Posted on 08/12/2010 9:07:23 AM PDT by blam
DEFLATION'S COMING, Says Gary Shilling, And It's Going To Clobber The Stock Market
Henry Blodget
Aug. 12, 2010, 11:41 AM
All through the market rally and budding economic recovery of the past 18 months, most people concluded that the crisis was over and it was time to start worrying about inflation again. But strategist Gary Shilling of A. Gary Shilling & Co. stuck by his guns:
It was DEFLATION we needed to worry about, Gary said. And it was BONDS, not stocks, that investors should be buying.
Well, Gary's bearishness on the stock market caused him to miss a nice run, but he has been dead right about bonds. And he has also been right about the potential for deflation--as evidenced by the recent Consumer Price Index numbers and the fact that most other strategists have come to agree with him.
So what's Gary's current outlook?
Same as it ever was:
Prepare for chronic deflation, buy bonds, and sell stocks.
Why is Gary still expecting deflation? Because consumers still have way too much debt, and this debt will take decades to work off. Also, consumers are saving money again, which means they aren't spending it. Banks have plenty of cash and reserves, but the demand for money just isn't there. And when consumers are strapped and credit is contracting, prices tend to fall. (See Gary's charts here >)
Gary's biggest concern about his deflationary outlook, in fact, is that most strategists have come to agree with him (the crowd is often wrong). But, for now, is sticking with his call.
[snip]
(Excerpt) Read more at businessinsider.com ...
And most Americans are just worried about their new mini van and watching American Idol.
No need to fear the evil throne that Obama bows to has a solution...
http://www.bostonherald.com/blogs/news/lone_republican/index.php/2010/08/12/un-says-eat-bugs/
The dollar and gold were by definition the same thing in the 1930s. That's what the gold standard was.
Since the dollar's value was defined by law to be worth a fixed amount of gold in the 1930s, the price of gold never went up or down without an act of Congress changing the value of the dollar.
Before the 1930s one oz of gold was always equal to 20 dollars. In the Great Depression, Congress devalued the dollar to 35 dollars per oz because the US government went bankrupt. Between the 1930s until 1971, when the US went off the gold standard, the price of gold was always 35 dollars per oz. That's why we never had serious inflationary problems and house prices were $30,000 instead of $500,000. The dollar bought a lot more per dollar back then.
It depends on what all of the banks do with those trillions of bail out bucks they got. If they put those into circulation instead of leaving them in their bank accounts to collect interest, we could have serious inflation.
It also depends on the Fed's reaction to deflation as well. If the Fed senses serious deflation and tries to keep prices high by flooding the market with even more dollars in order to head off inflation, it may miscalculate and put too many dollars into the economy. If that happens, you can expect hyperinflation. Also if other countries dump their dollars--otherwise known as "diversifying their investments"-- like China is doing, then there will be problems for the dollar as well. Chances are things will happen suddenly and that most Americans won't see it coming until it's too late.
It's not even a mystery question. We're copying Japan. Japan's had deflation for the past 21 straight years...so inflation is more than two decades away.
In the meantime: deflation. Act accordingly.
I say we’re in for stagflation!
We have half preparing for inflation and the other half preparing for deflation.
They’ll offset each other!
bookmark for later read
We already have inflation. We perceive our stuff, especially our house, to be worth far more than it can be relative to our incomes which are also inflated. The reason there are no jobs is because the avalanche of costs for employing people.
We are leveraged out. The ponzi scheme has run out of victims.
An ounce of gold is always worth an ounce of gold. It's the value of paper money that is subject to fluctuation.
That is because the “masters” try to use inflation to stave off the effects of deflation. And it will work for a little while, but the “masters” become addicted to the easy money and don’t know when to turn off the flow or don’t read the signs soon enough.
In the end, prices come down for a period of time, then there is too much money chasing too few goods and rapid and out of control inflation becomes the next phase.
Before that hyper inflation phase starts, you need to own:
- your own weapons and ammunition and means of reloading
- your own food reserve (long term canned goods 1 yr min for the whole family)
- your own means of producing food (1/4 acre garden min, 1 acre preferred)
- a defend able location that you can store your food and place to stay for a short term with your family. Sand bag bunker in the basement type thing.
If possible:
- your own house w/ land
- your own water supply and waste disposal
- your own power generation
- own at least one reliable vehicle
- your own means of fuel production
- your own means of goods production (make something to barter or sell)
Skills needed:
Basic first aid
Basic household repairs
Basic automotive repair
How to safely handle and care for fire arms
How to shoot accurately
How to dress, clean and cook an animal
How to grow vegetables
How to cook and can fruits and vegetables
How to mend clothes or make your own
Deflation is bad in the following sense.
