Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

[GRG55]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

Well, energy prices are certainly experiencing deflation...

Really? You sure about that?

Let's take the US benchmark crude West Texas Intermediate [just because I am lazy and it's easy to tap this data] daily spot price FOB Cushing, Oklahoma.

Sept 15, 2004...........$43.83
Sept 15, 2005...........$64.64
Sept 15, 2006...........$63.30
Sept 14, 2007...........$79.14
Sept 15, 2008...........$93.22

Don't much look like deflation to me. In fact the only price drop in the stream was between 2005 and 2006 and I don't recall anyone talking about "deflation" back then.

BTW, did your local petrol station cut the price of the gasoline you buy compared to what you were paying last year at this time??

These things really need to be kept in context. Just because there was a short-term levered speculatiive rally that ran to an exhaustion top and is now being worked off [and will probably overshoot to the downside, as usual] does not mean that there is a deflation.

And no, I am not interested in rehashing deflation vs inflation across the economy, definitions of same, whether Finster's FDI is better than other measures, or peak oil [on this thread]. Life is too short as it is...

[Master Shake]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

Really? You sure about that?

Let's take the US benchmark crude West Texas Intermediate [just because I am lazy and it's easy to tap this data] daily spot price FOB Cushing, Oklahoma.

Sept 15, 2004...........$43.83
Sept 15, 2005...........$64.64
Sept 15, 2006...........$63.30
Sept 14, 2007...........$79.14
Sept 15, 2008...........$93.22

Don't much look like deflation to me. In fact the only price drop in the stream was between 2005 and 2006 and I don't recall anyone talking about "deflation" back then.

BTW, did your local petrol station cut the price of the gasoline you buy compared to what you were paying last year at this time??

These things really need to be kept in context. Just because there was a short-term levered speculatiive rally that ran to an exhaustion top and is now being worked off [and will probably overshoot to the downside, as usual] does not mean that there is a deflation.

And no, I am not interested in rehashing deflation vs inflation across the economy, definitions of same, whether Finster's FDI is better than other measures, or peak oil [on this thread]. Life is too short as it is...

OK, now explain what Treasury prices say about expectations of future inflation. Is the destruction of wealth outpacing the influx of money?

[GRG55]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

OK, now explain what Treasury prices say about expectations of future inflation. Is the destruction of wealth outpacing the influx of money?

Talk to a banker. There's quite a few around with time on their hands I am sure. ;)

[GRG55]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

OK, now explain what Treasury prices say about expectations of future inflation. Is the destruction of wealth outpacing the influx of money?

Okay I will bite. The answer to your question is a most definite NO.

Do you really think the money supply is contracting?

Look at what is blowing up. Every compound-overlevered piece of stinking Wall Street originated sewage paper. And all the so-called "asset" value associated with it.

Did the zero-down, adjustable rate "owners" of housing have any real wealth? Did the German landesbanks, with their SIVS stuffed with CDOs [squared, cubed, and whatever else], along with their global pension fund counterparts have any real wealth? Were the SWFs that foolishly "invested" in Blackstone's IPO, UBS, Citi and gawd knows what else, investing their money in any real wealth [hell, every intelligent follower of this internet site knew the probable answer even as those funds were pissed away by far away government bureaucrats...check out some of C1ue's postings around that time.].

Real wealth is not being destroyed, just fictitious wealth (using iTulip's phrase) that was never there in the first place. That is not deflation, no matter what the Treasury market is alleging.

[FRED]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

Okay I will bite. The answer to your question is a most definite NO.

Do you really think the money supply is contracting?

Look at what is blowing up. Every compound-overlevered piece of stinking Wall Street originated sewage paper. And all the so-called "asset" value associated with it.

Did the zero-down, adjustable rate "owners" of housing have any real wealth? Did the German landesbanks, with their SIVS stuffed with CDOs [squared, cubed, and whatever else], along with their global pension fund counterparts have any real wealth? Were the SWFs that foolishly "invested" in Blackstone's IPO, UBS, Citi and gawd knows what else, investing their money in any real wealth [hell, every intelligent follower of this internet site knew the probable answer even as those funds were pissed away by far away government bureaucrats...check out some of C1ue's postings around that time.].

Real wealth is not being destroyed, just fictitious wealth (using iTulip's phrase) that was never there in the first place. That is not deflation, no matter what the Treasury market is alleging.

Ding, ding, ding! We have a winner!

But keep in mind that the Fed is, at least temporarily, exchanging assets of supposed value, US treasury bonds, for assets of fictitious value, CDOs, etc.

Now what is the net money creation result of that transaction if it is not temporary?

Hmmm.

New money has been created against no real collateral value.

Hmmm. :cool:

[bill]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

Ding, ding, ding! We have a winner!

But keep in mind that the Fed is, at least temporarily, exchanging assets of supposed value, US treasury bonds, for assets of fictitious value, CDOs, etc.

