many MANY times.

jtabeb
12-16-08, 05:19 PM
Aren't the oligarchs a pain for Putin, and a pro-western front within Russia?

and crushing them and making Putin's life easier does NOT help any US interest, even the FED's?

As I said, COORDIANTED policy objective. Helps us, helps them, let's us get away with running the game a little longer... Qui Bono I think is the term.

Russian LEADERSHIP is not having anytrouble right now, even though the counrty is.

ASH
12-16-08, 05:21 PM
I guess in ten years we will see if 10 shares of spy is more or less than 10 gold eagles. We will count after tax worth (yes the system is rigged).

A test that is more fair to EJ would be to make the comparison at the point when EJ recommends to sell gold and trade out of cash. That isn't necessarily in ten years.

goadam1
12-16-08, 05:27 PM
I don't really care about EJ being right or not. I don't care about when he made the call. Here I stand. My ratio is pretty even and I think it is a good game from here. However, my hard earned money isn't a stake in a game. So, let's start from here. Now is fair. And the prediction has been for a market down and gold up. I think he may still be right. But I do know that you don't bet it all on black (see Madoff). I don't think EJ gives that kind of advice. I do think the theory will be adjusted because the terrain is new.

Oh to be mildly contrarain on a board of contrarian.

I do notice that the true followers have higher gold holdings than EJ suggests.

FRED
12-16-08, 05:29 PM
While you're at it, get out there and enjoy your favorite restaurants while they're still in business.

Remember the bad old days after the dot com crash in 2001 when the crowds cleared out of restaurants and some went under? Today conditions are considerably worse.


http://www.itulip.com/images/foodservices1990-2008.gif

goadam1
12-16-08, 05:36 PM
I don't remember anyone going out of business in the last recession. So far in New York the places are as busy as ever, from the fancy Waverly Inn ($100 dollar truffle mac and chesse) to Olive Garden. I do know about a lot of looming layoffs. But I also know some people who left jobs for better jobs.

I'm sure it won't be as fancy in fancyville soon.

FRED
12-16-08, 05:50 PM
I don't remember anyone going out of business in the last recession. So far in New York the places are as busy as ever, from the fancy Waverly Inn ($100 dollar truffle mac and chesse) to Olive Garden. I do know about a lot of looming layoffs. But I also know some people who left jobs for better jobs.

I'm sure it won't be as fancy in fancyville soon.

Think of modern central banking policy as behavioral engineering. Central banks count on the fact that consumer behavior lags reality by a considerable period. Consumers don't like to change their habits downward to adjust for reduced income. (See Dynamic Consumption Behavior: Evidence from Japanese Household Panel Data PPT (http://www.ier.hit-u.ac.jp/%7Ekitamura/PDF/PP26.ppt).) This is how recessions have been made short and shallow via monetary policy since the early 1980s: central banks expand credit before consumer behavior changes and becomes self-reinforcing.

But this time they failed. This is a debt deflation as has not happened since the 1930s.

The hog is in the tunnel.

goadam1
12-16-08, 06:00 PM
I get the debt deflation component at work this time. I have made myself a pariah in conversations on the topic for years. I don't have debts. Zero. I know this will be a bad run. But I get in trouble on this board for saying that you can't dig a hole and hide with your gold. My business was down 20% last year but my profit margin was up the same. You don't give up until the piggy squeals.

bart
12-16-08, 06:05 PM
http://www.nowandfutures.com/images/restaurant_index.png

DemonD
12-16-08, 06:07 PM
http://www.econstats.com/r/rjap__m21.htm

It's a bit dated, but the M2+CD's numbers in 1/1990 was 4681037.00, and in 10/2006 it was 7138859.00 (both numbers in 100 million yen).

The official inflation statistics from japan show that, indexed to a value of 100 in 2005, was:

1/1990: 92.5
10/2006: 100.6

(and note that in the interim, there were a LOT of negative numbers in there in terms of the % change yoy)
source (warning: .xls file) : http://www.stat.go.jp/english/data/cpi/series/zuhyou/a001hh.xls

Now maybe my rudimentary analysis is overly simplistic. Which is why I'm asking here. But here's the math:

7138859.00 - 4681037.00 = 2457822
2457822/4681037 = .525, or a 52.5% increase in the monetary base

100.6-92.5 = 8.1
8.1/92.5 = .0876, or 8.76% increase in consumer prices.

Now maybe japan has fudged their figures, and they didn't have dozens of months of yoy deflation in the past 18 years. I don't live or know anyone in Japan, but my understanding is that cost of living isn't that much greater if at all than it was in 1990.

The question here is this: Isn't it possible to have a large increase in the money supply, without high inflation, and even possibly with somewhat sustained deflationary forces for years?

I know you've made good arguments against the Japan cycle being repeated here in the US Eric, but it's not just Mish that has brought out a lot of pertinent data in terms of sustained deflation. To a certain extent, I can even see a case being made that the FIRE, Gov't, and P/C economies might even make a deflationary scenario even worse - what if all the monetary base just stays in the FIRE economy and never makes it to the P/C economy at all?

http://online.wsj.com/article/SB122938932478509075.html

There are other striking similarities between the US and Japan. Developed nations with greying/aging workforces, etc.

BTW, I'm not writing this post to be a rabble-rouser, or to flame the debate because I agree that


It's about time to give up debating inflation and deflation with anyone who does not distinguish between asset prices in the FIRE Economy and commodities, goods, services, and wages prices in the Production/Consumption Economy.

My recognition here is that I see significant monetary inflation with a very similar set of scenarios, and I see a very recent example in a 1st world country of sustained deflation or very low/virtually zero inflation, with massive stimulation thrown at it to try to prevent deflation. The question is, isn't it possible that the US will rhyme more closely with Japan from 1990-now, as opposed to the US from 1974-1980?

ASH
12-16-08, 06:07 PM
I don't really care about EJ being right or not. I don't care about when he made the call. Here I stand. My ratio is pretty even and I think it is a good game from here. However, my hard earned money isn't a stake in a game. So, let's start from here. Now is fair. And the prediction has been for a market down and gold up. I think he may still be right. But I do know that you don't bet it all on black (see Madoff). I don't think EJ gives that kind of advice. I do think the theory will be adjusted because the terrain is new.

Oh to be mildly contrarain on a board of contrarian.

I do notice that the true followers have higher gold holdings than EJ suggests.

I guess I didn't understand what you were driving at. Regardless of EJ, why do you propose to compare SPY and gold after ten years? I presume that the performance of those two asset classes will diverge, but surely not monotonically and for all time. Why ten years? Would not "market down and gold up" be a useful prediction if it was so for five years? Gold is not something you buy and hold. In addition to being currency crash insurance, gold can function as a "macro timing" tool -- a temporary position to take when currency is being devalued. In that context, I don't think it makes much sense to look at the merits of a macro timing prediction on the basis of an arbitrary time frame.

You are absolutely right about "betting it all on black" and that EJ has never advised his readers to do so. You are also right that some of the "true believers" are much more heavily invested in gold than EJ himself.

== EDIT ==

P.S. I am writing as someone who fervently hopes somewhere better to put my money, other than gold, turns up long before 10 years elapse.

bart
12-16-08, 06:10 PM
...
But this time they failed. This is a debt deflation as has not happened since the 1930s.

The hog is in the tunnel.

I submit that you can not prove that there was not an intent to have a failure of a significant degree.

goadam1
12-16-08, 06:18 PM
I don't think it is a coincidence that this started when boomers hit retirement age.

phirang
12-16-08, 06:30 PM
As I said, COORDIANTED policy objective. Helps us, helps them, let's us get away with running the game a little longer... Qui Bono I think is the term.

Russian LEADERSHIP is not having anytrouble right now, even though the counrty is.

Yea, Russia is doing so great they're aping soviet antics yet again...:rolleyes:

labasta
12-16-08, 07:00 PM
Funny EJ should come out with a more thought out article on inflation.

After readng his last article about which goods and services would experience deflation or inflation, I was thinking about which goods would do the same in Ireland. I went through a few industries and realised that all the goods I could think of would go up once the extra inventory had been depleted. The surviving suppliers would deliberately understock as a reaction to the drop in demand from 2008/2009. BTW we are seeing 20 or 25% sales here BEFORE Christmas in ALL stores which nobody I have spoken to has ever seen before in their lifetimes.

The exception was housing which would continue to plummet as supply would (is) increase phenomenally in Ireland (demand is virtually non-existant as it is) due to the East Europeans going home. 91% of Irish own their own property. Foreigners rent. Economy very bad - foreigners go home - empty apartments. Couple this with vastly increasing unemployment (and fear of such) and lack of credit availability and we have a hell of a cocktail for house prices.

On unemployment, my exponential 16.2% (end of 2009) forecast has been optimistic so far. The rate is getting WORSE! Holy collapse Batman.

January will be a bloodbath here. If this continues (pray to the Lord that it bottoms somewhere in 2009) then we will have at least a 20% unemployment rate by the end of 2009 (more like 25+%).

Our government is also clueless which is frightening.


Can anybody think of an industry apart from housing which will avoid the inflationary push in 2010+?

Some services perhaps? :confused:

FRED
12-16-08, 07:03 PM
I submit that you can not prove that there was not an intent to have a failure of a significant degree.

The Fed raised rates to squash speculation in commodities, especially oil.

How soon we forget the food riots in India and among other US allies.

Not to mention the political boost that Chavez and other dictators and aspiring dictators received from high oil prices. :D

But just as when the Bank of Japan raised rates to pop the stock bubble in 1989, and the Fed raised them to pop the US stock bubble in 1999, things never work out like the textbooks say they will!


http://www.itulip.com/images/householddebt1952-2008.gif
The US economy glides like a box of rocks. Don't stand under it. (http://www.itulip.com/forums/showthread.php?p=66023#post66023)


Arrogance and incompetence are at fault here, with the usual awful results.

ASH
12-16-08, 07:11 PM
On unemployment, my exponential 16.2% (end of 2009) forecast has been optimistic so far. The rate is getting WORSE! Holy collapse Batman.

Dang, Labasta. I remember that thread. Sorry to hear you were being optimistic.

I just read that unemployment in my home state of Oregon jumped 0.9% between October and November, from 7.2% to 8.1%. And still the local mall was packed last Saturday. Makes me think the mall-goers are different from those receiving the axe.

On the other hand, I read of large layoffs at local technology companies, so the job losses aren't entirely in construction and the financial industries. The latest was Infocus, which makes projectors -- they announced plans to lay-off 30% of their staff.

llanlad2
12-16-08, 07:14 PM
Demon-Japan rhyme with the US?
My take is the result will be different this time due to massive US government intervention.
The reason is to do with how slow the Japanese Govt was in dealing with the crisis to begin ie. they pretended they didn't have a banking crisis.
The government didn't agree to buy a bunch of worthless assets off the banks, hence the banks took years to sort out their balance sheets. Another point is anyone who bought property at the peak has been paying down their mortgages ever since resulting in less consumer cash sloshing around.
As we can see Bernanke is determined not to make the same "mistakes."

bart
12-16-08, 07:17 PM
The Fed raised rates to squash speculation in commodities, especially oil.

How soon we forget the food riots in India and among other US allies.

Not to mention the political boost that Chavez and other dictators and aspiring dictators received from high oil prices. :D

But just as when the Bank of Japan raised rates to pop the stock bubble in 1989, and the Fed raised them to pop the US stock bubble in 1999, things never work out like the textbooks say they will!


http://www.itulip.com/images/householddebt1952-2008.gif
The US economy glides like a box of rocks. Don't stand under it. (http://www.itulip.com/forums/showthread.php?p=66023#post66023)


Arrogance and incompetence are at fault here, with the usual awful results.


All basically true, but it also in no way proves that there was not an intent to have a failure of a significant degree. "Evil" does exist, as well as idiocy and incompetence.

vinoveri
12-16-08, 07:20 PM
i'm going to kick myself for not taking short positions at the close.

I've already kicked myself (and am still kicking) for being short at 215pm.

jtabeb
12-16-08, 07:27 PM
Dang, Labasta. I remember that thread. Sorry to hear you were being optimistic.

I just read that unemployment in my home state of Oregon jumped 0.9% between October and November, from 7.2% to 8.1%. And still the local mall was packed last Saturday. Makes me think the mall-goers are different from those receiving the axe.

On the other hand, I read of large layoffs at local technology companies, so the job losses aren't entirely in construction and the financial industries. The latest was Infocus, which makes projectors -- they announced plans to lay-off 30% of their staff.

When you can borrow money at 0% for 12 months, why wouldn't you go shop. I mean free money is hard to beat.

(I must confess, I bought $20K of Gold and silver on CREDIT, because the terms were so generous. I mean I could have just paid cash, but why NOT use credit if it's at 0%!)

DemonD
12-16-08, 07:34 PM
http://www.itulip.com/images/householddebt1952-2008.gif
The US economy glides like a box of rocks. Don't stand under it. (http://www.itulip.com/forums/showthread.php?p=66023#post66023)


Arrogance and incompetence are at fault here, with the usual awful results.

I can't get it out of my head, the article that EJ posted that said that in a market at any given time, there are inflationary and deflationary forces. And I also can't get it out of my head that a drop in household debt is deflationary in nature. I know we're just looking at one data point in a vacuum, but it's another point in that column.

This is why I was asking, what if the fiscal stimulus being pumped into the FIRE sector never makes it to the P/C economy? Wouldn't the above chart be a data point in favor of that type of action?

DemonD
12-16-08, 07:36 PM
I've already kicked myself (and am still kicking) for being short at 215pm.

SRS (double short real estate etf) plunged below it's 52-week low today.

Due your due diligence, but there it is.

goadam1
12-16-08, 07:36 PM
What if "it" re-flates?

FRED
12-16-08, 07:38 PM
Demon-Japan rhyme with the US?
My take is the result will be different this time due to massive US government intervention.
The reason is to do with how slow the Japanese Govt was in dealing with the crisis to begin ie. they pretended they didn't have a banking crisis.
The government didn't agree to buy a bunch of worthless assets off the banks, hence the banks took years to sort out their balance sheets. Another point is anyone who bought property at the peak has been paying down their mortgages ever since resulting in less consumer cash sloshing around.
As we can see Bernanke is determined not to make the same "mistakes."

Excellent points. Mortgages in Japan are full recourse. No handing over the keys and walking away as in the US. On the other hand, if the Obama administration hires Lawrence B. Lindsey to get busy Building a Better Bailout (http://www.aei.org/publications/filter.all,pubID.28981/pub_detail.asp), new mortgage loans in the US will be as in Japan:

The new mortgage would have one very significant difference: It would be a full recourse loan. That is, if the borrower fell behind in the payments, the government could use any means necessary to get repaid. That means not only foreclosing on the house (as under current mortgages) but also collecting any remaining unpaid sums after the house was foreclosed on by garnishing the wages, bank accounts, and other assets of the borrower. Think of it as the IRS providing the loan on the same collection terms as it does on taxes, or perhaps using the powers the government now has to collect on student loans.
The result? Decades of household cash flow diverted to paying down mortgage debt taken on at inflated real estate prices.

The new bankruptcy laws passed in 2005 make credit card debt in the US is for all practical purposes full recourse.

So far it's FIRE Economy 2, Production/Consumption Economy 0.

