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 ...
Deflation will come. You are sitting a Board, your job it to eat or be eaten. You must put the competition out. You are flush with cash, now you drop your price until the competition is gone - then you have the monopoly and your off and running.
It couldn’t happen to a better group than the gamblers on Wall St. They sucker investors into putting their money into financial instruments that would make the Vegas casinos blush, knowing that they will always get paid their commissions as they trade back and forth amongst themselves, with little gain for the investor.
Putting one’s money into a FDIC-insured CD at 3.5% five years ago would have been a better investment.
Coming? We already have deflation. Ask yourself, is your stuff, house, car, etc. worth more or less now than it was 2 years ago?
If I had to choose, I’d much rather see a 2 decade Japanese type slog than a hyperinflated blowoff.
Monetizing our debt will NOT bring about deflation. The fed WILL overreact and flood the market with dollars...additionally, the fed must weaken the dollar to pay off our debt with cheaper dollars.
What happens to gold in a dollar deflationary environment?
OK, so how come everything I go to buy at the store, food, clothes, beer, etc, is so much more expensive?
"The financial industry, newsletter writers included, has become rife with calls for deflation or inflation. Virtually every commentator on the planet has a strong opinion on these topics and 99% of them are firmly entrenched in one camp or the other."
But 0bama said this is the “Summer of recovery”
Deflation from a homeowner’s point of view, whose trying to sell his house:
“Today, my house is worth $250K. Next month, my house will be worth $220K. Buyers know this, and I’m getting no bids. And my house is worth far less than what I owe on my mortgage”.
Deflation, from a consumer’s point of view:
“Today, I can buy a 46 inch LCD Hi-Def TV for 1600 dollars. But next month, I should be able to get one for 1500 dollars. I think I’ll hold off purchasing one right now.”
Deflation from a TV Retail outlet’s point of view:
“I have no customers. They’re waiting for price to drop on my 46 inch LCD Hi-Def TVs to drop. I can’t afford to keep half my employees” I may go out of business”.
Overall, deflation is not a good thing. It’s one of the things that led to the Great Depression of the 1930s.
Hmm..he IS the perfect weathervane. If he’s pointing north, it’s time to head south. If east, go West young man. You can count on him, just don’t follow him. :)
You ain’t seen nothing yet. Inflation often follows a period of deflation.
It’s not a matter of either or...declination is a process.
As I read more and more articles on this and see reality actually play out, I am getting the feeling we are looking at an accute bout of deflation followed by inflation that quickly morphs to hyperinflation. When debts go paid or defaulted and little money is being loaned out, we are looking at a reduction in the money supply no matter how you slice it. That is deflation.
But worry not, the fed will buy plenty of Fed Paper with freshly printed fiat money, so we should be able to monetize this thing nicely in the long run. ;)
Good question...I’m not sure...anyone???
My wife and I rented since 1998 and not only have rents been flat in the Seattle area since then, but they actually have been going down the last couple of years.
My son was paying $1100 a month and when it was time to renew his lease last year, they offered the same space to him for $800 a month if he would renew for a year. This was in a seattle suburb. My daughter lives in downtown and saw her rent go from $1100 to $700 for a studio. A lady I work with lives downtown and found the same situation. She has moved between downtown locations twice in the last three years, each time getting a better place, and each time for less money than the last place.
Deflation is real. It is happening right now. The question is, when will the inflation kick in? And how bad will it be?
By definition of deflation, gold price would fall.
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