Deflation: It's time to call a spade a spade.

[ajerimez2]

I've been a devout follower of EJ and iTulip for a few years going, and while I sincerely appreciate all the effort and knowledge exhibited here, it's time to pony up and call the current situation what it is: DEFLATION, not disinflation.

Disinflation is a reduction of the rate of inflation, potentially to zero, or perhaps into slightly negative territory for a short period of time. But when the dollar is rocketing upward, and the price of stocks, commodities, precious metals, real estate, and just about everything else is crashing, it becomes increasingly ludicrous to pretend we're in a merely disinflationary environment.

Perhaps this situation will run its course within a matter of weeks or months and the dollar will resume its long-term slide. Or perhaps it will last as long as the recession - a year or more. What difference does it make when you've lost 50% on your portfolio of commodities and gold, and could have sold out months ago?

I also want to take issue with iTulip's "Dollar Ratchet" theory, which back in July had called for a months-long period of sideways movement for the dollar before it turned downward, and for gold to bounce off a low of $780 and turn skyward. This theory obviously failed to account for some major influences on the value of the dollar. Can you even honestly call it a theory? Was it based on anything more than a glance at the dollar index over the last seven years?

I don't pretend to have anything close to EJ's understanding of money and economics - I'm just a private investor trying to preserve what little wealth he has. But I think that the folks at iTulip, if they want to preserve their credibility, need to drastically re-think their position, admit to their mistakes, and present a revised set of expectations for the benefit of all iTulip readers. And here's a tip: pretending that iTulip never endorsed gold as an investment doesn't help its credibility.

I still expect that, years from now, I will be glad I followed the advice of iTulip, Jim Rogers, Peter Schiff, et al. But for the time being, I'm starting to feel like a punch-drinking member of an inflation-cult who's getting ready to meet an alien spaceship that somehow never arrives.

[ajerimez2]

Re: Deflation: It's time to call a spade a spade.

And another thing: scripting the forums to replace "P e t e r S c h i f f" with "Mega's pet monkey" is incredibly juvenile. Not sure who's idea that was, but it's tacky at best.

[FRED]

Re: Deflation: It's time to call a spade a spade.

I've been a devout follower of EJ and iTulip for a few years going, and while I sincerely appreciate all the effort and knowledge exhibited here, it's time to pony up and call the current situation what it is: DEFLATION, not disinflation.

Disinflation is a reduction of the rate of inflation, potentially to zero, or perhaps into slightly negative territory for a short period of time. But when the dollar is rocketing upward, and the price of stocks, commodities, precious metals, real estate, and just about everything else is crashing, it becomes increasingly ludicrous to pretend we're in a merely disinflationary environment.

Perhaps this situation will run its course within a matter of weeks or months and the dollar will resume its long-term slide. Or perhaps it will last as long as the recession - a year or more. What difference does it make when you've lost 50% on your portfolio of commodities and gold, and could have sold out months ago?

I also want to take issue with iTulip's "Dollar Ratchet" theory, which back in July had called for a months-long period of sideways movement for the dollar before it turned downward, and for gold to bounce off a low of $780 and turn skyward. This theory obviously failed to account for some major influences on the value of the dollar. Can you even honestly call it a theory? Was it based on anything more than a glance at the dollar index over the last seven years?

I don't pretend to have anything close to EJ's understanding of money and economics - I'm just a private investor trying to preserve what little wealth he has. But I think that the folks at iTulip, if they want to preserve their credibility, need to drastically re-think their position, admit to their mistakes, and present a revised set of expectations for the benefit of all iTulip readers. And here's a tip: pretending that iTulip never endorsed gold as an investment doesn't help its credibility.

I still expect that, years from now, I will be glad I followed the advice of iTulip, Jim Rogers, Mega's pet monkey, et al. But for the time being, I'm starting to feel like a punch-drinking member of an inflation-cult who's getting ready to meet an alien spaceship that somehow never arrives.

No doubt right about now it feels that way.

Our greatest challenge is the mix-and-match iTuliper. Take a bit of iTulip opinion here, a bit of another opinion there, and so on.

We have since 2001 stated that gold is currency chaos insurance. Yet many readers seem to hope to get rich off insurance. It's quite odd.

