Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

[Slimprofits]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Nobody I know knows when inflation shall take off, but it seems around here the expectation is yesterday or tomorrow. Elsewhere the opinions I read suggest it is a bit further down the pike.

I've noticed the same thing Jim, but other than E.J., no one has talked about the U.S. possibly experiencing a currency event in 2009.

I happen to think we'll start to notice inflation during the summer months. My contrarian prediction is that Americans are not going to stay home en masse and not drive this summer. Give it another year of job losses before that happens.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

I urge some caution here Jim. That chart uses the GDP deflator which has diverged hugely from CPI since roughly the late '70s, and CPI is understated.

[Jim Nickerson]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The quotation is from the pdf below, which GRG55 put up yesterday or day before. Rosenburg may be wrong in all of his points, but I wouldn't bet on it.

David A. Rosenberg, Merrill Lynch 01/26/09

Risings savings rate will be incredibly deflationary

The process of a secular rise in the US personal savings rate and the dampening effect this will have on aggregate demand will be incredibly deflationary for some time. While fiscal stimulus will indeed cushion the blow, the mathematical reality is that the federal government must lift its share of the economy by 10 percentage points of GDP just to fully offset a 1 percentage point contraction in consumer spending. While there is growing concern over government bond supply to fund the record fiscal deficit, there is ample room on bank balance sheets for the new issuance, and the Fed has already hinted that it too will emerge as a buyer of Treasuries if market rates were to back up, as they have been for the past few weeks. Moreover, the expansion of the government debt must be viewed in the context of the contraction of private sector debt, and so on balance, the growth in total economy-wide credit has actually slowed to 6% (year-over-year) from nearly 9% a year ago.

[Jim Nickerson]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

A "thank you" to jk for this link: http://www.nihoncassandra.blogspot.com:80/ Inflation(ists) vs. Deflation(ists) - Part II 01/28/09

4. There are nuances. I am what [astute] reader-commentator (and unabashed inflationist) David Pearson terms "a deflationist overshooter". This is articulated or perhaps only implied in the original post, and reckons that: the weight of de-flation (de-leveraging, de-risking, precipitously de-clining core asset prices, de-capacitating financial system distress, de-employment shocks, secular de-consumption (savings) ratios, even demographics) trumps any triage, stitching or even bionic limb replacement conjured by central banks and Keynesian stimuli, by a large magnitude. And, this view conjectures, that by the time even the most interventionist authorities comprehend this, it will be too late for the inflationist "V" to ripen. AFTER that (two years?!? three?!?) when the majority of purge may be complete, and only then (year prior to re-election year 2012?) will the drastic measures be taken, which will be overkill and could very well/will lead to above trend inflation. Not hyperinflation. Above-trend inflation. It understands – as Jeremy Grantham suggested last weekend, that solutions will - like reducing greenhouse gases - likely require multiple types of adjustment including falls and write-downs in asset prices (particularly debt); debt-for-equity swaps, co[u]pled with some rise in nominal incomes and price indices. But like the deflationists, this view is predicated upon tinder being too wet to combust (again thanks David for the correct terminology), and authorities – in this new paradigm – having the impetus and fortitude to “do the right thing” in the heat of the moment, which, if recent history be the example is as likely or difficult as it is for one party living up to pre-coital promises in another universally-known heat-of-the-moment act.

[Jim Nickerson]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Chain Deflator Slows: Economic Distress Is Upon Us

by: Andrew Horowitz February 01, 2009 http://seekingalpha.com/article/1177...le_lb_articles

Several pieces of important economic data were released last week including GDP, Chain Deflator, Chicago Purchasing Managers Index and The University of Michigan Consumer Sentiment. Traders have typically compared the expectations to the actual release while assessing the data, but it is important to note just how low these expectations actually are.

On Friday morning, investors seemed initially excited with the release of the Gross Domestic Product at -3.8% vs expectations of -5.5%. With expectations so low and constant revisions to the previous month’s data, it is impossible to rely or even react appropriately. The last time we have seen abysmal economic data such as this was way back in the late 1970’s and early 1980’s.

The real problem we see is that the Chain Deflator, which is widely recognized as a measure for inflation, has begun to show some worrisome signs of slowing. This is a sign that deflation is upon us. Deflation has been known to cause economic plagues such as increased unemployment, decreases in salaries and reduced company profits.

With that in mind, it is vital to keep a constant eye on deflation. The good news? The Federal Reserve has lowered rates to zero and can keep rates low for a while as there are many forces preventing inflation during the near-term. As the Fed is finding that it is literally impossible to get banks to lend money , there is little fear that this will produce inflation to offset the deflation anytime soon.

[Jim Nickerson]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

The End of Gold 01/26/09 David Bailey http://seekingalpha.com/article/116404-the-end-of-gold

..
If people would only read a little further into their recently-dusted-off macroeconomics textbooks they'd find that while the government creates some money, the private system generally creates multiples of that amount. Well, it used to. Now what the private system does is destroy money as loans and credit lines are called in and cowardly business “leaders” throw layoff gasoline on the deflation fire. People are figuring out that the recent glut in bank reserves they see in the Fed's H.3 release is not an inflationary blast, but a probably insufficient bulwark against deflationary disaster. If Citibank (C) didn't tell you that loudly enough, I hope Bank of America (BAC) did. If you didn't hear their message, just wait for the next debacle. The American capitalist system has become a money-destroying machine.

