stephanie pomboy predicts a deflation scare

[jk]

Stephanie Pomboy: Economic Fear Taking Hold

I think we are about to see a massive shift in sentiment which will be manifest in global markets from stocks to bonds to currencies. This shift could be the result of a financial crisis, or could simply arise from a 'final straw' being laid atop the mountain of financial problems thus far.

Either way, the upshot will be to spur fears of deflation. Right now there's a lot of lip-service about the topic but zero genuine angst. Witness the relentless obsession with the Fed, as if whether they go 50 or 25 actually makes a difference?!!

Eventually (and i believe much sooner rather than later--call it feminine intuition), investors will realize the Fed now has only 300 bp to play with and the credit bust has barely begun! At some point, investors will do the math. Hmmm... if our financial institutions and bond insurers are already unable to function, with delinquency rates barely up from record lows, what's going to happen when things really get bad?

On the bright side, at least the fed is trying to get the credit wheels turning. In the Eurozone the ECB is taking their economy on a Thelma & Louise roadtrip. Pedal to the metal, they are speeding straight over the precipice.

Again, all of this seems patently obvious. But talking about deflation in the abstract is very different from living it. From a macro trading standpoint the standard relationships will break down. Many already have. Like bonds and gold, the yield curve... and so on. I expect the euro will soon begin to trade inversely with rates (eg., the tighter the ECB the weaker the euro, because it virtually ensures they completely disintegrate). Meanwhile, in the US, the Fed, running out of room to cut short rates, will shift to the long end and US treasuries will move well below 3%. This isn't a statement about the value of Treasuries. Heck, there wasn't any value in Treasuries at 6%!! But that's not the point.

Stay tuned, because things are about to get very very interesting.

http://www.minyanville.com/articles/.../index/a/15736

[metalman]

Re: stephanie pomboy predicts a deflation scare

Stephanie Pomboy: Economic Fear Taking Hold

I think we are about to see a massive shift in sentiment which will be manifest in global markets from stocks to bonds to currencies. This shift could be the result of a financial crisis, or could simply arise from a 'final straw' being laid atop the mountain of financial problems thus far.

Either way, the upshot will be to spur fears of deflation. Right now there's a lot of lip-service about the topic but zero genuine angst. Witness the relentless obsession with the Fed, as if whether they go 50 or 25 actually makes a difference?!!

Eventually (and i believe much sooner rather than later--call it feminine intuition), investors will realize the Fed now has only 300 bp to play with and the credit bust has barely begun! At some point, investors will do the math. Hmmm... if our financial institutions and bond insurers are already unable to function, with delinquency rates barely up from record lows, what's going to happen when things really get bad?

On the bright side, at least the fed is trying to get the credit wheels turning. In the Eurozone the ECB is taking their economy on a Thelma & Louise roadtrip. Pedal to the metal, they are speeding straight over the precipice.

Again, all of this seems patently obvious. But talking about deflation in the abstract is very different from living it. From a macro trading standpoint the standard relationships will break down. Many already have. Like bonds and gold, the yield curve... and so on. I expect the euro will soon begin to trade inversely with rates (eg., the tighter the ECB the weaker the euro, because it virtually ensures they completely disintegrate). Meanwhile, in the US, the Fed, running out of room to cut short rates, will shift to the long end and US treasuries will move well below 3%. This isn't a statement about the value of Treasuries. Heck, there wasn't any value in Treasuries at 6%!! But that's not the point.

Stay tuned, because things are about to get very very interesting.

http://www.minyanville.com/articles/.../index/a/15736

same old crap i've been seeing forever. and your thoughts on this?

[jk]

Re: stephanie pomboy predicts a deflation scare

same old crap i've been seeing forever. and your thoughts on this?

i think we still have a deflation scare ahead of us. i think her idea about a reversal of the connection between ecb rates and the euro is novel and worth considering. more generally, i think pomboy is a provocative thinker. and i think she's right, the markets haven't really experienced terror yet.

[metalman]

Re: stephanie pomboy predicts a deflation scare

i think we still have a deflation scare ahead of us. i think her idea about a reversal of the connection between ecb rates and the euro is novel and worth considering. more generally, i think pomboy is a provocative thinker. and i think she's right, the markets haven't really experienced terror yet.

pomboy is provocative but sloppy. no rigor. how long she been at this? eh? who is she? where'd she come from? euro deflation... maybe. not sure i agree with ej on that... no euro treasury and all that. ej says terror too... 1000 pts off the dow and all... but so what?

tell ya what. you pile up cash and i'll match you dollar for dollar with gold and see you in 5 yrs, padre!

