Posted on 10/14/2010 7:12:53 AM PDT by blam
Is The Deflation Trade About To Collapse Into A Giant Putrid Sinkhole?
Joe Weisenthal
Oct. 14, 2010, 9:51 AM
Sorry, "Giant Putrid Sinkhole" is the artful phrase a reader -- who sent us the following charts -- used to do describe the brewing fears ahead of the big November QE.
Maybe it's the brewing signs of inflation, and the fear that the Fed may get QE cold feet that's causing yields on the 30-year to pierce through a downtrend.
Of course, if you look to commodities for evidence of inflation, well then it's a big "no duh" -- of course inflation is here.
[snip]
(Excerpt) Read more at businessinsider.com ...
Silver blasting past 25 bucks should wake people up.
Well it's getting a shave from $24 right now.
SLV 23.91
Ag commodities increased in price in the 30’s, even as deflation was ongoing in the depression.
People who think that inflation or deflation is merely a reflection of prices of some good or basket of goods are quite clearly “unclear on the concept.”
Here. (Raising hand)
Silver spot price is 24.52 right now. Made a run to 24.8 before the dollar recovered just slightly. Could make another run at 25 before the Friday close. Dang. 40 Silver Eagles would be $1,000 US dollars then.
In addition, I'm adding to my SLV holdings.
To quote Friedman, “inflation is always and everywhere a monetary phenomenon.”
While the Fed is devaluing the dollar and supposedly printing and pumping all these dollars into the economy, the money is going onto bank balance sheets.
Consumer credit is still declining. Wages are stagnant or declining. People talk about businesses stacking up huge wads of cash on their balance sheets, but the same people ignore the fact that this cash is balanced by liabilities of debt on those balance sheets.
The brutal truth is that the money the Fed is pumping isn’t making it into the economy. There are still large numbers of people defaulting and large bad loan losses coming down on the banks. Money is literally disappearing into thin air as the credit bubble collapses. Banks aren’t lending because people want to decrease their debt, not increase it, and because the bankers now have very tight lending standards. A whoppin’ large cohort of the US public has FICO scores less than 620 - nearly 30%. Only 47% have a FICO above 720 - and those are the people to whom banks will lend, if the >720 applicant has income. And an increasing number of these people don’t.
Meanwhile, we’re now competing for commodities (ie, actual, real “stuff”) with overseas economies at the same time supply is decreasing, so prices on commodities are going up. The farm harvest so far this year is looking like we’re taking a minimum of a 5% yield hit in corn - beans are yet to come in - and demand from overseas is strong. There doesn’t have to be more money for commodities to go up - only less commodities. In that instance, there need not be any more money chasing the commodities to see a price increase. Commodities are priced at the margin; as soon as you have only a 2 to 5% shortfall, prices go up very rapidly. As soon as you have a 5% surplus in supply, the prices can come down just as quickly.
The deflationary backdrop is still in place. Housing prices are still going down, and they’ll go down further. That means home equity loans are non-existent. Wages stabilized, but I think they’re about to start going down again because the commodities increases are starting to crimp producers’ profit margins, which means that wage increases for labor are going to be slim to negative. The government is already indicating “no CPI increase for you!” for Social Security recipients. TIPS show there are no inflation expectations. The short end of the yield curve continues to plumb new yield lows, showing bond investors don’t expect any inflation.
The major producing countries of the world are engaged in a round-robin “cut your neighbor’s throat” game with their currency. Everyone now wants to devalue their currency to make their exports more attractive, and imports cost more. That also doesn’t happen in times of real inflation.
To quote Friedman, “inflation is always and everywhere a monetary phenomenon.”
While the Fed is devaluing the dollar and supposedly printing and pumping all these dollars into the economy, the money is going onto bank balance sheets.
Consumer credit is still declining. Wages are stagnant or declining. People talk about businesses stacking up huge wads of cash on their balance sheets, but the same people ignore the fact that this cash is balanced by liabilities of debt on those balance sheets.
The brutal truth is that the money the Fed is pumping isn’t making it into the economy. There are still large numbers of people defaulting and large bad loan losses coming down on the banks. Money is literally disappearing into thin air as the credit bubble collapses. Banks aren’t lending because people want to decrease their debt, not increase it, and because the bankers now have very tight lending standards. A whoppin’ large cohort of the US public has FICO scores less than 620 - nearly 30%. Only 47% have a FICO above 720 - and those are the people to whom banks will lend, if the >720 applicant has income. And an increasing number of these people don’t.
Meanwhile, we’re now competing for commodities (ie, actual, real “stuff”) with overseas economies at the same time supply is decreasing, so prices on commodities are going up. The farm harvest so far this year is looking like we’re taking a minimum of a 5% yield hit in corn - beans are yet to come in - and demand from overseas is strong. There doesn’t have to be more money for commodities to go up - only less commodities. In that instance, there need not be any more money chasing the commodities to see a price increase. Commodities are priced at the margin; as soon as you have only a 2 to 5% shortfall, prices go up very rapidly. As soon as you have a 5% surplus in supply, the prices can come down just as quickly.
The deflationary backdrop is still in place. Housing prices are still going down, and they’ll go down further. That means home equity loans are non-existent. Wages stabilized, but I think they’re about to start going down again because the commodities increases are starting to crimp producers’ profit margins, which means that wage increases for labor are going to be slim to negative. The government is already indicating “no CPI increase for you!” for Social Security recipients. TIPS show there are no inflation expectations. The short end of the yield curve continues to plumb new yield lows, showing bond investors don’t expect any inflation.
The major producing countries of the world are engaged in a round-robin “cut your neighbor’s throat” game with their currency. Everyone now wants to devalue their currency to make their exports more attractive, and imports cost more. That also doesn’t happen in times of real inflation.
Good moves. Has to sell some of my silver to get through the summer from h*ll. Oh well, at least I made it. Quite a few others did not. Had to change my Sole Proprietorship business model and am climbing slowly back out of that hole. Still got some silver though !
I’m loving my SLV options. 270% increase since May.
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