Anybody see global deflation looming here? How about an opinion from all you silent observers?

[bam]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

The fact that housing (a leveraged asset) is declining in value globally, is global deflation. There's no 'looming' about it, it's happening. How about a list of the asset classes that aren't deflating -- it will be a much shorter list to compile. Let's see... USD, RMB, Yen....hmmm, uh...?

[gobears]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Seems to me we are clearly in asset deflation, debt deflation, and overall price level disinflation as credit lines dry up and people lose jobs. Also, the dollar is rising temporarily as debt and assets are liquidated, and because China and other countries want to keep their own goods competitve as their own domestic demand dries up. Also, there are fundamental flaws in the world finance structure that have not been corrected, but the market is trying to correct them. While the market is trying to correct, the old system still has alot of vested interests and lots of momentum (it cannot turn on a dime).

I believe the financial problem is actually just a side-effect of the bigger energy/commodity problem. Surely the financial system was a house of cards waiting to collapse, and I think the rising cost of energy/commodities is just the thing that pricked it. Still, the bigger story is the commodity/energy story. I think Jim Rogers has made the write long-term call, and we are in the middle of a huge bull-market in commodities & energy. What we are witnessing is the crashing of a worldwide economic infrastructure built for cheap energy and with the assumption that the G7 with <10% of the popluation will continue to dominate consumption. So, with emerging economies finally carving out their share of the pie, and the pie itself changing shape/size due to peak oil approaching, you are seeing a breakdown in the whole system. We will witness a series of shocks to the upside & downside on commodity/energy prices as the worlwide economic system tries to find a new equilibrium. Predicting these swings and playing them will be exceedingly hard. I agree with EJ's approach to ride it out and wait for the light at the end of the tunnel when economies retool and new opportunities emerge. In the mean time, besides cash and gold, I would think energy related commodities would be a good bet.

[metalman]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

First, there is something worse than a 'great depression', it is called hyper-inflation. I can only guess - and as for timing - it all depends on what perturbs the system - no one can know. Also, the government is showing it isn't going to react constructively - but my best guess:

Inflationary depression - business (measured via something of real value, or in units of goods sold etc) will contract greatly, yet prices will still go up because so many dollars are printed. If it tips into a great depression, there could be periods of declining prices - but inflation for a very long time out.

It could also play out as a very long inflationary recession - a decade or so long?

I would put the probability of a hyper-inflation event in the next 35 years at 60% or so.

damn! who are all these smart new voices here! been away a few days and BAM!

welcome. wow. good stuff xtronics.

yeh, do not neglect the denominator... the purchasing power of a currency.

it has to be earned every day.

no deflation... disinflation.

to have deflation the economy has to deflate against something.

for the usa in the 1930s, gold.

for japan in the 1990s, dollars.

what does the usa have to deflate against? euros? yen?

really think voters in japan and europe will cut their standard of living to help out america? the country that threw them into a depression?

silly. silly. silly.

[mattley]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Short time viewer, first time poster. Hi Lukester!

In early 2007 I figured we would start seeing inflation because of the aggressive interest rate cuts. Looking at what had happened to the dollar over the last few years, I got us into some FX ETFs and an agricultural index trying to preserve our savings. (I thought gold was overbought.) Little did I know the dollar would ascend into the heavens and commodities would become lead bricks. Ouch.

I guess we're seeing a deflation, unless you want to say the market is just nuts, and the crisis is certainly more global than I had expected. Not sure what happens next. I'm fairly confident substantial inflation is "in the mail", but I have no idea when it will arrive or how far the deflation will proceed in the meantime.

I've enjoyed reading iTulip for the last month or so. Thanks to EJ and the other admins for hosting this neat community.

[jtabeb]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Yes, it's odd that the spot rate of gold has declined recently while the premium I pay per ounce for physical delivery of bullion has more than doubled.
.

And, like I said, that's when he can even get anything in stock.

It seems the disconnect between the paper market and the physical market is rapidly increasing.

I'm not sure what the implication here is.

Yes, you do. Just listen to what logic is telling you about this paradox.


