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Deflation hedges


steph

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Japan announced that inflation was negative for August. Stripping out fresh foods, core inflation was was also negative at -0.1% - the first negative print in core inflation since the beginning of the current QE program started in 2013.

 

Abe-nomics isn't working just like none of the other QE programs in Japan ever worked. Sure, someone will probably have the excuse that China's weakening yuan is wreaking havoc on Japan's export economy. I'd just add that there always seems to be some good excuse for why any individual QE program doesn't work, but I've yet to hear a good excuse that explains why they have all collectively failed without a single instance of success in stimulating "normalized" growth and inflation.

 

We're not there in Japan after nearly 10 rounds of QE. We're not there in the U.S. after 4 rounds of QE. We're not there in Europe during the first round of QE. Hey, I know what we need! MORE QE!!!!

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Deflation in Germany again

http://www.bloomberg.com/news/articles/2015-09-29/german-inflation-turns-negative-for-first-time-since-january

 

Oversupply of housing in North Dakota will lead to lower rents/sales prices in the area. Will this happen in other shale states? This could be the first creep of deflation into housing in U.S. CPI.

http://www.bloomberg.com/news/articles/2015-09-29/man-camp-exodus-spurs-real-estate-crisis-across-u-s-shale-towns

 

 

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Japan announced that inflation was negative for August. Stripping out fresh foods, core inflation was was also negative at -0.1% - the first negative print in core inflation since the beginning of the current QE program started in 2013.

 

Abe-nomics isn't working just like none of the other QE programs in Japan ever worked. Sure, someone will probably have the excuse that China's weakening yuan is wreaking havoc on Japan's export economy. I'd just add that there always seems to be some good excuse for why any individual QE program doesn't work, but I've yet to hear a good excuse that explains why they have all collectively failed without a single instance of success in stimulating "normalized" growth and inflation.

 

We're not there in Japan after nearly 10 rounds of QE. We're not there in the U.S. after 4 rounds of QE. We're not there in Europe during the first round of QE. Hey, I know what we need! MORE QE!!!!

 

You cannot say it failed to work.  You don't know how much worse deflation would be in the absence of it.  Therefore, how do you know?

 

For example, perhaps it might be a roaring success if you achieved 1% deflation instead of an otherwise 4% number.

 

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Japan announced that inflation was negative for August. Stripping out fresh foods, core inflation was was also negative at -0.1% - the first negative print in core inflation since the beginning of the current QE program started in 2013.

 

Abe-nomics isn't working just like none of the other QE programs in Japan ever worked. Sure, someone will probably have the excuse that China's weakening yuan is wreaking havoc on Japan's export economy. I'd just add that there always seems to be some good excuse for why any individual QE program doesn't work, but I've yet to hear a good excuse that explains why they have all collectively failed without a single instance of success in stimulating "normalized" growth and inflation.

 

We're not there in Japan after nearly 10 rounds of QE. We're not there in the U.S. after 4 rounds of QE. We're not there in Europe during the first round of QE. Hey, I know what we need! MORE QE!!!!

 

You cannot say it failed to work.  You don't know how much worse deflation would be in the absence of it.  Therefore, how do you know?

 

For example, would be perhaps be a roaring success if you achieved 1% deflation instead of an otherwise 4% number.

 

And the same argument would apply to you - you can't say that it worked because you don't know what inflation/deflation would have been without it. We could have ended in the exact same place. But I do think it's clear that the results have not been what was targeted by any of the policy makers that implemented it, which is a better gauge of failure than people who claim it was a success have.

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You cannot say it failed to work.  You don't know how much worse deflation would be in the absence of it.  Therefore, how do you know?

 

For example, perhaps it might be a roaring success if you achieved 1% deflation instead of an otherwise 4% number.

+1. Refreshing. A rare sane comment on this topic.

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Japan announced that inflation was negative for August. Stripping out fresh foods, core inflation was was also negative at -0.1% - the first negative print in core inflation since the beginning of the current QE program started in 2013.

 

Abe-nomics isn't working just like none of the other QE programs in Japan ever worked. Sure, someone will probably have the excuse that China's weakening yuan is wreaking havoc on Japan's export economy. I'd just add that there always seems to be some good excuse for why any individual QE program doesn't work, but I've yet to hear a good excuse that explains why they have all collectively failed without a single instance of success in stimulating "normalized" growth and inflation.

 

We're not there in Japan after nearly 10 rounds of QE. We're not there in the U.S. after 4 rounds of QE. We're not there in Europe during the first round of QE. Hey, I know what we need! MORE QE!!!!

 

You cannot say it failed to work.  You don't know how much worse deflation would be in the absence of it.  Therefore, how do you know?

