"deflation" references in the media

[jk]

today i noted a reference to the possibility of deflation in a somewhat mainstream source: minyanville. [i know it's not the ny times or cnbc, but it's not mish's blog either]. so i'd like to suggest we accumulate such references as a way of measuring fear of deflation, i.e. ka.

http://www.minyanville.com/articles/index.php?a=13699
5. The Big Payback Get ready for the Big Payback.

• Last week's credit crunch (Wow, last week! Has it been so long already?) has set off a worldwide rush for dollars as banks and fund managers scramble to pay back loans used to buy risky mortgage securities, Bloomberg says.
• After a five-year decline that saw the U.S. currency reach its lowest level in a decade, it has rallied 1.4% against the euro and 1.2% against the pound in the last three trading days, Bloomberg noted.
• Now, isn't the economy in the U.S., led by housing, slowing? And aren't the Fed, and central banks around the world, injecting liquidity? So shouldn't that pressure the dollar?
• Get ready for what the late James Brown referred to as the Big Payback.
• "I may not know karate, but I know KA-RAZY!!! Yes we do," Brown stated.
• There are a some things to keep in mind about the dollar under these circumstances.
• First, increased risk aversion (that is, after all, what we are seeing: banks, lenders becoming risk averse, refusing to lend money under previous credit terms) actually creates incentives to save and postpone spending if those who have been borrowing to leverage assets believe those assets will be lower and purchasing power greater in the future.
• This pattern can be self-reinforcing, which is what the Fed fears the most.
• A deflationary credit unwind worsens repayment burdens for borrowers, precisely for the reasons Bloomberg's article noted, because the burden of repaying debt increases with deflation, and the dollar - because borrowers who want to repay their debts must accumulate more of them in order to do so - moves higher.
• Debts remain fixed in dollar terms, if you borrow $3 billion, for example, you still owe $3 billion, but the cost of that $3 billion in dollar terms is now higher.
• But can't the Fed cut rates? Well that's the problem.
• As former Federal Reserve Chairman Alan Greenspan explained in a 2002 speech, the lower bound on interest rates - the Fed can only cut rates to zero - means that even if debtors are able to refinance loans at a zero nominal interest rate, real rates will likely be still rising (after all, that's exactly what happens when the dollar begins to appreciate due to risk aversion and the big payback) and this can cause their balance sheets to actually deteriorate further even as they are trying to pay back debt.
• This cycle of risk aversion and decreased time preferences is already playing out in real time.
• See, for example, Sallie Mae (SLM) facing the fact that investors have suddenly gotten cold feet about their $25.3 billion takeover.
• Risk aversion, decreased time preferences.

[lb]

Re: "deflation" references in the media

I'm a Cramer fan. I think it's one of the most entertaining shows on TV. I don't watch it for 'picks'. I know he doesn't have many fans on these boards, but credit is due.

Cramer has been saying deflation for 2+ weeks.

[bart]

Re: "deflation" references in the media

Google trends can be useful too:

Deflation


Stagflation

[bart]

Re: "deflation" references in the media

I'm a Cramer fan. I think it's one of the most entertaining shows on TV. I don't watch it for 'picks'. I know he doesn't have many fans on these boards, but credit is due.

Cramer has been saying deflation for 2+ weeks.

He also has blown it so many times that its legion, and that's why he has few fans here. He's more of a shill and political type than anything else in my opinion.

Glad you don't pay attention to his picks - Leonard the Wonder Money has done better since 2005 per http://www.cramerwatch.org/

[lb]

Re: "deflation" references in the media

I've never seen the google trends, nifty.

Glad you don't pay attention to his picks - Leonard the Wonder Money has done better since 2005 per http://www.cramerwatch.org/

I don't really like the Leonard the monkey comparison. It's based on 30 days, and it includes the lightning round.

Anyways, despite the 'deflation' I'm looking for gold to make it's last run on 700 for the year sometime between now and the end of next week.

[Guest]

Re: "deflation" references in the media

I'd put my money on Mr. Leeb's pragmatic market calls before Mish's any day of the week ...

___________________

STEPHEN LEEB calls it -Not a colossal Bear Market - instead, it's going to be -
a much less sensational ... Trading Range Market from here on out !

(P.S. and Gold is a buy!)

Unless you spent last week in a coma, you must have noticed the wild rollercoaster of a ride the market went on. It was the Six Flags Great Adventure Park’s Kingda Ka and Cedar Point’s Top Thrill Dragster combined – except that investors had a lot more at stake than the loose change in their pockets.

Yet, believe it or not, we’ve still only cleared the first short section of track. This train has a lot further to go. In the weeks ahead, we expect the market will rally, drop, and rally again.

What’s more, the chance that the market will make a new high sometime this year (before drifting into a trading range) now looks much greater than it did three or four weeks ago. The biggest reason is that volume has hit a record high – something which does not occur near the start of a market slide. We also have near record lows in speculative activity, indicating there is a lot of upside potential for stocks.

