We are in a Mild Worldwide Deflation...Be Careful!
s4ny
Posts: 1,569 ✭✭✭
We are in a mild worldwide deflation. This began with the financial crisis in
2008 and has not ended.
At first, it was logical to think that the Federal Reserve's actions would lead to
inflation and higher interest rates. Gold and silver rose, and gold reached new all time highs in mid 2011.
Stocks recovered from their March 2009 lows and the S&P 500 more than tripled.
Oil rose, but didn't reach previous highs because of massive new domestic discoveries.
Interest rates did not rise and actually are lower now than at the peak of the financial crisis.
The bond market (as usual) was the only market that got it right.
Stocks have likely peaked. Precious metals are
already in a downtrend. Oil broke lower. Grains lower. Industrial metals lower.
China is slowing down, Europe is moribund, the US
is slowing.
The asset of choice: The US Dollar.
2008 and has not ended.
At first, it was logical to think that the Federal Reserve's actions would lead to
inflation and higher interest rates. Gold and silver rose, and gold reached new all time highs in mid 2011.
Stocks recovered from their March 2009 lows and the S&P 500 more than tripled.
Oil rose, but didn't reach previous highs because of massive new domestic discoveries.
Interest rates did not rise and actually are lower now than at the peak of the financial crisis.
The bond market (as usual) was the only market that got it right.
Stocks have likely peaked. Precious metals are
already in a downtrend. Oil broke lower. Grains lower. Industrial metals lower.
China is slowing down, Europe is moribund, the US
is slowing.
The asset of choice: The US Dollar.
0
Comments
<< <i>The asset of choice: The US Dollar. >>
Unless you are using that dollar to buy groceries, prescription drugs, a college education, airline tickets a new home or have your car repaired, to name a few.
<< <i>
<< <i>The asset of choice: The US Dollar. >>
Unless you are using that dollar to buy groceries, prescription drugs, a college education, airline tickets a new home or have your car repaired, to name a few. >>
Doesn't matter what asset someone is using to pay for those things, the prices are going up because of supply and demand, "seller pricing power", not systemic monetary deflation of the dollar. And if someone is using PMs to pay for those things, are they doing better than the dollar in recent months or years?
And almost universally in this country, the dollar is the unit of currency, sure some kooks will barter objects in order to be the exception, but dollars still buy stuff.
And gold and silver now buy LESS of that stuff than they did before. Whatever point you're trying to make in slamming the dollar, metals are worse at this time.
And if you say, oh, but wait, I'm a genius and I'm selling silver for 19 that I bought for 9, well there are assets that have done a lot better than that in 6 years time.
Liberty: Parent of Science & Industry
If you accept the notion that debt is money and that the dollar is the asset of choice, you are betting on the debt of the US Treasury being stable, and this depends on a number of variables that are already in uncharted territory.
Money based on a foundation of debt is not an easy concept because it is 100% dependent upon the dictates of whatever the government decides. Whatever it wants, it just dictates it with more imaginary money.
I knew it would happen.
"Banks borrow short and lend long. It's a recipe for disaster."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>And if you say, oh, but wait, I'm a genius and I'm selling silver for 19 that I bought for 9, well there are assets that have done a lot better than that in 6 years time. >>
Baley, I don't recall mentioning silver or gold in my response.
The dollar in my lifetime has been a sure loser, virtually year to year. Problem is, they cost nearly nothing to make, but the goods that they buy generally take time and effort to produce.
The near equalizer though......until 2008, has been an interest return on dollar deposits by individuals at financial institutions. Of course at say 3% interest on a CD and 5% inflation, the depositor took a loss of a couple points, but that was the cost of liquidity and security.
Today the loss is in the 5-7% range. Of course one could suggest that elderly Aunt Irma should have put her life savings into the stock market, but is it really the job of the federal reserve to force folks into riskier assets?
<< <i>Bumper crop prices drop~ cheap corn is great for all.
Yeah, the whitetail deer I'm feeding are gonna eat GOOOOOD this year. Make 'em fat fat. $4 bushel around here.
Too many positive BST transactions with too many members to list.
Add a loss of 10-20% for those who "saved" their dollars from devaluation!!
Take a look at a graph of the stock market....it goes from lower left to upper right....and has done so for 100 years. Risky?
Risky was letting fear guide ones decisions.
The stock market has proven to be a fantastic inflation hedge over the long term. Why do you ignore that?
