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"A Full Blown Deflationary Episode" Coming
In his latest missive, Albert Edwards, among other things, touches on two of the most critical drivers in the current economic climate: deflation and Treasury supply. His observations lead him to conclude nothing good about the follow-through for the current bear market, liquidity driven, short squeeze induced equity rally. However, more relevantly than touching merely on what is a unprecedentedly overpriced equity market, Albert will likely spark some newly-heated discussions between inflationists and deflationists (which in this economy where the only fundamental analysis deals with the Fed's balance sheet and Cash Flow statement, which until HR 1207 is instituted, readers have to mostly guess at, is really all that matters).
First, Albert has this very interesting tidbit about GDP, and why the headline indicator is really missing the big picture about the encroaching deflation that has gripped the US economy in all but the acknowledgement by TV talking heads, much to the chagrin of the Fed chairman.
My former colleague Rob Parenteau pointed out something interesting to me the other day. He noted the huge divergence between US economy-wide inflation as measured by the gross domestic product (GDP) deflator and a slight variant of GDP, the deflator for gross domestic purchases (see chart below). The key definitional difference between the two measures is that the latter includes recent savage import deflation (as GDP includes exports and excludes imports). Hence the gross domestic purchases deflator is a better measure of what is going on in the US domestic economy. With import prices down some 19% yoy and even a record 7.3% yoy if one excludes petroleum, no wonder the price of domestic purchases has already fallen into deflation. If anything, domestic purchases inflation leads trends in both GDP and core CPI, so this is significant news.
The media's desire to ignore this metric, which convincingly indicates that deflation is among us, despite the wanton destruction of US Dollars by Chairman Ben, is not surprising: the last thing US consumers need to know is that a dollar today may be worth less than a dollar tomorrow, and thus drive them to save even more, further crippling the Ponzi monster that the US economy has become.
As for the other very relevant topic: why are Treasuries now back to yielding almost record lows, despite trillions of new pieces of paper backed by the declining full faith of the US government, Albert had this observation.
But what about massive supply of government bonds I hear you ask? Won?t that drive yields higher? Well it never did in Japan. But let?s cast our minds back to the early 1990?s US credit crunch (which seems so minor in retrospect!). What happened then is that US commercial banks bought US Treasuries aggressively at the same time as they contracted lending to the private sector (see chart below). This continued well after the end of recession in early 1991.
I note with interest that Swedish Riksbank recently took its target interest rate negative, in an attempt to force banks to remove surplus reserves and resume lending to the private sector. Of course, no such thing will happen as banks are continuing to buy government paper in unlimited quantities - I note here the recent collapse in UK 1 and 2 year yields to new lows. In the US and elsewhere, where commercial bank exposure to government paper is still close to all-time lows, the unwinding of grotesque over-exposure to bubble sectors like real estate (see chart below) will continue to underpin the secular bull market in government bonds.
The last is quite an interesting observation, which brings the confusion full circle: as Rosie notes constantly, his thesis is buy Treasuries on the deflation threat. Yet the real issue may be that banks, stuck with record excess reserves, and even more record holdings of toxic real estate paper, will sooner rather than later, realize that they can not rely on the Fed's backing in perpetuity and gradually start offloading the toxicity that currently passes for bank assets, and move into a safer class, especially as leveragability falls off, and banks once again become banks, instead of glorified, backstopped hedge funds, a prime example of which always is Goldman Sachs.
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There is a new bull market in buying puts.
LOL.....
finally a bubble i can get on board with
Puts and Calls are the same thing*
*when delta hedged.
** and when: strikes are identical, there is a perfectly flat vol surface, and there is zero bid/ask spread in financing!
Junker Stock Watch:
Man Overboard!!!
Yeah, but is this just a great buying opportunity ;)
Go get a margin LOC and buy that one!
I don't thnk there are enough Mae West's to save them all...but a pic or two might help ease the pain ;-)
Pete
Priceless. Thanks.
Robot - have KRE on 50DMA watch? The zombie regionals are bleeding profusely again today.
Agreed. Puts are in place on the names that weren't bought by Paulson & Others last Q. But today I kinda wish I hadn't taken some profits in the gold miners to purchase those puts... Gold, of course, broke the 960 upper trading range - and now everyone is jumping on the most leveraged names.
Nono; physical is in place. Gold miners are retirement account money used in conjunction with puts on individual names to hedge in this market. Sadly, all too aware of what can happen to even the best of the miner stocks in a credit contraction/deflation cycle.
This would greatly improve capex spending and investment in US industry, but not to worry the stimulus is going to do that.
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Ah!...Mr. Paulson - which reminds me - looks like he is winning - again.
Gold cautionary from Global European Anticipation Bulletin:
http://www.leap2020.eu/price-of-gold-the-paradox-is-revealed_a3744.html
Robothreadjacker.
You haven't got the memo that AIG, FNM, FRE, CIT and other junk is now carefully "managed" by the staff at Direxion.
AIG is 4x leverage !!!! LOL
He got it all right except for two letters.
DE-flationary
Why would I save money that would be worth less in the future? Buying hard assets is more likely. just asking
"...that a dollar today may be worth less than a dollar tomorrow..."