On top of that, the economy shows no sign of recession. Industrial commodities have remained strong. UIC claims have stayed low. And while secondary stocks have lagged over the past few months, the degree to which they have lagged is nowhere near what we would expect at the start of a bear market. At worst, they have pointed to a market correction, probably the one we have just had.

What about the “elephant in the room,” you ask? Well…

CENTRAL BANKS STAND SHOULDER TO SHOULDER AGAINST THE SUBPRIME MORTGAGE MESS

It’s possible the subprime mortgage debacle and its fallout could spill out into the real economy. And it’s also possible the market will make new lows regardless. But neither scenario is most likely.

We must follow the odds, and the odds in this case are that the mortgage crisis will be contained. It’s very hard to fight City Hall, and in this case City Hall is the world’s central banks. As last week’s events showed, if you’re bearish right now, you don’t have just the Federal Reserve against you, but the European Central Bank, the Japanese central bank, and even the Australian central bank as well. Together with the Fed, these banks injected more liquidity into the system than they have since 9/11. We also must assume most other central banks would make it a priority to keep the world financial system running smoothly, and would have stepped in last week if needed.

With this kind of effort from central banks, and a lack of weakness in the economy, we must place our bets on the bull. Even if we get a new low, it will be a shallow low, followed by a rally.

(As further evidence for our position, we recommend you check out the Technology Trader column in the August 13th edition of Barrons. Titled, “Cisco’s Great Expectations,” the article includes comments by John Chambers, CEO of Cisco, in which he shrugs off the credit crisis and raises his company’s sales expectations. Keep in mind that CEOs these days are legally obliged not to exaggerate on the upside.)

But now let’s turn to what is topmost in everyone’s mind – how to make money in this crazy and volatile world…

THE BEST INVESTMENT TO OWN FOR THE NEXT TWO YEARS

We’re happy to report that our low-risk hedges dramatically outperformed the market last week during the time when most stocks were plunging. As you know, these stocks also do well when the market is rising. In fact, they provide the best of both worlds – safe harbors and strong performance. We will continue to hold them no matter what happens next.

We especially favor gold these days. Gold stocks were up slightly last week, while gold was slightly down. Yes, this was a little disappointing. But if you’re willing to consider the long-term picture, we expect that over the next year or two gold will be the best-performing asset.

The reason is that gold prospers in times of inflation – when the value of paper currencies is falling. In fact, falling currency values and inflation are really the same thing. According to the National Bureau of Statistics, inflation in China hit a rate of 5.6% in July. And inflation is at ten-year highs in much of the developed world as well.

The large increases in worldwide liquidity, instigated by multiple central banks to contain the subprime mortgage debacle, will only fuel the inflation fire. More liquidity means more money in the world. The more money there is, the less each bank note is worth, and the less gold each dollar will buy. In other words, the price of gold is set to climb quickly.

Until next week,


Stephen Leeb

Editor / The Complete Investor

[bart]

Re: "deflation" references in the media

I don't really like the Leonard the monkey comparison. It's based on 30 days, and it includes the lightning round.

Anyways, despite the 'deflation' I'm looking for gold to make it's last run on 700 for the year sometime between now and the end of next week.

I've seen at least one post from the guy that does the monkey site, and the relationship holds true on longer periods too. The monkey has very similar lightning round time limits. Guess we'll just agree to disagree.



My current "hot money" plus time lags based gold prediction has the next relative peak occurring in late Sept.-Early Oct.

[Jim Nickerson]

Re: "deflation" references in the media

I'd put my money on Mr. Leeb's pragmatic market calls before Mish's any day of the week ...

___________________

When was Leeb's note written?

[Guest]

Re: "deflation" references in the media

Leeb Market Forecast - issued August 14, 2007

Those having sold sizable chunks (or all?) of their portfolios in the past week to protect themselves may find they would have had far better opportunities on later occasions going into the fall.

[jk]

Re: "deflation" references in the media

Leeb Market Forecast - issued August 14, 2007

Those having sold sizable chunks (or all?) of their portfolios in the past week to protect themselves may find they would have had far better opportunities on later occasions going into the fall.

it's true. they may. then again, they may not. it's the risk v reward to contemplate.

[c1ue]

Re: "deflation" references in the media

Leeb is not bad, but I still think there is ammo in the Fed/government's guns.

However, even with that possibility - the MBS/CDO saga is like a 16 pound bowling ball in the market's purse.

If there are no more major events, then I would agree with the range bound trading phenomenon.

However, there are a number of shoes that still could drop.

I'm still waiting for something out of Asia; I have said before and I repeat that there is no reason why the Asian banks would not also have bought MBS/CDOs.

Given the past track record, it is entirely conceivable that they just won't admit this, but MBS/CDO's sitting as nonperforming assets will still cause them to behave like the US/European financials.

Then there are all of the individual investors - especially in Japan.