Knowledge is the enemy of fear
<< <i>
<< <i>And if you say, oh, but wait, I'm a genius and I'm selling silver for 19 that I bought for 9, well there are assets that have done a lot better than that in 6 years time. >>
Baley, I don't recall mentioning silver or gold in my response.
The dollar in my lifetime has been a sure loser, virtually year to year. Problem is, they cost nearly nothing to make, but the goods that they buy generally take time and effort to produce.
The near equalizer though......until 2008, has been an interest return on dollar deposits by individuals at financial institutions. Of course at say 3% interest on a CD and 5% inflation, the depositor took a loss of a couple points, but that was the cost of liquidity and security.
Today the loss is in the 5-7% range. Of course one could suggest that elderly Aunt Irma should have put her life savings into the stock market, but is it really the job of the federal reserve to force folks into riskier assets? >>
I guess it's implied that all posts on the Precious Metals forum have to do with PMs, the comment wasn't addressed to you in particular, but more generally.
You bring up an excellent point about time and effort, what I'm seeing is flat or deflation in "stuff" and inflation for "work", particularly specialized or skilled work that takes capital equipment and advanced organizational systems to produce, so lumping it all together in an "inflation or deflation" question is maybe not ther best way to analyze.
Your other points about the safe but low interest received for savings, about the potential gains but also the volatility of stock market, and about all the other asset classes, reinforces my constant point on these boards of why I diversify.
There's no reason for Aunt Irma to have all her eggs in one knitting basket, she has no idea what specifically will happen, but the high probability is that various returns keep fluctuating, and potential reward is commensurate with risk.
And, obviously, the risk of loss in purchasing powers occurs with metal, witness the past few years..
Liberty: Parent of Science & Industry
<< <i>Take a look at a graph of the stock market....it goes from lower left to upper right....and has done so for 100 years. >>
Sorta like an inverse dollar value chart for the past 100 years? Maybe stock prices have trended up because the currency purchasing them has trended down as is the case with most assets.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The stock market has proven to be a fantastic inflation hedge over the long term. Why do you ignore that? >>
The market has served me well over the years. Unlike Warren Buffet who is noted to be snapping up equities now, I stay away from extreme valuation.
I find though that most average and even many so called advanced investors do know have the knowledge or are willing to take the time to accurately evaluate what a stock or basket of stocks is worth. Too easy to listen to Jim Kramer rant or get caugt up in the hype of a toppy market as we are experiencing now.
Coinrollhunter actually has the right idea if.....if he follows through. Accumulate equities steadily and continuously throughout a lifetime. I suspect that the stuff that he is holding now will get creamed, but as he learns and invests, time will be his friend.
Problem is, as the environment changes, folks around him will be shouting about investing in other stuff. It was tough to ignore the 19% CD rates in 1979. Investors dumped stocks and grabbed a nice return which only lasted for 6 months or a year. In the meantime, the fellow that held a broad basket of stocks from 1979 until today would have about a 40 to 1 return on his investment.
Human nature drives most of us to run with the crowd.
<< <i>
<< <i>Take a look at a graph of the stock market....it goes from lower left to upper right....and has done so for 100 years. >>
Sorta like an inverse dollar value chart for the past 100 years? Maybe stock prices have trended up because the currency purchasing them has trended down as is the case with most assets. >>
Maybe thats why i've always stated that over the long term every asset class will have similar returns.
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Markets already do that for you.
Thats why average wages have gone from $1/hr to $25/hr. Thats why gold has gone from $20 to $1200, why cars have gone from $2500 to $30,000 and homes from $8,000 to $250,000.
For a truer picture, income streams (positive and negative) for those investments must also be calculated.
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
Even more so when inflation is 7% and interest is sub 1%.
Maybe in a round about way this is a forced subsidy from the retired saver to the economy at large to help cover his Medicare benefits. Sinister but effective I suppose.
<< <i>
<< <i>And if you say, oh, but wait, I'm a genius and I'm selling silver for 19 that I bought for 9, well there are assets that have done a lot better than that in 6 years time. >>
The dollar in my lifetime has been a sure loser, virtually year to year. Problem is, they cost nearly nothing to make, but the goods that they buy generally take time and effort to produce.
>>
Why would anyone [other than the Guvmint] care what it costs to make a dollar? What should be of concern is what it costs us [risk or sweat equitywise] to get one. Assuming that I'm reading your comment correctly.
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
Even more so when inflation is 7% and interest is sub 1%.
Maybe in a round about way this is a forced subsidy from the retired saver to the economy at large to help cover his Medicare benefits. Sinister but effective I suppose. >>
Hmmmm. Very interesting. Maybe the spread has increased to make up for all those that are living longer that weren't savers........