[dbarberic]

Re: stephanie pomboy predicts a deflation scare

i think we still have a deflation scare ahead of us. i think her idea about a reversal of the connection between ecb rates and the euro is novel and worth considering. more generally, i think pomboy is a provocative thinker. and i think she's right, the markets haven't really experienced terror yet.

I tend to agree. To really gun the printing presses and fiscal programs, we need Wall Street and Main Street running scared of deflation. That will give the cover to Ben and Paul to put the pedal to the metal.

[jk]

Re: stephanie pomboy predicts a deflation scare

pomboy is provocative but sloppy. no rigor. how long she been at this? eh? who is she? where'd she come from? euro deflation... maybe. not sure i agree with ej on that... no euro treasury and all that. ej says terror too... 1000 pts off the dow and all... but so what?

tell ya what. you pile up cash and i'll match you dollar for dollar with gold and see you in 5 yrs, padre!

pomboy runs an institutional advisory service called macromavens. occasionally you can see tidbits of her stuff at minyanville. [jim nickerson inquired about the cost of her service and the minimum in $25k/year.] she is also quoted from time to time by alan abelson in barron's. you might do a search on her name here at itulip and see some other material of hers that's been quoted. she's a good thinker and someone whom i, at least, respect.

btw, i'm curious, metalman, what allocation do you have in pm's? [i'm at 31% myself.]

and what's with "padre"?

[sadsack]

Re: stephanie pomboy predicts a deflation scare

and what's with "padre"?

I think he meant "compadre"

[metalman]

Re: stephanie pomboy predicts a deflation scare

pomboy 'predicted" ka of ka-poom. and...

“We’d like to credit Stephanie Pomboy, the iconoclastic author of the weekly MacroMavens. We’ve made appreciative mention of Stephanie’s stuff on more than one occasion. But what prompts this kudo is a negative call she made on crude oil May 21, just before it peaked.” – BARRON’S - May 31, 2004

oil 'peaked' in 2004 did it?

what's she saying now about 'deflation' for $25k/yr?

[jk]

Re: stephanie pomboy predicts a deflation scare

Meanwhile, in the US, the Fed, running out of room to cut short rates, will shift to the long end and US treasuries will move well below 3%. This isn't a statement about the value of Treasuries. Heck, there wasn't any value in Treasuries at 6%!! But that's not the point.

she was right on the money

[Starving Steve]

Re: stephanie pomboy predicts a deflation scare

i think we still have a deflation scare ahead of us. i think her idea about a reversal of the connection between ecb rates and the euro is novel and worth considering. more generally, i think pomboy is a provocative thinker. and i think she's right, the markets haven't really experienced terror yet.

Just observing gasoline down again to-day on Vancouver Island and to prices not seen since the decade of the 1990s. This is always the hold-out for high gas prices, so when gas drops here, that is big news. (Things must be just horrid in the oil patch.)

And thinking about this, I see that house prices have fallen 18% in one year in the U.S. according to the Case-Shiller index. Home prices are falling in the so-called strong markets: Nevada, California, and Arizona. San Francisco--- heretofore, always the hold-out for the highest of high real estate prices--- is hardest hit.

So, I would not poo-poo deflation. It is here now, and it is everywhere.

My friend just bought a new Nissan, with a six-speed manual transmission. New with warantee, out of the box, and here on Vancouver Island: $14,000 Cdn. plus tax. (That is not an Alberta price, but that is right here in B.C. and with all of the hidden costs of doing business here on Vancouver Island.)

Even the ferry fees have dropt, at least until the end of January.

Everywhere I look is pure deflation. The case for hyper-inflation is weak and getting weaker by the week. No-one has money to support these prices, and darn few people have incomes to support any spending habits.

[GRG55]

Re: stephanie pomboy predicts a deflation scare

Just observing gasoline down again to-day on Vancouver Island and to prices not seen since the decade of the 1990s. This is always the hold-out for high gas prices, so when gas drops here, that is big news. (Things must be just horrid in the oil patch.)

And thinking about this, I see that house prices have fallen 18% in one year in the U.S. according to the Case-Shiller index. Home prices are falling in the so-called strong markets: Nevada, California, and Arizona. San Francisco--- heretofore, always the hold-out for the highest of high real estate prices--- is hardest hit.

So, I would not poo-poo deflation. It is here now, and it is everywhere.