Should I start a scoreboard here?

vinoveri
12-16-08, 07:40 PM
It seems to me like most retailers in the US still CAN'T cut prices further. While they fail to do so and move inventory, more of them will go into bankruptcy. Then they'll be competing at liquidation, and prices will probably reach a trigger point and plummet (as you suggest, early 2009).



but perhaps it will be a chapter 11 vs a liquidation bankruptcy (maybe a 'prepackaged' bankruptcy)? In fact, since the Fed/Treasury have already pledged upwards of $7t, that's already half of the yearly U.S. GDP. Hey, let's just double that number and the Fed can backstop the nations GDP for a year (i.e., not only be the lender of last resort, but the consumer of last resort??) :(

By the way, can anyone explain this concept of the Fed "expanding its balance sheet" or the concept of the Fed "purchasing long term treasuries directly from the Treasury?" Whenever I think I understand what these mean, I stop myself because I know it can't work like that, right? If so, then where's the run on the dollar, where are the bond vigilantes ...? Is everyone inlcuding world governments in a state of shock or is there simply no place to run?

sorry for the digression and sarcasm that but I'm truly perplexed by what's going on

c1ue
12-16-08, 07:43 PM
There's a lot of uncertainty in Russia. The 'regular folks' are rushing to dollars and the Bank of Sealy.

However, in the background there is a lot of activity.

If the intent was to weaken Putin, it is not working so far - this credit crisis has done more to reverse the Yeltsin/IMF era than everything Putin has done to date including Yukos.

The amusing thing is that the Russian consumers were not heavily dependent on mortgages and credit cards, but the large chains which sprang up in the past 6 years were. What's happening now is the economic balance of payments for these chains and their largely foreign suppliers is broken as the former standard of 120 day repayment terms is now switched to cash prepayment. The government is stepping in and selectively helping - so there is going to be a major retrenchment in the order of what EJ is predicting for the US: 1/3 of stores going out of business. The irony though is that although some retail jobs are going to be lost - the brunt of the suffering are the foreign nations who exported the inventory.

Secondly the fallout from the world deleveraging process is ironically strengthening Russia's relative position with Germany.

A closer cooperation between these two nations will create a very interesting new entity in world affairs.

Overall it is certainly easy to think that Russia is in crisis, but to me it is still not clear. There is going to be some suffering, but the excesses of the credit bubble largely were avoided in Russia. The recent increase of the import tax is going to keep inflation high, but since there isn't monstrous debt at the personal level the main issue for consumers is uncertainty.

The next big step is for Russia to start investing in internal manufacturing production - this is my litmus test to see how the government is executing.

I do find it interesting that EJ is now forecasting 20% unemployment. This is a major jump from before hence I was wondering if it was a typo.

On the investing front - as expected SKF is approaching the 90s again. Very tempting, I will likely take a 1/2 share VAR stab at it tomorrow morning. I can't in good conscience take a full share stab at it because my trigger is the auto bailout - and that hasn't happened yet.

vinoveri
12-16-08, 07:44 PM
.
The new bankruptcy laws passed in 2005 make credit card debt in the US is for all practical purposes full recourse.



Not quite. One can shield one's entire homestead and qualified retirement funds in states like florida and texas with liberal homestead exemption statutes.

ASH
12-16-08, 07:53 PM
By the way, can anyone explain this concept of the Fed "expanding its balance sheet" or the concept of the Fed "purchasing long term treasuries directly from the Treasury?" Whenever I think I understand what these mean, I stop myself because I know it can't work like that, right? If so, then where's the run on the dollar, where are the bond vigilantes ...? Is everyone inlcuding world governments in a state of shock or is there simply no place to run?

If you think that it can't possibly work like that, then you probably grasp it.

I was pondering some of these questions myself in this earlier thread (http://www.itulip.com/forums/showthread.php?p=63526#poststop). I feel no wiser than when I wrote those comments: I get the impression that the US is temporarily getting a pass on monetization because so far the things it has been monetizing are paper assets like mortgage-backed securities whose prices recently collapsed. When everybody is worried about avoiding a deflationary spiral, it seems that inflationary policies that "reflate" crashed paper assets is forgiven. Once the Fed starts buying bonds directly from the Treasury, one layer of fig leaves will be removed, and maybe we'll see a reaction.

On a minor historical note, obviously Japan didn't crash the yen by its program of quantitative easing. Clearly this is a sin that is judged by degree and circumstance.

Chris Coles
12-16-08, 07:59 PM
Looking forward beyond 2010, industrially, there are going to be some rich pickings when the fallout finally stops. Many producers of what were well received products with stable markets will be out of business and the IP in the hands of the receivers to be sold off for a song to ensure the receivers get their ounce of silver.

Restarting production will be much easier as there will be a surplus of everything you need and thus your reference prices will not be under pressure. Again, with so much settled dust, there will be much less competition too.

Your long term opportunity will not be in trading but watching for the new priced in pennies that will take off like a mining stock in the 1960's to be held for long enough to reach stability..

Some of us that held onto our IP will be able to do things we cannot have contemplated even a year ago.

jtabeb
12-16-08, 08:04 PM
I submit that you can not prove that there was not an intent to have a failure of a significant degree.

Ditto, and I's sure SYMBOLS would agree as well.

FRED
12-16-08, 08:13 PM
Ditto, and I's sure SYMBOLS would agree as well.

Where's Finster with his list of fallacies?

"Prove to me that the Apollo 11 moon landing was not fake. You cannot, therefor it was fake!"

Negative Proof fallacy (http://en.wikipedia.org/wiki/Negative_proof): that, because a premise cannot be proven false, the premise must be true; or that, because a premise cannot be proven true, the premise must be false.
Nice try. You have to prove to me that the Fed had intent.

vinoveri
12-16-08, 08:18 PM
If you think that it can't possibly work like that, then you probably grasp it.

On a minor historical note, obviously Japan didn't crash the yen by its program of quantitative easing. Clearly this is a sin that is judged by degree and circumstance.

I was afraid of that,... thanks.

The $ being the reserve currency, and the US a debtor nation could mean the punishment if any is different than the purgatory that JP has been experiencing economically.

WDCRob
12-16-08, 08:25 PM
Associated Press Association
12-2-08 11 minutes ago

A well placed anonymous source has revealed that most conspiracy theories are the work of conspiracists. The highly informed insider went on to state that while it was impossible to prove his or her theory, it was also impossible to disprove it as well, at least to his or her satisfaction.

"Most people believe that 9/11 was the work of Muslim terrorists, that Barack Obama is indeed a citizen of the United States and that aliens from the planet Zorg did not build the Pyramids," said the little known but well respected authority figure. "But," he or she went on, "conspiracists seem to know more than everyone else and, finally, the truth can be told. They are behind the alternate theories to our established beliefs."

"Conspiracists," they continued, "are involved in the largest conspiracy this planet has ever seen. They are behind every single significant conspiracy theory that has ever been proposed since the dawn of mankind and possibly more than that." A new conspiracy theory, who was really behind the Mumbai attacks, was set to be unveiled as we went to press.

While the highly secretive source could not produce any actual evidence to document his or her claims, he or she did say that more would be revealed later. Also, they did provide APA with an internet site that backed up the claims. APA could not find any conspiracists who would confirm the story, though one did question whether we were an actual news source.

ASH
12-16-08, 08:41 PM
Associated Press Association
12-2-08 11 minutes ago

A well placed anonymous source has revealed that most conspiracy theories are the work of conspiracists...

That's funny, but... is that directed at my conversation with vinoveri, or bart's conversation with FRED?

GRG55
12-16-08, 09:00 PM
Fed cuts dollar, Fire sales and F.I.R.E. sales, Duh-flation, and the Bezzle is shrinking... again

US consumer swan song means cheap now, cheaper later, then expensive -- it’s all about supply;...

...The holiday retailer strategy: those left with the least inventory after Christmas live to fight another day. Then the first half of 2009 goes like this.



After Christmas sale 20% to 50% off
Liquidation sale 50% to 80% off
30% to 40% of retailers go out of business

Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods import supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation...

I'm sure I heard the birds ZIRPing outside this afternoon. If it wasn't for the Christmas carols I'd have sworn it was spring...

[that reminds me...has FRED checked the FED altimeter and VSI lately; maybe that was a ground proximity warning I heard?]

Supplement to the advice above. There are more bargains out there than appears on surface. Retailers will negotiate, especially on bigger ticket and higher end items, if you are an informed shopper, and actually ready to make a deal [not kicking tires]. My wife has been shopping aggressively for the appliances and selected fittings for the bunker. Sometimes she negotiates so hard it's embarrassing and I slink off into a corner of the store and pretend not to be with her :D. But it works. She's been able to get some top level stuff she never expected to afford, at prices she never expected to see. And our regional economy here has barely started to turn down [house prices just starting to decline, layoffs minimal so far, etc.].

I always insist on taking delivery immediately no matter what. As the bunker is still under construction I have rented storage space and am stockpiling everything we buy under my own lock and key. All the retailers tell me they will store our stuff in their warehouse for free until we need it, but I don't trust they'll still be there in many cases. Today on the local news there's a report of a high end furniture store that has closed and not delivered to customers who prepaid...even those customers that bought stuff at their two day "Going Out Of Business Sale" and didn't take immediate delivery. Ooops. Apparently a creditor managed to get a court injunction blocking distribution of any assets.

Be careful out there...:cool:

jtabeb
12-16-08, 09:16 PM
Where's Finster with his list of fallacies?

"Prove to me that the Apollo 11 moon landing was not fake. You cannot, therefor it was fake!"
Negative Proof fallacy (http://en.wikipedia.org/wiki/Negative_proof): that, because a premise cannot be proven false, the premise must be true; or that, because a premise cannot be proven true, the premise must be false.
Nice try. You have to prove to me that the Fed had intent.


No. because we are arguing supposition. And yes I believe my supposition my aptly provides a motive and method and opportunity than your supposition.

Fred, you would argue that if it's is not PROVABLE it doesn't exist. They would deny a whole lot of things that are observable but not provable and is extremely limiting of one's world view. And sometimes (as I seem to recall in certain PM or two about the nature of the Iraq war) what is observable but not provable, can later become FACT through the course of 3rd party disclosure.

Since this has already happened once during the course of our discussions, it is possible that it could happen again. Not saying IS, am saying possible, but not provable. Evidence may arise later to confirm or deny the supposition, but outright dismissal in the present due to a lack of conclusive evidence, seems to me at least, as lacking the intellectual curiosity that is required for a true deconstruction of a policy agenda.

Again, there are two times I have seen this happen here in the Itulip psyche.

The first case was the outright flat DISMISSAL that financial games had anything to do with the blockbuster oil price. And the second was the tidbit mentioned earlier with regard to the true motives of the Iraq war.

(Both positions were latter factually vindicated I might add)

To dismiss a plausible theory as "rubbish" due to a lack of timely intelligence would seem a gross disservice to the community at large. Esp. since on two occasions, these "rubbish" theories have indeed been proven to be factually correct.

pianodoctor
12-16-08, 09:20 PM
Can someone kindly help an econo-dummy understand the following quote from EJ's article of subject?: "inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."

I'm not quite grasping what kind of "US creditor" (our foreign creditors? Creditors within the US like mortgage, credit card companies?) What kind of assets will they be selling? And if they are selling things and getting dollars in return, why is that inflationary?

What does "unwitting" imply? Is someone manipulating the unwitting party intentionally to cause inflation? How?

I understand most of what EJ writes most of the time (and I consider that a testimony to his writing quality, considering how unschooled I am in economics), but I'm not quite 'getting' this one.

FRED
12-16-08, 09:37 PM
No. because we are arguing supposition. And yes I believe my supposition my aptly provides a motive and method and opportunity than your supposition.

Fred, you would argue that if it's is not PROVABLE it doesn't exist. They would deny a whole lot of things that are observable but not provable and is extremely limiting of one's world view. And sometimes (as I seem to recall in certain PM or two about the nature of the Iraq war) what is observable but not provable, can later become FACT through the course of 3rd party disclosure.

Since this has already happened once during the course of our discussions, it is possible that it could happen again. Not saying IS, am saying possible, but not provable. Evidence may arise later to confirm or deny the supposition, but outright dismissal in the present due to a lack of conclusive evidence, seems to me at least, as lacking the intellectual curiosity that is required for a true deconstruction of a policy agenda.

Again, there are two times I have seen this happen here in the Itulip psyche.

The first case was the outright flat DISMISSAL that financial games had anything to do with the blockbuster oil price. And the second was the tidbit mentioned earlier with regard to the true motives of the Iraq war.

(Both positions were latter factually vindicated I might add)

To dismiss a plausible theory as "rubbish" due to a lack of timely intelligence would seem a gross disservice to the community at large. Esp. since on two occasions, these "rubbish" theories have indeed been proven to be factually correct.

Factually incorrect.

1. We never insinuated that oil was not due to decline in price from $147, nor gold from $1013 for that matter, only that these were not "bubbles" by our definition. This is critical to understand. If we included these in our definitions of bubbles, along with tech stocks in 1999 and houses 2002 to 2006, then subsequent price actions in oil and gold raise the obvious question: if oil is a bubble at $40 in 2006, and gold at $1013 in 2008, what is oil at $45 in 2008 after the oil "bubble" has popped and gold at $850 after the gold "bubble" has "popped"?

2. We believe that both oil and gold prices are, long term, more a function of dollar supply and demand than commodity supply and demand. Thus the price will likely behave in ways that are completely uncharacteristic of bubbles. Bubbles are characterized by a rapid rise, a collapse to a mean, and overshoot followed by an extended period of suppressed price. Oil remains at prices that were called a "bubble" in 2006 yet the talk now is of deflation as demand collapses. Gold at $850 during a "deflation" makes no sense at all of gold was a "bubble" at $1013. We maintain a consistent set of definitions and concepts here and do not change them as the wind blows.

3. The Fed has not engineered an economic collapse.

DemonD
12-16-08, 09:46 PM
jt, what's that quote about never attributing to intent that can be attributed to stupidity?


The new mortgage would have one very significant difference: It would be a full recourse loan. That is, if the borrower fell behind in the payments, the government could use any means necessary to get repaid. That means not only foreclosing on the house (as under current mortgages) but also collecting any remaining unpaid sums after the house was foreclosed on by garnishing the wages, bank accounts, and other assets of the borrower. Think of it as the IRS providing the loan on the same collection terms as it does on taxes, or perhaps using the powers the government now has to collect on student loans.

The result? Decades of household cash flow diverted to paying down mortgage debt taken on at inflated real estate prices.

The new bankruptcy laws passed in 2005 make credit card debt in the US is for all practical purposes full recourse.

So far it's FIRE Economy 2, Production/Consumption Economy 0.

And isn't this also deflationary?

Again, I'm not debating for deflation. I'm trying to reconcile some very significant facts about Japan that are strikingly similar to US policy. Trillions in different stimulus packages seem to be a huge checkmark in the "it's more like Japan" type thing. And I can't but help it when I see long term charts of the Nikkei, where it was, and where it is now, and they still can't reflate the yen.

Maybe if I have the time I will try to collate my own visual evidence and let the itulip community have at it.

santafe2
12-16-08, 09:50 PM
What the Fed had in mind in 1980 that had to be sold to the public was tough medicine: high interest rates and three grueling years of recession. The government had to make the case that the pain was worth it.

Sold! Let’s turn off the printing presses and kill the bad inflation! Thanks, Dr. Friedman, for selling a central tenet of the FIRE Economy – low inflation -- to the masses. (No hate mail from the Friedman fans out there, please. I'm a fan, too.

I was taken by the symmetry of the Japanese experience and ours as depicted by the economic diving board of inflation control. I think I've understood this at an intellectual level for a long while but it's taken the last few months events for me to understand it at a more visceral level.

I watched Friedman explaining the simple miracle he saw in the Japanese experience as they overcame the inflation devil in the mid 70s. I was of course viewing it in the light of history - hindsight - but I felt myself watching in horror without the ability to tell a failed technocrat that he would become to many of us the symbol of everything that's gone wrong with our world economy over the last 30 plus years.