Now what is the net money creation result of that transaction if it is not temporary?

Hmmm.

New money has been created against no real collateral value.

Hmmm. :cool:

CB in concert:
http://www.bloomberg.com/apps/news?p...tOQ&refer=home

Japan, China, Korea Join Central Bank Attempts to Calm Markets

Sept. 16 (Bloomberg) -- The Bank of Japan added 1.5 trillion yen ($14.4 billion) to the financial system and China cut interest rates as Asian central banks attempted to calm markets after Lehman Brothers Holdings Inc. filed for bankruptcy.
The Federal Reserve yesterday added $70 billion in reserves to the banking system, the most since the September 2001 terrorist attacks, and may cut its benchmark lending rate today. China lowered its benchmark rate for the first time in six years late yesterday and may act again.
``Central banks have to show they are ready to take action to ensure stability,'' said Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore.
South Korea will provide liquidity ``through open-market operations,'' Vice Finance Minister Kim Dong Soo said before an emergency meeting today with his counterparts from the central bank and the financial regulator in Seoul.
The Reserve Bank of Australia yesterday added A$2.1 billion ($1.7 billion) to the financial system
as did the European Central Bank, the Bank of England and the Swiss central bank.
``Cutting interest rates may not be the most appropriate way to solve the crisis,'' said Lam. ``It's better for them to continue or enlarge their liquidity and collateral program.''

[Master Shake]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

Okay I will bite. The answer to your question is a most definite NO.

Do you really think the money supply is contracting?

Look at what is blowing up. Every compound-overlevered piece of stinking Wall Street originated sewage paper. And all the so-called "asset" value associated with it.

Did the zero-down, adjustable rate "owners" of housing have any real wealth? Did the German landesbanks, with their SIVS stuffed with CDOs [squared, cubed, and whatever else], along with their global pension fund counterparts have any real wealth? Were the SWFs that foolishly "invested" in Blackstone's IPO, UBS, Citi and gawd knows what else, investing their money in any real wealth [hell, every intelligent follower of this internet site knew the probable answer even as those funds were pissed away by far away government bureaucrats...check out some of C1ue's postings around that time.].

Real wealth is not being destroyed, just fictitious wealth (using iTulip's phrase) that was never there in the first place. That is not deflation, no matter what the Treasury market is alleging.

It seems to me that that fictitious wealth still created a wealth effect and got people to buy things and banks to advance credit. How much of that fictitious wealth has been destroyed over the past year? And isn't the money being pumped into the system fictitious if it's not being lent out and people aren't using it but saving it for bad times?

I don't know; I'm just thinking aloud. But the yields on all maturites of Tresuries right now don't point to inflation. Maybe a good time to short them via an ETF if you have the balls?

[LargoWinch]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

I think that Finster's "deflation-like conditions" can potentially last for two full years.

Two years!?! ....Really?

This would means consumers are toast as their real debt grows while their income evaporates due to job and investment (stocks, RE) losses.

How many personal bankruptcies and bank failures can the gov. tolerate?

My take: Q3/Q4 of 08 = short-term deflation, rate cuts,bailouts...
Starting 2009+ (ok maybe Q2 of 09) = high inflation...

[Guest]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

LargoWinch - You've got a good argument.

Two years!?! ....Really? This would means consumers are toast as their real debt grows while their income evaporates due to job and investment (stocks, RE) losses. How many personal bankruptcies and bank failures can the gov. tolerate? My take: Q3/Q4 of 08 = short-term deflation, rate cuts,bailouts...
Starting 2009+ (ok maybe Q2 of 09) = high inflation...

[BrianL]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

That provides motivation for inflation (or at least no deflation), but is anyone going to be at the helm to steer the ship by 2009?

If we start seeing deflation/prolonged deflation/whatever we want to call scary deflation, how many cards will the government and fed have left by then?

[GRG55]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

It seems to me that that fictitious wealth still created a wealth effect and got people to buy things and banks to advance credit. How much of that fictitious wealth has been destroyed over the past year? And isn't the money being pumped into the system fictitious if it's not being lent out and people aren't using it but saving it for bad times?

I don't know; I'm just thinking aloud. But the yields on all maturites of Tresuries right now don't point to inflation. Maybe a good time to short them via an ETF if you have the balls?

No disagreement there was a "wealth effect"; the problem is the effect become confused with the real thing to the point where even Alan "Bubbles are Invisible" Greenspan and Chuck "Dancin' Fool" Prince couldn't tell the difference.

And now the destruction of all that fictitious "wealth" is creating a "de-wealth effect". Unfortunately there are real people in the financial community that are losing their jobs and income. But it has to be recognized that the total number of people currently employed in finance worldwide far exceeds the number needed for those finance activities that create real value. The kind of value that customers are actually willing to pay for.

