Sightings of references to the term "deflation"

[friendly_jacek]

Re: Sightings of references to the term "deflation"





Deflation above and Inflation below:






The contrarian news indicator seems to work. I can see it as the ultimate magazine cover sign. The news references to deflation peaked. And it seems like the $ is reversing it's course. Meanwhile the inflation news went back to baseline, so we can see the return of inflation again. Remember, smart money works against dumb money.

The bad news is that I see alternating periods of deflation and inflation in the future. That will destroy the buy and hold investors, regardless the long/short or inflation/deflation side.

[Jim Nickerson]

Re: Sightings of references to the term "deflation"

Deflation above and Inflation below:






The contrarian news indicator seems to work. I can see it as the ultimate magazine cover sign. The news references to deflation peaked. And it seems like the $ is reversing it's course. Meanwhile the inflation news went back to baseline, so we can see the return of inflation again. Remember, smart money works against dumb money.

The bad news is that I see alternating periods of deflation and inflation in the future. That will destroy the buy and hold investors, regardless the long/short or inflation/deflation side.

Best I can tell, asset classes go up and down--sometimes violently as we have seen in the recent turmoil.

As I write $USD (dollar index) is up 1.416.

I wish I had the time to have counted the seemingly recent flurry of posts here about "Poom." It seems to me that many here are expecting "poom" to be right around the corner or that it should be happening yesterday or last week.

Again it strikes me that events forecast by people like EJ, if they turn out correct which always is the case when using "if," do not occur as rapidly as readers, including me, often think they will or should be occurring.

"Poom" may have started, or it may start Monday, or it may start next year. I don't know the answer. My opinion is that the downside action of the equity markets specifically is not done--but that is merely my opinion and for this month my opinion has been wrong mostly everyday.

It is my opinion further that if a "poom" occurs, that one will not have to hit it on the day it begins (began) in order to profit from it.

[friendly_jacek]

Re: Sightings of references to the term "deflation"

Jim, I was an avid student of markets lately (an euphemism, as I paid a big tuition), and came to the same conclusions that the future holds a lot of volatility, trading ranges, and a lot of inflation or deflation scares, or possibly both at the same time (like the US Ka/Iceland Poom we just witnessed).

My post was rather to address the original poster looking for a magazine cover sign.

[hayekvindicated]

Re: Sightings of references to the term "deflation"

We are close to the bottom.

Check this out:

http://www.businessweek.com/magazine...7008158343.htm

Its a funny thing. Fear of deflation makes people's blood run cold - but how is deflation any worse than rampant inflation? Deflation produced the Great Depression and Weimar inflation produced Hitler. So which is worse?

Here's the venerable Telegraph with its deflation mongering:

http://www.telegraph.co.uk/telegraph...hannel=&sort=1

Here's google news:

http://news.google.com/news?hl=en&ne...nG=Search+News

Here's the venerable David Branchflower about to send the Queen's money down the crapper:

http://www.bloomberg.com/apps/news?p...wVPAU&refer=uk

Here's Forbes:

http://www.forbes.com/markets/econom...ing-Panel.html

The press is overflowing with this stuff.

[jk]

Re: Sightings of references to the term "deflation"

from the top of the front page of the ny times website




Specter of Deflation Lurks as Economic Pain Grows

By PETER S. GOODMAN
Published: October 31, 2008
As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.
The word for this is deflation, or declining prices, a term that gives economists chills.
Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan’s so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament.
“That certainly is the snapshot of the risk I see,” said Robert Barbera, chief economist at the research at trading firm ITG. “It is the crisis we face.”
etc, etc

http://www.nytimes.com/2008/11/01/bu...lation.html?hp

[metalman]

Re: Sightings of references to the term "deflation"

from the top of the front page of the ny times website




Specter of Deflation Lurks as Economic Pain Grows

By PETER S. GOODMAN
Published: October 31, 2008
As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.
The word for this is deflation, or declining prices, a term that gives economists chills.
Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan’s so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament.
“That certainly is the snapshot of the risk I see,” said Robert Barbera, chief economist at the research at trading firm ITG. “It is the crisis we face.”
etc, etc

http://www.nytimes.com/2008/11/01/bu...lation.html?hp

time to back up the truck and buy TIPS and gold yet or do we wait for the TIME mag cover?

