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

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    Default 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
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    Default 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.

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    Default 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"...

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    Default 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.

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

    Quote 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.

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

    Quote 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

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

    Quote 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...

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

    Quote 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

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

    Quote 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

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

    Quote Originally Posted by we_are_toast View Post

    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 at 12:01 PM.

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    Default 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

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

    Quote 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....

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

    Quote 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 at 03:20 PM. Reason: economics -> economists

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    Default 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

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

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

    Quote Originally Posted by Milton Kuo View Post
    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.
    Which is kind of what we are expecting today from the fed, no...... ;) Its a supply and demand thing, if you create more dollars/pounds/bupkiss they lose value, against everything else (in this case it was gold)... This time around what do they lose value against? Euro's, pounds, remnibi? Every country doesnt want its currency to appreciate too much otherwise they strangle their exports... But, the money has been created, it has to go somewhere; newly created money, like the devils hands will not stay idle for long.... Impacts: Things made abroad become more expensive, due to the exchange rate differential or commodities rally (due to weak currencies all around), similar to any third world country... Local products/services are dirt cheap for foreigners (aside from the open market commodities, meat, wheat, etc), local house maids cost almost nothing per hour in foreign currency, etc....

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

    Here is perhaps the other side of the coin from Prechter with Richard Russell's comments.

    http://www.zerohedge.com/article/ric...get-out-stocks

    Quote Originally Posted by lifted from zerohedge
    Richard Russell tells readers how he really feels. And, yes, the bear slams everything fiat and tells readers to leave stocks and go into gold.
    The specter of deflation is cropping up in many media outlets today. In fact, I'd say that deflation talk has almost become popular. The key question is this -- Fed Chief Bernanke is obviously reading and hearing all about the "coming deflation." What will Bernanke do about it? I think he will fight deflation with all the weapons at his command. And Bennie has a lot of weapons, least of which is printing "money."

    ...Then (believe it or not) in the same issue of Barron's we see an article by my old friend, Robert Prechter, the guru of the Elliott Wave thesis. Robert explains how a great contraction in credit and debt will bring about deflation. Robert notes that the amount of dollar-denominated debt worldwide is some $57 trillion. . . The already-issued debt and potential debt is poised to overwhelm the possibility of management monetization. The Fed's assets amount to $2.3 trillion, a drop in the global debt bucket."

    Robert concludes his frightening article as follows -- "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 equivalents, held in the safest institutions. If you shed market and institutional risk, you can sail through deflationary times unscathed."

    Russell Comment -- Whew, how's that for a scary contrary opinion? Robert believes that way to safety in a deflation is to have cash, and lots of it. My concern with this approach is that I question the safety of the US dollar (and all fiat money, for that matter). So in an all-out deflation, Robert Prechter will be sitting in all cash or US Federal Reserve notes. But the dollar is collapsing, and with a US that is deflating, none of our foreign creditors will want dollars (in fact, they will be trying to get rid of dollars). With fiat money in retreat all over the world -- and currencies devaluing against each other, the world's peoples will turn to the only money they can trust -- gold. I'm aware that Prechter believes gold will be heading down in a deflation, I disagree.

    I was there during the Great Depression, and I can tell you nobody at that time had dollars. But if you did have dollars they were trusted and they were considered as good as gold. Today, it's different. The very validity of the dollar is in question.

    ...I distrust all scenarios and predictions, although I read 'em all and find many of them fascinating. In the end, I only trust the wisdom of the stock market. I haven't liked the recent action of the stock market, and I've advised my subscribers to get out of stocks.
    Courtesy of King World News.
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    Default Re: When Money Gets Scarce by Robert Prechter Barron's 8/7/2010

    Here is Jesse's commentary on the Prechter -- Russell circle fu*ck.

    http://jessescrossroadscafe.blogspot...ms-robert.html

    "What Russell is saying is that Prechter is wrong in his interpretation of how deflation will play out, and what the endgame will look like. And he is saying almost the same thing that others, including Eric Janszen and myself, have been saying for quite some time, but in a slightly different ways."


    I read Jesse's comment hastily, which came across to me as rather much empty, directionless rhetoric. No doubt some if not many will disagree with my impression, and if so, please post it as you see it.
    Jim 69 y/o

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

    there are two kinds of inflation in the world, real, and percieved. the Fed will most likely try to give a perception of inflation next, without the money printing, in an attempt to get people to spend. when that does not happen, i would expect the full on assault of money drops to begin -- full strafing runs with multiple waves of bombers and many trillions of tons of ordiannce. the US is f**kin' broke. period. the "easy out" is gonna be inflation -- steal from the creditors, steal from Social Security recipients, steal from everyone you ow a nickel to and who holds your currency "in reserve" like China and the Middle East. first we get to plunder their wealth in the form or energy and labor, then we get to plunder their wealth in the form of savings thru implicit debt default on the currency.

    Is there any other out? can you see ANY politician attmpting to "get real" with the populace, raise taxes, lower spending, and tell those out in the cold to f**kin' bad? I think not.

    to date th Fed has dumped massive funds into the system, only to have savings and the lack of velocity dry up all their efforts before the fruit of their labor could bloom. as things get worse, and the debt/GDP umbers keep heading in the wrong way, and the world stops turning a blind eye to the stealth monitization of UST's, I expect the floodgates to open.

    who wants the US as a reserve currency anymore anyway? Chna? No. Russia? NO. Brasil? Nope. India? Nah. the EU? don;t think so. There si all this talk of SDR's but they cannot become "serious money" until there is a true dollar crisis. We can no longer continue to run structural deficits in the Triffin's Delimna much longer, so we will have to pass off the mantle somehow. Who better than a nameless, faceless org like the IMF and their SDR's to take up the slack in the future? No country, just banksters capable of stealing from everyone everywhere, and punishing those who speak up.

    How can we not but get inflation again? Japan is "special" -- they get to borrow from themselves. We will not be so "special"...

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