JEast Posted November 17, 2009 Share Posted November 17, 2009 Things are really getting interesting. Gold is on a run, but so are bonds which normally would be considered a contradiction. So what is going on? The debate of deflation and inflation continues. Based on the most recent data of fuel distillate inventories, we are at record high levels since the last big recession in the early '80s. With such high inventories, will oil make its run? Seems unlikely but one just doesn't know. Also read that Saudi Aramco will drop WTI as a pricing mechanism and switch to an index of sour crudes in 2010. The sour crudes usually sell at a discount to WTI which should lower the top news headline price. http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WDISTUS1&f=W What are others seeing? Cheers James Link to comment Share on other sites More sharing options...
scorpioncapital Posted November 17, 2009 Share Posted November 17, 2009 I think there is no debate - we will not see deflation in our lifetimes. Link to comment Share on other sites More sharing options...
Parsad Posted November 17, 2009 Share Posted November 17, 2009 I think there is no debate - we will not see deflation in our lifetimes. I have no idea what is going to happen, but I can tell you that deflation is still very much a real possibility. In fact, we've been experiencing a deflationary environment for over a year now. Cheers! Link to comment Share on other sites More sharing options...
JEast Posted November 17, 2009 Author Share Posted November 17, 2009 I think there is no debate - we will not see deflation in our lifetimes. I was unaware that we had board members from Zimbabwe. Kidding aside, outside of only a few years - I have personally only seen deflation in my lifetime. This from sources such as lower transportation costs, communication costs, food costs, etc ... But then again, I won the ovarian lottery and have not lived in either Zimbabwe, Argentina, or Venezuela. Cheers JEast Link to comment Share on other sites More sharing options...
scorpioncapital Posted November 17, 2009 Share Posted November 17, 2009 Let me qualify that, because a year or two is irrelevant. Over some meaningful period of time, there is no deflation and there won't be going forward. That is the nature of our Western society. As long as people will not stand for the alternative we will have constant inflation over time. Just look at your own experience...Somebody I talked to said in 1978, it cost 10 cents to ride the bus in the Seattle area, rent was $80/month. What is it now? Even creeping up at 1% per year, prices are going to be at least 10% higher in 10 years, and 1% is an extreme. Having said that, inflation is largely irrelevant for making money in stocks. It is part of the constant background noise and whether you make money or not in stocks depends on many other things of which inflation is at the bottom of the list - but that's another subject for debate :) Link to comment Share on other sites More sharing options...
JEast Posted November 18, 2009 Author Share Posted November 18, 2009 Over some meaningful period of time, there is no deflation and there won't be going forward. Per the "Monetary History of the United States" by Milton Friedman and Anna Schwartz, from 1875-1900 (i.e. 25 years) consumer prices fell by more than 1% a year. Cheers JEast Link to comment Share on other sites More sharing options...
ERICOPOLY Posted November 18, 2009 Share Posted November 18, 2009 Over some meaningful period of time, there is no deflation and there won't be going forward. Per the "Monetary History of the United States" by Milton Friedman and Anna Schwartz, from 1875-1900 (i.e. 25 years) consumer prices fell by more than 1% a year. Cheers JEast I'll bet one can't find "quantitative easing" in that book. Link to comment Share on other sites More sharing options...
arbitragr Posted November 18, 2009 Share Posted November 18, 2009 For as long as the Fed keeps rates artificially low, we will continue to see all that money poured into hard assets. Link to comment Share on other sites More sharing options...
SharperDingaan Posted November 18, 2009 Share Posted November 18, 2009 Inflation/deflation should really be looked at in 3-4 year tranches, & deflation does occurr, even in the US. The depression of the early 1930's being the classic. The UK is currently in a recession as bad as it was during the 1930 depression, & has not been able to turn it around. The white-house is now warning of a 'double-dip', which implies that the US may not be able to turn it around either. Falling asset prices for some time out is a very real possibility. But where it matters is in the stuff you have to buy (groceries, clothing, etc) & its hard to see why those will not cost more. For the same standard of living, the cheap clothes & food from China & South America can only cost more - simply because the USD is devaluing. To spend the same is to reduce your standard of living; ie switching to the cheaper brands in the grocery store. We would suggest that we will actually have cost inflation over the next few years, but because asset values are flat/falling - it will 'feel' like deflation. Japan disease. SD Link to comment Share on other sites More sharing options...
oldye Posted November 18, 2009 Share Posted November 18, 2009 if there is a double dip...the dollar gets a lot stronger! Link to comment Share on other sites More sharing options...
bargainman Posted November 19, 2009 Share Posted November 19, 2009 For the same standard of living, the cheap clothes & food from China & South America can only cost more - simply because the USD is devaluing. To spend the same is to reduce your standard of living; ie switching to the cheaper brands in the grocery store. Um.. China's currency is pegged to the dollar so how is the devaluing dollar going to affect cheap stuff from China? Link to comment Share on other sites More sharing options...
