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When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

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  • When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

    http://online.barrons.com/article/SB...mod=BOL_twm_fs

    Some of Prechter's comments

    In the past two years, even lagging indicators have showed signs of deflation. But Americans lived in a climate of monetary inflation for three-quarters of a century. Inflation was "normal" for so long that it appeared to be the only possible reality. It is difficult to imagine its opposite, even when it is already happening.
    .
    Most high-profile bears in recent years have predicted hyperinflation and a collapse in dollar value due to money printing.
    .
    Federal Reserve's money printing, while significant, accounts for a comparatively small amount of the inflation that has occurred. The far greater contributor to inflation has been the relentless expansion of borrowing. Deflation, which is rare, results from a contraction in the quantity of outstanding debt.
    .
    In hyperinflationary times, people are desperate to get rid of their wheelbarrows full of money. In deflationary times, people are desperate to obtain money. Today, it is difficult to get anyone to part with a dollar. Homeowners can't make mortgage payments. Employees are taking pay cuts. Retailers are cutting prices. And jobs are scarce.
    .
    Even as monetary authorities urge banks to lend, Congress has curtailed credit by passing laws to regulate bank loans, reduce banks' proprietary trading, restrict profits from credit card fees, oversee credit-rating services and restrict the size of financial institutions. This trend is the opposite of the government's expansionary policies of the late 1990s and early 2000s, and it is deflationary. Recklessness contributed to inflation; conservatism will curtail it.

    The amount of dollar-denominated debt worldwide is some $57 trillion. Life insurance companies have pledged to pay trillions more. Foreign governments and enterprises have issued their own masses of IOUs. The value of derivatives, which can become debt if certain events occur, amounts to over $600 trillion.

    This already-issued debt and potential debt is poised to overwhelm the possibility of management or monetization. The Fed's assets amount to $2.3 trillion, a drop in the global debt bucket. Monetary authorities have done everything they can think of to bring back inflation, and they are failing. Central banks face a problem they facilitated: There is too much doomed debt in the world.
    .
    Most people seem to believe monetary authorities can and will inflate away all this debt.
    .
    The deflationary wave of 2006-2009 offered a taste of the risks incautious investors face. If you are positioned for more inflation—as the vast majority of investors are—you are likely to find yourself on the wrong side of the monetary bet. Positioning for deflation simply means avoiding traditional investments, especially risky debt, and maintaining maximum safety in cash and cash equivalents, held in the safest institutions.

    If you shed market and institutional risk, you can sail through deflationary times unscathed.
    I am relatively sure that on iTulip there exists opinions that differ 180% from Prechter's.

    Barron's invites "OTHER VOICES" to submit essays that should be about 1000 words.

    It would be interesting if some of the strongly-opinioned voices from iTulip cared to go to the trouble to submit their dissenting opinion to Barron's. Perhaps well-founded arguments would be be published. Submit such 1000 word essays to tg.donlan@barrons.com
    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: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

    As you well know, iTulip's investment recommendation is already positioned for deflation. Gold and T's are the ultimate monetary equivalents. As much as iTulip discusses Poom, they are still positioned for Ka. It's hard to make sense of this apparent conflict sometimes, but it is difficult to argue against their strategy, so far.

    Comment


    • #3
      Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

      Prechters answer is also cash and gold.... As i recall, he said "sell everything except gold"...

      Comment


      • #4
        Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

        I don't believe in deflation. Prechter has been wrong for 20 years.

        This fiat world presents no challenges for money printing. Borrowing is one way. Printing is another. There is no way on God's green earth that we will ever have true deflation. It is impossible. The government will indeed drop money from helicopters before that happens.

        There is inflation today, huge inflation, but it is being used by government to counter debt deflation. Price decreases and asset values are a fact of life, and with them, the loans against those assets are being written off, but very slowly. Counter to this are the enormous powers of the governments that are borrowing money and then spending it on government programs.

        It is completely unsustainable and we are still in the midst of a multi year financial crisis every bit as serious as the Great D.

        But deflation ain't gonna happen.