[GRG55]

Re: Sightings of references to the term "deflation"

time to back up the truck and buy TIPS and gold yet or do we wait for the TIME mag cover?

I prefer to wait for the Economist...;)

Drowning in oil

Mar 4th 1999
From The Economist print edition

...In real terms, oil now costs roughly what it did before 1973. Crude is gushing from the ground at the rate of 66m barrels a day, half as copiously again as in OPEC’s prime. The world is awash with the stuff, and it is likely to remain so...

And...

The next shock?

Mar 4th 1999
From The Economist print edition
The price of oil has fallen by half in the past two years, to just over $10 a barrel. It may fall further—and the effects will not be as good as you might hope.

...Yet here is a thought: $10 might actually be too optimistic. We may be heading for $5. To see why, consider chart 1. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a “normal” market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range...

[Guest]

Re: Sightings of references to the term "deflation"

What a bunch of clueless idjits. It's enough to get me chewing on my silk ascot.

I prefer to wait for the Economist...;)

Drowning in oil

Mar 4th 1999
From The Economist print edition

...In real terms, oil now costs roughly what it did before 1973. Crude is gushing from the ground at the rate of 66m barrels a day, half as copiously again as in OPEC’s prime. The world is awash with the stuff, and it is likely to remain so...

And...

The next shock?

Mar 4th 1999
From The Economist print edition
The price of oil has fallen by half in the past two years, to just over $10 a barrel. It may fall further—and the effects will not be as good as you might hope.

...Yet here is a thought: $10 might actually be too optimistic. We may be heading for $5. To see why, consider chart 1. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a “normal” market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range...

[hoodoo]

Re: Sightings of references to the term "deflation"

Front page of the LA Times business section today...

The article is somewhat more conciliatory than the headline suggests

http://www.latimes.com/business/la-f...0,541502.story

Investors brace for a case of deflation
By TOM PETRUNO
10:02 PM PDT, October 31, 2008
Investors are constantly reminded to think about inflation when making decisions about their money.

Now there's a new wrinkle: the possibility of deflation.

We've already had severe deflation -- falling prices -- in housing, stocks and commodities this year.

The question is whether that could spill into prices of goods and services across the board, as well as into wages, as the economy worsens.

If you knew a serious deflation was coming, there are at least a few things you'd want to do with your portfolio and your finances.

On the assumption that interest rates would continue to fall, you'd want to lock in yields on high-quality bonds or bank savings certificates.

You'd also want to avoid borrowing, because debt becomes more onerous in a deflationary world.

And in the stock market, you'd want to stay away from shares of companies that have high debt loads or that have little or no pricing power with their products or services.

Hmm . . . all of that sounds like what a lot of investors already have been doing, doesn't it?

Most economists, however, don't buy the idea that the U.S. could fall into an extended period of actual deflation. That conjures images of the Great Depression, or Japan from 1995 to 2005.

Although the U.S. is surely headed for a painful recession, there still is a widely held view that we're not on the verge of economic calamity -- despite the dive in financial markets.

On Friday, the government reported that its employment cost index, which measures the growth of wages and benefits in the economy, was up 2.9% in the third quarter from a year earlier.

That's seeing the economy in the rear-view mirror, to be sure, but it shows that incomes were holding up.

If you use the consumer price index as a benchmark, it shows that inflation overall has been easing in recent months but remains at the highest level in many years.

The CPI in September was unchanged from August, after seasonal adjustment. And compared with a year ago the index was 4.9% higher -- mainly because of the surge in energy prices that began last fall.

But it's virtually certain that inflation will be coming down over the next six to 12 months, for two reasons.

First, we all know what has happened with oil prices. Crude has fallen by more than half from its July peak, to $67.81 a barrel now. Prices of other commodities also have slid.