I found myself yelling at a digital image: Don't you see the massive twin asset inflation coming only 10 years from now! People buying a square foot of Tokyo real estate because that is all they can afford? A stock market spinning upward to 40,000? Milton, you're one of the most respected economists in the world, how can you not see this!?

Of course, he didn't see it, didn't really care about it. Like most technocrats and too many so called intellectuals, he cared about his models and his reputation. He cared about tweaking the model in real time with real people. He and his proteges would go on to create fake economies in many countries and tweak them so they could get the big one just right.

That tweaking is just beginning to work out really well for the US. Maybe not as well as it did for the Chileans or the Iraqis but well enough. What's scary to me is that Obama has these Chicago School proteges in his group of advisers. Nothing good will come from this unless one is hoping for one last huge bubble they can ride straight up to cleanse themselves of their personal debt. The rest of humanity, be damned.

bart
12-16-08, 09:52 PM
Where's Finster with his list of fallacies?

"Prove to me that the Apollo 11 moon landing was not fake. You cannot, therefor it was fake!"
Negative Proof fallacy (http://en.wikipedia.org/wiki/Negative_proof): that, because a premise cannot be proven false, the premise must be true; or that, because a premise cannot be proven true, the premise must be false.
Nice try. You have to prove to me that the Fed had intent.


In other words, thanks for proving that you have no proof that there was no intent beforehand. Otherwise, you would have presented it instead of going off into the logical fallacy area.

I could provide proof that there was quite significant intent, just like you could provide some on the other side. For me to start listing that very dark and voluminous proof at this time, even on its own thread, would not be wise at this time - and not just because the times and attitudes are dark. Plus, none of it on either side is even close to totally conclusive in any way, shape, or form either.

The iTulip theory of jocks and geeks does not include any allowance for "evil" though, and I submit that at the very least it is quite incomplete for that reason, albeit workable.

GRG55
12-16-08, 09:52 PM
Factually incorrect.

1. We never insinuated that oil was not due to decline in price from $147, nor gold from $1013 for that matter, only that these were not "bubbles" by our definition. This is critical to understand. If we included these in our definitions of bubbles, along with tech stocks in 1999 and houses 2002 to 2006, then subsequent price actions in oil and gold raise the obvious question: if oil is a bubble at $40 in 2006, and gold at $1013 in 2008, what is oil at $45 in 2008 after the oil "bubble" has popped and gold at $850 after the gold "bubble" has "popped"?

2. We believe that both oil and gold prices are, long term, more a function of dollar supply and demand than commodity supply and demand. Thus the price will likely behave in ways that are completely uncharacteristic of bubbles. Bubbles are characterized by a rapid rise, a collapse to a mean, and overshoot followed by an extended period of suppressed price. Oil remains at prices that were called a "bubble" in 2006 yet the talk now is of deflation as demand collapses. Gold at $850 during a "deflation" makes no sense at all of gold was a "bubble" at $1013. We maintain a consistent set of definitions and concepts here and do not change them as the wind blows.

3. The Fed has not engineered an economic collapse.

Those that insist that the price action of oil is "proof" of some sort of sophisticated, organized, ETN-conspiracy financial manipulation seem to completely overlook identical price behaviour in uranium equities, corn, zinc, nickel, wheat, solar cell manufacturers, natural gas and a host of other things, each of which became the object of desire for the cheap money, leveraged set for a brief, shining moment. I simply do not see why oil is somehow so special for these folks. The cheap money era is over [unless you are the US Government and "unwitting creditors" are still giving you their savings for zero return], and every asset class is being reset. And they will all be reset at least once more, relative to one another, as the reflation takes hold.

Prazak
12-16-08, 09:52 PM
I don't mean to be obtuse, but if you expect USD currency inflation -- probably dramatic (I think EJ was predicting 100% over the next 5 years?), perhaps even Weimar-like if the predictions of the Jim Sinclairs of the world come to pass -- then why wouldn't you want to hold debt? Why pay down a mortgage fixed at 5.25%, for example, with relatively strong dollars now, when you can pay it down over time with dollars increasingly diminished in value?

If the USG is going to inflate its way out of debt then might as well let it inflating my debts as well.

bart
12-16-08, 09:57 PM
That's funny, but... is that directed at my conversation with vinoveri, or bart's conversation with FRED?

Persoanlly, I think that WDCRob is part of the inner circle of the Illuminati and that he posted that piece to throw us all off the trail... :eek: :rolleyes: ;)

jtabeb
12-16-08, 10:09 PM
Those that insist that the price action of oil is "proof" of some sort of sophisticated, organized, ETN-conspiracy financial manipulation seem to completely overlook identical price behaviour in uranium equities, corn, zinc, nickel, wheat, solar cell manufacturers, natural gas and a host of other things, each of which became the object of desire for the cheap money, leveraged set for a brief, shining moment. I simply do not see why oil is somehow so special for these folks. The cheap money era is over [unless you are the US Government and "unwitting creditors" are still giving you their savings for zero return], and every asset class is being reset. And they will all be reset at least once more, relative to one another, as the reflation takes hold.

You are, with out a doubt, MAKING MY POINT for me. Does it not strike you as "odd" that ther first people to receive "reflation" funds were the banks, AND that how they have spent those funds is completely unaccounted for?



It does me.

(and yes, this does seem like a generous quid-pro-quo, in light of the events that have transpired)

phirang
12-16-08, 10:10 PM
You are, with out a doubt, MAKING MY POINT for me. Does it not strike you as "odd" that ther first people to receive "reflation" funds were the banks, AND that how they have spent those funds is completely unaccounted for?



It does me.

(and yes, this does seem like a generous quid-pro-quo, in light of the events that have transpired)

Cheap peak credit

santafe2
12-16-08, 10:12 PM
Those that insist that the price action of oil is "proof" of some sort of sophisticated, organized, ETN-conspiracy financial manipulation seem to completely overlook identical price behaviour in...solar cell manufacturers...

Down from a peak of $450 a kilo to about $80 today. By all accounts, it's headed lower since most of the manufacturers are running at very low production levels. There are mountains of purified silicon building up while solar panel manufacturers, distributors and installers work off the current inventory. As EJ pointed out, there's going to be a very good time to be a consumer in the future.

orion
12-16-08, 10:19 PM
I am glad you high-lighted that video on inflation as I finally watched it. I just wonder .... :rolleyes:

What happens if nobody is interested in more pipe?
What happens if nobody has money they are sitting on for that new car?
What happens if we are not a manufacturing society anymore?
It sounds so good, whatever happened to Weimar Germany? (too much fun?)

Finally I wonder if Uncle Ben is too quick on the draw right now and nobody reacts to inflation. Consequently he has to really print and whoops, off we go to high inflation (hopefully not hyper inflation, let's see that video! :eek:)

bart
12-16-08, 10:21 PM
I can't get it out of my head, the article that EJ posted that said that in a market at any given time, there are inflationary and deflationary forces. And I also can't get it out of my head that a drop in household debt is deflationary in nature. I know we're just looking at one data point in a vacuum, but it's another point in that column.

This is why I was asking, what if the fiscal stimulus being pumped into the FIRE sector never makes it to the P/C economy? Wouldn't the above chart be a data point in favor of that type of action?

Of course it's a point in the disinflation/deflation columns, along with many other items... but the bottom line is whether you think that the combination of governments and central banks can't and won't reverse the trend.

Here's another one in the disinflation/deflation columns - the drop so far in US household net worth both in absolute dollars and in percentage is the largest since the beginning of the data set in 1952.

http://www.nowandfutures.com/images/household_net_worth1952-current.png

WDCRob
12-16-08, 10:24 PM
That's funny, but... is that directed at my conversation with vinoveri, or bart's conversation with FRED?

Fred more than anything else specific...but mostly just for fun.

jtabeb
12-16-08, 10:29 PM
Factually incorrect.

1. We never insinuated that oil was not due to decline in price from $147, nor gold from $1013 for that matter, only that these were not "bubbles" by our definition. This is critical to understand. If we included these in our definitions of bubbles, along with tech stocks in 1999 and houses 2002 to 2006, then subsequent price actions in oil and gold raise the obvious question: if oil is a bubble at $40 in 2006, and gold at $1013 in 2008, what is oil at $45 in 2008 after the oil "bubble" has popped and gold at $850 after the gold "bubble" has "popped"?

2. We believe that both oil and gold prices are, long term, more a function of dollar supply and demand than commodity supply and demand. Thus the price will likely behave in ways that are completely uncharacteristic of bubbles. Bubbles are characterized by a rapid rise, a collapse to a mean, and overshoot followed by an extended period of suppressed price. Oil remains at prices that were called a "bubble" in 2006 yet the talk now is of deflation as demand collapses. Gold at $850 during a "deflation" makes no sense at all of gold was a "bubble" at $1013. We maintain a consistent set of definitions and concepts here and do not change them as the wind blows.

3. The Fed has not engineered an economic collapse.

1. Maybe not, But I do recall a quote in which you agreed with the government's and OPEC position that the Oil price was justified on the basis of "resource depletion", I believe was the term. So what you did say was that money games/leverage/OTC trading were not manifestly impacting the Oil Price. (If MISH is not allowed to rewrite history, you should not be able to either).

2. Ok, then please explain Itulip's shift in position on the term Disinflation. First is was NO deflation then NO SUSTAINED DEFLATION, then it was NO SELF-REINFORCING SUSTAINED DEFLATION. That seems like more than just a symantic shift to me.

3. You present a suppostion as fact, with no evidence presented at all. This of lack of intellectual curiosity will not provide far-reaching insights into policy deconstruction and is a grave disservice to your readership. Bottom line, you dismiss a supposition that I have presented outright, while at the same time presenting a supposition of you own as factually based (with out presenting any evidence). That seems to be a woeful double standard. And I said earlier, you reject theories that match the observable behavior because they are not proveable (although, at least twice these theories have been vindicated by coroborating evidence that emerges later) BUT at the same time present your OPINION as fact with out even meeting your own burdon of proof.

4. No response or mention of the Iraq PM I sent you? Why? Was that not a case of an plausible but unprovable theory that was later coroborated by a factual disclousure from a very reputable source? So it's not like what I (and Bart) are talking about here is without a historical prescident. I think you would be more open to different ideas having been scooped once before. No?

I would add that from everything I know and everything I heard (Fred are you listening here), there is a VERY large geopolitical/military chess game that is being played out on the world stage right now that is flying below the radar of most of the retail news sources. This game is so significant that is impacting all of the economies of the world. If you doubt the veracity of the Pol/Mil complex to operate in this arena, I would strongly advise you all to do your research on US Doctrine and specifically the instruments of national power and their use. If you IGNORE the significance of what is being decided and why, you will have absolutely no basis for conjecturing on future economic outcomes, NONE WHAT SO EVER.

Yes FRED, you are going to say "prove it", I can't. That does not mean that it is not occuring and I will offer you this. If this theory better explains future outcomes, you'd damn well better listen if you don't want to get burned. How will we know?

I shoot my mouth off enough round here that most of you know exactly the calls that I have made.

Just to re-state, for those not familiar, here they are.

a. Gold and silver are cheaper than dirt, buy them!

b. houses in non-bubble areas or forclosures in bubble areas (where you can find 50% sales) are dirt cheap. By a house if you need a house. Yes, this means stop renting! (If it's good enough for my mom, well, you can decide if you think I'm correct and act accordingly).

c. I think stocks are cheap (cheaper than 1982 prices anyway) in inflation adjusted gold terms, so yes I went 50% long with my remaining cash (25% of my portfolio)

See here:

http://www.ritholtz.com/blog/2008/12/the-shadow-gold-price/

d. The dollar is as overvalued as all get out. Remember when the dollar was devalued in 1933 by from $20oz to $35oz of gold? A big dollar de-valuation come'th, and it come'th soon. Things seem to be moving much MUCH faster than during the thirties, I would expect that the dollar devaluation comes much MUCH sooner too. (Sooner than everyone is expecting).
Think what that will do to assets like stocks and houses and gold VS. say BONDS? You can draw your own conclusions.

e. You ain't gonna have an Alt-E boom w/out being competitive with conventional fuels. There is only two ways that occurs. Conventional prices go back up(1), carbon cap-and-trade pushes conventional prices back up(2) or some combination of the two.

Those are my calls for the public record. (You can hound me on them as much as you like if they are incorrect, but if they are correct, please take note of the possiblity).

P.S. The beauty of this site is that no one is correct all the time. I am very thankful for the insights provided by all the members and ESP. our founders. You can gain alot from a good many very intellegent people. But in the end, you have to construct your own operating understanding of what is going on in the world. I do that by taking the most logically consistent ideas and unifing them as best as I can into a multi-dimensional working theory about what's happeing. My synergy may be very different than yours. But by presenting it here, maybe you will find something to refine your own construct. Good luck.

P.P.S. I'd rather be wrong in public than right in private because what the hell good would that do for everyone (besides me).

santafe2
12-16-08, 10:32 PM
Can someone kindly help an econo-dummy understand the following quote from EJ's article of subject?: "inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."

I'm not quite grasping what kind of "US creditor" (our foreign creditors? Creditors within the US like mortgage, credit card companies?) What kind of assets will they be selling? And if they are selling things and getting dollars in return, why is that inflationary?

What does "unwitting" imply? Is someone manipulating the unwitting party intentionally to cause inflation? How?

I understand most of what EJ writes most of the time (and I consider that a testimony to his writing quality, considering how unschooled I am in economics), but I'm not quite 'getting' this one.

US$ depreciation should happen when too many US dollars become unattached to US treasuries in too short a period of time. The stuff these dollars chase goes up in value and the dollars go down in value. The stuff can be as simple as other currencies. Lots of fear is driving US$ holders into US treasuries today but as these creditors run to other assets and dump their dollars, the US$ will be less prized and will begin to fall in value. They won't intend to drive the dollar down, won't want to any more than investors in any other investment that has become toxic. But nonetheless, that will likely be the outcome.

Others here are more qualified to give a more complete explanation.

santafe2
12-16-08, 10:46 PM
The latest data from ECRI indicate that the US economy on track to contract to near its pre-FIRE Economy level.

The chart is two weeks old but functionally accurate. Retracement has a way to go to wipe out the FIRE economy but its blown straight by the 2001 downturn without so much as a pause. This can't be a positive sign.

889

GRG55
12-16-08, 11:00 PM
Can someone kindly help an econo-dummy understand the following quote from EJ's article of subject?: "inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."

I'm not quite grasping what kind of "US creditor" (our foreign creditors? Creditors within the US like mortgage, credit card companies?) What kind of assets will they be selling? And if they are selling things and getting dollars in return, why is that inflationary?

What does "unwitting" imply? Is someone manipulating the unwitting party intentionally to cause inflation? How?

I understand most of what EJ writes most of the time (and I consider that a testimony to his writing quality, considering how unschooled I am in economics), but I'm not quite 'getting' this one.

"Creditors" = primarily foreign private and official sector. Foreign private sector buyers of US Treasuries have declined in recent years, but official sector buyers [foreign Central Banks] have stepped in to replace them.

"Unwitting", I think, because most have suffered US$ exchange rate losses for the past number of years [although the capital gains in US Treasuries this year has been something to behold]. As well, some are still willing to lend to the US Government at zero to near-zero returns, today.

As for...


"inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."
...my interpretation is that deflating the dollar against gold, as was done in the 1930's, isn't directly possible [by the Fed] since there is no longer any official convertability link, as there was then. That leaves creating inflation by creating a sufficient surplus of US$ compared to goods and services available. santafe2's post covers how they might do it.

jtabeb
12-16-08, 11:03 PM
The iTulip theory of jocks and geeks does not include any allowance for "evil" though, and I submit that at the very least it is quite incomplete for that reason, albeit workable.