Why have 50% of a portfolio in insurance?

We could call the environment deflationary, a term that has lost all meaning since the US abandoned the international gold standard in 1971, but that would mean we'd have to forget everything that we have learned.

The inflation we expect is due to the actions of governments as they devalue currencies to defend against deflation as FDR did in 1934 after a real deflation spiral and Greenspan did in 2001 when he feared one. Bernanke is on the same road.

Inflation and deflation history in graphs. Deflation is not temporary episodes of negative inflation but self-reinforcing processes.

If the current period is a "deflation" then so was 1987, 2002, 2004, and 2006.

[FRED]

Re: Deflation: It's time to call a spade a spade.

And another thing: scripting the forums to replace "P e t e r S c h i f f" with "Mega's pet monkey" is incredibly juvenile. Not sure who's idea that was, but it's tacky at best.

It's a holdover from a time when every other post by Mega was about Schiff. Members were complaining, and we do have a goofy sense of humor.

In these disinflationary times, everyone seems to be losing their sense of humor.

It could be worse: we could all still be in stocks.

[Down Under]

Re: Deflation: It's time to call a spade a spade.

I struggle to fully understand iTulip's position on gold. Without going back through all the posts, it appears to me that it is only in recent times that gold has been referred to as "insurance".

However, be that as it may, given that iTulip's forecast for gold is USD 2,500, I fail to see how it can only be viewed as insurance. If gold reaches USD 2,500, surely that is more than insurance, even allowing for the fact that in the US, one is liable to 28% tax.

[phirang]

Re: Deflation: It's time to call a spade a spade.

No doubt right about now it feels that way.

Our greatest challenge is the mix-and-match iTuliper. Take a bit of iTulip opinion here, a bit of another opinion there, and so on.

We have since 2001 stated that gold is currency chaos insurance. Yet many readers seem to hope to get rich off insurance. It's quite odd.

Why have 50% of a portfolio in insurance?

We could call the environment deflationary, a term that has lost all meaning since the US abandoned the international gold standard in 1971, but that would mean we'd have to forget everything that we have learned.

The inflation we expect is due to the actions of governments as they devalue currencies to defend against deflation as FDR did in 1934 after a real deflation spiral and Greenspan did in 2001 when he feared one. Bernanke is on the same road.

Inflation and deflation history in graphs. Deflation is not temporary episodes of negative inflation but self-reinforcing processes.

If the current period is a "deflation" then so was 1987, 2002, 2004, and 2006.

Not impressed.

[ajerimez2]

Re: Deflation: It's time to call a spade a spade.

If the current period is a "deflation" then so was 1987, 2002, 2004, and 2006.

What's happening now makes 1987, 2002, 2004, and 2006 look like a walk in the park.

In any of those years, were:

1) Homes losing 10% of their value annually for years on end?
2) Gold, silver, and other PMs experiencing 30-50% haircuts?
3) Oil and other commodities dropping 50% in value in a matter of months?
4) Stock markets around the globe dropping 50% at the same time?
5) Auto dealers experiencing 30% drops in sales?
6) Major, longstanding American investment banks going belly-up weekly?
7) Trillions of dollars being defaulted out of existence worldwide?

Also, bear in mind that the CPI has not yet fully accounted for the drop in consumer prices that will follow the fall in commodities prices, and that the massive deflationary layoffs have not yet reached a crescendo. I wouldn't be surprised to see the CPI hit -20% at some point in the next year if things keep up like this.

I just hope to god that this ends sooner rather than later, and that the Fed does what it's promised to do and prints dollars until the rivers run green. At this point, to have been right about the housing collapse and depression, yet still end up losing money on account of a fundamental misunderstanding of the money supply, is too much to bear.

[Jim Nickerson]

Re: Deflation: It's time to call a spade a spade.

One chart does not a thesis make.

In any of those years, were:

1) Homes losing 10% of their value annually for years on end?
2) Gold, silver, and other PMs experiencing 30-50% haircuts?
3) Oil and other commodities dropping 50% in value in a matter of months?
4) Stock markets around the globe dropping 50% at the same time?
5) Auto dealers experiencing 30% drops in sales?
6) Major, longstanding American investment banks going belly-up weekly?
7) Trillions of dollars being defaulted out of existence worldwide?