The decline in energy costs alone will put downward pressure on the CPI each month compared with a year earlier.

Second, recessions naturally suppress inflation because companies have less pricing power as demand for their goods and services wanes.

"Companies can't raise prices so they force prices down at their suppliers," notes economist Maria Fiorini Ramirez at MFR Inc. in New York.

As that trend cycles through the economy, she expects the CPI to rise just 2.1% in 2009, down from 4.1% this year.

Declining inflation is good for the economy, and consumers, in the long run. And in some businesses, such as tech, prices are always falling.

But if the CPI were to go negative for an extended period, that would signal that a potentially dangerous deflation had kicked in. It would suggest that demand was so weak that companies were slashing prices to a level that would gut their earnings, in turn fueling massive layoffs and wage cuts.

Could it happen?

Tom Higgins, chief economist at investment firm Payden & Rygel in L.A., isn't predicting a drop in the CPI in 2009.

But he believes the risk of outright deflation is higher today than it was in 2002-03, the last time there was serious talk about a broad-based decline in prices taking hold.

Because the double whammy of falling home values and plummeting stock prices over the last year has sharply eroded many people's net worth, "I'd be much more worried about deflation today than in 2003," Higgins said.

The fear is that consumer spending, which already is contracting, could collapse -- doing the same to prices.

And as prices fall, even people who have spending power would be inclined to close their wallets and wait for things to get even cheaper.

"Deflation begets deflation because people defer purchases," said Peter Kretzmer, senior economist at Bank of America in New York.

That was Japan's miserable situation from the mid-1990s until just a few years ago.

The Japanese experience is what spooked the Federal Reserve in 2002, when the CPI was rising at a mere 1.1% annual rate as the economy struggled to emerge from recession.

Policymakers used code in publicly discussing the chances of deflation back then, referring to the risk of "an unwelcome substantial fall in inflation."

Even as the economy expanded, the Fed held its benchmark short-term interest rate at 1.75% for most of 2002, then hacked it to 1.25% later that year, and finally to a 45-year low of 1% by mid-2003.

It's no coincidence that we're back to 1% on that rate now, with the Fed's half-point cut on Wednesday.

Rock-bottom rates obviously are aimed at easing the credit crisis, but the Fed also is hoping that low rates eventually will underpin a pickup in consumer spending (if credit becomes available again), forestalling deflation.

Some analysts, however, believe deflation is inevitable in 2009. Nouriel Roubini, head of Roubini Global Economics in New York, accurately predicted the credit crisis and the devastating turmoil in financial markets. Now, he foresees a severe-enough drop in consumer demand that deflation will become "the main concern" of the Fed by spring.

Roubini points to the narrow difference in current yields on Treasury Inflation-Protected Securities, which guarantee against rising inflation, and yields on conventional Treasuries. That small difference shows that investors expect little inflation in the years ahead, or actual deflation.

For investors, the risk of a deflation scare implies more danger ahead for the stock market in 2009. It also suggests that high-quality bonds (particularly conventional Treasuries) will remain a favorite refuge, and would become even more appealing if yields were to rise as the government issues more debt to fund the financial-system bailout.

As for cash accounts such as money market funds, the Fed's efforts to pull down short-term rates mean cash will earn less. But there's an offset: In a deflationary environment, cash becomes worth more every day.

[D-Mack]

Re: Sightings of references to the term "deflation"

Inflation punctures deflation fears

By Krishna Guha in Washington

Published: November 2 2008 17:07 | Last updated: November 2 2008 17:07

The D-word is back. Five years after the last deflation scare, economists are again debating whether the US and other industrialised nations could see sustained declines in consumer prices.

Some go as far as to predict that much of the industrialised world might soon resemble Japan in the 1990s, with interest rates at zero, falling prices and no economic growth.

“A deep and prolonged recession could raise the spectre of deflation of the sort that long plagued the Japanese economy,” says Desmond Lachman, a fellow at the American Enterprise Institute.

Erkki Likkanen, a member of the governing council of the European Central Bank, and Janet Yellen, the president of the San Francisco Fed, have both alluded to the risk of deflation.

