Simon Black On The Growing Phenomenon Of Shadow Inflation: "Value Deflation"

Tyler Durden's picture

Some sobering observations by Simon Black, a/k/a Sovereign Man, whose Notes from the Field today comes from Pattaya, Thailand, where he discusses the ever growing threat of "shadow inflation", aka providing smaller portions, fewer services, and generally less bang for the buck: a process Black calls "value deflation." This is something we discussed a few weeks back when observing how Wal-Mart is masking inflation in coffee purchases. Something tells us the WSJ, which argues there is no real inflation currently, and pretty much everyone else, have missed this development.

Sovereign Man, Notes from the Field

Date: November 10, 2010
Reporting From: Pattaya, Thailand

I stared at the sign for a full 30 seconds to make sure I was reading it correctly.

"Dear valued members: Due to rising prices, we are no longer able to provide free water at this facility. We regret any inconvenience caused. Management."

The gym in Pattaya that I always patronize is cutting costs-- and the first thing on the chopping block was the water dispenser. Apparently the second thing on the chopping block was the air conditioning... because they seem to have shut that off as well (without the apologetic note, though).

I've been experiencing this sort of thing a lot lately-- restaurants have reduced their portions, hotels have curtailed their cleaning and concierge services, and of course, the gym. These are all products or services that used to be included in the price but have since been eliminated. 

Simply put, this is just another form of price inflation-- in fact, I call it value deflation. Due to rising input costs and an overall higher cost of doing business, managers have had to find way maintain their profit margins. Rather than risk customers' ire by raising prices, they make small reductions to value-- what you get for the price paid.

In other words, customers aren't necessarily paying more (price inflation), but they're getting less for their money (value deflation). These are essentially the same, and they arise from the same cause: rapidly expanding money supplies, particularly in the US.

Ben Bernanke has printed an incomprehensible amount of money over the last few years, and one of the results of quantitative easing is that hundreds of billions of dollars have fled the US economy; money managers are looking for something of value other than USD, and this has sparked a rise in both commodities and emerging market assets.

Export-dependent developing economies have had to fight tooth and nail to keep their currencies from strengthening too quickly against the dollar; one of the more common tactics has been to keep interest rates artificially depressed, generally reducing the currency's appeal in terms of risk-adjusted yield.

By keeping their own interest rates low, though, developing economies' currencies are losing ground against commodities. Let me paint a clearer picture:

Devoid of meddling bureaucrats, the Sri Lankan rupee should rise against the US dollar similar to the dollar's losses against major commodities. Because the Sri Lankan central bank intervenes in the currency markets, though, the rupee has stayed at a constant value against the dollar, and hence lost value against commodities.

This helps explain why prices of certain agricultural staples in Sri Lanka have risen 30% in just two months... and why my gym management had to shut off the A/C and get rid of the water coolers. It's not due to lack of customers-- business is brisk. It's due to rising prices.

If you notice, though, newspaper headlines don't say too much about inflation-- that's because at the retail level, value deflation is the bigger trend over price inflation... and CPI numbers don't track eroding value. This gives western bureaucrats plenty of room to argue that inflation is not a concern at the moment, which they often do.

In fact, every time you hear a central banker telling you that he's more concerned about deflation, it's time to pause, check your portfolio, and ensure that your wealth isn't being eroded by their incompetence.

I've argued strongly in the past (and will continue to do so) for agricultural property, both as a productive asset and a major inflation hedge. Certain equities can provide similar benefit, especially those that are in the resource sector.

Naturally, physical gold also provides a sound store of value and may some day become a widespread medium of exchange again. I have major reservations about exchange-traded funds, though; they may be useful for speculating on gold prices, but they do nothing for you as a long-term store of value.

SPDR Gold Trust (GLD), for example, is 100% dependent on the whims of the US government, and it's really questionable how much gold (and what quality) is actually held in custody on behalf of the trust. Read the prospectus and 10-K to see for yourself.

Holding physical gold is a much better inflation hedge than the ETFs, and if you own a lot of it, it certainly makes sense to plant multiple flags and secure a portion of your gold in a private vault overseas.

I'm discussing some updated methods for moving and storing physical gold overseas in this month's upcoming Sovereign Man: Confidential, and we'll also have some private vault proprietors at our offshore workshop this coming February in Panama.

On that note, I'm planning on holding a teleconference next Tuesday November 16th at 11am Eastern Time (yep, that's midnight where I'll be...) to give you more details and answer your questions about our offshore workshop.

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redpill's picture

Notes from the Field is an excellent newsletter, I read it daily.  Sometimes even BEFORE checking Zero Hedge.

goldmiddelfinger's picture

Pattaya, Thailand

The Tigris and Euphrates of massage parlors

packman's picture

The Tigris and Euphrates of massage parlors

So along those lines, are you saying due to value deflation we're now in for "Eh, Can't Complain" Endings?