Once deflation sets in, there will be no profits to be found – anywhere. But as I write this and gold puts in the second spike of a double or triple top, the value proposition short gold becomes really too good to ignore. If gold can break convincingly out of the anti-bubble, fine, you stop out somewhere between here and north of $1000/oz. Pick your spot, but it's not a bad loss. If gold cannot break out of the commodities anti-bubble, you are in contrarian heaven. In that scenario, gold loses a minimum of $250/oz before it gets another sustained uptrend and the fundamentals remain bearish for the foreseeable future. I think this present spike in gold will prove about as reliable as the recent spike in the euro:

..

In my view, going long gold is just another manifestation of the Deflation Denial syndrome. I think the smart play – maybe the only play – is to be long deflation in this environment. If you can find a better deflation play than going short gold – make it.

David has a followup to the above here http://seekingalpha.com/article/1177...-gold-part-two 02/01/09

snip

Does America now have a “can't do” attitude? When American business people – the most powerful economic actors in human history – think themselves powerless, there is a serious problem. Specifically, deflation. More specifically, about 90,000 layoffs at major companies announced just this week. Deflationary behavior has not only set in, it has been firmly embraced by American business. Think of it this way: the financial stuff is the technical, but unemployment is the fundamental valuation metric when it comes to deflation. Our business leaders have already decided we are going to see massive unemployment. As for the American financial community – do I really even have to get into that? Those fraudsters aren’t even trying to do business. They are spending all their time trying to hide from the results of their misdeeds and to drag as much taxpayer money as possible down into the deflationary sinkhole they have dug for us all.

Nobody makes much money in a deflation. It’s that simple and that grim. With a negative mentality firmly in control of the American economy, the only way you make a good profit is to find something to go short that deflation hasn’t hit yet - like gold.

Could gold see a second bubble? Sure. Would I bet on it? No.

What do you want from me? That’s just the way it is.

To me, unless gold starts retreating from its recent runup, the charts on gold look quite constructive now.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

From the history doesn't repeat but rhymes department:

[Guest]

Removed. Frivolous comment.

[strittmatter]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

He serious about the scotch?


Efforts to avoid a deflationary depression will probably produce the opposite -- a nasty bout of inflation, says John Williams of Shadow Government Statistics, who advises hoarding gold and even Scotch to barter. Alistair Barr reports. (Feb. 12)

http://s.wsj.net/media/swf/main.swf" bgcolor="#FFFFFF" flashVars="videoGUID={46C4AF8C-4C1D-425E-9570-ADE365D5132C}&playerid=2000&plyMediaEnabled=1&configURL=http://wsj.vo.llnwd.net/o28/players/&autoStart=false” base="http://s.wsj.net/media/swf/" name="flashPlayer" width="512" height="363" seamlesstabbing="false" type="application/x-shockwave-flash" swLiveConnect="true" pluginspage="http://www.macromedia.com/shockwave/...Flash"></embed>

[metalman]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

maybe he should stick to drinking the scotch...

the link doesn't work.

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

He serious about the scotch?


Efforts to avoid a deflationary depression will probably produce the opposite -- a nasty bout of inflation, says John Williams of Shadow Government Statistics, who advises hoarding gold and even Scotch to barter. Alistair Barr reports. (Feb. 12)

Yes, he's serious about the scotch and similar.

Here's an indirect link that works:
http://www.ritholtz.com/blog/2009/02...toilet-tissue/

[strittmatter]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

thanks bart....my linker must be busted, or I am.

[Jay]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Yes, he's serious about the scotch and similar.

Here's an indirect link that works:
http://www.ritholtz.com/blog/2009/02...toilet-tissue/

Alright, I need to ask because I'm a scotch drinker and like the idea of a scotch thread: what would fellow single malt fans suggest for barter? A couple cases of various 15 year olds or would you load up on a few very pricey rare scotches?

I can't wait, my wife will love the "cases of scotch in the cellar" conversation.... tongue firmly in cheek. ;)

Edit: Awww, screw it, I know the answer already, all of the above of course!

[Charles Mackay]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

From the history doesn't repeat but rhymes department:

Hi Bart, I enjoyed the Weimar charts that you put up on your site. What do you suppose accounted for those order of magnitude swings in gold? Rumors of stabilization?

[bart]

Re: Deflationistas, inflationistas, and hyperinflationistas - Eric Janszen

Hi Bart, I enjoyed the Weimar charts that you put up on your site. What do you suppose accounted for those order of magnitude swings in gold? Rumors of stabilization?

Thanks for the nudge. I've wanted to add a chart showing just gold & silver prices alone since I have the data, and this was a good excuse.
I updated my Weimar charts page too.







As you can see, the swings you saw reflected the changes & volatility in the cost of living index or the wholesale price index *much* more than they reflected gold & silver price changes.

Note also that the prices through mid 1923 are from data captures 4 months apart so the chart does not capture any of the volatility or corrections... probably a good thing since buy & hold was by far the best approach during Weimar.