Too many positive BST transactions with too many members to list.
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that.
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that. >>
I dunno. I would hope in a decent civilized nation, the books would be balanced and the currency stable enough to allow an old guy to park his assets in something liquid and safe and enjoy his retirement.
<< <i>Bumper crop prices drop~ cheap corn is great for all.
yes, cheap mash
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that. >>
Tens of millions of seniors don't play that game and probably shouldn't. My mother is 82 and has earned basically nothing on $500k in cash since 2008. Like or not ZIRP or <1% rates will be here for a long, long time. The equity markets love it.
<< <i>
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that. >>
I dunno. I would hope in a decent civilized nation, the books would be balanced and the currency stable enough to allow an old guy to park his assets in something liquid and safe and enjoy his retirement. >>
It did--the stock market. Or even the bond market---with the exception of about a 14 month period in 2012-13, 30yr bonds are higher than at anytime in the past and provided and income stream. Only asset class that didnt hold its own, especially in the face of "overwhelming fundamentals" was PM's.
Knowledge is the enemy of fear
<< <i>It should. That makes sense. But he who has the gold, or the money to influence those that want it, makes the rules. Always been that way and probably won't change anytime soon. >>
^^That sums it up pretty well.^^
75% of the country has no (or negligible) holdings in the equity markets. Those who own the system demand the rewards and that's what we've seen. What's left of the middle class will be put out of it's misery within a decade and we'll be left with 10% of the country holding nearly all assets.
Clearly equities are subject to a number of negative and positive influences and can and will continue to be quite volatile.
We have witnessed the market rising and tanking on several occasions over the last 30 years. Clearly an investment at the wrong time for Mr. Senior could be a disaster and frankly some folks like to go fishing and not worry about the ups and downs of Wall Street.
The last 6 years has been nothing but a wealth redistribution as promoted by the administration and the soon to come chapter will eclipse what has happened so far.
<< <i>
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that. >>
Tens of millions of seniors don't play that game and probably shouldn't. My mother is 82 and has earned basically nothing on $500k in cash since 2008. Like or not ZIRP or <1% rates will be here for a long, long time. The equity markets love it.
Not that long ago in a good MM, that $500K could have earned her $25K a year at 5% without even touching the principal. Not no more.
How so? Because I stepped away from the stock market? Because I really do think that debt should be contractual and money shouldn't be linked to government debt?
Maybe too many people are too invested in the fallacy that the Fed and gov.com can create prosperity simply by bumping the money supply and creating more debt to keep juicing the system. History seems to weigh against that approach.
I knew it would happen.
<< <i>jmski, you are too emotionally invested in the failure of the dollar. it clouds your judgement.
How so? Because I stepped away from the stock market? Because I really do think that debt should be contractual and money shouldn't be linked to government debt?
Maybe too many people are too invested in the fallacy that the Fed and gov.com can create prosperity simply by bumping the money supply and creating more debt to keep juicing the system. History seems to weigh against that approach. >>
You keep quoting "history." What MAJOR fiat currency in the last 100 years, became worthless and was resuscitated by a PM backed currency?. Please don't quote the Weimar Republic, former Eastern block countries occupied by the Soviets right after WWII, or some p -s ant African country...none of the aforementioned countries currency was revived by a gold backed currency.
You ARE ignoring history. Nobody said that an economy HAD to be resuscitated with a PM backed currency, did they? The problem is debt repudiation, not failure to back the currency. The problem is debt burden and debt creation. PMs aren't the problem, but it's still quite likely that holding PMs will be one way to avoid personal ruin. Get it right and don't assume what isn't stated.
I knew it would happen.
I knew it would happen.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that. >>
I dunno. I would hope in a decent civilized nation, the books would be balanced and the currency stable enough to allow an old guy to park his assets in something liquid and safe and enjoy his retirement. >>
"....liquid, safe, and enjoy his retirement".
As in no risk?
I have been searching for that investment my entire career.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
(Note to cohorts: don't forget monthly meeting Friday at noon.)
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The 660 article is a prelude to a bottom forming, when more start popping up that's even better... >>
I knew it would happen.
metals aren't really all that correlated with events in the "world of finance".
Well, "Ned Davis" seems to think so.
To wit, "I laugh whenever anyone posts articles or links to support any of their hypotheses and can’t justify it with numbers. Are you that naïve that you don’t understand that articles get written by people who get paid and they have quotas to meet in the form of articles, and the more controversial the better. And as if there are plenty enough articles that counterpoint whatever your position is."