        Comment


        • #5
          Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

          Originally posted by grapejelly View Post
          I don't believe in deflation. Prechter has been wrong for 20 years.

          This fiat world presents no challenges for money printing. Borrowing is one way. Printing is another. There is no way on God's green earth that we will ever have true deflation. It is impossible. The government will indeed drop money from helicopters before that happens.

          There is inflation today, huge inflation, but it is being used by government to counter debt deflation. Price decreases and asset values are a fact of life, and with them, the loans against those assets are being written off, but very slowly. Counter to this are the enormous powers of the governments that are borrowing money and then spending it on government programs.

          It is completely unsustainable and we are still in the midst of a multi year financial crisis every bit as serious as the Great D.

          But deflation ain't gonna happen.
          I dont believe in deflation either You have to deflate against something, and in a fiat currency world, thats not going to be the currency.... But, i was just saying that both inflationists and deflationists seem to be saying the same thing... Buy/hold gold. Wether its Mish or Prechter or itulip.. Itulip was first in discussing it and recommending it, but even the deflationists seem to point towards gold.

          Comment


          • #6
            Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

            Originally posted by karim0028 View Post
            I dont believe in deflation either You have to deflate against something, and in a fiat currency world, thats not going to be the currency.... But, i was just saying that both inflationists and deflationists seem to be saying the same thing... Buy/hold gold. Wether its Mish or Prechter or itulip.. Itulip was first in discussing it and recommending it, but even the deflationists seem to point towards gold.
            If you don't believe in deflation, what is the term you use to describe the price decreases on homes in Phoenix that you say are "getting cheaper by the minute?"
            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


            • #7
              Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

              Originally posted by Jim Nickerson View Post
              If you don't believe in deflation, what is the term you use to describe the price decreases on homes in Phoenix that you say are "getting cheaper by the minute?"
              Perhaps i should have qualified it... Asset price deflation from bubble levels vs general price deflation in regular things.. My gas isnt $1/gallon like it was in 98 and when i go shopping i still spend the same if not more... Houses are another thing all together...

              Comment


              • #8
                Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                Originally posted by Jim Nickerson View Post
                If you don't believe in deflation, what is the term you use to describe the price decreases on homes in Phoenix that you say are "getting cheaper by the minute?"
                Same as JDS and PetSmart going to zero or near-zero; "disappearing fictitious value"
                prices can be moved by in/de flation or supply and demand or technological improvements or changing social moods/desires/wants.

                The beanie baby or the iPod that was worth $500 yesterday may be worth nothing tomorrow. That's not deflation.

                prices themselves tell you nothing about general inflation or deflation

                Comment


                • #9
                  Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                  Originally posted by karim0028 View Post
                  I dont believe in deflation either You have to deflate against something, and in a fiat currency world, thats not going to be the currency.... But, i was just saying that both inflationists and deflationists seem to be saying the same thing... Buy/hold gold. Wether its Mish or Prechter or itulip.. Itulip was first in discussing it and recommending it, but even the deflationists seem to point towards gold.
                  FRED:
                  The price of gold will collapse in a deflationary environment. Period.
                  http://www.itulip.com/forums/showthr...old#post169673

                  Comment


                  • #10
                    Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010


                    I don't believe long term deflation will happen; thanks to itulip analysis i dont think the fed will allow it to happen... But, i was just pointing out that prechter is pointing to gold as well... I am not saying that i like prechter or his views, simply pointing out his views.. Which ever way the market goes in the medium term, as long as the long term trend is up, you go with it.... We could have a fall down to about ~ 800-850 on gold and still be in a long term up trend... But, there is also the possibilty of going to a new high and then having a higher range trade where in a deflationary scenario it goes from 1400/1350 down to 1100 or maybe even a thousand... Who knows...

                    Other than that its trading and i do trade, but for that i dont rely on fundamentals, i rely on charts/TA and i dont do physical for that....
                    Last edited by karim0028; 08-08-10, 12:01 PM.

