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I have been on record that we have been in a massive deflation since the early 1990s. You see that in the fact that virtually no commodity prices have risen significantly—gold shot up a little, but since the 1980s, owning gold would have been a loser.

The reason for the deflation, which I think we are still in, is a) China exports deflation in the form of lower prices and slave labor. It is nearly impossible to raise prices on goods and services if a major economic competitor is constantly undercutting them; b) the computer revolution. Despite what Gordon says in his new book “The Rise And Fall of American Economic Growth,” we have NOT BEGUN to “price in” the impact of computers on everything from cars to phones to houses. We are still playing catchup. Thus, more deflation is more likely than inflation. And the Fed’s QE1,2,3 aren’t making a dent in the deflation.

I have been on record that we have been in a massive deflation since the early 1990s.

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Excellent analysis, LS. I am quite impressed, as there are many very good thinkers (e.g., Mark Levin) who are helpless when it comes to business and the eoonomy.

Not only are we in a hard-core deflationary period, but the FED and Treasury are fighting to prevent the type of runaway deflation that could lead very quickly to Great Depression II.

The same RISK hit us in the 2008-09 collapse, when the velocity of money slowed to a near halt. This is a sign of dangerous deflation, reflecting the general idea that if prices are falling, it is unwise to make purchases today.

The stock market and gold are rising together now, which is unusual, and indicates that these are asset bubbles ... meaning the vast sums being dropped into the economy by Fed and Treasury are not all finding their way into economic activity.

The BULLISH CASE, as I see it (and I am currently stock-bullish) is that such asset bubbles can go on inflating for years. One wouldn't want to have missed the upside profits of the Internet bubble, the credit derivatives bubble (2003-2008) or the current "Easy money" bubble. Just gotta figure our when to bail.