Don't confuse evil (although it could very well be called that) with a strenuous defense of national self-interest on the part of policy makers. (Their view of national interest, that is)

Yaowarat
12-16-08, 11:18 PM
Bravo.
Well written and informative.
I'll read this one more than once, for sure.

pianodoctor
12-16-08, 11:25 PM
Thanks santefe2 and GRG55. I get it now. So much money chased into treasuries (or already there before from SWFs) is bound to get chased out. Then all that money chases other stuff. I was thrown by the broadness of the terms "creditors" and "assets" whch can mean so many different things.

bart
12-16-08, 11:25 PM
Don't confuse evil (although it could very well be called that) with a strenuous defense of national self-interest on the part of policy makers. (Their view of national interest, that is)

Somewhat true, like in the sense where I call the ECB's buy & sell actions in the gold market either manipulation or control, but the difference in my usage of "evil" above is in a very dark sense and well beyond things like national self interest or similar.

The problem is that the word evil has such a broad connotation, like the smoke filled back room picture. Although there is some of that, I'm more referring to things like a major worship of power, control and Mammon to the exclusion of other important things in life - including ethical or even moral behavior. And now that I've used almost all the truly hot words (except sex) in life and very intentionally avoided specifics, I'll be heading for my cage...

Rajiv
12-16-08, 11:34 PM
Bart, for a clinical exposition of evil, consider the book "Political Ponerology (http://www.ponerology.com)"

bart
12-17-08, 12:13 AM
Bart, for a clinical exposition of evil, consider the book "Political Ponerology (http://www.ponerology.com)"

It actually is in the big stack of books I want to read but haven't gotten to yet, and I think it was you mentioning it a while back that caused me to order it.

LargoWinch
12-17-08, 12:20 AM
In that spirit, we offer up a video located by eagle eye iTuliper LargoWinch

Thank you EJ for the acknowledgment and for another superb article.




Keep an eye out for a YouTube video then lamenting the scourge of deflation and promoting an old idea re-tread and marched out as a modern monetary policy cure – new again as in 1933 – inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold.


I will make sure to keep my "eagle eye" for this one too...

BadJuju
12-17-08, 12:44 AM
What can the average American do to protect themselves during this time of economic upheaval? What are the prospects for the next couple years?

The Outback Oracle
12-17-08, 12:52 AM
Somewhat true, like in the sense where I call the ECB's buy & sell actions in the gold market either manipulation or control, but the difference in my usage of "evil" above is in a very dark sense and well beyond things like national self interest or similar.

The problem is that the word evil has such a broad connotation, like the smoke filled back room picture. Although there is some of that, I'm more referring to things like a major worship of power, control and Mammon to the exclusion of other important things in life - including ethical or even moral behavior. And now that I've used almost all the truly hot words (except sex) in life and very intentionally avoided specifics, I'll be heading for my cage...
'Evil' is often used in reference to Psychopaths and Narcissists and I have little disagreement with that classification. Given that it is held that this group consitutes 1 in 25 of the male population and one category of Narcs, aptly described by Bart, "major worship of power, control and Mammon to the exclusion of other important things in life - including ethical or even moral behavior." tends to head towards public life of one form and another for obvious reasons, then Bart's observation has some merit.

ASH
12-17-08, 01:38 AM
What can the average American do to protect themselves during this time of economic upheaval? What are the prospects for the next couple years?

Ain't that the question. I'm just a random dude, but here's my take:

My impression is that the average American (not necessarily the average iTulip reader) has little in the way of savings and few assets, other than their home. They are also encumbered by debt -- a mortgage or home equity line of credit, possibly a car loan, and probably a balance on their credit cards. The average American is working now, but probably doesn't have much job security.

If we are going by iTulip's forecast (which I would guess is understood), then we likely have several years of high unemployment, lower asset prices (such as homes and stock shares), and high inflation ahead of us. Many Americans will find themselves out of work, and most of the rest will probably face stagnant wages. The purchasing power of wages, and most forms of savings, will drop over time. At the same time, the interest rate charged on variable-rate consumer credit (variable-rate mortgages and credit cards, for instance) will go up. So, to sum it all up, the average American is going to have a lot of trouble affording the things to which he/she is accustomed. The risk of being unemployed will go up, we will be able to buy less with what we earn and what we've got saved, and we will have to pay more for what we've already borrowed.

If that is where we're going to end up, there are several things the average American can do to prepare. Employment security is a hard one, and I don't have too many ideas there. If you're in a job, now is not the time to switch employers, unless you've got an unusually secure job lined up (e.g. a full-time job in a permanent position with the federal government). If you presently have two wage-earners, start thinking about what you'll have to do if you lose one of those incomes. Managing the impact of inflation is a bit more straightforward. Lose the variable rate consumer credit; when inflation hits, your wages will not keep pace. Also, try to get in front of the inflation by frugalizing now. If the purchasing power of your wages is going to drop, then life will be a lot easier if you drop your lifestyle first -- that will give you some breathing room to adapt and adjust. This could easily mean selling unaffordable cars or down-sizing your residence. The goal is to live substantially below your means now so you can absorb the hit to the purchasing power of your income (or an interruption of that income). Finally, as regards savings -- this presents a big problem. On the one hand, if your employment is at risk, the best thing to do would be to accumulate as large a cushion of savings as possible at the same time that you are cutting your expenses to the bone. On the other hand, if consumer price inflation coincides with asset price deflation, there are few attractive places to store wealth. Obviously, some of that cushion ought to be in a regular savings account, and you'll just have to take the hit on purchasing power. However, you should attempt to protect any larger balance from erosion of its purchasing power. Here opinion is divided, because there is quite a significant degree of speculation involved. The average American is not a financial genius, so I think Treasury Inflation-Protected Securities (TIPS), while imperfect, are a reasonable lower-risk choice.

According to iTulip, the prospects for the next couple of years are, in a word, terrible.

Finally, remember that free financial advice is worth what you pay for it. I'm just some dude on the internet.

santafe2
12-17-08, 01:52 AM
What can the average American do to protect themselves during this time of economic upheaval? What are the prospects for the next couple years?

Family, friends, work associates, community, savings. Protect yourself by giving of yourself. Although he couched it within financial circumstance, EJ made a great point in his post today, trust will have a high premium. If you're not building it now, it will come at a much higher premium later. We're not heading for Mad Max but we're done with Dude that's Cool!

No specific advice but I hope it helps.

santafe2
12-17-08, 01:59 AM
If that is where we're going to end up, there are several things the average American can do to prepare.

Or what Ash said...I've been one-upped by my friends from Caltech for so long I've just learned to appreciate their points of view...even when they miss the big picture with their perfect detail...LOL!

Sapiens
12-17-08, 04:13 AM
I'm sure I heard the birds ZIRPing outside this afternoon. If it wasn't for the Christmas carols I'd have sworn it was spring...

[that reminds me...has FRED checked the FED altimeter and VSI lately; maybe that was a ground proximity warning I heard?]

Supplement to the advice above. There are more bargains out there than appears on surface. Retailers will negotiate, especially on bigger ticket and higher end items, if you are an informed shopper, and actually ready to make a deal [not kicking tires]. My wife has been shopping aggressively for the appliances and selected fittings for the bunker. Sometimes she negotiates so hard it's embarrassing and I slink off into a corner of the store and pretend not to be with her :D. But it works. She's been able to get some top level stuff she never expected to afford, at prices she never expected to see. And our regional economy here has barely started to turn down [house prices just starting to decline, layoffs minimal so far, etc.].

I always insist on taking delivery immediately no matter what. As the bunker is still under construction I have rented storage space and am stockpiling everything we buy under my own lock and key. All the retailers tell me they will store our stuff in their warehouse for free until we need it, but I don't trust they'll still be there in many cases. Today on the local news there's a report of a high end furniture store that has closed and not delivered to customers who prepaid...even those customers that bought stuff at their two day "Going Out Of Business Sale" and didn't take immediate delivery. Ooops. Apparently a creditor managed to get a court injunction blocking distribution of any assets.

Be careful out there...:cool:

Great post! Sounds like Mrs. Sapiens on a trip to Turkey. ha ha ha Also, great advice.

Chris Coles
12-17-08, 05:05 AM
Where's Finster with his list of fallacies?

"Prove to me that the Apollo 11 moon landing was not fake. You cannot, therefor it was fake!"

Negative Proof fallacy (http://en.wikipedia.org/wiki/Negative_proof): that, because a premise cannot be proven false, the premise must be true; or that, because a premise cannot be proven true, the premise must be false.
Nice try. You have to prove to me that the Fed had intent.

[quote=GRG55 As for...


"inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."
...my interpretation is that deflating the dollar against gold, as was done in the 1930's, isn't directly possible since there is no longer any official convertability link, as there was then. That leaves creating inflation by creating a sufficient surplus of US$ compared to goods and services available. santafe2's post covers how they might do it./quote]

I think both viewpoints have been answered this morning on BBC Radio 4 "Today" with the first headline and slightly later interview with this report.

[B]Obama 'must take dramatic action'

"The US Federal Reserve has cut interest rates to 0% - 0.25% in an attempt to revive the economy. Democratic Congressman Dennis Kucinich says Barack Obama must take control of monetary policy to ease the economic crisis. "

http://news.bbc.co.uk/today/hi/today/newsid_7787000/7787168.stm

If you have difficulty with that link here is the home page for the full program. (The item is the first on the headlines for the day). Top of page look for full program. For those of you unfamiliar with the radio here in the UK "TODAY" is THE flagship radio news program. The actual news item changes from the start at 06.00am. the 08.00am version started with more emphasis on the interview with Congressman Dennis Kucinich. (You can slide the time line along to start the program anywhere you please). It is absolutely reliable news and better than any TV program anywhere......

http://news.bbc.co.uk/today/hi/default.stm

In essence, the FED has run out of ammunition and that the new team will introduce new methods to try and control the economy with the emphasis on methods used by President Roosevelt during the 1930's.......<!-- E BO -->

vanvaley1
12-17-08, 06:07 AM
Thanks, EJ. I'm a wabbler in more ways than one. It's a blessing to have a cane about when it's needed. van

lorisarasota
12-17-08, 10:43 AM
Thanks, EJ. You provide a great service. I followed your recommendations a couple years ago and it has made a huge difference in my life. My friends and family thought I was over reacting and being too pessimistic at the time, but I did the right thing because your analysis and explanations made so much sense. For me, you site is an ongoing source of sanity compared to the nonsensical, mindlessness, behind the curve sources of information on TV and most other media sources. Your site and the I-Tulip community have greatly improved my quality of life, and I wanted to say Thank You!

GRG55
12-17-08, 10:58 AM
[quote=GRG55 As for...


"inflation, accomplished, as usual, via currency depreciation, but this time executed by unwitting US creditors selling dollar denominated assets versus deflating the dollar against gold."
...my interpretation is that deflating the dollar against gold, as was done in the 1930's, isn't directly possible since there is no longer any official convertability link, as there was then. That leaves creating inflation by creating a sufficient surplus of US$ compared to goods and services available. santafe2's post covers how they might do it./quote]

I think both viewpoints have been answered this morning on BBC Radio 4 "Today" with the first headline and slightly later interview with this report.

[B]Obama 'must take dramatic action'

"The US Federal Reserve has cut interest rates to 0% - 0.25% in an attempt to revive the economy. Democratic Congressman Dennis Kucinich says Barack Obama must take control of monetary policy to ease the economic crisis. "

http://news.bbc.co.uk/today/hi/today/newsid_7787000/7787168.stm

If you have difficulty with that link here is the home page for the full program. (The item is the first on the headlines for the day). Top of page look for full program. For those of you unfamiliar with the radio here in the UK "TODAY" is THE flagship radio news program. The actual news item changes from the start at 06.00am. the 08.00am version started with more emphasis on the interview with Congressman Dennis Kucinich. (You can slide the time line along to start the program anywhere you please). It is absolutely reliable news and better than any TV program anywhere......

http://news.bbc.co.uk/today/hi/default.stm

In essence, the FED has run out of ammunition and that the new team will introduce new methods to try and control the economy with the emphasis on methods used by President Roosevelt during the 1930's.......<!-- E BO -->

Chris: Some days I really miss the Beeb, now that I am back on this side of the Atlantic...

What Kucinich states and the BBC reported is what EJ said some weeks ago in a post...the FED would be close to exhausting its bag of monetary tricks in 1st H 2009, and the new Administration would have to step up and keep working the problem using fiscal policy...

An amusing excerpt, quoting Jim Grant, from hedge fund manager Bill Fleckenstein's column yesterday...



...For any doubters out there, the last paragraph of the communique read: "The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities . . . and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant." Furthermore, "the Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities."

My friend Jim Grant said that paragraph should have had the subhead: "Gold $36,000." ...

mcgurme
12-17-08, 11:56 AM
Ash,
I think yours is a wonderful exposition of "what to do" from a financial preparation perspective, thanks for that.

But I'd also like to extend the discussion into personal/mental preparation. As per your disclaimer, I also disclaim that I'm just some random gal on the internet.....

People have, throughout time, survived many situations that are very dire, with famines, disease, wars, etc. While the prospect of lost wealth is a scary one for many, I believe that the scariest part is actually a <b>change</b> in wealth. Because <i>change is scary</i> to most people. But, fact is, change is coming, and will impact most of us one way or another. We cannot avoid that change. So perhaps it requires mental preparation for the change, just as much as physical preparation. Wealth can always be taken away by circumstance, government, war, theft, fire, whatever. A broad swath of Americans have had the luxury for 50 or so years now of not often facing wealth destruction. But that is a historical anomaly, not regularity. Perhaps we are going to be returning to "normal".

Wealth is not happiness. For example, Brits are less happy now than in the 50's, despite being 3x richer (http://news.bbc.co.uk/2/hi/programmes/happiness_formula/4771908.stm). Happiness is in one's mind. It starts from a foundation of being healthy. So the first thing one can do to prepare is to have a healthy body, by eating right, exercising, and getting enough sleep. Sitting in front of the TV (or computer) all the time will not the problems coming soon to a neighborhood near you. It will require hard work to get the Production part of the Production/Consumption economy going, but hard work requires physical health. Hard work can be enjoyable, but many americans are not mentally prepared for this. And so it will be a rough road to transition from pure consumers into actual producers of value again.

Another aspect of this - building community. The explosion of (false) wealth in the US over the past 30 years has, for many, destroyed any sense of community. People drive their luxury cars to their luxury homes and then sit in front of their big screen TV's, without interacting with anybody around them. Ok, perhaps that's a bit of hyperbole, but most people I talk to lament that they have no sense of that community spirit, that friends are too busy, that life has just become a treadmill.

Recapturing a sense of community would have multiple benefits. First, it would have many benefits to the individual psyche, since being a part of a community has been shown to have positive mental health benefits. But more importantly, community is how humans have survived many catastrophes in the past. A tightly knit community of people is far more resilient in the face of problems than one that is not. Now, I say, but I have not fully implemented this part, because it requires other people who also want to do that. I believe that as the situation gets more dire for more people, a sense of community will naturally grow. I see the beginnings of it around me, but they are only beginnings.

Other things one can do - plant a garden. Learn how to cook. Learn how to be frugal. Learn how to enjoy time with family and friends that don't involve expenses like restaurants or etc.

But the biggest thing of all comes back to realizing that once change has happened, usually the fear is gone. People may fear losing their job, or their wealth, or whatever... but once it happens, most just deal with it, and get on with life. I cannot control those external circumstances - but I can control how I react to them. So to me, the best form of mental preparation is realizing that all I have is just temporary and illusory. I may get lucky (in combination with a bit of wisdom from sites like this) and retain some of what I have. Or I may not. But, I can choose to be happy and enjoy whatever I do have at any given moment. But happiness is not natural for many people (myself included) - it requires hard work and training, like anything. And so I am training myself to be happy. And, training oneself to be happier has many side benefits, such as a better immune system, and an improved ability to deal with difficult situations.

