Another freaking lovely day??

[original mungerville]

I'm with Viking. This isn't panic.

 

People still think this volatility is something temporary but I think it is here to stay until debt levels relative to GDP are brought down in the developed world either through default (2/3rds of the debt is liquidated) or massive inflation by the authorities (the price level is tripled). I think its going to look like the former then all of a sudden will be the latter over a period of 12 months or less.

 

The only panic was in silver today (apparently the biggest two day drop since 1983 and biggest one-day drop since 1979) and that got me out of bed to buy some more. I think in this environment precious metals will outperform my deflationary hedge which is puts on the Russell 2000.

 

This ain't panic. I agree with Viking completely.

[alertmeipp]

after 2009, many here seems to think every bear market will be like 2009. 09 would be unique just like every others.

[Packer16]

I am surpised that many folks think inflation will occur at some time in the near future.  The only way inflation can occur is with both supply increase (loose money) and higher demand (ability to purchase or borrow to purchase).  The first of these is true but the sceond is not until the debt is gone via paydown (deflationary) or default (inflationary after lower debt level is established).  The paydown path will take years so the only way to get inflation (relatively soon) is from a debt default. 

 

Packer

[SharperDingaan]

Keep in mind that there is not 'one' inflation. We have simultaneous asset DE-flation & consumer price IN-flation. 

 

We got asset deflation because everyone rushed out & bought the same assets - at the same time, on margin. Because there were more buyers than sellers - prices kept rising, & the price rise kept pulling in still more speculative money. Asset producers ramped up production & the result has been warehouses of inventory valued at nosebleed prices. Now everyone is trying (or being forced to) to sell, when there are no buyers & a material inventory overhang - asset deflation.

 

We got consumer price inflation because monetary authorities, world wide, flooded markets with liquidity & debased their currency. Grain, gasoline, groceries, etc suddenly cost $2 vs $1 because the amount of currency òut there`doubled - consumer price inflation.

 

SD

 

[Hawk4value]

Sharper, I agree with your assessment. I believe what you describe is what might be called Stagflation. Fast forward:  continuous money printing evantually causes higher inflation in both asset and consumer prices triggering a substantial rise in interest rates a la late 70s, early 80s.  Certainly not a good time for stocks.

[twacowfca]

I am surpised that many folks think inflation will occur at some time in the near future.  The only way inflation can occur is with both supply increase (loose money) and higher demand (ability to purchase or borrow to purchase).  The first of these is true but the sceond is not until the debt is gone via paydown (deflationary) or default (inflationary after lower debt level is established).  The paydown path will take years so the only way to get inflation (relatively soon) is from a debt default. 

 

Packer

 

Things can change rather quickly as people anticipate the future.  When people realize they are in a substantial inflationary milieu, they stop paying down debt because they realize future debt payments can be made with depreciated money.  Then the worm turns and inflation accelerates as interest rates go through the roof when  lenders realize they are playing a losing game.

 

Inflation in the UK is running at 4.5% annual rate and 3.5% in US.  This may moderate if the markets tank and we go into another recesion, but this looming recession may not happen or be brief because the loose money from the Fed is finally working it's way to M2.  M2 has been expanding at double digit annual rates in recent months.  If anyone thinks this won't eventually be inflationary, I've got a nice bridge in a large east coast city that person might be interested in buying.  :)

[Packer16]

You are correct in the long-term and on relative basis this may be occuring as the $ declines versus the yen and euro.  Another leg missing from the inflationary puzzel is the transmission mechanism of higher wages.  If you look at most of the cost of the products and services we consume, it is in labor.  Inflation will not happen unitl labor is tight.  This is historically what has driven most of the inlfation (having to pay people higher wages becasue there have been fewer people or people were involved in low productivity tasks due to politics (communism)).

 

Packer

[biaggio]

so what does one do?

 

-cash?-buying power will be decreased by inflation

-bonds?- very low yield + will be effected by inflation

-hard assets/commodities?

-real estate? Farm land?

-stocks?

 

 

[Packer16]

One buys value-oriented assets (stocks, bonds or pref stock).  These have shown to hold thier or increase in value in every situation except large scale deflation.

 

Packer

[biaggio]

One buys value-oriented assets (stocks, bonds or pref stock).  These have shown to hold thier or increase in value in every situation except large scale deflation.

 

Packer

 

Thanks Packer.

 

Do you think it will work still if we have a "balance sheet recession" or a decade like in Japan(Japan's assets were very expensive back then) or the 1930's(would the 1930's be the wide scale deflation you were thinking of)?

 

I am hoping that if you buy quality, cheap i.e. with a large MOS that we willl be ok.

 

I think I have been reading too much macro stuff as I am starting to feel psyched out (i.e fearful...probably a good sign?).

[SharperDingaan]

Agreed with Packer. But would add that wherever possible 1) you buy the major makers of things that are really needed, 2) where there are clear & favourable demographic trends, 3) you receive a dividend, & 4) you plan on holding for 5-10yrs.

 

IE: The major food & drug coys (everyody, world wide, has to eat - & everybody gets sick). Asian & Indian auto companies. North American long term health care.

 

If in 10 yrs these companies are an average 4x higher than there are today (growth + inflation), & you receive income each year that you are waiting, you will do very well.

 

SD

[Packer16]

I think if we do have deflation it will be a small amount.  Historcially, when deflation is met with a wall of money, the price level increases slightly (see Sweden during the 1929 - 1930s time period).  I have been re-reading the 3rd edition of Security Analysis and it provides some insights to what was cheap during the 30s and 40s.  Specifically, secondary stocks and bonds and preferred stocks that stopped paying interest/dividends that were adaquately covered by asset values.  Today I am finding some of the same opportunities in radio/TV and tech companies.

 

Packer 

[Valuebo]

Mr Market himself speaks:

 

 

 

No fear at all.

 

The problems are mainly in Europe now and yes, things have been hit hard over here. We'll see wether in one year millions of people will have lost there savings, somehow I doubt it.