Also, bear in mind that the CPI has not yet fully accounted for the drop in consumer prices that will follow the fall in commodities prices, and that the massive deflationary layoffs have not yet reached a crescendo. I wouldn't be surprised to see the CPI hit -10% at some point in the next year if things keep up like this. What's happening now makes 1987, 2002, 2004, and 2006 look like a walk in the park.

I just hope to god that this ends sooner rather than later, and that the Fed does what it's promised to do and prints dollars until the rivers run green. At this point, to have been right about the housing collapse and depression, yet still end up losing money on account of a fundamental misunderstanding of the money supply, is too much to bear.

I, for one, appreciate your candor and your arguments.

There probably are some people who get all positioning of their portfolios correct all the time and never lose money or at least never admit to it, but I have not known them.

One thing, at least for the moment that seems true, is that all these things happening now have taken a long time to arrive, and however it finally settles out will take longer than most of us would like.

I hope whatever you are experiencing is bearable and things turn to lessen the load, but it may not happen quickly.

I have had my ass-kicked, and I am pissed off at no one other than myself, but the only way to even try to win is to stay in the game and hopefully make some sort of a recovery.

[phirang]

Re: Deflation: It's time to call a spade a spade.

I, for one, appreciate your candor and your arguments.

There probably are some people who get all positioning of their portfolios correct all the time and never lose money or at least never admit to it, but I have not known them.

One thing, at least for the moment that seems true, is that all these things happening now have taken a long time to arrive, and however it finally settles out will take longer than most of us would like.

I hope whatever you are experiencing is bearable and things turn to lessen the load, but it may not happen quickly.

I have had my ass-kicked, and I am pissed off at no one other than myself, but the only way to even try to win is to stay in the game and hopefully make some sort of a recovery.

The worst part is when your instinct and intuition tells you to turn left, but you go right because some guy claiming he knows WTF he's talking about says so.

I turned left when I bought Yen: made total sense.

I turned right when I listened to the "dollar ratchet" crap etc.

[Wild Style]

Re: Deflation: It's time to call a spade a spade.

The worst part is when your instinct and intuition tells you to turn left, but you go right because some guy claiming he knows WTF he's talking about says so.

I turned left when I bought Yen: made total sense.

I turned right when I listened to the "dollar ratchet" crap etc.

I ask this out of all sincerity because I am new here. In EJ's "dollar ratchet crap" did he give a time table for one all this is supposed to happen? If he did and you got screwed, then that is one thing.

[FRED]

Re: Deflation: It's time to call a spade a spade.

I struggle to fully understand iTulip's position on gold. Without going back through all the posts, it appears to me that it is only in recent times that gold has been referred to as "insurance".

However, be that as it may, given that iTulip's forecast for gold is USD 2,500, I fail to see how it can only be viewed as insurance. If gold reaches USD 2,500, surely that is more than insurance, even allowing for the fact that in the US, one is liable to 28% tax.

Folks hear what they want to hear, and remember what they want to remember.

Conclusion (August 2001)

One can buy physical gold now for around $270 and have gold provide the same "fundamental strength" to one's personal balance sheet as it providesthe IMF's. As a long term investment I conclude that it's value is far more doubtful. The environment for capital appreciation is more likely to persist long term than not. Progress marches on. One is best off owning an index of stocks that will tend to grow in line with world economy, an inevitability in spite of occasional setbacks. Still, it's hard to go wrong with a small gold bullion position. Gold is now trading near 13% of its inflation-adjusted peak price of $1973 whereas U.S. stocks as a class are trading at a premium never before seen, even after recent declines. It's possible that the price of gold will fall the remaining 13% to zero and the DOW to 36,000 in the next few years. But is the collapse of the price of gold the remaining 13% toward zero more or less likely than a return of stock prices to their mean P/E ratios and a counter-cyclical return of the price of gold toward a price ratio closer to one to one from the current ratio of 37 to one?