I believe that mental preparation will be just as important as the physical preparations one makes for the interesting times ahead.



Ain't that the question. I'm just a random dude, but here's my take:

My impression is that the average American (not necessarily the average iTulip reader) has little in the way of savings and few assets, other than their home. They are also encumbered by debt -- a mortgage or home equity line of credit, possibly a car loan, and probably a balance on their credit cards. The average American is working now, but probably doesn't have much job security.
snip...

goadam1
12-17-08, 12:43 PM
I'm nice to them but I won't let them know where the gold is hidden.

BobH
12-17-08, 01:15 PM
EJ's statement - "My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner."

OK, could someone put some meat on this forecast? From EJ's previous post on unemployment that we would see 10 M jobs lost in 2009 I'm having trouble seeing it go past 20% in 2010. Let's assume that U3 is at 7% by end of 2008. How does EJ get to 20% in 2010?

Candidly, trying to tie treads together here is very difficult! Or is it me? ;)

Chomsky
12-17-08, 01:19 PM
EJ's statement - "My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner."

OK, could someone put some meat on this forecast? From EJ's previous post on unemployment that we would see 10 M jobs lost in 2009 I'm having trouble seeing it go past 20% in 2010. Let's assume that U3 is at 7% by end of 2008. How does EJ get to 20% in 2010?

Candidly, trying to tie treads together here is very difficult! Or is it me? ;)

I read this as: 20% is the upper bound for unemployment before the government bites the bullet and inflates, but they will likely move to head off unemployment before it gets that high

bpr
12-17-08, 01:22 PM
Another aspect of this - building community. The explosion of (false) wealth in the US over the past 30 years has, for many, destroyed any sense of community. People drive their luxury cars to their luxury homes and then sit in front of their big screen TV's, without interacting with anybody around them. Ok, perhaps that's a bit of hyperbole, but most people I talk to lament that they have no sense of that community spirit, that friends are too busy, that life has just become a treadmill.

Recapturing a sense of community would have multiple benefits. First, it would have many benefits to the individual psyche, since being a part of a community has been shown to have positive mental health benefits. But more importantly, community is how humans have survived many catastrophes in the past. A tightly knit community of people is far more resilient in the face of problems than one that is not. Now, I say, but I have not fully implemented this part, because it requires other people who also want to do that. I believe that as the situation gets more dire for more people, a sense of community will naturally grow. I see the beginnings of it around me, but they are only beginnings.

Other things one can do - plant a garden. Learn how to cook. Learn how to be frugal. Learn how to enjoy time with family and friends that don't involve expenses like restaurants or etc.

Good stuff, both to you and Ash.

This bit about community... Yesterday a co-worker told me that his son had been laid off in Oregon; we're in Pennsylvania. It struck me that during the Great Depression, people had families and communities to reply on... move in with old Aunt Maude if we lose the house, that kind of thing. Today so many families are disconnected due to the global economy that siblings are half a world apart.

You familiar with Bill McKibben's Deep Economy? Interesting stuff, sort of a blueprint.
http://www.billmckibben.com/

ASH
12-17-08, 01:24 PM
I believe that mental preparation will be just as important as the physical preparations one makes for the interesting times ahead.

Sounds like wisdom to me.

bart
12-17-08, 01:26 PM
U6 is already over 12% and John Williams adjustments to it for apples-to-apples comparison purposes have it as over 16% currently.

FRED
12-17-08, 01:56 PM
EJ's statement - "My guess is that will happen no later than after unemployment surpasses 20% in 2010 but likely much sooner."

OK, could someone put some meat on this forecast? From EJ's previous post on unemployment that we would see 10 M jobs lost in 2009 I'm having trouble seeing it go past 20% in 2010. Let's assume that U3 is at 7% by end of 2008. How does EJ get to 20% in 2010?

Candidly, trying to tie treads together here is very difficult! Or is it me? ;)

Current unemployment and forecast. Source current data: Bureau of Labor Statistics. (http://data.bls.gov/PDQ/servlet/SurveyOutputServlet) Source forecast: iTulip.com.


http://www.itulip.com/images/U1unemployment1948-2008.gif

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force

Current: 2.5%
2008: 3%
2009: 5%
2010: 8%


http://www.itulip.com/images/U2unemployment1967-2008.gif

U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force

Current: 3.5%
2008: 4%
2009: 7%
2010: 10%


http://www.itulip.com/images/U3unemployment1994-2008.gif

U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)

Current: 6.5%
2008: 8%
2009: 13%
2010: 20%


http://www.itulip.com/images/U4unemployment1994-2008.gif

U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers

Current: 7%
2008: 9%
2009: 15%
2010: 22%


http://www.itulip.com/images/U5unemployment1994-2008.gif

U-5 Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers

Current: 7.5%
2008: 9.5%
2009: 16%
2010: 24%


http://www.itulip.com/images/U6unemployment1994-2008.gif

U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers

Current: 12%
2008: 14%
2009: 20%
2010: 26%

See also: Housing Bubble Correction Update: Here comes the jobs crash (Part II) (http://www.itulip.com/forums/showthread.php?t=4516)

BobH
12-17-08, 01:56 PM
I'm with you on U6 or Shadow Stats but the government uses U3 ... for obvious reasons!

How does EJ get to 20% in 2010?

I 'generally feel' he is probably right. However, I would like to see some backup to support this claim!

ASH
12-17-08, 02:03 PM
Current unemployment and forecast.

Apparently, we can still be doomed without being doomers. :eek:

[rocking back and forth] "Oh, this is bad! This is very bad!"

(Not a ridicule of the forecast.)

mcgurme
12-17-08, 02:15 PM
Good stuff, both to you and Ash.

This bit about community... Yesterday a co-worker told me that his son had been laid off in Oregon; we're in Pennsylvania. It struck me that during the Great Depression, people had families and communities to reply on... move in with old Aunt Maude if we lose the house, that kind of thing. Today so many families are disconnected due to the global economy that siblings are half a world apart.

You familiar with Bill McKibben's Deep Economy? Interesting stuff, sort of a blueprint.
http://www.billmckibben.com/

That's the thing - families are far flung, which makes dealing with economic stress more difficult. I suspect many families will be forced back together, and/or people will develop non-family communities as a substitute.

Thanks for the link to that book, looks very interesting. I will put it on my reading list.

bart
12-17-08, 02:17 PM
I'm with you on U6 or Shadow Stats but the government uses U3 ... for obvious reasons!

How does EJ get to 20% in 2010?

I 'generally feel' he is probably right. However, I would like to see some backup to support this claim!

Here's my $.02 worth along with a reverse Phillips curve reasoning. I'm slightly less bearish than EJ but the difference isn't large, and I might also change the forecast if significant other changes occur.


http://www.nowandfutures.com/images/unemployment_u3_cpi_phillips.png

BobH
12-17-08, 02:21 PM
Thanks, ED

So your new forecast from past treads looks to have increased dramatically. Things like post recession peak unemployment by state have moved from 10% to over 20%. Am I reading this correctly?

Also do you see finishing 2008 at 8% nationally? That's a big move here in the last month. I understand forecasting is 'never' perfect but it would seem to impact future forecasts.

Thanks again for your responses!

BobH
12-17-08, 02:27 PM
Thanks, Bart

I'm probably hoping moe like what you have posted but I'm also servicing retail so I'm seeing much worse right now. Clearly to me unemployment should be much worse than anything we have seen over the last 50 to 60 years.

FRED
12-17-08, 02:38 PM
Thanks, ED

So your new forecast from past treads looks to have increased dramatically. Things like post recession peak unemployment by state have moved from 10% to over 20%. Am I reading this correctly?

Also do you see finishing 2008 at 8% nationally? That's a big move here in the last month. I understand forecasting is 'never' perfect but it would seem to impact future forecasts.

Thanks again for your responses!

In spite of iTulip's reputation for gloomy economic forecasts, if you look at the record you will note a pattern of over-optimism. For example, our July 13, 2008 forecast for Rhode Island peak recession unemployment in Housing Bubble Correction Update: Here comes the jobs crash (Part II) (http://www.itulip.com/forums/showthread.php?t=4516) was 10%:


http://www.itulip.com/images/RIuJuly2008.gif
National Unemployment Growth Rank: 1
Macro-economic Vulnerability: High
Unemployment Growth Rate: High
Estimated Post Recession Peak Unemployment Rate: 10%
Future Home Values Rating: Poor


Here's the update as of today:


http://www.itulip.com/images/RIunemployment1976-2008.gif


As you can see, the U-3 unemployment rate is already over 9%. This is true for all of the graphs in that report. Thus our upward national unemployment rate revisions.

Chris Coles
12-17-08, 03:26 PM
[quote=Chris Coles;66801]

Chris: Some days I really miss the Beeb, now that I am back on this side of the Atlantic...

What Kucinich states and the BBC reported is what EJ said some weeks ago in a post...the FED would be close to exhausting its bag of monetary tricks in 1st H 2009, and the new Administration would have to step up and keep working the problem using fiscal policy...

An amusing excerpt, quoting Jim Grant, from hedge fund manager Bill Fleckenstein's column yesterday...


...For any doubters out there, the last paragraph of the communique read: "The Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities . . . and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant." Furthermore, "the Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities."

My friend Jim Grant said that paragraph should have had the subhead: "Gold $36,000." ...


GRG, You are correct, but I was merely reinforcing the message rather than trying to say it was a new slant. But that being said, I was intrigued to hear the very clear reference to Roosevelt rather than Hoover. Made me think perhaps they will try and catch a devaluation before January is out... just a thought?

As for the Beeb; nothing beats a grand rollicking debate between a shrivelling party hack and one of the "Today" presenters on a roll. We do sometimes get some really great radio interviews here.

PS; have a great Christmas and a Happy new year..... and by then perhaps the concrete mixer and rebars will be replaced with the ground work finished and a nice walled garden to cover the whole thing... Ha! Ha!

bpr
12-17-08, 03:33 PM
In spite of iTulip's reputation for gloomy economic forecasts, if you look at the record you will note a pattern of over-optimism.

I can feel my teeth unclench as I read the rosy prognostications.

Seriously, though, thanks.

WDCRob
12-17-08, 04:04 PM
What is the current peak unemployment estimate now then Fred? I'm not sure I saw the upward revision (or was the 10-15% number the revision?).

c1ue
12-17-08, 04:34 PM
On the investing front - as expected SKF is approaching the 90s again. Very tempting, I will likely take a 1/2 share VAR stab at it tomorrow morning. I can't in good conscience take a full share stab at it because my trigger is the auto bailout - and that hasn't happened yet.

Got my SKF: 2000 x 101.88

TBT is starting to look interesting, but I suspect we might see 30 before we see 40.

BobH
12-17-08, 05:02 PM
Ed, again very much appreciated.

These unemployment numbers are far greater than any others that I have read. To be sure, you were out with very large numbers months before anyone else. We were seeing 50k or 100k type numbers when you came out with 10M will be lost in 2009. Now that we see 500+k in November your numbers seem very logical. Congrats, again!

I did notice that from your forecast it looks like you think 2010 may be just as bad as 2009. You show an unemployment increase of 5% in 2009 (i.e. 5%/8% = 62% up) and 7% increase in 2010(7%/13% =54% up)!

Holy crap ... when do you see this unemployment rocket stop it's vertical? ;)

ax
12-17-08, 05:10 PM
on a day like yesterday the question is always "is this the beginning of the next 1K point bear-market rally?" It's that moment of doubt that keeps you from hitting the short-button. My only regrets in an otherwise successful investing year (thanks in part to the supporting pessimism of the Itulip community) have been failing to hold on to some of my shorts the entire year and not adding considerably more gold contracts when it fell under $700 recently. Of course, unlike a fund, I simply don't have enough cash to support every idea, so some go by the wayside. Don't feel bad, if gold alone goes where we think it will, nothing else will matter!

DemonD
12-17-08, 05:12 PM
So much money chased into treasuries (or already there before from SWFs) is bound to get chased out.

Someone really needs to re-do the japan thing and tell me why we aren't headed for a Japan-like fall, because whether I'm just biased towards seeing this as such, everything I see here seems to be rhyming much more with japan than with other historical precedents. Because when I read a quote like this, all I can think is, it's been 19 years, why hasn't it been chased out in yen?

jtabeb wrote:

2. Ok, then please explain Itulip's shift in position on the term Disinflation. First is was NO deflation then NO SUSTAINED DEFLATION, then it was NO SELF-REINFORCING SUSTAINED DEFLATION. That seems like more than just a symantic shift to me.

One thing that is evident to me is that there is no ownership of this. I remember in 2007 when that was supposedly the "stealth disinflation" when we were all looking for the "ka" phase. It would be helpful in my purview to at least acknowledge the fact that the past 6 months was a real deflation, and not just a simple disinflation, and that there was some error in the past predictions.

Hey, no one gets them all right, all the time.


Of course it's a point in the disinflation/deflation columns, along with many other items... but the bottom line is whether you think that the combination of governments and central banks can't and won't reverse the trend.

The key to the deflationists argument is that people will stop borrowing, and banks will continue to hunker down and not lend. The recent increase in savings and decrease in household debt for the first time, like, EVER, is a definite point in that direction. The question for the deflationist is can the CB's force people to borrow? And their answer is no. I tend to agree with that assessment. However, I also know that at any given time the president could just say "we are devaluing the dollar by 50% in one day" by keeping all debts equal but digitally doubling every single demand deposit out there. This is essentially what Roosevelt did, and I believe it would be easier this time with no gold backing those dollars. Will they do that though? Are there any other tools that can be used? What I've described is essentially how I see an actual "helicopter drop" of money would work. Putting money into the P/C economy through debt finance is going to be very, very difficult if not impossible over the next few years.

I am at this very moment in time completely unsure of where this is going. I used to be solidly in the "high inflation" camp, but I feel like I'm now straddling the fence between inflation and deflation, and gun to my head, I see the US dollar pulling a yen - no real extreme deflation due to monetary policy, but no inflation due to the inability to get people to borrow and lend and get that money into the p/c economy, ala japan for the past 2 decades. It's like two huge forces coming together to make this one mishmash of a scenario.

The only thing I can see is that the dollar will oscillate with much greater volatility than the yen ever did, and all markets, from bonds to fiat currencies to stocks to precious and base metals, will be extremely volatile over the medium term. In terms of a direction, I am no longer assured that high inflation is in the bag, if for no other reason that the biggest input to running the P/C economy is oil, which has dropped precipitously in terms of price in dollars.

I cannot foresee any scenario of high inflation with oil being under $100/bbl, let alone under $50 or less.

And by the tone of everyone's posts on this thread, I am not seeing the confidence of high or hyperinflation that was apparently in the bag in 2006-2007 when gold, base metals, oil and everything else was skyrocketing. From this I can infer at least a small nudge that the itulip community (with the exception of EJ) is starting to lean against that "inflation is in the bag, gold at 5000/oz" argument.

bart
12-17-08, 06:19 PM
The key to the deflationists argument is that people will stop borrowing, and banks will continue to hunker down and not lend. The recent increase in savings and decrease in household debt for the first time, like, EVER, is a definite point in that direction. The question for the deflationist is can the CB's force people to borrow? And their answer is no. I tend to agree with that assessment.

Fair enough, but history shows that people can be "forced" to borrow. In Weimar Germany in 1922 for example, bank interest rates were 7% through August and only grew to 12% in November while the general price level well over tripled.




