Posted on 09/28/2011 1:57:20 PM PDT by blam
Gary Shilling: The Economy Is Slowing, Yields Will Plunge, Deflation Is Coming And Stocks Are Headed Lower
Joe Weisenthal
Sep. 28, 2011, 3:21 PM
Stiff drink alert.
Here are highlights of Gary Shilling appearing on Bloomberg TV.
(Click here to watch the full video.)
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Schilling on how much further the 30-year Treasury bond yield could fall:
"I think [the 3-year Treasury bond yield] might go back to 2.5%. That's where it was at the end of 2008 in the aftermath of the Lehman Brothers meltdown. That's my target for now. I think we are looking at deflation. As I said back then, I think that will be the media chatter by the end of the year. Plus, the weakening economy here and abroad. The long bond, the 30-year Treasury, is the ultimate safe haven in the world."
On why Schilling sees deflation on the horizon:
"In my new book, I identify seven different types of deflation. Now five of those are already in place -- we're having financial asset deflation, tangible asset deflation, commodities are coming down, wages are coming down. The one that hasn't kicked in yet is goods and services deflation. The point is that the whole world is really marking down assets. It's marking down the whole spectrum. I don't think goods and services are going to hold up in terms of inflation. I think that will move to deflation fairly soon."
On whether the Fed will decide to try to accelerate inflation:
"In effect, [the Fed] tried to do that with QE2. Because you remember at the time they were worried about deflation… That was one of the objectives. Of course, they spurred commodities, they spurred stocks and they
(snip)
(Excerpt) Read more at businessinsider.com ...
This guy must be right. I can tell from my grocery bill and my health insurance bill and my electricity bill that the price of everything is falling like a rock.
NOT!!!
STOCKS GET CRUSHED, COPPER GETS KILLED: Here's What You Need To Know
It’s a tough call, inflation vs deflation.
Most of my investment bets are on inflation, but my guru believes in deflation and tells me to study Japan.
There are good arguments on both sides.
You are looking at “goods and services”. Now, the price of your home? Did it go up, or down.
Deflation is very hard to protect against. Sectors that are least dependent on commodities will hold for a while but then the bubble will burst and that’s it for everything.
True enough.
But if commodities are falling and wages are falling why isn't that reflected in "goods and services". The price of milk is going up. Why is that? It has to be related to the cost of bringing milk to market. Labor, material, transportation, energy.
Something is going up. What is it?
The dollar is going down and we’re paying for oil with these weaker dollars, causing the price of transportation to go up, reflected in the price of anything that has to be moved.
Copper has gotten the snot beat out of it, lately, huh?
Maybe fewer assclowns will be getting electricuted stealing copper wiring.
“But if commodities are falling and wages are falling why isn’t that reflected in “goods and services”. The price of milk is going up. Why is that? It has to be related to the cost of bringing milk to market. Labor, material, transportation, energy. “
You have to look at the price of pure, simple commodities so that you isolate what is the result of the Fed and what is the result of regulations or technological capability. You don’t want the Fed to contract the entire economy just because the price of orange juice was higher due to a frost in Florida.
Sounds like inflation, right? No, with inflation, the classical response is to raise prices ~ and that stimulates production. The economists fear inflation stimulated production as doing nothing but stimulating more overproduction.
With deflation although there's less money and it's theoretically worth more, the guys with stuff on the shelves ~ the retail sector ~ have to sell it at the old price until they've recovered their expenses (and paid their line of credit at the bank).
They don't want to lower prices. They don't reorder until the wholesalers do, and they don't reorder until the manufacturers or producers lower their prices.
In short, deflation is felt more at the production end than at user in. Inflation is felt at the production end long before the user gets hit with it.
There's also a problem with agricultural commodities. Although they are subject to ordinary inflation and deflation, sometimes they are subject to drought, famine, flood, crickets, fungus and other hazards. Those factors can make a tremendous difference in the price.
Boy Howdy!
I think we'll have one more peak before the bottom completely falls out...the bottom completely collapses after the election.(?)
That copper graph is a real bad vibe.
Definitely an analog for the economy going forward.
By election day 2012 most folks will refer to the Bush years as the “good old days”
read later
Actually I don't want the Fed to do anything except go out of business. The Fed is the reason that you can buy a gallon gas for one Mercury Dime or about 4 paper dollars. They have debased the U.S. Dollar for nearly a century and all of this 'deflation' that is going on conveniently hides the impact of the latest QEThis and QEThat rounds in that overall process. That won't last. Inflation will rear it's ugly head at some point.
He is right.
Watch the coming twelve months. The only thing that will keep it temporarily away is a huge injection of more deficit spending. That won't happen this close to an election cycle.
There was plenty of reason.
The US is out of ways to deficit spend at levels necessary to keep us pretending like we're not in a depression.
The Eurozone is also running out of ways, even though they tried to fool the market into thinking otherwise earlier this week.
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