It's akwardly worded, but he's describing deflation where tomorrow's dollar is worth more than today's or as he said today's is worth less than tomorrow.
yep, agree
That threw me too. Better would have been:
"The last thing US consumers need to know is that a dollar tomorrow may be worth more than a dollar today, and thus drive them to save even more."
Always good form to phrase in the positive, makes it easier to grok.
Two words: Exter's Pyramid
Capital ultimately moves *down* the pyramid during systemic crisis. Thanks to FOFOA for the image.
I think the food pyramid would be more appropriate here.
If the shit truly hits the fan, even gold will be fairly useless. You can't eat it, sleep on it, grow anything on it, drink it, wear it or even wipe your ass with it.
A better store of wealth would be raw land/acreage. And you get to use it for enjoyment to boot!
Ask Argentinians.
+1
can you elaborate a little further? I know the general story, but in reference to gold vs. acreage.
When people get hungry your farm is a soft target for murder/takeover/government expropriation. You can't take land with you. Gold fits in your pocket.
That's what they found out in Argentina.
That is the short version and is correct. Gold also fits quite well in the Bank of Gaea.
Better yet, ask Zimbabweans!
History tends to disagree with that analysis, which is why most governments reserve the right to deprive their people of owning gold. Ultimately, a transportable and non-perishable form of wealth (i.e. money) is needed to carry on business/bartering. When the fiat paper (including bonds and equities that are based upon it) becomes only so much Charmin tissue, one can be fairly certain the de facto transportable wealth will be precious metals once again.
Catching comes before hanging.
"You can't eat it, sleep on it, grow anything on it, drink it, wear it or even wipe your ass with it."
Buy you can trade it for stuff you need.
Will you be able to do the same with currently commensurate pieces of paper, or electronic media representative of that currently commensurate amount of paper?
"Buy you can trade it for stuff you need."
If the dollar collapses against gold, there will be no prices for anything, I think. Gold is presently about 1/100 to 1/80 of its true value.
"Gold is presently about 1/100 to 1/80 of its true value."
I disagree. Historically (i.e. for millenia) gold has been worth about 300 loaves an ounce and has always crashed back to earth when it has exceeded about 3 times that level. If the dollar goes kaput that doesn't at all justify an order of magnitude increase in the gold/bread ratio, because in that scenario bread will be more popular than gold.
Indeed in zim the purchasing power of gold and US dollars fell significantly wrt bread (bread going for $5 a loaf), simply because the bread supply declined so momentously.
Why don't you ask these people if they can "eat" their gold?
http://www.youtube.com/watch?v=7ubJp6rmUYM
Useless?
Never.
How much is land worth when there is no rule of law and no resources to farm it? Zimbabwe was once known as the "Breadbasket of Africa".
No resources to farm it?? If they can dig for gold they can plant crops.
I'm thinking ammo > gold when TS really HTF...
You don't own land.
You lease it from the state.
Think that's wrong? Try not paying your property taxes.
PM, Look at the jump in Gold just now! I'm getting a gold nosebleed. Ahhhh!
Yeah! It's interesting because the dollar has barely moved. I wonder what it looks like in Euros or Yen... I hope it stays there haha.
HAHAHAHAAAAHHHAAHAHAHAHAHAHAHAHAHAHAHAHAHHAAAAHHHHAAAAAAA!!!!!!!!
Capital ultimately moves down the pyramid in precisely that order during systemic crisis? It must be great to be smart enough to have the world figured out with such precision.
That didnt hold true last Oct or this past Feb-March. Not saying anything about the future, nor any opinion of this chart....just an unbiased comment
it's interesting that it didn't hold true. if you'll recall, however, most of us knew about the subprime crisis _before_ the S&P 500 actually rolled over hard. it's like most people thought "it's known so it's priced in." and then finally it rolled over as it should have, and everybody freaked out.
everybody knows we are expanding the monetary base, which unlike lending or derivates, creates PERMANENT, rather than temporary, money, and therefore, essentially permanent inflation, and yet gold hasn't really done all that much so far. to this point, it has just recovered from the forced selling it saw in the crisis.
everybody knows where we are here, but I still think the "freak out" in gold (much higher prices) is still to come.
for what it's worth, the four local managers I'm aware of in my city who had positive returns in the last 12 months are all, independently from their own research, long gold here. either it's a very crowded trade, or a very smart money play. only time will tell.
After all those dollar collapse posts and Marc Faber missives I started to prepare for hyperinflation and $50000 gold.
What to do now? What to do....
Please advice us....
You are on the right track. Inflation is all around us, but Precthologists will never admit it. Cooked CPI numbers won't buy you bread and milk from the store.
find a thoughtful IA who can construct a portfolio that will reasonably withstand either an inflationary scenario, or in a deflationary scenario.
you are going to have to look hard. it won't be a guy who works for a national brand, and it won't be a guy who believes in a 100% index fund portfolio. if someone lost more than 15% in 2008, you know right away that you should probably disregard their advice.
No large funds are levering up to buy stock.
Maybe at the EOD we might see a ramp up in equities.
Almost 0 dollar movement so nothing spectacular should be expected....going to sleep, this day is gona be boring.
"...the last thing US consumers need to know is that a dollar today may be worth more than a dollar tomorrow.."
Shouldn't that be reversed?
