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  • U.S. Not Out of the Deflation Woods Just Yet

    http://www.bloomberg.com/insight/out...ion-woods.html

    "Ask most economists if 2009's mild deflation will continue this year and their answer is: absolutely not."


    The link concludes with: "Commodities, just like jobs, are expected to rally this year. The experts say a decline for either one of them is a low probability event."

    "Commodities, just like jobs, are expected to rally this year. The experts say a decline for either one of them is a low probability event."

    From David Rosenberg's today's note.

    "As San Francisco Fed President Yellen explained in her well-timed speech yesterday, “the economy will continue to operate well below its potential throughout this year and next … it seems quite possible that core inflation will move even lower this year and next.” You know what that means don’t you? No top-line momentum for the equity market and a low inflation anchor for the Treasury market (and by extension, the Canadian government bond market as well). It would not surprise us if we finished the year well below 3% on the 10-year Treasury note yield."

    TNX is 3.727% as I write
    Jim 69 y/o

    "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

    Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

    Good judgement comes from experience; experience comes from bad judgement. Unknown.

  • #2
    Re: U.S. Not Out of the Deflation Woods Just Yet

    The Fed is just talking their book in order to justify their free money policy IMO.

    While I wouldn't take a large bet on which way commodities will go in the next 10 months, one thing I am increasingly certain (thanks to the many years at iTulip), and which now seems patently obvious ...

    the cost in $ of virtually everything "real" (i.e., not bonds and currencies) will, over the mid-long term, accelerate upwards. Housing may take a longer time given the inertia and illiquid market, but for everything else, it's bring us frogs to a boil, just slow enough. When organic growth resumes (if it does) in 2-3 years, asset markets booming, gas is $5 gal and starting average salaries are $100k, everyone, but those saving fools, will be cheering on the success of monetary policy :eek:

    This is as the austrians point out, the money is doled out to those at the top (as we're seeing now with the Fed Funds at 0% and various fiscal handouts/backstopss), and this money will find its way into real assets. Friedman was right about this (whether you want to call it inflation or currency depreciation, some of the results are the same. Theft it is.

    Comment


    • #3
      Re: U.S. Not Out of the Deflation Woods Just Yet

      Our forecasts of cycles of disinflation and inflation are based on an understandibg of how the system actually works, not the theoretical system they believe they learned in college in.

      These guys still haven't figured out how the system works. Pathetic.
      Ed.

      Comment


      • #4
        Re: U.S. Not Out of the Deflation Woods Just Yet

        Originally posted by FRED View Post
        Our forecasts of cycles of disinflation and inflation are based on an understanding of how the system actually works, not the theoretical system they believe they learned in college in.

        These guys still haven't figured out how the system works. Pathetic.
        What I find "pathetic" is hubris amongst peons.

        Finster, who of course doesn't know "his ass from his elbow" on Saturday mornings after being up late Friday nights picking and grinning, for some weeks has projected in his FMO that by Fall the 10-yr notes ($UST) could be up 7-8% from where they currently are. I have no idea as to the efficacy of Finster's projections/predictions. FYI, looking at the projections for UST they are represented by figure in the third row and for instance in the table below in 32 weeks they are projected to be up .0808 (being black is positive) so up 8.08%. The time-frames are omitted from the first two tables, though they are the same for each row as depicted in the last two tables.








        http://users.zoominternet.net/~fwuthering/FFF/FinsterMarketsOutlook The link explains Finster's thinking on these projections. Now how to adjust "Finster dollars" into how US dollars will translate at these future times is beyond my pay-grade (my pay-grade is zero).

        Originally posted by John Hussman 2/22/2010
        Aside from the shorter-term suspicion that unemployment has not peaked, I want to be clear that my main concern about the employment situation is with servicing debt, not providing for the basic needs of the population. I'm certainly not talking about Malthusian macroeconomic shortages or an inability for our nation to support itself. It is the gap between cash flows and household debt service that strikes me as problematic.

        On the broader issue of supporting a growing population, it has historically been true (and is likely to continue to be true even in the event of further credit strains) that the needs of the U.S. population can be supported through productivity growth and to some extent by importing the output produced by cheaper foreign labor. In the long run, productive investment is the cornerstone of economic stability. Over the past decade we have greatly threatened that stability through the ridiculous misallocation of resources in speculative bubbles and unproductive "investments," but I am convinced that we will re-learn, painfully or otherwise, to better allocate our resources. My impression continues to be that the current deleveraging cycle will likely be a multi-year process that is presently far from complete.
        [JN emphasis] http://www.hussman.net/wmc/wmc100222.htm

        My position continues to be on all issues of prognostications is that I do not know who is correct. Mark Faber is to me a total bear on US notes/bonds, and he may be correct--someday. Besides the issue of being correct, there co-exists the issue of "timing." So if one's investment horizon is 20 years, what happens over the next year might not be critical; however, for shorter horizons relatively near-terms may be very important.