And by the tone of everyone's posts on this thread, I am not seeing the confidence of high or hyperinflation that was apparently in the bag in 2006-2007 when gold, base metals, oil and everything else was skyrocketing. From this I can infer at least a small nudge that the itulip community (with the exception of EJ) is starting to lean against that "inflation is in the bag, gold at 5000/oz" argument.

I don't believe that EJ or Finster have changed their tune, and I haven't either. Average hard asset cycles run at least 12 years and as much as 19, and we're only 8 or so into this one.

dbarberic
12-17-08, 06:27 PM
So far it's FIRE Economy 2, Production/Consumption Economy 0.

Should I start a scoreboard here?

How much of a beating can the Production/Consumption economy take before the FIRE leech kills its host?

bart
12-17-08, 06:48 PM
Thanks, Bart

I'm probably hoping moe like what you have posted but I'm also servicing retail so I'm seeing much worse right now. Clearly to me unemployment should be much worse than anything we have seen over the last 50 to 60 years.

EJ puts much more time & effort into his longer term forecasts than I, partially since I'm a shorter term trader.
And do keep in mind I'm leaving a large window open for revisions, and especially that inflation is likely to go much higher than my current chart shows.

DemonD
12-17-08, 07:57 PM
Fair enough, but history shows that people can be "forced" to borrow. In Weimar Germany in 1922 for example, bank interest rates were 7% through August and only grew to 12% in November while the general price level well over tripled.

I'm finding comparisons to Weimar Germany fascinating, as I've come to read up a bit on that. While you or others can argue that the US is a far different case than Japan circa 1990, I can't think of a different situation for Germany in 1922. Assuming the information on Wiki is correct, I do not forsee Great Britain forcing the US to pay reparations that are greater than the sum total of all it's gold and cash reserves, plus 26% of her exports. Also, as EJ noted, hyperinflation happens when there are "tanks rolling in the streets" - which also happened with France and Belgium forcing reparations. Imagine Canada and Mexico trying to force reparations by occupying the US. I would imagine even the most tin-foilest of bunkerers out there would have a hard time seeing that as plausible. Sure, we could get a sudden stop of inflows which might lead to a similar outcome, but is there anything in your data to predict if or when that will happen?

Here is another similarity to japan and dissimilarty to Weimar: We are now at virtually zero interst rate, and while gold did rally today, commodities and prices of everything else continue to be depressed, whereas as you've pointed out, interest rates went from 7-12% in a hyperinflationary environment. The Fed has cut and cut and cut and still can't get inflation any traction. Yes, I know it takes 6-12 months for fed policy to work it's way through the economy, but if the effects of asset deflation are far greater than the fed printing machine?


I don't believe that EJ or Finster have changed their tune, and I haven't either. Average hard asset cycles run at least 12 years and as much as 19, and we're only 8 or so into this one.

What I was referring to was the sum total of the itulip community, not just you guys. Although I will say your data points have pushed me away from the inflation theory more that drawn me to it - it's almost like I want to believe the inflation/ka-poom theory, but market conditions and historical antecedents just aren't adding up to it right now. Sure, gold was up a bit today, but oil busting below 40/bbl?

EJ also mentioned this:

As I pointed out back in March 2000 writing for Bankrate.com, revelations of fraud are a standard feature of all financial bubble periods. Also, financial frauds are like cockroaches, there’s never just one; you can bet millions of hedge fund investors are pouring over their investment docs this week.

Is this not also deflationary, the destruction of wealth of the blowup of many hedge funds? Is the Fed staying out ahead of it all? So far the answer would have to be "no," of course it's the future we're predicting. I have absolutely no loyalty to any one theory, my goal is to get it right as best as I can, so now the question comes, is it possible for us to be more like Japan than the US in the 1970s?

I can only come to the conclusion that "yes, it is possible," the problem is that I still do see the inflationary side of the argument, and at this point am fairly paralyzed in terms of deciding which direction I think it will go. The only thing I know for SURE is that the market will be extremely volatile, and the best way to make money is short term trading in this market - which sound pretty terrifying to me, preferring the long-term outlook.

bart
12-17-08, 08:13 PM
I'm finding comparisons to Weimar Germany fascinating, as I've come to read up a bit on that. While you or others can argue that the US is a far different case than Japan circa 1990, I can't think of a different situation for Germany in 1922. Assuming the information on Wiki is correct, I do not forsee Great Britain forcing the US to pay reparations that are greater than the sum total of all it's gold and cash reserves, plus 26% of her exports. Also, as EJ noted, hyperinflation happens when there are "tanks rolling in the streets" - which also happened with France and Belgium forcing reparations. Imagine Canada and Mexico trying to force reparations by occupying the US. I would imagine even the most tin-foilest of bunkerers out there would have a hard time seeing that as plausible. Sure, we could get a sudden stop of inflows which might lead to a similar outcome, but is there anything in your data to predict if or when that will happen?

Here is another similarity to japan and dissimilarty to Weimar: We are now at virtually zero interst rate, and while gold did rally today, commodities and prices of everything else continue to be depressed, whereas as you've pointed out, interest rates went from 7-12% in a hyperinflationary environment. The Fed has cut and cut and cut and still can't get inflation any traction. Yes, I know it takes 6-12 months for fed policy to work it's way through the economy, but if the effects of asset deflation are far greater than the fed printing machine?


None of that changes that history very consistently shows that people can be "forced" or encouraged to borrow. There are many other examples besides Weimar, which I cited as an extreme. Many were calling for a US long term deflation & crash in 2001-3 as just one other.

marvenger
12-17-08, 09:39 PM
have people been forced to borrow in a deflationary environment?

Quincy K
12-17-08, 10:18 PM
Current unemployment and forecast. Source current data: Bureau of Labor Statistics. (http://data.bls.gov/PDQ/servlet/SurveyOutputServlet) Source forecast: iTulip.com.


http://www.itulip.com/images/U1unemployment1948-2008.gif

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force

Current: 2.5%
2008: 3%
2009: 5%
2010: 8%


http://www.itulip.com/images/U2unemployment1967-2008.gif

U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force

Current: 3.5%
2008: 4%
2009: 7%
2010: 10%


http://www.itulip.com/images/U3unemployment1994-2008.gif

U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)

Current: 6.5%
2008: 8%
2009: 13%
2010: 20%


http://www.itulip.com/images/U4unemployment1994-2008.gif

U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers

Current: 7%
2008: 9%
2009: 15%
2010: 22%


http://www.itulip.com/images/U5unemployment1994-2008.gif

U-5 Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers

Current: 7.5%
2008: 9.5%
2009: 16%
2010: 24%


http://www.itulip.com/images/U6unemployment1994-2008.gif

U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers

Current: 12%
2008: 14%
2009: 20%
2010: 26%

See also: Housing Bubble Correction Update: Here comes the jobs crash (Part II) (http://www.itulip.com/forums/showthread.php?t=4516)



If you are anticipating 20-25 percent U-6, which is arguably the same percentage reached at the peak of unemployment during the Great Depression, then one must also anticipate deflation as opposed to disinflation.

FRED
12-17-08, 11:18 PM
If you are anticipating 20-25 percent U-6, which is arguably the same percentage reached at the peak of unemployment during the Great Depression, then one must also anticipate deflation as opposed to disinflation.

We can show you less extreme examples, but this will do to demonstrate why the association of high unemployment and low inflation is not always relevant.


http://www.itulip.com/images/zimbabweunemployment2000-2008.gif
Unemployment 80%
http://www.itulip.com/images/zimbabweinflation.gif
Inflation 1000%

DemonD
12-18-08, 12:23 AM
I would also say that I definitely do not buy the low unemployment = deflation argument. Argentina, Mexico, and Latin American countries would be better examples than the extreme of Zimbabwe, who has a genocidal psychopath with virtually no check on his power as it's current head of state. To me unemployment has little place in the context of inflation/deflation debate.

Also, I know there are a lot of examples of severe economic contraction with high inflation.

"Is it possible to have consumer deflation with monetary supply inflation?"

My answer: Yes, it is possible.

My conclusion now that I feel like I've gotten my answer from the itulip community on this thread is that, while I still see you support ka-poom theory to the fullest, your answer is also "yes, it is possible."

Next post on deflation, I would recommend not using the word "duh-flation" - i know you try to keep it light, but that is pretty lowbrow without being that funny.

dbarberic
12-18-08, 09:44 AM
Ain't that the question. I'm just a random dude, but here's my take:

My impression is that the average American (not necessarily the average iTulip reader) has little in the way of savings and few assets, other than their home. They are also encumbered by debt -- a mortgage or home equity line of credit, possibly a car loan, and probably a balance on their credit cards. The average American is working now, but probably doesn't have much job security.

If we are going by iTulip's forecast (which I would guess is understood), then we likely have several years of high unemployment, lower asset prices (such as homes and stock shares), and high inflation ahead of us. Many Americans will find themselves out of work, and most of the rest will probably face stagnant wages. The purchasing power of wages, and most forms of savings, will drop over time. At the same time, the interest rate charged on variable-rate consumer credit (variable-rate mortgages and credit cards, for instance) will go up. So, to sum it all up, the average American is going to have a lot of trouble affording the things to which he/she is accustomed. The risk of being unemployed will go up, we will be able to buy less with what we earn and what we've got saved, and we will have to pay more for what we've already borrowed.

If that is where we're going to end up, there are several things the average American can do to prepare. Employment security is a hard one, and I don't have too many ideas there. If you're in a job, now is not the time to switch employers, unless you've got an unusually secure job lined up (e.g. a full-time job in a permanent position with the federal government). If you presently have two wage-earners, start thinking about what you'll have to do if you lose one of those incomes. Managing the impact of inflation is a bit more straightforward. Lose the variable rate consumer credit; when inflation hits, your wages will not keep pace. Also, try to get in front of the inflation by frugalizing now. If the purchasing power of your wages is going to drop, then life will be a lot easier if you drop your lifestyle first -- that will give you some breathing room to adapt and adjust. This could easily mean selling unaffordable cars or down-sizing your residence. The goal is to live substantially below your means now so you can absorb the hit to the purchasing power of your income (or an interruption of that income). Finally, as regards savings -- this presents a big problem. On the one hand, if your employment is at risk, the best thing to do would be to accumulate as large a cushion of savings as possible at the same time that you are cutting your expenses to the bone. On the other hand, if consumer price inflation coincides with asset price deflation, there are few attractive places to store wealth. Obviously, some of that cushion ought to be in a regular savings account, and you'll just have to take the hit on purchasing power. However, you should attempt to protect any larger balance from erosion of its purchasing power. Here opinion is divided, because there is quite a significant degree of speculation involved. The average American is not a financial genius, so I think Treasury Inflation-Protected Securities (TIPS), while imperfect, are a reasonable lower-risk choice.

According to iTulip, the prospects for the next couple of years are, in a word, terrible.

Finally, remember that free financial advice is worth what you pay for it. I'm just some dude on the internet.

Excellent post. Thanks.

I'd like to see more posts/comments on coping strategies.

dbarberic
12-18-08, 09:47 AM
Isn't "Bezzle" a form of Snoop Dogg Speak?
http://www.ehow.com/how_2257163_talk-like-snoop-dogg.html

I gots to get my bezzle fo shizzle.

GRG55
12-18-08, 10:24 AM
have people been forced to borrow in a deflationary environment?

You bet. As the cohort of people who have "lost it all" grows [and they are coming from all income levels], people will do whatever they have to to feed and shelter their kids and themselves. If that means they are forced to borrow from family, friends, society at large [that's what food banks are all about], they will.

If that proves insufficient or unsuccessful they may then turn to "forcing others to lend" [to them], maybe with the assistance of a gun or other weapon.

We just need to expand our definition of "borrowing" to see how this all could turn really, really ugly.

LargoWinch
12-18-08, 11:10 AM
I am glad you high-lighted that video on inflation as I finally watched it. I just wonder .... :rolleyes:

What happens if nobody is interested in more pipe?
What happens if nobody has money they are sitting on for that new car?
What happens if we are not a manufacturing society anymore?
It sounds so good, whatever happened to Weimar Germany? (too much fun?)

Finally I wonder if Uncle Ben is too quick on the draw right now and nobody reacts to inflation. Consequently he has to really print and whoops, off we go to high inflation (hopefully not hyper inflation, let's see that video! :eek:)

Orion, I pray I will never have to post a modern clip on hyperinflation. Things are sure not looking good.

The question I have is, how does one calculate or assess "velocity of money" in an economy? Can this even be achieved?

I may be off-base on this, but would inflation be represented somewhat by Money Supply (M3) x Velocity?

jk
12-18-08, 12:22 PM
largowinch. money supply * velocity = gdp =price level*quantity of production

demond. one thing i've come to appreciate is how long it takes for economic processes to occur. we were looking for deflation 2 years ago, we kept wondering if it had already passed in some subtle way, but it didn't come til the last few months, and it's not been subtle. now we're looking for inflation. be patient. it will come. oil prices too low for you to believe that? how about gassing up every bulldozer in the country to work on roads and bridges? consumption going down? bring mortgage rates to 4.5% and watch for a wave of refi's from those people who bought BEFORE the housing bubble, and so aren't underwater on their equity. these things take time.

strittmatter
12-18-08, 12:26 PM
Family, friends, work associates, community, savings. Protect yourself by giving of yourself. Although he couched it within financial circumstance, EJ made a great point in his post today, trust will have a high premium. If you're not building it now, it will come at a much higher premium later. We're not heading for Mad Max but we're done with Dude that's Cool!

No specific advice but I hope it helps.

I really appreciate itulip. A wise man once said, "In order to keep what you've got, you first have to give part of it away." I see a lot of that here.

The opportunity to be of service and the need for courage will be great. (A little levity, although fitting, never hurts either).

http://www.hulu.com/watch/4267/its-a-wonderful-life-lost-ending

WDCRob
12-18-08, 12:51 PM
one thing i've come to appreciate is how long it takes for economic processes to occur. we were looking for deflation 2 years ago, we kept wondering if it had already passed in some subtle way, but it didn't come til the last few months, and it's not been subtle. now we're looking for inflation. be patient. it will come.

It'd be crazy to try and single out a single thing I've learned as the most important since I started reading iTulip, but the idea you're expressing is way up there JK.

You just can't think in normal person time - you have to adjust to macro time. Things take years to wind up, and unwind (until they don't).

Galbraith's quote on markets being irrational longer than you can stay solvent resonates more and more the longer I watch. And Buffet has one along the lines of he often knows what will happen, but not when.

For whatever reason I don't have any skill in figuring this stuff out for myself. But I've had good luck in the past recognizing people who have skills I don't - which is why I latched onto EJ in 2006 when iTulip came back up. I scoured the Internet for explanations about what was happening and what might come next, and iTulip was the most persuasive.

iTulip could still be wrong of course. Which means that I could too. But I'm patient enough (or stubborn enough) to keep the courage of my convictions when I have a good framework underpinning my beliefs. I never considered buying back into stocks after getting out at 11,600 on the Dow (in 2006), and I never considered selling my gold when it dropped from $1000+ to under $700 this Fall.

If the theory EJ put forth had ever been undermined I probably would have made some changes to the portfolio, but nothing that's happened so far gave me any reason to change the underlying framework I was working with. And aside from that EJ's track record keeps getting better.

So unless you're Bart, and you're willing and able to put that kind of intelligent time and effort into reading the short-term tea leaves, I just don't see how you can do anything but try to get on the right side of big events ahead of their unfolding and then WAIT. Maybe a lot longer than you expect to.

Quincy K
12-18-08, 02:01 PM
I would also say that I definitely do not buy the low unemployment = deflation argument. Argentina, Mexico, and Latin American countries would be better examples than the extreme of Zimbabwe, who has a genocidal psychopath with virtually no check on his power as it's current head of state. To me unemployment has little place in the context of inflation/deflation debate.