Mr Likkanen said there were “historic examples of how financial crisis, when not handled properly, has led in a couple of years to a deflationary cycle”.

That this discussion is occurring at all is striking considering how, until recently, most people were worried about inflation being too high rather than too low.

It is testimony to the shock inflicted by the intensification of the credit crisis and massive loss of housing and stock market wealth.

“I am worried about the deflation risk,” says Stephen King, chief economist at HSBC.

Nonetheless, while deflation is a potential threat, most economists think it is premature to be worrying about actual sustained declines in domestic prices.

This remains unlikely because positive inflation is embedded in the US and Europe and the policy response to the crisis is now vigorous.


....

http://www.ft.com/cms/s/0/d9ac5738-a...nclick_check=1

I thought I post it here, although it's arguing more against deflation

[GRG55]

Re: Sightings of references to the term "deflation"

I thought I post it here, although it's arguing more against deflation

This morning Bloomberg television is promoting a feature interview with Richard Fischer. Topic: "What the Fed Must Do To Prevent Deflation"

[metalman]

Re: Sightings of references to the term "deflation"

I thought I post it here, although it's arguing more against deflation

this is a repeat of 2001 - 2003 deflation scare. i'm tempted to buy more gold at these prices but i'm waiting for a re-run of this speech...

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here


the 'bernanke deflation speech' price of gold? $317.



something tells me that this time when he makes this speech there won't be any gold left because the smart money already has it all and gov't will be hanging onto theirs 'just in case' the usa monetizes. that leaves the miners.

hmmmm. never thought i'd hear myself say this but... after 10 years of waiting, maybe time for the metalman to dip a toe into mining stocks?

[D-Mack]

Re: Sightings of references to the term "deflation"

this is a repeat of 2001 - 2003 deflation scare. i'm tempted to buy more gold at these prices but i'm waiting for a re-run of this speech...

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure "It" Doesn't Happen Here


the 'bernanke deflation speech' price of gold? $317.



something tells me that this time when he makes this speech there won't be any gold left because the smart money already has it all and gov't will be hanging onto theirs 'just in case' the usa monetizes. that leaves the miners.

hmmmm. never thought i'd hear myself say this but... after 10 years of waiting, maybe time for the metalman to dip a toe into mining stocks?

Roubini and his interpretation of falling gold is:rolleyes:

Next question: What are financial markets telling us about the risks of stag-deflation?

First, yields on 10-year Treasury bonds have fallen by about 50 basis points since Oct. 14, getting close to their previous 2008 lows. Also, the two-year Treasury yield has fallen by about 150 basis points in the last month.

Second, gold prices--a typical hedge against rising global inflation--are now sharply falling.

http://itulip.com/forums/showthread.php?t=6214

[friendly_jacek]

Re: Sightings of references to the term "deflation"

Some additional interesting charts from Google Trends.
I hope these are contrary signs.

Depression:


1929:

[photoncounter]

Re: Sightings of references to the term "deflation"

http://www.telegraph.co.uk/finance/c...lls-apart.html

Bond market calls Fed's bluff as global economy falls apart

Global bond markets are calling the bluff of the US Federal Reserve.


By Ambrose Evans-Pritchard

Last Updated: 7:22PM GMT 08 Feb 2009


The yield on 10-year US Treasury bonds – the world's benchmark cost of capital – has jumped from 2pc to 3pc since Christmas despite efforts to talk the rate down.
This level will asphyxiate the US economy if allowed to persist, as Fed chair Ben Bernanke must know. The US is already in deflation. Core prices – stripping out energy – fell at an annual rate of 2pc in the fourth quarter. Wages are following. IBM, Chrysler, General Motors, and YRC, have all begun to cut pay.
The "real" cost of capital is rising as the slump deepens. This is textbook debt deflation. It was not supposed to happen. The Bernanke doctrine assumes that the Fed can bring down the whole structure of interest costs, first by slashing the Fed Funds rate to zero, and then by making a "credible threat" to buy Treasuries outright with printed money. ......