US moving from cars to bicycles, China moving from bicycles to cars. Oh, the symetery.
yes, fixed.
For a rebuttal to the deflationary argument please read this article at ITulip:
http://www.itulip.com/forums/showthread.php?p=116417#post116417
BULLCRAP!
good article, but the hole in this analysis assumes people will be buying the same amount of goods, or even close to it. Americans live in dwellings 3x the sq ft they did 50 years ago, and have unbelievable amounts of crap relative to 50 years ago and relative to every other country in the world. The last standing retailers will not raise prices due to supply shortages, as people will be buying 1/5th of what they used to. Dont believe me? Check out the amount of retail sq ft we have per capita relative to everywhere else on earth. We are in for deflation and while supply will be much lower, demand will be even lower than that.
I understand your point, but demand for junk and demand for essentials are two different things.
That trade is gonna work like gangbusters for about 2 months then go horribly wrong.
"the wanton destruction of US Dollars by Chairman Ben"
You mean destruction of *value* of US Dollars?
Plenty of dollars pouring forth from the fed.
Today is going to be an interesting day. Look at GOLD. All summer long it moved in tandum with equities ( equities up, gold up). Today it has broken away. PPT is trying desperatly to hold the line at 992 on the Sept S&P. A solid break leads to a drop back to 980. That's where it should get interesting. A close below 975 would signal a major top in the equity markets.
Yup. Gold - as expected (by me at least) - is diverging from equities; and, in fact, may at some point even start running INVERSE to stocks (as was the case earlier this year). Just imagine how good Gold will start looking to the average investor now - rising spectacularly amidst crashing stocks and other commodities (although I expect the commodities to rise significantly as well, but not as much as Gold). We'll probably also see DXY and Gold moving up in unison at some point...oh wait...we're seeing (some of) that today. I also think that Gold will go up far higher than stocks will fall. This crisis - at its core - is a Gold crisis.
Gold may bifurcate from the dollar as it did at the beginnning of the year. I wrote this ditty then:
Welcome to the Gold-Dollar Bifurcation
Joe Sixpack.me
Welcome to the Gold-Dollar Bifurcation.
Just in time for the Obama administration.
Competition for the dollar.
This ought to cause the Fed to holler!
Welcome to the Gold-Dollar Bifurcation.
A new trend is in formation.
Shiny beats empty, and the financial systems goin' down.
If you got gold or silver, you're goin to town!
Welcome to the Gold-Dollar Bifurcation.
Derivatives implosion lead to dollar's deprecation.
Markets down, and bonds collapse.
The world's current financial system will lapse and pass.
Sorry to say GG, but you're completely missing the point.
The crisis - at it's core - is a regulatory one, then credit one, then a moral one. Ponzi!
Although I am a physical gold holder and investor, the truth is that Gold plays a small role in today's financial world. With huge amount of Fiats leveraged up many times over and used by the power centers in "Planet Earth's Monopoly (tm)" in a giant game of chicken, gold is but a water boy in the game. Still has great profit potential, but it's not a gold crisis, not even close.
This is a political crisis. Wait and see.
Yup, and Gold is the most political of elements.
Automatic earth has been banging that drum since the start. I must admit, those two make a pretty compelling argument.
I will grant you that gold is the last asset to be liquidated in case of deflation, but liquidated it is. Every time you like to forget December. Gold DID take a nose dive when the worst deleveraging was happening. You need to address this in monetary terms before you can solidify your arguement. (no GATTA arguements allowed)
When there is a hiccup investors hide in gold, when there is a tsunami, investors sell gold to pay the bills. It's that simple. Also remember, there is absolutely no reason for gold from diverging from other commodities. Gold is just the "ideal" hard asset, but it is a hard asset and should generally long term trend together
Hmm, sounds like Swiss banking institutions, doesn't it? Wegelin bankers, please take you moral indignation and stick it where the sun don't shine.
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Gold will rise; Dow will fall. Somewhere they will eventually met in the middle. I just hope AU is above 900 when that happens.
Looks like gross domestic purchases leads gross domestic product.
Eeven though I do believe in the possibility of deflation,and that currently there is some deflationary pressure in the economy,but I still can't reconcile that with productivity. Prices are an equilibrium of supply and demand,and you can't just take them in pure relevance to a certain peiod. For example,last year was an exeptionally inflationary period with prices of energy and food skyrocketing. So for us to look at the cpi in relation to last year,is kinda missleading. I would like to compare prices to a period where oil and homes for example where at the current prices(2003 or 4,I realy don't have the resources)and then we will get the picture. The other point I have problem with is productivity. We have way too many uncompetitive companies that survived simply due to the fed loose monetary policy. Now wouldn't that in essence makes this economy behave like the old Soviet Union?If total consumption exceeds total production,then that should create inflation. Now whetehr prices stay the same or decline or go up,I realy don't think it matters. What matters is what can you buy with what you earn.
Prices are based on a unit of currency. When the value of the unit of currency changes, prices change. This is independent of supply and demand.