Americans and American business are pegged at a much higher cost of living and they are committed to that higher cost of living through borrowing and debt. Most real estate loans ,for example, are valued to real estate prices from 3 years ago. When the currency deflates earning power also deflates. If you have a salary going down because of deflation then you no longer have the buying power to pay your mortgage. The same goes for business.
If the currency starts to deflate business and individuals no longer have the buying power for their financial committments and this brings massive, massive loss of property and no one has any money to buy anything and we get a total collapse which is what is happening.
The problem is that the currency is no longer stable. That is the problem. It is collapsing as we speak at an unprecedented rate because the government is destroying it.
It goes down for investors that know finance.
It may go down more slowly, or even up a little bit if emotional investors buy gold because "that's what we're supposed to do when times get difficult."
It's called "inflation."
As long as the Fed/Treasury keep flooding us with fiat dollars -- and Bernanke long ago promised that he would always resort to that -- there will never be deflation.
Exactly, the only thing going down is home values. I priced out some building materials for a project a while back. A month later almost everything in my spreadsheet has gone up. Pressure treated wood, up. PVC pipe, up. etc.
Items made in the USA (e.g., houses) will deflate. Items made overseas (e.g., Asia) will inflate, as oil and foreign wages go up. Our country is trading places with third world countries.
We need a good flushing and replacement of leadership anyway, and the defaults to come will accomplish that.
Not true. Gold is a commodity in our economy. It is bought in dollars and sold in dollars.
The “Hershey Bar Index”
Tracking the prices of “regular” candy bars is a complicated project because over the years the definition of regular (ie, size and weight) has also changed. Contrary to popular opinion, the size of the average chocolate bar is not ever-shrinking. The price? Is a function of global trade.
The Hershey Company was kind enough to supply us with price/weight data for their famous Hershey Bar from 1908-1986:
[1908] 9/16 oz.....2 cents
[1918] 16/16 oz.....3 cents
[1920] 9/16 oz.....3 cents
[1921] 1 oz.....5 cents
[1924] 1 3/8 oz.....5 cents
[1930] 2 oz.....5 cents
[1933] 1 7/8 oz.....5 cents
[1936] 1 1/2 oz.....5 cents
[1937] 1 5/8 oz.....5 cents
[1938] 1 3/8 oz.....5 cents
[1939] 1 5/8 oz.....5 cents
[1941] 1 1/4 oz.....5 cents
[1944] 1 5/8 oz.....5 cents
[1946] 1 1/2 oz.....5 cents
[1947] 1 oz.....5 cents
[1954] 7/8 oz.....5 cents
[1955] 1 oz.....5 cents
[1958] 7/8 oz.....5 cents
[1960] 1 oz.....5 cents
[1963] 7/8 oz......5 cents
[1965] 1 oz.....5 cents
[1966] 7/8 oz.....5 cents
[1968] 3/4 oz.....5 cents
[1969] 1 1/2 oz.....10 cents
[1970] 1 3/8 oz.....10 cents
[1973] 1.26 oz......10 cents
[1974] 1.4 oz.....15 cents
[1976] 1.2 oz.....15 cents
[1977] 1.2 oz......20 cents
[1978] 1.2 oz.....25 cents
[1980] 1.05 oz.....25 cents
[1982] 1.45 oz.....30 cents
[1983] 1.45 oz.....35 cents
[1986] 1.45 oz.....40 cents
[1986] 1.65 oz.....40 cents
[1991] .45
“Last year, candy makers raised the price of candy bars 5 cents, to an average of 45 cents. The previous hike was in 1986.”
-—M&Ms Plans to Nickel and Dime the Competition, New York Newsday, April 8, 1992 (p. 41) [NOTE: product weight not referenced in this article]
[1995] .50
1.55 oz., Value of a Dollar: Prices and Incomes in the United States 1860-2009, Scott Derks [Grey House Publishing:Millerton NY] 2009 (p. 641)
[2003] .80
1.55 oz Hershey Bar purchased at Quik (privately owned convenience store), Randolph NJ...80 cents
[2007] .79
1.45 oz.,Value of a Dollar
[2008] .59
1.55 oz., Super FoodTown (regional grocery chain), East Hanover NJ
[2009] $1.10
1.55 oz., 7-Eleven convenience store, Randolph NJ
[2010] .95
1.55 oz., Acme supermarket, Randolph NJ
Heck, you’re talking to someone who predicted our demise on 11/4/08...when most freepers we’re telling me we’d be fine.
That’s part of the delusion - people thinking we’re just in a cycle. We aren’t.
What if this is not a straight line we're talking about, in two dimensions, but a plane in three dimensions?
I have the dread that we're going to have both.
No jobs, no growth, no increase in asset value--but high cost for necessities like food and fuel.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.