 

For example, would be perhaps be a roaring success if you achieved 1% deflation instead of an otherwise 4% number.

 

And the same argument would apply to you - you can't say that it worked because you don't know what inflation/deflation would have been without it. We could have ended in the exact same place. But I do think it's clear that the results have not been what was targeted by any of the policy makers that implemented it, which is a better gauge of failure than people who claim it was a success have.

 

 

Yet I don't argue that it succeeded.  Nor do I argue it failed.  I just know that we don't know.

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Just to add that the only actually properly done QE to date has been QE3 in the US. The rest have been quite poor. Japan in particular with fits and starts of smallish amounts. The last one had promise it remains to be seen if BOJ stays the course.

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I have never heard that definition before.  Do you think FFH is investing hundreds of millions based on your theory of deflation?

 

I think they are investing hundreds of millions of dollars based on the idea that the US is in a Great Depression scenario which I think is wrong. You don't get much deflation from a consumer credit crisis. Because you can't fire your wife. You get deflation from business/financial credit crisis. During both the Great Depression and the Japanese credit crisis it was businesses that held huge debts. The deflation during the Great Depression was due to bank failures and businesses firing workers and lowering prices. This was explained competely by Irving Fisher. This is completely different than the current situation because the Fed bailed out the banks and the businesses were not heavily in debt to begin with. So you were never going to get huge deflation. Plus the retirement of the baby boomers is an inflationary tailwind. The whole thesis never made sense.

 

 

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7 years of money printing across the world and we are still talking about the first interest rate hike. Does that sound like inflation? I wonder what happens when the next slow down hits or all the misallocated capital over the last 8 years results in losses. I guess that may lead to inflation. 

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I have never heard that definition before.  Do you think FFH is investing hundreds of millions based on your theory of deflation?

 

I think they are investing hundreds of millions of dollars based on the idea that the US is in a Great Depression scenario which I think is wrong. You don't get much deflation from a consumer credit crisis. Because you can't fire your wife. You get deflation from business/financial credit crisis. During both the Great Depression and the Japanese credit crisis it was businesses that held huge debts. The deflation during the Great Depression was due to bank failures and businesses firing workers and lowering prices. This was explained competely by Irving Fisher. This is completely different than the current situation because the Fed bailed out the banks and the businesses were not heavily in debt to begin with. So you were never going to get huge deflation. Plus the retirement of the baby boomers is an inflationary tailwind. The whole thesis never made sense.

 

Wouldn't the retirement of baby boomers be deflationary?  Smaller retirement incomes mean less spending.....

 

cheers

Zorro

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An article on US Inflation in the latest Economist.

 

The lowdown

Persistent low inflation results from more than cheap oil and a strong dollar

http://www.economist.com/news/united-states/21669952-persistent-low-inflation-results-more-cheap-oil-and-strong-dollar-lowdown

 

Stop posting your deflationistic propaganda. You can't possibly imagine that deflation is a real threat can you? I mean, the Fed would never let it happen! After the energy dip rolls off and all of the companies/states we've been dependent on for minuscule growth roll over on a YoY basis, the U.S. economy and inflation will come roaring back to life. 

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Wouldn't the retirement of baby boomers be deflationary?

 

No. People who retire spend, but don't work. They draw down savings and spend their pensions. This reduces labour supply much more than it reduces consumption. For instance a person making $100000 retires with pension of $20000. Lets say they spend $100000 when they were working and now spend $20000 in retirement. Retirement has reduced consumption by $80000 but reduced production by $100000. These assumptions of course are very conservative because typically people save money pre-retirement and spend down savings post retirement.

 

Baby boomers are not being replaced by new workers. This labour supply is going down. You can already see this occurring in the labour participation rate. Right now unemployment is 5.1. Wages will start rising. I expect profit margins will shrink and when they can't shrink any more inflation will start.

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Wouldn't the retirement of baby boomers be deflationary?

 

No. People who retire spend, but don't work. They draw down savings and spend their pensions. This reduces labour supply much more than it reduces consumption. For instance a person making $100000 retires with pension of $20000. Lets say they spend $100000 when they were working and now spend $20000 in retirement. Retirement has reduced consumption by $80000 but reduced production by $100000. These assumptions of course are very conservative because typically people save money pre-retirement and spend down savings post retirement.

 

Baby boomers are not being replaced by new workers. This labour supply is going down. You can already see this occurring in the labour participation rate. Right now unemployment is 5.1. Wages will start rising. I expect profit margins will shrink and when they can't shrink any more inflation will start.

 

Very interesting....thanks for your reply.  Couple this with the roll off from the oil price collapse (as pointed out by TwoCitiesCapital) and we could see some interesting results over the next few years.....

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