(I think you have a very good idea about what the implication is, and so should everyone else.)

[Supercilious]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Global Deflation? Not possible. Two simple reasons: Ben and Hank

[skidder]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

I'm going with EJ's Ka explanation myself. I believe the G-8, or at least several of the more relevant members, are on the cusp of agreeing to join hands and start a massive re-inflation attempt.
Regardless, the economy appears to be unraveling at a rapid rate so I don't think that it'll be a matter of years but rather months to find out our destination.
I refer from time to time to an excellent point that Steve Saville of the www.speculative-investor.com newsletter made a couple of years back as I do with a couple of EJ's pieces. Perhaps some of you folks will also find it insightful.

"
Bernanke's November-2002 speech garnered a lot of attention in the financial world, but similar sentiments were expressed just as clearly in a little-known speech by Alan Greenspan in January of 1997. According to Greenspan:
"When there is confidence in the integrity of government, monetary authorities -- the central bank and the finance ministry -- can issue unlimited claims denominated in their own currencies and can guarantee or stand ready to guarantee the obligations of private issuers as they see fit. This power has profound implications for both good and ill for our economies.
Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.
That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit."

Note the liberal use of the terms "without limit" and "unlimited" in the above. Note, also, the qualification: "When there is confidence in the integrity of government". Once confidence collapses it becomes counter-productive for the central bank or the government to issue more "claims" (money and money substitutes). When that point is reached you don't get deflation; you get a total collapse and a new monetary system.
Right now the inflation argument is an easy sell thanks to the sharp rises in commodity prices over the past few years. However, it wasn't an easy sell when we were trying to sell it in 2001-2002 and there will again come a time when it won't be an easy sell."

[metalman]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Seems to me we are clearly in asset deflation, debt deflation, and overall price level disinflation as credit lines dry up and people lose jobs. Also, the dollar is rising temporarily as debt and assets are liquidated, and because China and other countries want to keep their own goods competitve as their own domestic demand dries up. Also, there are fundamental flaws in the world finance structure that have not been corrected, but the market is trying to correct them. While the market is trying to correct, the old system still has alot of vested interests and lots of momentum (it cannot turn on a dime).

I believe the financial problem is actually just a side-effect of the bigger energy/commodity problem. Surely the financial system was a house of cards waiting to collapse, and I think the rising cost of energy/commodities is just the thing that pricked it. Still, the bigger story is the commodity/energy story. I think Jim Rogers has made the write long-term call, and we are in the middle of a huge bull-market in commodities & energy. What we are witnessing is the crashing of a worldwide economic infrastructure built for cheap energy and with the assumption that the G7 with <10% of the popluation will continue to dominate consumption. So, with emerging economies finally carving out their share of the pie, and the pie itself changing shape/size due to peak oil approaching, you are seeing a breakdown in the whole system. We will witness a series of shocks to the upside & downside on commodity/energy prices as the worlwide economic system tries to find a new equilibrium. Predicting these swings and playing them will be exceedingly hard. I agree with EJ's approach to ride it out and wait for the light at the end of the tunnel when economies retool and new opportunities emerge. In the mean time, besides cash and gold, I would think energy related commodities would be a good bet.

really, one of the best posts on itulip in a year. concise, spot on. i was getting caught up in the day to day, week to week. so much drama. you are very wise.... keeping it all in perspective. thanks.

[Adeptus]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

INTRO: I'm a Canadian in mid 30's and have no finance background to speak of; mostly a hard core computer techie, but am good at analyzing things in depth. For the past year I've spent on average 2-3 hours a day reading financial websites. I've learned a lot of lingo (ABCP, derivatives, CDS, bullion, etc) and have been trying to get some clarity out of it all. I'm in charge of finances for myself, wife and soon to retire mother and influence investments of family in Europe and India.

MENTORS: I've taken most of my lessons from the following:
1) Roubini 2) Mish 3) iTulip 4) Ron Paul 5) Youtube!

WEBSITES: Daily I read the following (beyond the above mentor sites)
- NYTimes.com, ReportOnBusiness.com (Canadian), FinancialPost.com (Canadian), UK Telegraph, Bloomberg.com.