                    Comment


                    • #11
                      Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                      I am assuming we_are_toast is 100% correct in the quote from FRED from two posts above
                      FRED:
                      The price of gold will collapse in a deflationary environment. Period.
                      and being a non-paying member I could not check out the link http://www.itulip.com/forums/showthr...old#post169673

                      I take it that the quotation was to support a contention that the US economy is not presently deflating, nor has it been experiencing any deflation because there has been no collapse in the price of gold.

                      I wonder how many people that read here take such comments as FRED's as being correct because of some sense of authority that might accrue to FRED from working at iTulip. The way we_are_toast's post came across to me was because FRED had written something in a manner suggesting it was the definitive answer, then it was in fact definitive. Fu*ck that noise. I don't think I read much of anything on the web having to do with investing and speculation about the future of the economy/stocks/commodities/currencies/monetary metals that I believe is definitive.

                      Whatever or whoever FRED is, he is an unknown entity to the average reader on iTulip. If he has experience and background that qualifies him as some sort of expert or pundit, it is unknown to me, and I surmise unknown to most everyone who reads here.

                      Back to the issue of gold's potential behavior during deflation. The following is what a known pundit happened to have mentioned today with regard to gold in a past period of deflation.

                      "Then again, if there is a part of the [yield] curve that has lagged behind, not yet hit new lows in yield, and that represents true inflation expectations, it is the long bond at 4.00%. There is probably more juice here than anywhere else along the maturity spectrum if the economy continues to weaken and along with that, the forces of deflation gather steam. As an aside, it was interesting to see gold trade back up to a three-week high of $1,200/oz even as the CRB index closed the week with a 1.1% loss (biggest decline since June 29). This goes to show that it is also an effective hedge against deflation (as was the case in the 1930s when the sterling price of gold doubled)."

                      David Rosenberg made the above comment today. Now I don't know who is correct, Rosenbery or some spook* on iTulip named FRED; however, were I called upon to make a bet, I'd bet with Rosenberg's opinion on most things in the investment world on most days.

                      * "spook" is my favored personal term for designating individuals encountered on web and about whom nothing is known.
                      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


                      • #12
                        Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                        Originally posted by Jim Nickerson View Post
                        I am assuming we_are_toast is 100% correct in the quote from FRED from two posts above
                        and being a non-paying member I could not check out the link http://www.itulip.com/forums/showthr...old#post169673

                        I take it that the quotation was to support a contention that the US economy is not presently deflating, nor has it been experiencing any deflation because there has been no collapse in the price of gold.

                        I wonder how many people that read here take such comments as FRED's as being correct because of some sense of authority that might accrue to FRED from working at iTulip. The way we_are_toast's post came across to me was because FRED had written something in a manner suggesting it was the definitive answer, then it was in fact definitive. Fu*ck that noise. I don't think I read much of anything on the web having to do with investing and speculation about the future of the economy/stocks/commodities/currencies/monetary metals that I believe is definitive.

                        Whatever or whoever FRED is, he is an unknown entity to the average reader on iTulip. If he has experience and background that qualifies him as some sort of expert or pundit, it is unknown to me, and I surmise unknown to most everyone who reads here.

                        Back to the issue of gold's potential behavior during deflation. The following is what a known pundit happened to have mentioned today with regard to gold in a past period of deflation.

                        "Then again, if there is a part of the [yield] curve that has lagged behind, not yet hit new lows in yield, and that represents true inflation expectations, it is the long bond at 4.00%. There is probably more juice here than anywhere else along the maturity spectrum if the economy continues to weaken and along with that, the forces of deflation gather steam. As an aside, it was interesting to see gold trade back up to a three-week high of $1,200/oz even as the CRB index closed the week with a 1.1% loss (biggest decline since June 29). This goes to show that it is also an effective hedge against deflation (as was the case in the 1930s when the sterling price of gold doubled)."

                        David Rosenberg made the above comment today. Now I don't know who is correct, Rosenbery or some spook* on iTulip named FRED; however, were I called upon to make a bet, I'd bet with Rosenberg's opinion on most things in the investment world on most days.