My friend just bought a new Nissan, with a six-speed manual transmission. New with warantee, out of the box, and here on Vancouver Island: $14,000 Cdn. plus tax. (That is not an Alberta price, but that is right here in B.C. and with all of the hidden costs of doing business here on Vancouver Island.)

Even the ferry fees have dropt, at least until the end of January.

Everywhere I look is pure deflation. The case for hyper-inflation is weak and getting weaker by the week. No-one has money to support these prices, and darn few people have incomes to support any spending habits.

I am finding it interesting that gasoline prices are back to "decade of the 1990s" level. High quality crude is today trading close to the price it reached at the very top of the brief Gulf War One spike [roughly $40] at the beginning of that decade; it was pretty well downhill after that, to sub-$10 winter '98-'99.

Also since then the Canadian Federal Government has introduced a [now] permanent Gas Tax Fund...

The Gas Tax Fund (GTF), a key component of the Building Canada infrastructure plan, is helping to build Canada's communities by providing predictable and long-term funding in support of municipal infrastructure that contributes to cleaner air, cleaner water and reduced greenhouse gas emissions.
The GTF supports environmentally sustainable municipal infrastructure, such as:

• Public transit
• Drinking water
• Wastewater infrastructure
• Green energy
• Solid waste management
• Local roads and bridges

In addition, it benefits communities by providing funding to increase the capacity of communities to undertake long-term planning...

...$13 billion (2005-2014) to support environmentally sustainable municipal infrastructure projects...

...the B.C. Provincial Government has increased the Capital Region fuel tax [it started at 2.5 cents per litre in 1997]...

It's just a penny.

But the additional one cent a litre Capital Region fuel tax announced in the provincial budget this week will generate $3.2 million in new revenue for Greater Victoria's transit system. It will be applied beginning April 1.

...and of course there is the much loved B.C. "carbon tax"

British Columbia Finance Minister Carole Taylor wore a new pair of green shoes Tuesday as she delivered a budget heavy on environmental action -- including a carbon tax.

"We're not just going to be talking about climate change," she said. "We are acting. This could be a social movement in British Columbia."...

...For diesel and home heating oil, it works out to about 2.7 cents per litre, rising to 8.2 cents by 2012. Meanwhile, drivers will have to pay an extra 2.4 cents on a litre of gasoline at the pumps, increasing to 7.24 cents per litre...

[This would be the same Carole Taylor who resigned her legislative seat this month in order to chair the Harper/Flaherty federal economic advisory panel. Smart woman. Who would want to face the BC voters next May after watching Dion go down in flames on a green tax platform ;)]

But Steve is correct. Even with all these "improvement" taxes, nominal retail gasoline prices in Canada today are almost back inside the range of prices from the decade of the 1990s [between 50 and 60 cents/litre for most of the decade until it rose firmly above 60 cents in late 1999 and then above 70 cents in 2000].


Things are not so hot in the oil patch, but it is the refining business that is getting completely creamed. We are going to get at least one of the following [or maybe some combination]:

• a rebound in gasoline prices;
• a collapse in crude oil price;
• shortages of refined products.

The present situation is unsustainable, and my bet is we are heading for a train wreck in the supply chain. [I've been driving on the top half of my tank since the diesel shortages in Alberta this fall...an early indication of potential problems]

[c1ue]

Re: stephanie pomboy predicts a deflation scare

GRG,

So you're postulating a return to $10 oil as one of your outcomes?

[GRG55]

Re: stephanie pomboy predicts a deflation scare

GRG,

So you're postulating a return to $10 oil as one of your outcomes?

Nope. I maintain my long standing position that near term oil prices are impossible to predict accurately and consistently. By anybody.

The supply chain problems are coming from the financial sector problems now spilling over into the real supply of essential commodities. This is creating all kinds of interesting pricing anomalies. Oil might move $20. Either way. Anybody's guess.

Far too many moving parts to know for sure. Look what's going on in Pakistan. It's not a major oil producer or OPEC member, but the potential outcomes there can [and probably will] have an influence over the oil markets in due course.

[also see my post this morning, in the Commodities section - "Supply Destruction thread" - about North Sea producer Oilexco seeking insolvency administration]

[c1ue]

Re: stephanie pomboy predicts a deflation scare

GRG,

Fair enough.

I was just curious what you meant by a collapse in oil prices.

Apparently you don't necessarily mean a price collapse - perhaps instead some type of distribution/supply issue? Shortages vs. expensiveness?

[metalman]

Re: stephanie pomboy predicts a deflation scare

she was right on the money

right, just like good old kapoom theory. does she have a theory about what happens later? how long treasury bonds stay at or below 3%?