- All of this has been plenty to open my eyes to the mainstream lies: Real Estate always goes up, hold stocks long term, top up your RRSPs (401K)trust your bank financial advisors.

POSITIONS: As of today I am 55% into Gold bullion and 5% into Silver (they ran out!!); 10% Canadian T-bills, 5% GICs, 20% cash; 5% money markets.

RECENT ACTIONS: Sold our family house at near peak value a few months ago. Housing on average in my city has been in a 5 month straight decline since. Placed most of the cash into the above positions. Totally fluked out and bought large gold position 3 days before it jumped 10%. Think it may actually go 10% below where I purchased it in near term (1 month?)

MARKET OPINIONS/BELIEFS: Don't take these seriously, mostly I'm just regurgitating what I have read and have converted into my own beliefs/opinions:

- ETF or paper gold may not go up much short, perhaps somewhat even mid term unless there is another panic (Tomorrow or Monday??).
- Physical silver is selling at sky-high rates above spot prices. Just check out ebay and compare to spot prices.
- Western Canada is extremely short on Silver, only 1000 oz bars left and not even many of those. Gold still avail in 32oz & 100oz.
- YES or NO vote re:700Billion, the USA economy is screwed! Yes vote = stability in short term, massive collapse in long term as the masses will be furious when gov comes back for round 2 & 3 for Trillion #2 & 3, but specifically, there's no plan to stop housing price declines, unemployment rising, imports from increasing in price (daily consumables), etc.
- US debt is massive and growing compared to GDP. CIA world fact book puts USA in like 25th position out of 125+ countries. Zimbabwea is #1 of course. Canada is not much better off.
- US military is spread way too thin. Iraq+Afgan, and soon Iran & Pakistan (Obama), and North Korea? Seriously, that is messed up. WW 3 around the corner in 2-4 years at this rate.
- China situation is unpredictable. They have a big dillema with what to do with 1.3 Trillion USD. Long term (2 to 4 years) China will decouple and focus on internal growth and be fine. Short term the BRICs will get BRICKED as evidenced by Russia recently and Brazil ain't doing too well either.
- India's problems are the service industry (call centres, tutor centers, etc) to go into a huge decline as continents all over enter into recessions & companies cut back. The young generation earning like doctors now in call centers, will be earning 1/3rd or less in a year or two. Government is hugely corrupt and comittees take forever to make decisions. India lacks massive infrastructure (roads, electricity, water) even in all major cities, but has some good young brains (often exported), lots of farming & land (80% ?), massive pollution/hygene issues. SENSEX (stock index) is hugely speculative, but not as much as China. A bottom will occur in 1 year?, then it'll be upwards again once india finds it's footing in something - Alt-E may be a real possibility for India (Tata Motors). They need super cheap cars & fuel for population, and deal with horrible pollution issues + need to employ their very poor citizens.
- Europe is entering a serious crisis, as big or bigger than USA, and the problem there is that they have rich and poor countries wanting opposing actions. What's good for rich = bad for poor, and vice versa. Middle of the line action will solve little. Euro into a massive decline against USD. Some countries in Europe citizens can not buy gold from banks like here in NA. Nearly every country in Eurozone is in a fast declining housing bubble.
- US Gov. Fed should be fired, Paulson into jail. Bush should have been gone 8 years ago. God help USA if MCaine wins and then dies, Palin is scary!!! If I was US citizen, I'd put Ron Paul on my ballot.
- US Economy - Has gone from bad to worse, to crisis to short term stability with Yes vote, to eventual collapse of the dollar within 4 years. Foreign countries are PISSED OFF at the USA for countless reasons.
- USD will rally short term (next 2 weeks?), as people go into T-bills. Gold may drop moderately against USD, but I'm watching it in Canadian dollars, so I'm hoping for a flatline or small drop at worse. USD will continue its devaluation mid-term as the world loses all confidence in USA due massive stock market instability and the contagion around the world. USA is at a serious risk of debt default - that will be the end of the US dollar. Bye, Bye Miss America pie!
-Inflation/Deflation- Short to long term I see housing deflation occuring world wide, and in US to continue unless serious Gov intervention occurs in USA (700 billion ain't the right plan). Canadian housing is heading for 30%+ drop, 50% for West coast. Inflation of everyday cosumables up all around the world. As the world goes into a recession, bulk manufacturing decreases and costs go up all over. Desinflation or Stagflation? I'm still confused about those.
-Desinflation/Stagfaltion - I'm still trying to wrap my mind around the definitions for these terms. So no opinions right now.
- OIL - World wide recession should bring down the cost of Oil as supply lessens. China/India effect may slowly cause an oil rise, but they too will be hit with 5% or so GDP growth in next 2 years, so not counting on sky high ($200+/barrel) oil for a while yet, unless there's war of course. But I have a lot of reading to do on this subject, and am admitedly ignorant, so no idea what's to happen here. I can however say that if Oil drops below ~$60/barrel, Canada will go into a serious recession as we're only propped up by our "Oilberta" province. When Oil drops Canadian dollar drops right at the same time - guaranteed every single time!