If gold indeed falls another 50% to $135 you have paid a small risk premium for owning the world's oldest and most widely held financial catastrophe insurance, and a lot less than the 84% you'd have lost investing (speculating) in the widely touted New Economy stocks represented in the iTulip.com Index when we first warned you to not buy them back in January 1999.

Other unpopular things we say about gold:
- Gold is not money except that governments once said it was to make it easier to collect taxes
- You can't get rich on gold, only hedge losses

Gold at $2500 implies oil going to $300 and the dollar to 40.

This is poverty not riches. You can thank your ingenious government.

[phirang]

Re: Deflation: It's time to call a spade a spade.

I ask this out of all sincerity because I am new here. In EJ's "dollar ratchet crap" did he give a time table for one all this is supposed to happen? If he did and you got screwed, then that is one thing.

EJ has to face Roubini: Roubini has repudiated the "ka-poom" thesis, and now EJ has to either confront Roubini's arguments head-on or concede.

[phirang]

Re: Deflation: It's time to call a spade a spade.

Folks hear what they want to hear, and remember what they want to remember.

Conclusion (August 2001)

One can buy physical gold now for around $270 and have gold provide the same "fundamental strength" to one's personal balance sheet as it providesthe IMF's. As a long term investment I conclude that it's value is far more doubtful. The environment for capital appreciation is more likely to persist long term than not. Progress marches on. One is best off owning an index of stocks that will tend to grow in line with world economy, an inevitability in spite of occasional setbacks. Still, it's hard to go wrong with a small gold bullion position. Gold is now trading near 13% of its inflation-adjusted peak price of $1973 whereas U.S. stocks as a class are trading at a premium never before seen, even after recent declines. It's possible that the price of gold will fall the remaining 13% to zero and the DOW to 36,000 in the next few years. But is the collapse of the price of gold the remaining 13% toward zero more or less likely than a return of stock prices to their mean P/E ratios and a counter-cyclical return of the price of gold toward a price ratio closer to one to one from the current ratio of 37 to one?

If gold indeed falls another 50% to $135 you have paid a small risk premium for owning the world's oldest and most widely held financial catastrophe insurance, and a lot less than the 84% you'd have lost investing (speculating) in the widely touted New Economy stocks represented in the iTulip.com Index when we first warned you to not buy them back in January 1999.

Other unpopular things we say about gold:
- Gold is not money except that governments once said it was to make it easier to collect taxes
- You can't get rich on gold, only hedge losses

Gold at $2500 implies oil going to $300 and the dollar to 40.

This is poverty not riches. You can thank your ingenious government.

Well, in that vein:

buy agency mortgages: they're cheap, and they might get bought by a greater fool at a higher price.

And, also, GOLD is money: it's why central banks still use it.

Seems like itulip has capitulated and is now sounding a lot like Denninger... at least Jim Sinclair has conviction!

[FRED]

Re: Deflation: It's time to call a spade a spade.

Well, in that vein:

buy agency mortgages: they're cheap, and they might get bought by a greater fool at a higher price.

And, also, GOLD is money: it's why central banks still use it.

Seems like itulip has capitulated and is now sounding a lot like Denninger... at least Jim Sinclair has conviction!

Nope. Same old iTulip, but not like anyone else.

Same old Ka-Poom Theory.

Disinflation followed by currency depreciation and inflation.

No matter how many times we warned about the disinflationary "Ka" phase looks like lots of folks got caught up in the previous dollar depreciation rally in gold and forgot how unpleasant the disinflationary corrections are.

See Gold Update: The small trade within the big trade

[pinhead]

Re: Deflation: It's time to call a spade a spade.

EJ has to face Roubini: Roubini has repudiated the "ka-poom" thesis, and now EJ has to either confront Roubini's arguments head-on or concede.

Holy Shit! You just do this for fun, right?

Regardless, I admit that your "prove it" mentality does add to the clarity of the discussion, or at least it should, but tact might elicit more interaction.

Roubini has not repudiated anything, as there is no repudiation without final proof, and I suspect that is going to be a long time coming. So EJ doesn't have to bow down to anyone until such time as he is unltimately proven wrong, if anyone could even nail down such a truth.

The world is not nearly so black and white as you seem to fear. That will be a source of pain as the landscape changes under your feet. Or not.