Also, I know there are a lot of examples of severe economic contraction with high inflation.

"Is it possible to have consumer deflation with monetary supply inflation?"

My answer: Yes, it is possible.

My conclusion now that I feel like I've gotten my answer from the itulip community on this thread is that, while I still see you support ka-poom theory to the fullest, your answer is also "yes, it is possible."

Next post on deflation, I would recommend not using the word "duh-flation" - i know you try to keep it light, but that is pretty lowbrow without being that funny.

Mish referring to EJ as Humpty Dumpty is also pretty low. What I find somewhat alarming is that EJ is a self-proclaimed optimist and his
U-6 forecasts are very disturbing(20 percent in 2009?).

If his projections do come to fruition, many high-density, ethnically-challenged urban areas are about to become very violent, very quickly once UE benefits expire.

Chris Coles
12-18-08, 03:39 PM
If there is one thing that has struck me recently it is the way the price, (but not the value), of oil has dropped so fast while anyone with an ounce of nous cannot see the dollar staying at present levels now we can see the vast amounts of credit that have recently swamped the entire system. Thus "when" becomes particularly relevant and no one can say with any absolute certainty exactly "when" the system will change direction. Our only certainty is that, sometime soon, it will.

We live in exciting times.

nathanhulick
12-18-08, 04:01 PM
Mish referring to EJ as Humpty Dumpty is also pretty low. What I find somewhat alarming is that EJ is a self-proclaimed optimist and his
U-6 forecasts are very disturbing(20 percent in 2009?).

If his projections do come to fruition, many high-density, ethnically-challenged urban areas are about to become very violent, very quickly once UE benefits expire.

Buy guns and ammo now, while you can!

Buy em cheap and stack em deep!

bart
12-18-08, 04:21 PM
have people been forced to borrow in a deflationary environment?

I'm not sure what you're driving at, but ask yourself if deflation has ever ended or credit ever started growing?

bart
12-18-08, 04:29 PM
Mish referring to EJ as Humpty Dumpty is also pretty low.

That says quite a bit about Mish, and longer term Alexa results tell a similar story.

goadam1
12-19-08, 12:57 PM
America isn't Zimbabwe, yet. Cheap oil, cheap oil, optimism and cheerful stupidity have worked so far. I still wonder if you are going to get the poom you expect.

BadJuju
12-19-08, 03:53 PM
America isn't Zimbabwe, yet. Cheap oil, cheap oil, optimism and cheerful stupidity have worked so far. I still wonder if you are going to get the poom you expect.

Why do people try to compare America's situation to Zimbabwe's in the future? Janszen himself posted an unemployment graph of Zimbabwe prior to hyperinflation that shows it was already incredibly messed up before inflation took hold. A more fitting example is that of the Weimar Republic. Even then, you are still looking at a situation that is still remarkably different from the one we have now.

FRED
12-19-08, 04:15 PM
Why do people try to compare America's situation to Zimbabwe's in the future? Janszen himself posted an unemployment graph of Zimbabwe prior to hyperinflation that shows it was already incredibly messed up before inflation took hold. A more fitting example is that of the Weimar Republic. Even then, you are still looking at a situation that is still remarkably different from the one we have now.

We dismissed the hyperinflation case long ago. That is not going to happen.

Google: is hyperinflation possible?

BadJuju
12-19-08, 04:21 PM
We dismissed the hyperinflation case long ago. That is not going to happen.

Google: is hyperinflation possible?

Oh, I know it is stagflation now, good sir. I am just saying that a more fitting example of hyperinflation is the Weimar Republic, but even then, that comes with some pretty heavy strings attached to it.

BadJuju
12-22-08, 02:09 PM
How long do you guys think it will be before inflation begins to overwhelm the disinflation pressures? As a student on a fixed-income, I am definitely worried about my buying power being eroded over the next year. When do you guys see the shit hitting the proverbial fan? :p

jtabeb
12-22-08, 10:00 PM
How long do you guys think it will be before inflation begins to overwhelm the disinflation pressures? As a student on a fixed-income, I am definitely worried about my buying power being eroded over the next year. When do you guys see the shit hitting the proverbial fan? :p

You'll know it when you see it!

I was amazed when we were all discussing weather KA had already happened, "did we miss it", "too small", "not tradable" etc.

The KA phase was pretty easy to play (if you believed it, that is). 100% cash or t-bills worked rather well.

The problem as you so aptly point out is it is one thing to give up potential gains for only a currency risk during KA, it is quite another thing to hold assets that COULD produce severe losses still like stocks and commodities and other traditional inflation hedges.

I jumped in with 1/2 my cash because I though I saw an inflationary rush approaching, maybe we still are, but that's the rub. To play POOM you have to expose yourself to CAPTIAL RISK! BIG DIFFERENCE.

Note: I've been reading a lot from Jon Markman at MSN. A re-read of all of his commentary has convinced me that I was wrong and need to wait longer. (His best case is the market bottoms around the 1995 level, the year not the price. Mind you, that was the BEST CASE scenario.)

So what to do? (I'm not too worried about POOM as I will outline below)

CASH and T-BILLS rule in KA and as I said the right kind are free from capital risk (currency risk yes, capital risk no). 1-3 day t-bills is what I'm talking about or if you are a simple guy like me, that would be called "CASH" or short term CDs or something of the like.

Now for the POOM part. What asset would you be willing to hold that will do the best, or very well, during POOM and that you are also comfortable holding if KA proceeds further and you might have to eat a capital loss? BUT, that requirement to provide STAND-OUT performance during POOM is kind of a catch-22. How do you simultaneously hedge KA and POOM. Answer, you can't effectively do it (but I do have a solution, I think).

You have to find an asset class that works for BOTH conditions (stable to mild decline during KA, KICK ASS during POOM).

Stocks, could go up alot or could still fall 50%= Most likely not the best choice.

RE could go up alot but also could get alot worse and the holding costs could kill you.= if you live in it as YOUR PERSONAL HOME (and farm and garden and you have steady stable income or a pension, then I would say OK not bad, but for sure NOT talking commercial NOR investment property).

What does that leave you with? Not much, except for a couple of silvery and yellow metals. SO that is the only thing I can think of that is safe to hold for POOM. (The real stuff, physical in YOUR POSSESSION).

So I have about 20% cash for bargan hunting, food, and more guns and ammo.

Most of the rest is well, SOLID and METALLIC (75%) and a small amount (5%) is blued with a nice wood stock and a red dot sight. ( Don't laugh, you should see the ROI on guns and ammo over the past 18 months, Beat the DJIA by about 60%!) [+15-20% vs 40% decline]

Anyone else care to take a crack at this?

LargoWinch
12-22-08, 10:22 PM
You'll know it when you see it!

I was amazed when we were all discussing weather KA had already happened, "did we miss it", "too small", "not tradable" etc.

The KA phase was pretty easy to play (if you believed it, that is). 100% cash or t-bills worked rather well.

The problem as you so aptly point out is it is one thing to give up potential gains for only a currency risk during KA, it is quite another thing to hold assets that COULD produce severe losses still like stocks and commodities and other traditional inflation hedges.

I jumped in with 1/2 my cash because I though I saw an inflationary rush approaching, maybe we still are, but that's the rub. To play POOM you have to expose yourself to CAPTIAL RISK! BIG DIFFERENCE.

Note: I've been reading a lot from Jon Markman at MSN. A re-read of all of his commentary has convinced me that I was wrong and need to wait longer. (His best case is the market bottoms around the 1995 level, the year not the price. Mind you, that was the BEST CASE scenario.)

So what to do? (I'm not too worried about POOM as I will outline below)

CASH and T-BILLS rule in KA and as I said the right kind are free from capital risk (currency risk yes, capital risk no). 1-3 day t-bills is what I'm talking about or if you are a simple guy like me, that would be called "CASH" or short term CDs or something of the like.

Now for the POOM part. What asset would you be willing to hold that will do the best, or very well, during POOM and that you are also comfortable holding if KA proceeds further and you might have to eat a capital loss? BUT, that requirement to provide STAND-OUT performance during POOM is kind of a catch-22. How do you simultaneously hedge KA and POOM. Answer, you can't effectively do it (but I do have a solution, I think).

You have to find an asset class that works for BOTH conditions (stable to mild decline during KA, KICK ASS during POOM).

Stocks, could go up alot or could still fall 50%= Most likely not the best choice.

RE could go up alot but also could get alot worse and the holding costs could kill you.= if you live in it as YOUR PERSONAL HOME (and farm and garden and you have steady stable income or a pension, then I would say OK not bad, but for sure NOT talking commercial NOR investment property).

What does that leave you with? Not much, except for a couple of silvery and yellow metals. SO that is the only thing I can think of that is safe to hold for POOM. (The real stuff, physical in YOUR POSSESSION).

So I have about 20% cash for bargan hunting, food, and more guns and ammo.

Most of the rest is well, SOLID and METALLIC (75%) and a small amount (5%) is blued with a nice wood stock and a red dot sight. ( Don't laugh, you should see the ROI on guns and ammo over the past 18 months, Beat the DJIA by about 60%!) [+15-20% vs 40% decline]

Anyone else care to take a crack at this?

jtabeb my friend, I think silver is more speculative than gold and should be treated as such given its greater supply/demand dynamics.

I think also that Rogers is right and that Agriculture and Crude Oil should also be considered to provide diversification outside PMs.

I agree with EJ however; playing it safe means mostly cash and the ultimate store of wealth: gold.

raja
12-23-08, 10:56 PM
We dismissed the hyperinflation case long ago. That is not going to happen.
I don't think that EJ would agree with your certainty that hyperinflation "is not going to happen."

The following three excerpts from post: http://itulip.com/forums/showthread.php?t=4023


"Again, as this circumstance is unprecedented, no one knows, but John Williams' hyperinflation scenario is no longer out of the question."

"As we've pointed out many times and most recently here in "How to make $301% in six years with low volatility", dollar hyperinflation is not in the cards."

The hyperinflation "scenario starts to look possible, but not before a lot of other events occur first."

What I take from this is that EJ believes hyperinflation could happen, but is not likely to happen . . . .

FRED
12-23-08, 11:11 PM
I don't think that EJ would agree with your certainty that hyperinflation "is not going to happen."

The following three excerpts from post: http://itulip.com/forums/showthread.php?t=4023



What I take from this is that EJ believes hyperinflation could happen, but is not likely to happen . . . .

That is true. It could happen. But many other things have to happen first, and those things take time -- years, usually.

Then again, everything is happening so quickly now as compared to what many of us expected, so who knows.

bart
12-24-08, 12:21 AM
That is true. It could happen. But many other things have to happen first, and those things take time -- years, usually.

Then again, everything is happening so quickly now as compared to what many of us expected, so who knows.

There is one person who knows:
http://www.nowandfutures.com/grins/shadow.mp3 :cool:

steveaustin2006
12-24-08, 12:14 PM
...
Then again, everything is happening so quickly now as compared to what many of us expected, so who knows.

FRED/EJ - I wonder do you listen/read Donald Coxe each week? He for one is convinced that there will be no depression and his first hand experience with '74 being far worse than what we've experienced so far in this crisis is very interesting.

He believes that the reflation will work without depression despite the economic misery to continue over the next year.

It is hard to ignore his evidence/viewpoint. Each Basic Points issue is a financial history lesson and his weekly conference calls (free to all) are always enlightening. I am a little worried that such luminaries' viewpoints are not considered - seems to me the most productive thing we can do is entertain those arguments.

I cannot put those in a nutshell here but rather they need to be read in detail. If anyone one is interested I will send them the Basic Points issues -just PM me with an email address. The weekly conference calls are here (http://events.startcast.com/events/199/B0004/).

Jim Nickerson
12-24-08, 01:22 PM
FRED/EJ - I wonder do you listen/read Donald Coxe each week? He for one is convinced that there will be no depression and his first hand experience with '74 being far worse than what we've experienced so far in this crisis is very interesting.

He believes that the reflation will work without depression despite the economic misery to continue over the next year.

It is hard to ignore his evidence/viewpoint. Each Basic Points issue is a financial history lesson and his weekly conference calls (free to all) are always enlightening. I am a little worried that such luminaries' viewpoints are not considered - seems to me the most productive thing we can do is entertain those arguments.

I cannot put those in a nutshell here but rather they need to be read in detail. If anyone one is interested I will send them the Basic Points issues -just PM me with an email address. The weekly conference calls are here (http://events.startcast.com/events/199/B0004/).

I know a guy, whom I respect, who thinks a lot of Coxe's opinions, thus I am unwilling to write Coxe off. I realize there is no one who is beyond screwing up from time to time, but Coxe in my low-level assessment really screwed up with the timing of his commodities fund last summer I believe it was. As I understand it is traded on the Toronto exchange. Does anyone have a chart of it since its inception?

To my thinking Coxe, as well as Jimmy Rogers, both have seriously vested interests whenever they promote commodities.

FRED
12-24-08, 02:11 PM
FRED/EJ - I wonder do you listen/read Donald Coxe each week? He for one is convinced that there will be no depression and his first hand experience with '74 being far worse than what we've experienced so far in this crisis is very interesting.

He believes that the reflation will work without depression despite the economic misery to continue over the next year.

It is hard to ignore his evidence/viewpoint. Each Basic Points issue is a financial history lesson and his weekly conference calls (free to all) are always enlightening. I am a little worried that such luminaries' viewpoints are not considered - seems to me the most productive thing we can do is entertain those arguments.

I cannot put those in a nutshell here but rather they need to be read in detail. If anyone one is interested I will send them the Basic Points issues -just PM me with an email address. The weekly conference calls are here (http://events.startcast.com/events/199/B0004/).

We do not listen to or read anyone else's analysis. Two reasons: One, while we are developing a thesis, we don't want to be influenced, consciously or otherwise, by the results of other analysis of primary sources because that creates intellectual impurities in our thought process. Two, 90% of the so-called analysis out there is others' analysis recycled. You can tell because they do not show the work, how they arrived at their conclusions. Our role is to develop original insights. On the flip side that makes our analysis lengthy and, to some, boring.

We are amazed at the kinds of theories that are developed and how popular they become by regurgitation and repetition. Global "de-coupling" struck us as especially weak theory. Starting from the premise that the global economy is financialized and merchandise trade relations are secondary to finance, then a crash in the FIRE Economy is certain to be transmitted to other countries. Right premise, right forecast.

Readers did not see iTulip recommend that anyone buy commodities funds during the boom. Gold, yes, but gold is not purely a commodity, it is also a fourth currency that gets remonetized by the markets when governments reflate. That is why commodity prices are crashing priced in gold.

There will come a time to buy commodities, but we have not yet modeled when that is likely to be.

Anyone who thinks this economic collapse will blow over like the 1974 recessions is, again, operating from a false premise. The FIRE Economy didn't exist in 1974. The 1975 to 1980 inflation did wipe out most of the debt and allowed the economy to restart, and develop the FIRE Economy 1980 to 2007. We do believe an inflation will be part of the process that wipes out the debts left behind by the FIRE Economy, but the politics of can stretch the pain out for a very long time.

There was no banking or credit crisis in 1974 on the scale we are seeing today.


http://www.itulip.com/images/fedfunds121608.gif

http://www.itulip.com/images/fedreserves1929-2008.gif

Sapiens
07-18-09, 11:08 PM
http://www.motor-trade-insider.com/index.php/2009/07/supply-shortage-fueling-used-car-prices/


Supply shortage fueling used car prices

July 8, 2009 by In51der

There is a simple reason for the massive price correction on used cars at present, supply. With the new car market consistently down year-on-year, quite simply not as many cars are being built therefore not as many used cars will be generated as a result. The interesting aspect from a frustrated dealers point of view is that prices are actually similar to where they were in Jan 2008.The perception is prices have gone through the roof and the lack of supply means they have definitely strengthened but really the underlying factor is that because 2008 saw suchan unprecedented destruction of used car values the rise back up seems just as spectacular. Of course many dealers have still acted very cautiously and kept their inventories deliberately low for fear of a repeat of last year’s financial haemorrhage. Perhaps now, after 6 months of 2009 and a recession busting used car performance, the confidence factor is rapidly coming back leading to more increases in values.