Kiltacular Posted November 19, 2009 Share Posted November 19, 2009 Also read that Saudi Aramco will drop WTI as a pricing mechanism and switch to an index of sour crudes in 2010. This strikes me as an interesting fact. It fits with the thesis of "Twilight in the Desert".... If the Saudi fields were still overflowing with the light, sweet that has flowed from their major fields in abundance for decades, would they still be making this switch? Link to comment Share on other sites More sharing options...
Kiltacular Posted November 19, 2009 Share Posted November 19, 2009 Per the "Monetary History of the United States" by Milton Friedman and Anna Schwartz, from 1875-1900 (i.e. 25 years) consumer prices fell by more than 1% a year. I think this is correct. In fact, I don't think we saw steady and continuing inflation until 1913 -- the year the FED was created. Buffett and Munger said at a meeting many years ago (in my OID files somewhere) that they invested (in the U.S.) based on the reality of continuing inflation. Given the structure of debt -- both business and personal -- in the United States, I think steady (but moderate) inflation is good. Given the current debt structure, real deflation would lead to a massive depression in my opinion. I think it could easily be argued that the debt structure in the U.S. isn't necessarily optimal (I don't know), but it seems to me given what we've got, true deflation is a disaster. We've got to print and monetize right now, don't we? Link to comment Share on other sites More sharing options...
Smazz Posted November 19, 2009 Share Posted November 19, 2009 If we are not talking about supply and demand then we must be talking about witchcraft. 1 vote here for stagflation or deflation for the next few years. Link to comment Share on other sites More sharing options...
Vinayd Posted December 18, 2009 Share Posted December 18, 2009 Just resurrecting this old thread, as I read an interesting article from Prechter on deflation. It echoes some of the themes from Hoisington & Fisher. This is just an excerpt from his recent book -- so it should be put in context to his whole book. Anyway, if you liked Hoisington, you may find these excerpts interesting as well. cheers, Vinayd Note: I don't have an opinion or am advocating Prechter or EWI -- I just found the attached deflation exerpt interesting. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted December 19, 2009 Share Posted December 19, 2009 Prechter thinks the dollar is going to go on a long massive rally... and Prechter seems to rely on technical analysis. Link to comment Share on other sites More sharing options...
Vinayd Posted December 19, 2009 Share Posted December 19, 2009 Yes, I don't necessarily have an opinion (...or agree with) his technical analysis side. But like many financial analysts, he has a longer term strategic view of deflation based on some sound macro fundamental analysis (which the article gives a glimps of) similar to Hoisington & Fisher. Then, like many analysts he attempts to answer when will the peaks & valleys occur during this deflationary period. This is where he uses the EWI & technical analysis -- which I don't necessarily agree with or have an opinion on. Like Hoisington, who points out that in deflation, long treasuries (...and safe US dollar demoninated bonds) may likely outperform. The $US dollar may remain strong during a debt-induced deflation cycle, is Prechter's thesis (...which has merit). The article talks more to the nature of and fundamental argument of deflation, which is an intersting read -- if you found the Hoisington/Fisher articles interesting. cheers, Vinayd Link to comment Share on other sites More sharing options...
Guest kawikaho Posted December 19, 2009 Share Posted December 19, 2009 http://open.salon.com/blog/kind_of_blue/2009/12/18/something_just_doesnt_add_the_fk_up http://blogs.surfermag.com/office-blog/north-shore-1989-vs-2009/ Seriously, DEFLATION??? For everything that really matters to me and the average Joe, we've lived in inflationary times. Link to comment Share on other sites More sharing options...
Zorrofan Posted December 19, 2009 Share Posted December 19, 2009 The government has to refinance $2.5 Trillion next year, plus fund $10 trillion in deficit spending over the next ten years. If the dollar is still going to be a safe haven with all that, what the heck is the rest of the world going to face? cheers Zorro Yes, I don't necessarily have an opinion (...or agree with) his technical analysis side. But like many financial analysts, he has a longer term strategic view of deflation based on some sound macro fundamental analysis (which the article gives a glimps of) similar to Hoisington & Fisher. Then, like many analysts he attempts to answer when will the peaks & valleys occur during this deflationary period. This is where he uses the EWI & technical analysis -- which I don't necessarily agree with or have an opinion on. Like Hoisington, who points out that in deflation, long treasuries (...and safe US dollar demoninated bonds) may likely outperform. The $US dollar may remain strong during a debt-induced deflation cycle, is Prechter's thesis (...which has merit). The article talks more to the nature of and fundamental argument of deflation, which is an intersting read -- if you found the Hoisington/Fisher articles interesting. cheers, Vinayd Link to comment Share on other sites More sharing options...
bargainman Posted December 19, 2009 Share Posted December 19, 2009 http://open.salon.com/blog/kind_of_blue/2009/12/18/something_just_doesnt_add_the_fk_up http://blogs.surfermag.com/office-blog/north-shore-1989-vs-2009/ Seriously, DEFLATION??? For everything that really matters to me and the average Joe, we've lived in inflationary times. Know anyone who got a raise this year? Know anyone who got a paycut? Know anyone willing to go into more debt after their home equity went upside down? Oh, and that computer and cell phone.. how much would they have cost 5 years ago? How much do they cost now for double the speed? Deflation is all around :-) So is inflation.. Just depends where you look... Link to comment Share on other sites More sharing options...