        I think people who subscribe to their having average or above average intelligence should keep an open mind as to what might be the future with inflation, deflation, etc.
        Attached Files
        Last edited by Jim Nickerson; 02-23-10, 05:26 PM.
        Jim 69 y/o

        "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

        Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

        Good judgement comes from experience; experience comes from bad judgement. Unknown.

        Comment


        • #5
          Re: U.S. Not Out of the Deflation Woods Just Yet

          We were told "deflation!" in 2001 and didn't buy it. They told us we were stupid. Did deflation happen? In 2007 they screamed "deflation!" Did deflation happen? Today they again warn "deflation!" As the joke goes, "Sometimes I don't think you're here for the hunting."
          Ed.

          Comment


          • #6
            Re: U.S. Not Out of the Deflation Woods Just Yet

            tell me again, daddy. never get tired of hearing it... saved me a bundle of $$$.

            Comment


            • #7
              Re: U.S. Not Out of the Deflation Woods Just Yet

              Originally posted by FRED View Post
              We were told "deflation!" in 2001 and didn't buy it. They told us we were stupid. Did deflation happen? In 2007 they screamed "deflation!" Did deflation happen? Today they again warn "deflation!" As the joke goes, "Sometimes I don't think you're here for the hunting."
              Fred,
              Do you have any of your money in treasuries?
              If yes then can you explain how you expect to maintain or increase that portion of your wealth that is in treasuries, given your certainty of inflation?

              Comment


              • #8
                Re: U.S. Not Out of the Deflation Woods Just Yet

                Ig
                Originally posted by stanley2008 View Post
                Fred,
                Do you have any of your money in treasuries?
                If yes then can you explain how you expect to maintain or increase that portion of your wealth that is in treasuries, given your certainty of inflation?
                but the predicted inflation is already here... for all to see who care to... 80 oil...1100 gold...

                as for deflation hudson nailed it in an ej interview in 2007.... 'deflation is a psychodrama... like an obsessional fear that some day gravity will stop working & we'll all float into the air. the fed's double entry bookkeeping will not stop working'... paraphrasing.

                Comment


                • #9
                  Re: U.S. Not Out of the Deflation Woods Just Yet

                  Originally posted by FRED View Post
                  We were told "deflation!" in 2001 and didn't buy it. They told us we were stupid. Did deflation happen? In 2007 they screamed "deflation!" Did deflation happen? Today they again warn "deflation!" As the joke goes, "Sometimes I don't think you're here for the hunting."
                  Yes, but FRED, what seems lost in the mix is that some of these analysts are looking at a completely different time frame than you. When you hear 'deflation' you seem to always equate that to 'long term deflationary spiral'.

                  Look, these guys are looking at data everyday and they are NOT talking about a ten year picture. When a data driven guy like Rosenberg is looking at what's going on (and spitting out his data and analysis every single day for free for all to see and scrutinize ) and he is talking about deflation - he is talking about moves like oil going from $147 to $30 in the short term, for instance.

                  Yes, maybe he doesn't understand the big picture process, but you should be open to the possibility that, despite the contradiction, he may understand the short term picture in bonds, equities & commodities more adequately than you guys, dues to decades of investment market experience.
                  --ST (aka steveaustin2006)

                  Comment


                  • #10
                    Re: U.S. Not Out of the Deflation Woods Just Yet

                    Originally posted by steveaustin2006 View Post
                    Yes, but FRED, what seems lost in the mix is that some of these analysts are looking at a completely different time frame than you. When you hear 'deflation' you seem to always equate that to 'long term deflationary spiral'.

                    Look, these guys are looking at data everyday and they are NOT talking about a ten year picture. When a data driven guy like Rosenberg is looking at what's going on (and spitting out his data and analysis every single day for free for all to see and scrutinize ) and he is talking about deflation - he is talking about moves like oil going from $147 to $30 in the short term, for instance.

                    Yes, maybe he doesn't understand the big picture process, but you should be open to the possibility that, despite the contradiction, he may understand the short term picture in bonds, equities & commodities more adequately than you guys, dues to decades of investment market experience.
                    I agree -- and isn't this the essence of disinflation anyways?

                    We may not get a huge deflationary crash like 2008, but I can see smaller and smaller deflationary bounces coming down the line, counterbalanced by inflationary responses in certain areas. At the end of that, we hit the POOM in everything.

                    Comment


                    • #11
                      Re: U.S. Not Out of the Deflation Woods Just Yet

                      Originally posted by jpatter666 View Post
                      I agree -- and isn't this the essence of disinflation anyways?

                      We may not get a huge deflationary crash like 2008, but I can see smaller and smaller deflationary bounces coming down the line, counterbalanced by inflationary responses in certain areas. At the end of that, we hit the POOM in everything.
                      disinflation - yeah I think so - we have to remember that some of these guys like Rosenberg moved into corporate bonds at the low, so in terms of asset valuation in a reflation they just may know what they are doing, even if they seem to buy into output gap theory; in the short term such a view might be correct - it is difficult to accept that all of these guys simply ignore the stagflationary period of the 70s - I don't think they all dismiss it.