If $50 trillion in outstanding credit turns into $25 trillion, the value of the $ will increase. Even though Americans are saving more and credit is being written off, the Fed/US Government is spending faster than the contraction. This cannot continue forever.
being the world's reserve currency is not a permanent guarantee. just because our trade imbalance improves doesn't mean capital will actual want to flow to dollars. remember that when you have capital flight, you can have a currency tank and a stock market tank both at the same time. we've seen in happen countless times to EM countries--the U.S. is not immune to this possibility.
It is appaling the mismanagement in the last 17 months of this economic disturbance. And, for the public to be completely at the 'mercy ' of disinformation is even more scary.
I guess the fit will hit the shan when the wool is pulled from their eyes and the 'facts' are on the table.
Global debt w/offs are the only answer with a quasi-gold standard as a foundation for the future.
+10
Either that, or govt's and banks can't get their shit together soon enough, and people start using it as money without their 'permission'.
Although this is the only financial site that I trust anymore, I find myself in want of more. As an owner of a public works construction company I too felt the change in 2007. By September of 2007 (better to be lucky than good) I had liquidated nearly everything and have been all cash ever since. This has worked out fine since I have made 4.5% in cd's average while many people I know have lost then made a fortune while still netting an overall loss.
My question from zero hedge and it's readers is what the hell do I do now. Do I convert to a foreign currency, buy the useless yellow metal, buy a ranch in a remote location...etc. I know the world is going to shit, i just would like to know what floats reasonably well on shit. I would love to see an article on here about various scenarios that could play out and possible solutions that may pop up.
I understand the doom and gloom as I have watched the number of bidders go from 3 or 4 on a public works road jobs in the seattle area to as many as 40 or 50(apparently the stimulus check is in the mail), but at some point you either give up or come up with a plan. I personally am not ready to jump out a window.
DYODD.
Foreign currency, gold, land. You pay your money and you take your chances. Personally I went with gold; all foreign currencies are being debased.
Farm in the country? Very dangerous, IMO. If your neighbors can't hear you scream some very nasty things can happen to you. Read Ferfals' blog for details of atrocities in the country in Argentina. I am staying close enough to town, but with enough land to kitchen garden, but not a full-blown farm.
Your neighbors may not hear your screams either, especially if the zombies got to them first. When the zombies are hungry for brains nothing will save you.
I think you might enjoy checking in on oftwominds.com every now and then. Find the guy's "survival +" ebook, and wander around his blog.
I'd suggest this bottom line: if paper money really does becomes worthless, and we get supply chain failure and widespread poverty (and that's what a gold/land hedge [zero-hedge?] is really talking about)- then securing your place in a strong community will probably matter much more than preserving your wealth from before the crash.
Unless you're planning to use teh zombie depression to mount your assension to the powerful elite; your plan for finding a place in a strong community will be unique to you, as will how and when you start using your current wealth as ONE OF your tools to accomplish that. Gold, land, durable equipment, even weaponry could all fit - but only if it matches your personal strengths, limits, and plans.
Oh, and finding hedges that don't end up sinking you if the zombie depression DOESN'T come to pass matters, too!
www.survivalblog.com
I have no idea why anyone would tell you to buy anything as an investment in a deflationary environment. By definition the worth of any and all assets will be decreasing.
Cash is king. Stick it in a bank account if you trust the FDIC. If you don't shove it under your mattress, bury it in the backyard, who cares just hold the cash. Each day the value of everyone else's assets will decline and the value of your cash will rise.
Deflation comes in two forms Asset Deflation and Monetary Deflation.
Of note, try and find a case of monetary delfation with a non-redeemable (fiat) currency. Never happended. Read up on what actually happened in the Great Depression right after the government took the internal gold standard away.
What we are looking forward to is a simultaneous asset deflation (assets of all sorts lose their value) and rampant monetary inflation (value of dollar goes down).
Helicoptor Ben certainly has no power over asset deflation, but he has ultimate power over monetary delfation. Ever hear the term "Jobless Recovery".
Just my two cents (in the future will need much more than two cent).
PS. The only way to stop it is to enforce an inflation target of much less than 1%, and have base lending rates of at least 5%. We'll see if Obama has the nutsack to make that happen.
I'm sorry, but this makes absolutely no sense. How on earth can inflation and deflation occur at the same time?
You are saying that monetary inflation (it will take more dollars to buy "stuff") will happen at the same time as asset deflation (the value of "stuff" -in dollars- will decrease) ??
Wouldn't they cancel each other out?
Let me try an example.
During rampant inflation money loses value so we can say $100 dollars today will buy the same amount of stuff as $110 tomorrow and $120 the day after. The dollar is clearly losing value, what I bought for $100 on Monday now costs $120 on Wednesday.
But during asset deflation money gains value. $100 dollars today will buy the same amount of stuff as $90 tomorrow and $80 the day after. The dollar itself is gaining value relative to goods. What I bought on Monday for $100 is now on Wednesday only $80. The goods are getting cheaper in dollars, they are deflating.
Can you see how this is a contradiction? You can not separate monetary and asset deflation when assets are priced in money.
Gold ROCKETING higher...just hit 972. LOVING IT. We need a post about Gold Tyler...asap.
Deflationistas taking it in the prechther hole, again. Don't worry, Bob will be out with another 'gold to $10' report any time now.
ROTFLMFAO. Bobby just got Prechterized.
GG,
I agree with you about gold in the long term. But how can gold keep going higher while yield curve getting flatter?