And then you post a link to a puff piece like that. lol.
Hey baseball, there's a lot better analysis and information on this forum than "Ned Davis" will ever come up with.
I knew it would happen.
I knew it would happen.
<< <i>Why did the USSR collapse? It had nothing to do with PMs, did it?
<< <i>
It had to do with a severely disfunctional demand/supply chain. Just like Weimar. Short of a war on this soil or a disease that wipes out 10% of the population, that aint gonna happen here.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>Markets don't tell you this. Try explaining to an 80 year old saver that he's actually losing money on a 3% savings account when inflation is 5%. The market sure didn't explain it to him nor did his bank. >>
As has been repeatedly pointed out on this forum many times whenever this argument is made….this is the result of a poor investment decision. Simple as that. >>
Tens of millions of seniors don't play that game and probably shouldn't. My mother is 82 and has earned basically nothing on $500k in cash since 2008. Like or not ZIRP or <1% rates will be here for a long, long time. The equity markets love it.
Your 82 year old mother should have had at least 20% of her money in the markets. That $100,000 would be worth $200,000 today. And it would have been the same as adding another $18,000 per year to her income. She still would have earned 5%, but probably listened to bad tv or ill informed family members in deciding to buy CDs.
Knowledge is the enemy of fear
<< <i>Cohodk, it is easy for us to look back over the last 6 years and decide what investment was right for the retired neighbor.
Clearly equities are subject to a number of negative and positive influences and can and will continue to be quite volatile.
We have witnessed the market rising and tanking on several occasions over the last 30 years. Clearly an investment at the wrong time for Mr. Senior could be a disaster and frankly some folks like to go fishing and not worry about the ups and downs of Wall Street.
The last 6 years has been nothing but a wealth redistribution as promoted by the administration and the soon to come chapter will eclipse what has happened so far. >>
No, it was easy 6 years ago to have decided that a diversified portfolio would have been the right investment. Just as it will be 6 years from now.
Knowledge is the enemy of fear
<< <i>Why worldwide deflation will hurt gold (help the dollar)
(Note to cohorts: don't forget monthly meeting Friday at noon.) >>
At least he got the title right. ;0
Knowledge is the enemy of fear
<< <i>
<< <i>Except again, more buyers than sellers and vice versa... >>
I'll definitely give you that one. But most of the PM heads here will berate you for assuming that buyers and sellers set market prices when prices are declining. It's obviously behind the scenes conspiracy by the Fed, the government, Wall Street, China, Martians, and Marsha Brady while we're at it. >>
I think the world changed when Marsha got hit in the face with a football. And I never trusted that Ray Walston.
But derryb is correct..."2008 was just a prelude. Nothing got fixed, the risk taking is greater, the debt is greater and the cliff is closer. Dollar will not die but it and it's owner will pay a great price for decades of tomfoolery. This is what happens to misused fiscal trust. Many prior examples." However, I do think the Dollar will die smoe day...not exactly sure how.
And comrade jmski is right..."PMs aren't the problem, but it's still quite likely that holding PMs will be one way to avoid personal ruin." To think our gov't, the Fed, and Wall Street play no "tomfoolery" whatsoever defies common sense and history.
Want smoe history? Here's a crazy tidbit.
Extract from THE FORGOTTEN MAN by Amity Shlaes, Jonathan Cape, London, 2007
October 1933
They met in his bedroom at breakfast. Roosevelt sat up in his mahogany bed. He was usually finishing his soft-boiled egg. There was a plate of fruit at the bedside. There were cigarettes. Henry Morganthau from the Farm Board entered the room. Professor George Warren of Cornell came; he had lately been advising Roosevelt. So did Jesse Jones of the Reconstruction Finance Corporation. Together the men would talk about wheat prices, about what was going on in London, about, perhaps, what the farmers were doing.
Then, still from his bed, FDR would set the target price for gold for the United States – or even for the world. It didn’t matter what Montagu Norman at the Bank of England might say. FDR and Morganthau had nicknamed him “Old Pink Whiskers”. It did not matter what the Federal Reserve said. Over the course of the autumn, at the breakfast meetings, Roosevelt and his new advisers experimented alone. One day he would move the price up several cents; another, a few more. One morning, FDR told his group he was thinking of raising the gold price by twenty-one cents. Why that figure? his entourage asked. “It’s a lucky number,” Roosevelt said, “because it’s three times seven.” As Morganthau later wrote, “If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened.”