                      I'm not so sure about the POOM in everything - I think at some point central banks understand the mechanics of stagflation. I think what is underestimated is that the Fed has learned from the 70s, despite Bernanke's predecessor.

                      What if reality strikes the markets and everything tumbles again and if the Fed can begin another re-inflation from another low point in commodity prices? and meanwhile the China bubble has popped? Maybe we start another reflation from copper at $0.70 because the Chinese story evaporates - maybe next time the Fed's attempts only take it up to $2 because they have learned that after a certain point stimulus doesn't work under a balance sheet recession and they bring on more problems than they solve.

                      I don't think the future is so clear and I think the iTulip view is highly dependent on central bank reaction and an assumption that they haven't learned anything from the past. If the helm of these banks was the same for the last forty years, perhaps, but just maybe at some point a leader emerges to explain that some real pain has to be taken in the short term and that gov't attempts will just make things worse.

                      EJ seems to think we avoid another extreme downdraft in commodity prices because his perception is that too many people expect it now - I think he is likely skewed by the company he keeps these days (smarter money managers). A true contrarian is only contrary 20% of the time and has to ride the trend for 80% of the time while others wake up to the story.
                      --ST (aka steveaustin2006)

                      Comment


                      • #12
                        Re: U.S. Not Out of the Deflation Woods Just Yet

                        Originally posted by metalman View Post
                        Ig

                        but the predicted inflation is already here... for all to see who care to... 80 oil...1100 gold...

                        as for deflation hudson nailed it in an ej interview in 2007.... 'deflation is a psychodrama... like an obsessional fear that some day gravity will stop working & we'll all float into the air. the fed's double entry bookkeeping will not stop working'... paraphrasing.
                        Why then does EJ suggest allocating some portion of ones' capital to fixed income securities?

                        Comment


                        • #13
                          Re: U.S. Not Out of the Deflation Woods Just Yet

                          Originally posted by stanley2008 View Post
                          Why then does EJ suggest allocating some portion of ones' capital to fixed income securities?
                          Good question and if he is in short duration treasuries, why bother; there are better alternatives. If he is in the long duration treasuries, hasn't this been the performance of late? (120 -> 90 since Jan'09)



                          My take is that short term he is expecting a rally in long bonds as asset price deflation takes hold again in equity & housing markets.
                          --ST (aka steveaustin2006)

                          Comment


                          • #14
                            Re: U.S. Not Out of the Deflation Woods Just Yet

                            Originally posted by steveaustin2006 View Post
                            Good question and if he is in short duration treasuries, why bother; there are better alternatives. If he is in the long duration treasuries, hasn't this been the performance of late? (120 -> 90 since Jan'09)



                            My take is that short term he is expecting a rally in long bonds as asset price deflation takes hold again in equity & housing markets.
                            EJ went long last June so not much change since then. He mentioned then that there was a risk in doing so, but he was doing it for the increase in yield.

                            jim

                            Comment


                            • #15
                              Re: U.S. Not Out of the Deflation Woods Just Yet

                              Originally posted by steveaustin2006 View Post
                              disinflation - yeah I think so - we have to remember that some of these guys like Rosenberg moved into corporate bonds at the low, so in terms of asset valuation in a reflation they just may know what they are doing, even if they seem to buy into output gap theory; in the short term such a view might be correct - it is difficult to accept that all of these guys simply ignore the stagflationary period of the 70s - I don't think they all dismiss it.

                              I'm not so sure about the POOM in everything - I think at some point central banks understand the mechanics of stagflation. I think what is underestimated is that the Fed has learned from the 70s, despite Bernanke's predecessor.

                              What if reality strikes the markets and everything tumbles again and if the Fed can begin another re-inflation from another low point in commodity prices? and meanwhile the China bubble has popped? Maybe we start another reflation from copper at $0.70 because the Chinese story evaporates - maybe next time the Fed's attempts only take it up to $2 because they have learned that after a certain point stimulus doesn't work under a balance sheet recession and they bring on more problems than they solve.

                              I don't think the future is so clear and I think the iTulip view is highly dependent on central bank reaction and an assumption that they haven't learned anything from the past. If the helm of these banks was the same for the last forty years, perhaps, but just maybe at some point a leader emerges to explain that some real pain has to be taken in the short term and that gov't attempts will just make things worse.

                              EJ seems to think we avoid another extreme downdraft in commodity prices because his perception is that too many people expect it now - I think he is likely skewed by the company he keeps these days (smarter money managers). A true contrarian is only contrary 20% of the time and has to ride the trend for 80% of the time while others wake up to the story.
                              my take is that itulip espouses "lazy" trading. very few, or very rare, changes in allocation. the ideal, in my mind [i don't speak for itulip] is the rip van trader marc faber sometimes talks about: he makes one trade a decade. in 1970 he told his broker to put it all in gold as soon as that was possible, and then he went on vacation. in 1980 he woke up long enough to say: move it all into japanese equities. in 1990 he switched to tech stocks in the u.s. in 2000 he switched to... faber's story ended there, but i would say gold and oil. the lazy trader can do quite well if the asset allocations are correct.

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