Vinayd Posted December 20, 2009 Share Posted December 20, 2009 http://open.salon.com/blog/kind_of_blue/2009/12/18/something_just_doesnt_add_the_fk_up http://blogs.surfermag.com/office-blog/north-shore-1989-vs-2009/ Seriously, DEFLATION??? For everything that really matters to me and the average Joe, we've lived in inflationary times. "The price effects of inflation can occur in goods, which most people recognize as relating to inflation, or in investment assets, which people do not generally recognize as relating to inflation. The inflation of the 1970s induced dramatic prices rises in gold, silver and commodities. The inflation of the 1980s and 1990s induced dramatic price rises in stock certificates and real estate." - Prechter This past decade has seen a large trading range for stocks & real estate, but as of now, stocks are 35% lower than the beginning of this decade, and the real estate bubble has burst. If we agree that US real estate was a 'bubble', -- no bubble has surpassed 50% of its peak value within a generation (Nasdaq bubble & Japanese stock bubble are still following this trend). You are correct that 'commodity' and goods have not seen deflation over this decade, but we got our first deflationary panic this past year. We'll see how this plays out in the coming years. cheers, Vinay Link to comment Share on other sites More sharing options...
Vinayd Posted December 20, 2009 Share Posted December 20, 2009 The government has to refinance $2.5 Trillion next year, plus fund $10 trillion in deficit spending over the next ten years. If the dollar is still going to be a safe haven with all that, what the heck is the rest of the world going to face? " 80% of the economy [the private sector] is de-leveraging. Only 20% is government stimulus. Companies are operating at 65% of capacity or utilization rate. Unemployment is rising. If in six to 12 months' time, the stimulus and bailouts don't work, and we are at zero interest rates, what then? We had 20 years of good, meaning no recession to speak of, and only one year of bad. We are not worried about inflation, just the opposite" - Prem Watsa Although the US government (20%) can print money to manage payments of their debt in the short-medium term, the private sector cannot (80%). The private sector will need $US dollars in great supply and during very acute time periods in an environment of involunatary debt liquidiation. We saw our first glimpse of this in October 2008 when a medium sized investment bank went bankrupt, even though the US government had initiated specialized stimulus programs from Jan 2008 - Oct 2008 cheers, Vinay Link to comment Share on other sites More sharing options...
Vinayd Posted December 20, 2009 Share Posted December 20, 2009 Know anyone who got a raise this year? Know anyone who got a paycut? Know anyone willing to go into more debt after their home equity went upside down? Oh, and that computer and cell phone.. how much would they have cost 5 years ago? How much do they cost now for double the speed? Deflation is all around :-) So is inflation.. Just depends where you look... I agree bargainman. The Japanese experience has asset deflation for about 20 years now, but they have experienced goods & commodity inflation just like the rest of the world during these past 20 years. Since Japan is only 90 million people, commodity deflation isn't in the cards against the world population. What happens when North America and Europe enter a similar "Japanese experience" (debt induced asset deflation)? Can China & India's population balance the commodity deflation experience by these ecomonies? I don't know either. But it is far from certain. cheers, Vinay Link to comment Share on other sites More sharing options...
ubuy2wron Posted December 20, 2009 Share Posted December 20, 2009 http://open.salon.com/blog/kind_of_blue/2009/12/18/something_just_doesnt_add_the_fk_up http://blogs.surfermag.com/office-blog/north-shore-1989-vs-2009/ Seriously, DEFLATION??? For everything that really matters to me and the average Joe, we've lived in inflationary times. "The price effects of inflation can occur in goods, which most people recognize as relating to inflation, or in investment assets, which people do not generally recognize as relating to inflation. The inflation of the 1970s induced dramatic prices rises in gold, silver and commodities. The inflation of the 1980s and 1990s induced dramatic price rises in stock certificates and real estate." - Prechter This past decade has seen a large trading range for stocks & real estate, but as of now, stocks are 35% lower than the beginning of this decade, and the real estate bubble has burst. If we agree that US real estate was a 'bubble', -- no bubble has surpassed 50% of its peak value within a generation (Nasdaq bubble & Japanese stock bubble are still following this trend). You are correct that 'commodity' and goods have not seen deflation over this decade, but we got our first deflationary panic this past year. We'll see how this plays out in the coming years. cheers, Vinay Link to comment Share on other sites More sharing options...
ubuy2wron Posted December 20, 2009 Share Posted December 20, 2009 Sorry for the previous post ,screwd up. Vinay you mentioned no bubble traded above 50% of peak valuations for a generation and then mentioned the nasdaq bubble and Japan. I am interested in this thesis what is your source for this observation. The clearest bubbles in the last generation were IMO residential real estate recently the Nasdaq in the last decade. Japanese stocks in the eighties and precious metals in the late 70''s. Currently I suspect that US treasuries are in bubble territory. Link to comment Share on other sites More sharing options...
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