(Yield curve is getting flatter since early June 2009)
Gold says no to deflation! Can smell a test of the old high. Stimulus V2 perhaps????
Godl says rather inflation or deflation results, paper currency (USD) is not being trusted.
Thank you for saying it first.
The blogosphere has concluded, to paraphrase, that the first and most desperate priority of the OECD elite has to be protection of bondholders in the toxic swill arenas. There are several reasons for this, among them that the ultra rich and important state interests (China and OPEC) have holdings there, but also that middle class pension and insurance firms would collapse if bonds were written down.
This in turn ensures a Lost Generation with real returns near zero for all major asset classes. Commodity, currency and precious metals (sharing aspects of both commodities and currencies as well as other unique attributes) may be exceptions but with large associated risks.
But...it's complicated. Having decided on lies and cheating as the major implementation strategy, the elites must now 'hold the line' on many many fronts. Because no one trusts anything, and speculators can pivot in a heartbeat, any institution or market can go postal at any time. It is a target-rich environment if you can swing a big enough bat to move prices.
For the average person, it is hopeless to consider participation in financial markets as a value-enhancing measure (OK as a risky parking lot for excess savings, but not for real return) for the next several decades, barring some total phase change and resurgence of 'olde virtues'. Credit and jobs will mercilessly contract. Incomes will converge with China and Mexico. The entire household business model built for the Industrial Revolution (version 2.0, following the failure of the 'child labor/tenement slum' demo) is broken and no one is even discussing what might replace it.
Kudos and respect to the Zero Hedgies of this world for rapid, insightful and funny monitoring of the disease at the micro financial level. It is an irreplaceable service.
I hope that the elite strategy succeeds (a global bond collapse would be multiples worse than what we've seen so far), but is supplemented by savage clawbacks of value from the 'big boys'. I would prefer that the bonds be written down in an orderly fashion, with income-graduated tax credits given to offset the losses for those making under $500,000 per year. That would obviate the need for a Lost Generation. But, no one cares. Also add public officials to bank lending desks to get (backstopped) lending to small businesses going. Like the 1930s. Remember them? The 1930s? No? Heard of the internet? It's on there. The problem is it took about three years from the crisis to figure it out...ooh I get it now. We aren't any smarter.
Never mind then! Cheers!
--Jim in MN
Exactly right, treasury yields are likely to keep going lower over the medium term or longer, just as in Japan since 1990 and in the US during the Great Depression:
http://www.thoughtofferings.com/2009/04/tentatively-bullish-case-for-tre...
And yes, banks were big buyers in those cases and should be again as they look to fill the hole in income-generating assets made by the private sector's contracting debt (see graph here):
http://www.thoughtofferings.com/2009/08/why-treasuries-find-buyers-and-i...
Great article
also gold smells deflation or hyperinflation
AIG recovering from its low for the day. I think it's cute the way they pump up equities whenever gold takes off.
Gold going crazy this morning. I don't see any currency moves to justify it. Hmmmmmmmmmm
gold is like money only better store of value..given deflation, money is king and best money is gold. that is why gold always does well in deflation and certainly crisis lead deflation.
Michael
BINGO.
Gold IS Money.
As king of bankers JP Morgan once testified before the US Congress - "Gold is money and nothing else".
"Gold still represents the ultimate form of payment in the world. Fiat money in extremis is accepted by nobody. Gold is always accepted."
Don't let the Judge read this, she still maintains that Greenspan abandoned his love for gold after he left school.
You got it exactly backwards. Make a distinction between money and CURRENCY. Money is any tradeable good, currency is a fiat vehicle to transact goods. Gold is money, dollars are currency.
In inflation dollar supply goes up. Price of currency goes down. Long assets
In deflation dollar supply goes down. Price of currency goes up. Long currency
Supply and demand. Welcome to the Austrian way
My 'theory' is that the Swine Flu vaccination hysteria is now hitting the retail investor, and the last of the people available to buy PMs (besides the daytraders) are doing so. I'd even bet daytraders are long gold (or miners) today on the breakout over 960. A close over 975 would be extremely bullish, fwiw.
I'm just sitting back, waiting for the pain. To wit -
500 to 1200 more bank failures, some big ones to boot. I was told that the latest Graduate School of Banking session was like going to a funeral...
CRE has a LONG way down, banks are still extending and pretending. Just wait until they foreclose and liquidate!
State/local budget crises building momentum...
Potential shutdown of HAL 9000 and the heatmapping robotraders...
Unemployment/underemployment as a leading indicator of the next leg down...
Large numbers of people falling off unemployment benefits - the financially destitute make great neighbors...
Naked monetization of the national financial servitude by Zimbabwe Ben and Timmah!...
Mortgage mods creating the next wave of housing pain. Don't forget those Alt-A and Option ARM resets in 2010 and 2011...
Deflation, Inflation, Stagflation or the panic du jour...
Cap'n Trade, Socialized Medicine, Afghanistan, recriminations at the CIA...
Swine flu paranoia...
I sit here in the middle of nowhere just laughin' and wonderin' how the angry suburban hordes will respond. Will they mill around like tranquilized sheep or go all Capital One barbarian up in this piece?