The news is that the situation regarding stock availability is unlikely to change much in the second half of 2009 and although higher prices are not necessarily being fuelled by high and constant customer demand, there is a steadiness about car sales at present which is comforting to dealers and encouraging for future residual values.

We have had many reports of dealers, from across the used car spectrum, smashing their budgeted volume and profit targets and individual profit per unit has also remained solid due to prices rising steadily over this year.

Any units which need to be moved on to comply with the ageing policies are unlikely to lose much money as replacing similar cars is likely to be more costly than when the stock was bought 60-90 days ago, so swapping from dealer to dealer within a group or holding the retail margin is far easier to justify and ultimately a lot more cost effective.

Not bad, eh!

Sapiens
07-18-09, 11:11 PM
Used Car Market Affected by Shortages

http://www.autotropolis.com/wiki/index.php?title=Used_Car_Market_Affected_by_Car_Sh ortage




...

Those consumers heading to the used car market could be in for a shock. The largest source of vehicles for the used car industry came from leases. Consider the used car market and the effect of supply and demand. In this case there is an increase in consumers considering the used car option as they that can’t or don’t want to afford the monthly payments required to get into a new vehicle. At the same time, there are less off-lease vehicles coming into the used car lots and so the industry is hit with a double header. More consumers wanting to purchase a commodity that has declined in availability mean, of course, higher prices. In some instances, much higher prices.

...




An increase in used-vehicle prices reflects a bad, but recovering economy
http://latimesblogs.latimes.com/uptospeed/2009/07/usedvehicle-prices-rising-for-bad-and-good-reasons.html


These days buying a used-vehicle is going to cost you more.

...

One industry analyst said the prices for used vehicles are rising due to “universally bad” causes: fewer retired rental cars and fewer trade-ins due to weak new-car sales.

For consumers, however, the higher prices could be an early sign of a perk in the economy. The strong price increases are also “universally good” because they give consumers more equity in their trade-ins, Webb said. Buyers and sellers of wholesale used vehicles are also benefiting from the rising prices.
...




Don't call it a comeback: Used SUVs rebound

http://www.idahostatesman.com/business/story/837643.html


A year ago, with gasoline selling for more than $4 a gallon, drivers abandoned their gas-guzzling big vehicles for high-mileage compacts. Now, with prices in the $2.60 range, they're going back, at least in the used-car market.

That sharp U-turn in buying habits has led to a 5.8 percent increase in the price of used cars in the past year - including a 16 percent spike since the beginning of the year - and a shortage of the kinds of vehicles drivers were unloading last summer, according to the Manheim Used Vehicle Value Index.

Fewer used cars are being traded in now, creating a supply shortage, the Manheim report said.

The biggest price gains since last June were for pickup trucks (up 27 percent) and sport utility vehicles (25.8 percent), while compacts fell almost 10 percent and midsize cars were off by 3.4 percent.

...



Consumers with bad credit are good for keeping used car prices up.

don
07-18-09, 11:49 PM
A few months ago it was widely reported that the national used car supply had doubled. We all saw the pictures of a significant over stock of new vehicles at debarkation points, stacked up on test tracks, warehoused on ships, etc. It's no secret that consumer car demand has plummeted. Has all this turned on its head because rental car businesses are keeping their vehicles now instead of their traditional low mileage turnover? How are these factors reconciled with these postings?

Sapiens
07-19-09, 06:27 AM
A few months ago it was widely reported that the national used car supply had doubled. We all saw the pictures of a significant over stock of new vehicles at debarkation points, stacked up on test tracks, warehoused on ships, etc. It's no secret that consumer car demand has plummeted. Has all this turned on its head because rental car businesses are keeping their vehicles now instead of their traditional low mileage turnover? How are these factors reconciled with these postings?

Those cars are still there, the consumer does not have the credit available to purchase them.

cindykimlisa
07-19-09, 07:23 AM
After I purchased my new Honda accord a few weeks ago, the dealer and I were chatting and he said this car should especially hold its value well because there were so few 2009's sold and it would therefore have a higher demand for those seeking a used car.

Also, it was the only new car I ever drove off the lot that had a higher value off the lot than on the lot: The loan book value was more than I paid the dealer.

bart
07-19-09, 12:52 PM
http://www.nowandfutures.com/images/used_car_index.png

FRED
07-19-09, 01:06 PM
http://www.motor-trade-insider.com/index.php/2009/07/supply-shortage-fueling-used-car-prices/



Not bad, eh!

Merged your thread with this one. Events conform to this forecast on this thread from Dec. 16, 2008:

Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation.

cobben
07-19-09, 01:27 PM
Similar situation in Sweden, buying a new car is "always" a bad deal, but over the next few years may be less of a bad deal than normal as long as volume stays down.

The abers are that demand may not pick up again above current low levels any time soon, the potential overhead supply glut of vehicles sold in recent better years may be delayed but will eventually come on-line, and the joker would be cheaper electric cars appearing much sooner than anyone now expects.

jk
07-19-09, 01:57 PM
re: supply and choice being down, albeit on a much cheaper item. i have been shopping for new hiking boots. having wide feet, i relied in the past on dunham, which was purchased by new balance years ago, and made about 10 models of boots in wide sizes. now dunham no longer makes boots at all, just shoes, and new balance makes 2 models of hiking boot.

vinoveri
07-19-09, 02:19 PM
re: supply and choice being down, albeit on a much cheaper item. i have been shopping for new hiking boots. having wide feet, i relied in the past on dunham, which was purchased by new balance years ago, and made about 10 models of boots in wide sizes. now dunham no longer makes boots at all, just shoes, and new balance makes 2 models of hiking boot.

did you find any you like? the NBs are too narrow for me, and I'm struggling to find any that will do the job. thanks

don
07-19-09, 06:26 PM
Merged your thread with this one. Events conform to this forecast on this thread from Dec. 16, 2008:
Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation.

I don't refute any of the above BUT in regards to cars,

Quote:
<table width="100%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr> <td class="alt2" style="border: 1px inset ;"> Originally Posted by don
A few months ago it was widely reported that the national used car supply had doubled. We all saw the pictures of a significant over stock of new vehicles at debarkation points, stacked up on test tracks, warehoused on ships, etc. It's no secret that consumer car demand has plummeted. Has all this turned on its head because rental car businesses are keeping their vehicles now instead of their traditional low mileage turnover? How are these factors reconciled with these postings?
</td> </tr> </tbody></table>
Those cars are still there, the consumer does not have the credit available to purchase them.


Okay, so what is it? Is supply and demand suspended due to oligarchic pricing? Apparently the warehouse clearing event has transpired and yet prices have significantly shot up. What gives? On a recent East Coast business trip I experienced hefty price increases for rental cars and when I got back to the West Coast read an article that across the board charges was the norm. That sounded like simple industry collusion. Fewer rentals, charge more. Sort of like the local county building department and the price of permits. Is something akin afoot in auto?

ThePythonicCow
07-19-09, 09:40 PM
Thanks for the good news, bart. I just inherited a used car that I don't want. Looks like this will be a better time than some to resell it. :D

ThePythonicCow
07-19-09, 09:47 PM
did you find any you like? the NBs are too narrow for me, and I'm struggling to find any that will do the job. thanks

I love my <a href=http://www.lowaboots.com/home/>Lowa's</a> in their traditional width (which runs a tad narrow, as suits me.) I see they have now added "wide widths", perhaps in response to the complaints that their normal width was a tad narrow. I can't say if their wide would fit you, but it's a dang good brand and worth a try in my opinion.

jk
07-20-09, 12:33 PM
I love my Lowa's (http://www.lowaboots.com/home/) in their traditional width (which runs a tad narrow, as suits me.) I see they have now added "wide widths", perhaps in response to the complaints that their normal width was a tad narrow. I can't say if their wide would fit you, but it's a dang good brand and worth a try in my opinion.
i've got pairs from 2 different manufacturers, both ordered a half size larger than normal, on the way. if those don't work, i might give lowa's a try. thanks for the tip.

sn1p3r
07-20-09, 01:10 PM
I'm equally as curious, I have to turn in a lease in 10 months and want to pay cash for a great deal now :)

metalman
07-20-09, 01:50 PM
I don't refute any of the above BUT in regards to cars,

Apparently the warehouse clearing event has transpired and yet prices have significantly shot up. What gives?

but that is exactly the forecast... demand falls from unemployment, cut incomes... but supply falls more after the going-out-of-business period. supply crash... high unit prices. get it?

the forecast says fire sales are over. Q3 you get higher prices. your report confirms it.

not across the board, tho. i still see cheap stuff out there. not food.

don
07-20-09, 09:03 PM
but that is exactly the forecast... demand falls from unemployment, cut incomes... but supply falls more after the going-out-of-business period. supply crash... high unit prices. get it?

the forecast says fire sales are over. Q3 you get higher prices. your report confirms it.

not across the board, tho. i still see cheap stuff out there. not food.

M-Man, you actually buy that all that inventory has been eaten by the American cookie monster :)

metalman
07-20-09, 11:43 PM
M-Man, you actually buy that all that inventory has been eaten by the American cookie monster :)

er... ok... er... maybe not... :eek::eek::eek:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=line&graph_id=0&category_id=&recession_bars=On&width=630&height=378&bgcolor=%23B3CDE7&graph_bgcolor=%23FFFFFF&txtcolor=%23000000&preserve_ratio=true&id=CIVA,&transformation=lin,&scale=Left,&range=Max,&cosd=1947-01-01,&coed=2009-01-01,&line_color=%230000FF,&link_values=,&mark_type=NONE,&line_style=Solid,&vintage_date=2009-07-20,&revision_date=2009-07-20,&mma=0,&nd=,&ost=,&oet=,

Tybee Island
07-21-09, 09:00 AM
To add my own observation. I was in for car service last week of my Porsche.

I was astounded at the deals the Dealer was offering on 2009 models and the cars that were just coming in off lease. Boxsters for $45K, Cayennes for $60K all brand new 2009 models.

I can tell you that the 2009 Carreras were marked down from $121K to $85K and when I got in one just to take a look at the car, two salesman jumped me to ask if I wanted to take a test drive. I think if I had asked to take the car home for the weekend and run it on the interstate at 130 miles an hour for a few days they would have said "Yes," and slipped a case of 15 Year old scotch in the trunk for me just for good measure.

I think that luxury autos and boats will all fall far further in that the inventory is immense.

Lastly, I have a friend who was interested in picking up a luxury RV for his family to tour in. This guy is well off and has a brilliant credit score. When he asked for financing, they said that no financing was currently being offered. This was on a 2009 model $130K RV! He offered them $70K cash and will know later this week if they take it. I told him that he offered them too much. When gas goes back above $3.50 + a gallon, they will be begging him to take it for $50,000.

mmr
10-09-09, 12:59 PM
Apparently, the only commodities that are deflating these days are portion sizes.

http://online.wsj.com/article/SB10001424052748703746604574463062211606946.html?m od=WSJ_hps_sections_smallbusiness




Remember the old home-buying adage "location, location, location"? Relying on studies that track "eye flow" across menu pages in elaborate arrow-filled diagrams, Moll counsels his clients to spotlight higher-margin items in prime menu real estate. The Asian stir-fry, with ingredients that cost as little as 24 percent of the menu price, holds pride of place at the top right corner, while the grilled salmon burger (cost of ingredients, $2.78; price, $9) is intentionally buried at left center, the menu equivalent of Siberia. "The menu drives everything," says Moll—from an eatery's decor to the length of time it takes to execute a single dish. In fact, some potential recipes at Organixx have been vetoed just because they couldn't be put together by a cook standing in a single spot, with all the ingredients within arm's reach.

Indeed, the biggest cost cutting usually happens behind the swinging doors. To help keep food costs within a healthy 24 to 35 percent of overall expenses, Moll brought in an on-site drill sergeant. Mary Putman, who paces the kitchen prep area, pokes at plates to make sure bread crusts are intact and salad mounds don't lean too far to one side. When red peppers triple in price, she buys more zucchini to sub into the stir-fry and salads. If a line cook takes more than six minutes to prepare an order, she points sternly at her watch. Most important, she makes sure they're measuring every ounce of food instead of just eyeballing ingredients. Constantly nagging them to "quit heaping the scoop," Putman says a big part of her job "is pulling food off the line."

Which may leave some diners, well, a little hungrier than others. While all of Organixx's sandwiches cost $9, some are a little less generously proportioned. Eyeing the egg salad? You'll get an eight-ounce scoop. But order the rock shrimp salad and your filling weighs only five. (The reason? Moll's firm suggests that each dish cost between 22 to 30 percent of what it ends up selling for—and eggs are cheaper than shrimp.) Erwin Chang, the owner of Organixx, acknowledges "it's a very delicate decision" to change the portions, but it's not hard to see his point of view as he describes the challenges of running a restaurant in this economic climate — especially when all those organic ingredients and other green touches come at a premium.

And hey, at least he's not holding back on the water. That's a strategy Moll recommended to another of his clients, Mici Handcrafted Italian, a cheerful, contemporary joint half a mile down the road from Organixx. Eager to expand to a second location, this family-owned pasta and pizza eatery hired National Restaurant Consultants to help shave operating costs. But Mici's owners were loath to change or cut back on menu items like its famed hand-rolled meatballs, so Moll had to turn to the eatery's beverage lineup to find savings.

In addition to tweaking Mici's wine list, Moll came up with a 10-point game plan for fountain drinks. Selling some 13,000 units a year, sodas still weren't delivering any profit, according to co-owner Michael Miceli — even though they typically cost the restaurant only a dime a glass. Some of the most effective moves Moll recommended include cutting out the middleman syrup supplier and offering only one size drink instead of three. Goodbye, costly cups.

But one tip comes with a spritz of controversy: Don't automatically serve patrons water, so they're more likely to order soda, beer or wine. Helen Rosner, who blogs about the restaurant industry at MenuPages.com, calls the practice "one of the craftiest I've heard of"—and says she's seeing more eateries do it. Victor Gielisse of Culinary Institute of America, on the other hand, calls it "the socially responsible thing to do given our environment today." For his part, Miceli simply says, "We ask them what they want to drink. If they want water, we give water." It certainly hasn't hurt the bottom line; implementing this and other tips from Moll's 32-page "operations analysis" has goosed revenue by 50 percent a week. In the world of kitchen cost cutting, that's more than a few pennies.

c1ue
10-09-09, 01:24 PM
They left out what I call the 'Olive Garden' strategy: 2-2 ounce chicken breasts on a pound of pasta.

FRED
01-06-10, 02:54 PM
Our Dec. 2008 forecast:

By Q4 2009, and Q1 2010 at the latest, pricing power will return to surviving retailers. We will see lower quality products and fewer discounts, followed by rising prices.

Actual:

Clothing Sales Sagged in December (http://online.wsj.com/article/SB20001424052748703436504574640611592478386.html#m od=todays_us_nonsub_section_b)
Dec. 6, 2009 (WSJ)

Clothing stores and department stores discounted less and sold fewer items last month, a combination that undercut sales but will likely translate into higher fourth-quarter profits.
More observations in Inflation snapshots: December 2009 (http://www.itulip.com/forums/showthread.php?p=137672#post137672).