                        * "spook" is my favored personal term for designating individuals encountered on web and about whom nothing is known.
                        I agree with you, thats why i read all the info available and make my own decision... After all its our own money, a loss is ours and ours alone.... Just looking at price action, when price breaks out of a range like the 600-1000 range on gold, it usually makes an expansion of around the same size, in this case around 1350-1400, then it could collapse back to 1000 before going to new highs.... But, no one can know for sure... You just trade what you see....

                        Comment


                        • #13
                          Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                          Originally posted by Jim Nickerson View Post
                          As an aside, it was interesting to see gold trade back up to a three-week high of $1,200/oz even as the CRB index closed the week with a 1.1% loss (biggest decline since June 29). This goes to show that it is also an effective hedge against deflation (as was the case in the 1930s when the sterling price of gold doubled)."

                          David Rosenberg made the above comment today. Now I don't know who is correct, Rosenbery or some spook* on iTulip named FRED; however, were I called upon to make a bet, I'd bet with Rosenberg's opinion on most things in the investment world on most days.

                          * "spook" is my favored personal term for designating individuals encountered on web and about whom nothing is known.
                          I sometimes read what Rosenberg has to say and I get the impression that he's expecting what iTulip call disinflation; I do not get the sense that Rosenberg is expecting a deflationary spiral a la the Great Depression. I can only assume that Rosenberg is saying gold will do well in deflation because he expects an inflationary response from the Federal Reserve to counter deflationary forces.

                          If a deflationary spiral were to occur today, the price of gold will collapse. I arrived at this conclusion on my own well before FRED ever made his comment. The only reason gold went up in purchasing power during the Great Depression is because the dollar was fixed to a set amount of gold ($20.67 per troy ounce before FDR repriced it at $35.00 per ounce in 1933) and the two could be freely exchanged at the fixed ratio. Back then, gold was money (I seem to recall reading that gold bullion was accepted as legal tender.)

                          Today, there is no law that fixes the dollar to a specific quantity of gold--the price of gold is allowed to float freely against the dollar. As a result, gold will behave very much like any other commodity or good in a deflationary spiral. That is to say, if we have a deflationary spiral, gold will spiral down in price just as rice, wheat, pork bellies, refrigerators, etc. also spiral down in price.

                          To sum up, I give Rosenberg the benefit of the doubt and assume he's describing an upcoming trading opportunity when assets will fall in price before rising again after the Federal Reserve does its "magic." If Rosenberg truly believes that gold will somehow rise in price in the face of a deflationary spiral, then allow me to quote the deservedly-maligned Alan Greenspan: "I am speechless."

                          For what it's worth, Jim, I have no formal training in economics. This spook's knowledge of economics is based entirely upon readings of works of respected (with the exception of Dr. Michael Hudson, this means dead) economists, iTulip and other web sites, and, hopefully, a healthy dollop of common sense.
                          Last edited by Milton Kuo; 08-10-10, 03:20 PM. Reason: economics -> economists

                          Comment


                          • #14
                            Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                            Milton, just stating you have no formal training in economics is a step toward removal of you from "spookdom." Spooks are those about whom nothing is known. Spooks can be correct in whatever they might propose, and recognized pundits can be wrong.

                            I don't comprehend your explanation for why the price of gold doubled in sterling. I assume Rosenberg stated the price of gold doubled in sterling because the price of gold was fixed in dollars. I suppose had the price of gold in the US not been fixed, that gold would have gone up here too.
                            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


                            • #15
                              Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

                              Originally posted by Jim Nickerson View Post
                              I don't comprehend your explanation for why the price of gold doubled in sterling. I assume Rosenberg stated the price of gold doubled in sterling because the price of gold was fixed in dollars. I suppose had the price of gold in the US not been fixed, that gold would have gone up here too.
                              I assume you're talking about the period of the Great Depression? Gold went up in price against the British pound because the U.K. went off the gold standard to stop a deflationary spiral from taking root in their economy. There were other European countries that did the same thing (unlinking their currencies from gold) and, in doing so, their economies also avoided a deflationary spiral.

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