The suburban hoardes once angry and hungry, will be descending on your "middle of nowhere" location like plagues of locusts... Don't get too smug buddy, the world is a small place.
Like zombies searchin for brains!
"The suburban hoardes once angry and hungry, will be descending on your "middle of nowhere" location like plagues of locusts... Don't get too smug buddy, the world is a small place."
Not if he's got his perimeter set up properly.
You'd be surprised how easy it is to get someone to consider an alternative target when they hear a loud boom and then see the guy to their left falling back to the ground as a fine pink mist.
There are always easier targets.
Think of all the people out there that thought it was pointless to consider preparing for their own self-defense in such a situation,... like you.
I'm not sure about that theory. See Chinese Communist human wave attacks in the Korean War:
"They were like a tide, ceaselessly crashing on the shore, one after another," said Ju Sung-ro, a 73-year-old South Korean veteran, recalling a Chinese attack in 1951.
"If one wave was destroyed, the next unit went forward, and then the third unit. They had no guns, only grenades, so they needed to get within 25 metres of us. We were firing all the time, yet they kept coming and coming. Their faces were expressionless. The barrels of our machine guns were turning red and warping from the overheating. We had to pour water on our guns to keep using them. I was surrounded by the human wave, and I was sure I was going to die. And all around me, I could hear the Chinese singing."
That is probably the most bizarre and yet fantasticly skuril account I've read on the internet in a long time.
Made me think a whole lot.
First WW not a lot different - "What's the matter with you, you want to live forever?" - as another wave headed out of the trench into the german machine gun fire.
Or, rather, seeing the "fine pink mist" and THEN hearing the bang. Otherwise you're letting them get too close.
For those proposing land as your best store of value, keep in mind that your ownership of land hinges on local laws being followed and on your payment of property taxes. Skyrocketing taxes and/or corrupt local politics could take your land away. Land isn't completely secure unless you own your local government.
Also, land has to be used to be valuable. If labor becomes cheap, that may be good for land prices - but if labor becomes scarce (like from a pandemic) they may go down. Look at the effect of the plague on serfdom in England in the middle ages.
There is nothing perfect, unless your name is Captain Nemo and you can avoid civilization for a while.
This is an important point. What we "value" depends on the situation we are in. You value paper money or bills... until these have no face value. Then you value precious metals... until there are no trusted traders to exchange gold for goods. Then you trust land ownership... until there is no record of your title, or nobody respects such things any more, or there is no government or courts to back up your claim to ownership. Then you value force... until a larger thug than you shows up. Then you value the shadows and hide yourself and your family until someone reinvents civilization.
In the long, slow slide to the bottom your values change. We gamble that we understand how far it *will* fall and peg our safety net to that point... but that's just a guess.
Some people right now are guessing that things are going to fall pretty damned far. A few, see no bottom at all.
I am begining to listen to these lines of thought. I do not detect any mechanism at the ready to pull us out of the dive. I'm wondering what the crash of civilization sounds like.
cougar
Depends if anyone is left to hear it or not.
According to Robert Frost, this it what it sounds like:
"Get off my land!"
"What makes it your land?"
"I got it from my father."
"Where did he get it?"
"From his father."
"Where did he get it?"
"He fought the Indians for it."
"O.K., I'll fight you for it."
I do not expect we'll reach Mad Max levels, but I do think anyone whose entire investment plan depends on 100% reliable, honest, good faith and affordable enforcement of current laws and conventional property rights, may want to consider a Plan B as well. The details of a useful Plan B are much more complicated than identifying the potential need for one.
Tyler et al, it would be nice some day to have an analysis of which US states and which foreign countries are most likely to ride out the current events with a clean legal system, tolerable crime and no foreign invasions. New Zealand and Canada are the two that always spring to my mind, but that isn't based on very much research. Jim Sinclair certainly talks up Tanzania but given the state of most of Africa I'm not inclined to take a plunge there, and he is not exactly independent in commenting on that nation.
The dollar is worth crap. JGBs never exploded because they were not owned by the rest of the world when the crisis unfolded and nor was the government that levered.
gold is not a regular commodity...it is a store of value and in a crisis will store more value...at least until whenever then any fait currency. hence, deflation is good for money and gold is the best money. no surprise it rises as deflation is increasingly obvious presently and in the near term.
I think my Iphone ate my last message so here it goes again.
As much as I find Zero Hedge one of the only reliable sources of financial information I find myself in want of more.
I am an owner of a public works construction company as saw signs in my industry in 2007 that made me liquidate nearly everything including stocks by September of 2007. I have been cash ever since and have made about 4.5% ever since. Although this is a crappy percentage it has been better than most people I know who lost a fortune then made a fortune while still netting an overall loss. In my industry in Washington state I have watched the number of bidders per job go from 3 or 4 this time of year to 40 or 50 with projects actually going for below cost, and I am watching my competition evaporate into bankruptcy(apparently the shovel ready stimulus check is still in the mail). I agree with this article in that I think the near to mid term is going to be deflation, but I really don't know what to do. This site does an excellent job of exposing the naked emperor but I would love to know what we should do when the rest of the world catches on.
We all know that the world is a sea of shit, but I would like to know what floats reasonably well on shit. Could zero hedge post an article about various scenarios that may play out, and possible solutions to problems that may pop up? Do I buy foreign currency, buy the useless yellow metal, or buy a ranch in Montana and lots of guns.