PS. Special thanks to all the regulars on iTulip - I read you frequently.

[Guest]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Fantastic input. There is a potentially large insight that can be unleashed from the collectivity if that collectivity will just step in and make itself be heard - if the entirety of all the silent registered members deposit a comment on a single specific question, some common threads begin to emerge from the sum of people's thinking and we can get some very damn useful steering points through the current highly confusing environment.

We've had A FEW, but not ALL normally silent posters contribute, and regular iTulip posters thank them for their input. There are some really sharp comments in here. How about some MORE of you silent ones putting in a comment on this topic? Come on - you read everything here, and this sudden break into steepening recession has exerted a shock upon many of us, not least of which a large financial shock upon our investments!.

Anyone looking to get a sense of the consensus of where we are headed with this could gain a lot of centering calm and wisdom from reading all this and getting a sense of what the strongest recurring themes are in these collected comments. So the rest of you, who never post - don't assume that the other people posting regularly here "must be vastly more informed than you".

So for Pete's sake, just employ that (long inactive) button so the rest of us have an inkling what you conclude about this question?

From reading 50 or 100 inputs from people that have read up on the major iTulip themes, we can get a sense of what the recurring threads of reasoning among the wider group actually are with a little more detail than just a "yes" or "no" answer, and thats valuable input in this current mess. Rouse yourselves, and post a comment on this inflation / deflation question, at this juncture in late 2008!

[Tulpen]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Anybody see global deflation looming here? How about an opinion from all you silent observers?

A small one in the world except for in the United States.

What does a country do when it digs itself so deep in debts that it cannot pay it back when we get an economic slum? One two options: start a war or massive inflation or both.

[Nervous Drake]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

.

[Guest]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

What does a country do when it digs itself so deep in debts that it cannot pay it back when we get an economic slum? One two options: start a war or massive inflation or both.

Well last time I checked we started two wars already, and we are ignoring Pakistani warnings not to stage incursions into Pakistani territory, so that would be three (and Pakistan, like Turkey, has a large and quite tough army). So we've got at least two wars under our belt, and we've had a nice kiddy practice-run at inflation for the past five years. I'd say with the baby KA unfolding now they better get their inflation motor firing on all 12 cylinders or big papa bear KA will have the incoming new President squarely by the throat in just a few months.

[jtabeb]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

Global Deflation? Not possible. Two simple reasons: Ben and Hank

Yes, that WAS NOT the implication I was thinking of. (It's that other thingy)

[Techdread]

Re: Anybody see global deflation looming here? How about an opinion from all you silent observers?

I agree with DigiDiver We will get a big global Deflation.

we are already experiencing wide spread asset deflation it won't be too long before we see mass unemployement in developed countries. with massive debts the anglo saxon consumers will retrench. This I think will feed off itself and hurt Emerging Countries exporting industries then they will start dumping there goods, tarrifs will go up, trade wars Global Depression.

I hope I am wrong and the FED can induce inflation but this is more than A USA problem.