It's also creating a lot of fallout in what some are now calling the "real economy" (notice how frequently that phrase is being used, even on Bubblevision. Interesting, non?). I don't agree with the observation that this is all terrible. Those parts of the "real economy" that could not be sustained without abundant quantities of zero/negative-priced credit were no more "real" than the finance activities that provided the ongoing transfusions to keep them alive...residential real estate being the poster child. The "builders" (would you buy a home built in America in the last 5 years?), realtors, mortgage-mongers and all the rest of the apparatus grew beyond any conceivable real value creation level. Those who keep their jobs in these sectors will, again, be those that create real value that customers are willing to pay for. Everyone else is in trouble.

Finally, anybody who truly calls themselves an investor should not be hurt by current events as they should have been in the game very early, and either exited when valuations started to become excessive, or at the very least ensured they were not over-levered in order to ride out the inevitable downturn. Good, disciplined traders shouldn't be hurt either...in fact quite the opposite as the heightened volatility should have provided ample trading opportunities. It's the naive, that are neither investors nor disciplined traders, that are getting creamed. The people that fall into this catagory are folks that camped out for days to buy unbuilt condos off plan, tradesmen that decided it must be "easy" to "invest" in their own construction business at the top of the cycle [see don's informative posts on this cohort], and everyone else that assumed that there was a "free lunch" for them somewhere in the system..."free" in the sense that they never actually expected to have to work very hard or create anything of lasting value, but still expected to be paid handsomely.

I suspect there will be a good opportunity to short bonds, especially the long dated bonds. The issue will be currency risk...which nation's bonds are the best choice [what's the point of making a 10% gain shorting US Treasuries, if your purchasing power drops by 20]? There are probably better inflation hedges than shorting bonds...

[LargoWinch]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

perhaps they can print a $50 Trillion note?

[sunskyfan]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

To borrrow more lingo from "control theory" ... if the system is underdriven then turning up the gain (lowering interest rates and increasing money supply) will eventually work ... if the system is railed, however, turning up the gain (lowering interest rates and increasing the money supply) will do nothing except bleed the creditibility of those running things. The gain must be turned to zero (raising interest rates and reducing the money supply) so that the system can normalize before applying gain again to drive the system to its desired state. Translation ... there is no fix except to effectively turn the economy off for a while (deflation) and then hope that you can restart it later.

I think we will see a period of serious deflation. The amount of inflation afterwards will be proportional to the amount of effort put in by the central banks until the economy comes back on line.

[GRG55]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

To borrrow more lingo from "control theory" ... if the system is underdriven then turning up the gain (lowering interest rates and increasing money supply) will eventually work ... if the system is railed, however, turning up the gain (lowering interest rates and increasing the money supply) will do nothing except bleed the creditibility of those running things. The gain must be turned to zero (raising interest rates and reducing the money supply) so that the system can normalize before applying gain again to drive the system to its desired state. Translation ... there is no fix except to effectively turn the economy off for a while (deflation) and then hope that you can restart it later.

I think we will see a period of serious deflation. The amount of inflation afterwards will be proportional to the amount of effort put in by the central banks until the economy comes back on line.

This sounds like a shutdown and re-boot...something that Microsoft's crappy operating system requires on a regular basis, just to keep ones PC operating.

But thankfully the global economy wasn't created in Redmond, and it is not going to "turn off". Once again, it only looks like deflation because the point of reference of what constitutes "the economy" has become so completely skewed, especially in those nations where finance became the dominant daily activity [US and UK particularly, as Mega is so fond of reminding us].

If you work in the fantasy world of Wall Street you definitely think the world is coming to an end, and deflation stalks the land. If you are a Nevada home builder, Florida realtor or California mortgage broker, you feel the same. If you bought oil at $145 it now looks "cheap", even though a mere one year ago oil anywhere near this price would have been considered damned expensive.

The authorities want you to believe that inflation is not a problem. The last time they wanted this they pulled out all the stops and played to America's deep-seated historic fear of another Great Depression by creating the "deflation scare" of 2002/2003, thus justifying 1% interest rates and other US$ abusive reflation policies.

Isn't it interesting that long after most everyone who actually experienced the Great Depression has left this world, it remains the defining economic event for the USA? It's exactly the opposite (fear of inflation) in Germany to this day, even though its defining economic event happened even earlier than the Dirty Thirties. History rhymes...

[mesyn191]

Re: Bear, Fannie/Freddie, Lehman... DEFLATION? Bwah ha ha ha!

This sounds like a shutdown and re-boot...something that Microsoft's crappy operating system requires on a regular basis, just to keep ones PC operating.

OT Ever since Win2K/WinXP came out this hasn't been true, I've had machines run for upwards of a year with no reboot at work and have seen plenty of others do the same. Personally I only turn my home PC off to save power, otherwise I wouldn't bother. /OT