Yes, yes, and maybe. You should look at the MERK funds for the first option. For the third option, you may want to consider being away from large cities and living in a good community. That's not the kind of thing you can do overnight.
Keep mainly cash...
Have some gold (5-10% just in case)
Buy a ranch in Montana if you like fly fishing, ranching and nature (but not necessarily for an investment...real estate in general will take a deuce along with everything else).
2-3 years from now, you will be able to buy 2-3x what you are able to buy now.
...in my humble opinion.
Would love to know what Tyler and some of the other smarties have to say as well.
ZH is not a place to seek financial advice and you should notice that the principals here shy away from assuming that role of financial advisor. If you manage your own investments then you may find useful information here, as well as elsewhere, to help you make your own decisions.
As always Big Ben the Bald, Caveat Emptor my friend, Caveat Emptor.
A market is a meeting place where a fool and his money soon depart.
Financial advice is the toll you pay on the road to the market.
Exactly right. ZH, its contributors and posters, alike, make you think and think hard. The information I read here makes me think about how I can turn it into money. Thus far it has worked and I have only been reading for a month. It's been a hard month playing catchup, but well worth it.
If you create a user account here, your posts will be displayed immediately.
Just sayin.......
Very good point...
FYI
THIS IS JUST MY OPINION...and I am not in the business of providing financial advice.
I could be a crazy lunatic or a complete dumb ass...likely a little of both in some peep's opinion. ;)
"Do I buy foreign currency, buy the useless yellow metal, or buy a ranch in Montana and lots of guns."
Yes.
Obviously the options issued to bank execs would not influence them to (a) make constant nebulous claims of how great they are doing, and (b) put off writing down bad
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
loans.
Expect gold will tease 1000 and then come down with short equities/long dollar trade working well next 6 weeks.
Possible inflection point for rally, perhaps Oct 11-Nov 15 window, could be dollar negative outcome from FED stress test /audit theatre.
To truly lure in the bagholders for a 2010 rollover that will show us which past low will hold perhaps we see the worst news (yes Virginia there is no collateral) coming at an inflection point inbetween the 2002 lows and 200 DMA ... we'll see... perhaps shortly.
Gold will be the big payoff in the black swan event. In event of debt default, auction fail, or instant devaluation, you'll wish you had Gold.
Who goes without some life insurance? Why not buy some life insurance on all your liquid assets?
Gold must exceed $1350 minimum. And since supercrisis has not yet hit, maybe AU rise and equity fall is telling you that insiders are positioning for something.
Then again all those paper manipulated IOUs are looking so tempting and returning such high dividends with such low risk.
I think I might short gold again at 999... ultrashort.
What is the ratio of new printed debt monies to existing debt being deflated? 1:a lot
My bet is on King Dollar.
I'll take the other side of your bet there. Ultralong.
That's cool GG. I have to admit - I have a little trepidation betting against you ... but in this case I feel strongly. I personally believe the KaPoom! is still a long ways off.
put a huge short on gld...ill cover on the dip and buy more
buying at this point in time is dumb
I'll buy. C'mon shorters....gimme all ya got.
If I take just the pure hysteria of gold within this thread, I know the probability of gold going south is a good bet. Too much hype.
That, along with all of the sleazy cash for gold companies that have sprung up in the last few years. Plus the fact that young Indians think gold is ugly and Indian jewelry is one of the main sources of gold demand. No data on what young rap stars think of gold.
the young Indian in my living room visiting from Hyderabad says gold is still the preference, there is no distaste for it, and the preference for gold will never change. but maybe your Indians say otherwise.
"why are Treasuries now back to yielding almost record lows ..."
It's not assured this will persist in the US. Japan was the case of grossly indebted corporate sector (cutting borrowing) and a high saving consumer. And, at least in the 90's when it all began, japan's credit rating and trade surplus, and its own hidden desire to keep the yen low, provided lots of flexibility. The US is not in the same position.
Funnily enough, I live in Argentina, own a bit of physical metal, am currently long gold, short silver, short AUD and aspire to buy some land. The key with land is that its located in a community of people you know.
The key with land is that its located in a community of people you know.
Otherwise you are an outsider and will be viewed with suspicion; an important point. I think it is already too late to "buy land in Montana."
Most Americans (American myself) don't get that last point. The idea that you can buy land in the hills and get by is lunacy; the first starving family of 12 that rolls up the drive will kill you and move in. And that tragedy will repeat itself until... a VERY large family/clan/tribe shows up at the gate that can take the parcel and then defend the perimeter.
The key here is community. If/when government and the rule of law are abandonded, you'll have to make and enforce your own laws. At that point, you'll be turning to whoever lives on the other side of the fence. You might even drop the fence between properties and use the boards to build a barracade against the street and the wandering bands of looters and criminals there that will be taking the opportunity to flex their muscle.
Let's hope it doesn't come to that. But if it does, don't end up on your own trying to figure out how to defend a 1200 foot perimeter with little more than a shotgun, a scared wife, and a dog.
cougar
Practical and anecdotal size of roving gangs is 4-8 dudes. Make sure you and your neighbors can clearly show enough "presence" to make such a crowd find easier targets. Clans didn't occur by accident. Community coordination is key.
Either that or pack a piece, pack light, and move faster than they do.
Of gold short, dollar long, and short equities... would think that given the correlations each should do well.
Personally only feel comfortable short equities ... at some point dollar could go down with equities, but do not believe that today is that day.
Sorry I have reasonable doubts on the integrity of in house economists whom are more often than none turned as commercial agents.
This peper fails to address
Risk
Liquidity
available savings
Bonds oversupplies (corporates,sovereign)
Derivatives
Now this the IMF comments on the government debts prolifigacy
Finally, the increase in fiscal deficits and public debt linked to fiscal policy expansions
during crises have also led to a discussion of the perception of financial markets about fiscal
sustainability. Ardagna (2009) shows that financial markets value fiscal discipline, since
interest rates on long-term government bonds and stock market prices worsen considerably in
periods of fiscal expansion.9 Looking at the composition of fiscal policy, Akitoby and
Stratmann (2008) show that financial markets react to the composition of the budget in
emerging market economies. For example, revenue-based adjustments lower government
spreads more than expenditure-based ones, and debt-financed spending increases sovereign
risks.10 Baldacci, Gupta, and Mati (2008) find that the composition of fiscal policy matters
for government spreads, but debt levels matter as well. They show that spending on public
investment contributes to lower government bond spreads, as a long as the fiscal position
remains sustainable and the fiscal deficit does not worsen.11
and a study supported by test case
Budget Deficits, National Saving, and Interest Rates
William G. Gale and Peter R. Orszag
September 2004
Brookings
This paper provides new evidence that sustained budget deficits reduce national
saving and raise interest rates by economically and statistically significant quantities.
Using a series of econometric specifications that nest Ricardian and non-Ricardian
models, we obtain evidence of strong non-Ricardian behavior in aggregate consumption.
Consistent with several recent studies, we find that projected future deficits affect longterm
interest rates, but current deficits do not. Our estimates suggest that each percent-of-
GDP in current deficits reduces national saving by 0.5 to 0.8 percent of GDP. Each
percent-of-GDP in projected future unified deficits raises forward long-term interest rates
by 25 to 35 basis points, and each percent-of-GDP in projected future primary deficits
raises interest rates by 40 to 70 basis points.
And it is commonly agreed that liquidity and insolvency are the bonds hurdles.
The IMF set a ceiling of Debt/GDP ratio of 100 % as a Ponzi scam (interest rates are paid the principal is in doubt)
There is the backlog of the contingent public accounts liabilities,not to be considered as a mere promise.
No cap is set on government further borrowings, Maetricht failed to be complied with.
i have a serious question, not sure if i understand and hope someone will answer. would i be correct in my thinking that its best to make a purchase, lets say of a big screen TV, about $1,000 worth, now
its this sentence that i'm caught on. it seems to me that in this scenario it would be best to buy now. do i have it wrong, and thanks. here is the sentence:
"surprising: the last thing US consumers need to know is that a dollar today may be worth less than a dollar tomorrow, and thus drive them to save even more"
why save now? if the cash may have less value later? does it make sense for me to grab that big screen now
If the TV is cheaper tomorrow, it makes sense to wait and hold cash. The store sees no demand and lowers the price. The customer realizes that prices go down and keeps the cash another day. The store ... and so on.
In this case holding cash is a good investment and an interest rate of nominally zero is good enough. The central bank can not lower interest rates to fight this trend. The money does not move anymore and it becomes really difficult to sell something to pay down debt.
Better yet. Go and "grab" 3 or 5 of the flattest biggest screen TVs you can find. They don't make them anymore and they're about to go out of style.. /sarc.
After all, people living in tent cities MUST have the latest flattest TV screen.
What part about the Greatest Recession aka Depression don't you get?
Next quarter someone will be back with a similar sounding question: "Should I stock my shelter now, while food is available but expensive, or wait a month and buy goods at deflated fire-sale prices from bankrupt retailers but risk finding empty shelves?"
And we'll give that some honest thought, because it will be an excellent question.
cougar
He is saying that the purchasing power of money will be greater in the future than it is now. He just phrased it awkardly. "A dollar TODAY may be worth LESS than a dollar tomorrow" is equivalent to saying "Tomorrow, the dollar will be worth more than it is today." As such, he is saying that the purcasing power of money will be greater in the future. In this way, he is suggesting that it is better to save, putting off the purchasing your plasma television to a future date. You may be able to buy 2 plasma televisions for the same $1,000 in the future.
I am not saying that he is correct or incorrect. I am just giving you my interpretation of the text.
Gold move makes sense. Sell off yesterday,and if you madesome profit in the July rally where you gonna park it?Yield is way too low,so for late commers gold is the answer specially if it is a profit,then you don't have to worry even if it drops later on. If I made money recently in the equities I would definitely convert some of the profit to gold instead of any paper aset.
The USD won't go away. Don't get too excited folks.
While Gold goes up and may go up further, the global economy will hardly recover from gold bugs.
Markets are tending lower. Banks are selling off all over the globe.
Is almost as if we've bypassed September, October and November and back to December '09 when gold and gold miners rallied upwards. Then came January, February and March...