VegasBD's picture

Haaa Hilarious. Was trying to think of a similarly clever response. Nice one.

goldsaver's picture

Too clever. Took me a second there. Good thing too. Tomato soup and keyboards dont mix well.

Azannoth's picture

Wait until hookers start giving you 'half' a blow job, or half penetration than you'll notice a difference

or you start paying the same for a tity fuk as was full penetration or a hand job for the price of a blow job

Walter_Sobchak's picture

before long they'll start taking cigs out of the pack and selling them for the same price, they've done it in germany for years

Things that go bump's picture

My granddaughter tells me there is a shop near where she lives, or at least a clerk or clerks there, who will sell a single cigarette for 75 cents, for an excellent roi and quite illegal, I am sure.  

i-dog's picture

Street vendors selling single cigarettes is very common in developing countries, a stage which the US is bypassing on its rapid fall to 3rd world banana republic status.

And how the fuck can it be illegal if the duty has already been paid on the original full packet? Freaking socialists controlling everything!!

Non Passaran's picture

I believe that is what "generally less bang for the buck" in TFA refers to.

Hook Line and Sphincter's picture

I'm experiencing value deflation in from my significant other. Any suggestions?

DollarMenu's picture

Would your SO be able to say the same of you?

CPL's picture

Well if she is over 40, you can trade her in for two 20's.  But in inflationary measures, you'll eventually end up with two 40's again.

Lucky Guesst's picture

If the 40 has proven herself to retain value by taking excellent care of herself, I'd stick with her. Statistcly the 2 20's are probably going to be junk 2 decades from now.

johnQpublic's picture

mines been sufferinf from staggering inflation....wanna trade?

rapacious rachel wants to know's picture
rapacious rachel wants to know (not verified) Nov 10, 2010 12:45 PM

just 50 second video from recent Jekyll Island conference

looks like Bombs Away Ben is flipping off Greenspew

22 second mark Bernanke stops flipping off Greenspan and attempts to swallow his nose

at least that's what it looks like to me:

PlausibleDenial's picture

If he is in Pattaya, I am sure he is experiencing more "Bang" for his buck.  I am sure he is getting more services there. :)

HarryWanger's picture

That's been going on in the US for a couple of years now. Cereal boxes contain less, hell, I've even seen 12-packs with 11oz bottles. I remember what a big deal everyone made of this "new packaging" by several manufacturers containing less product for the same or slightly higher price. It'll get worse but the sheeple won't care. They'll just buy bulk corn flakes from the big ugly plastic bins.

cossack55's picture

Who cares when you buy via SNAP cards and let the few remaining workers dumb enough to pay their taxes foot the bill.

Viva la Food Stamps

Lucky Guesst's picture

+ hmmmmm, I plus you a guest appearance on Supermarket Sweep and a brand new pair of running shoes!

CPL's picture

I see you are familar with Canadian game shows and the grand prize of bumper stumpers.


and after three grueling weeks you've won a case of peanut butter, a 20 pound bag of flour and a travel mug

..and no I'm not kidding

HarryHaller's picture

What about that 'half gallon' of ice cream which is actually 1.5 quarts?  I'm sure it's 25% more tasty than what we got in the old packaging - so hey, no worrries!

zot23's picture

And what, pray tell, would you have them do?  Stop eating cornflakes or drinking beer?  Have you?  I doubt the companies asked their consumers what they would prefer, last I checked it was bad form to try and haggle over the price of cornflakes with the cashier at Safeway or try to get gas cheaper by filling up 2 cars instead of one.


His Dudeness's picture

Reporting From: Pattaya, Thailand

Question: What is the most PAINFUL city in the world?



Answer: Bangkok!

Thank you! Try the veal!

RichardENixon's picture

Didn't I see you at the lounge at the  Airport Holiday Inn in Des Moines opening for Two Jacks and a Jill?

CapTool's picture

Actually look for a book by one of the most evil thinkers ever, its called fortune at the bottom of the pyramid, it explains the portion moves. Its not inflationary but it is predatory

Cleanclog's picture

In essence, biflation again.  

Doubt that WSJ missed it so much as don't want to report it.  Wall Street wants QE and biflation or value deflation isn't a good argument for QE.

Samsonov's picture

You're wrong when you said that the "growing threat of...value something...the WSJ...have missed".  They have not missed it, they practice it.  30% less journalism, same price.

Ripped Chunk's picture

Brought to you by an Aussie national who bribed his way to citizenship and 8 FCC full power TV licenses. (Aliens are allowed to own a network because they do not actually broadcast)

America! What a country. Americans: What imbeciles!

Junk away uninformed ones.

SHRAGS's picture

We are happy for you to have him.  Reminds me of a quote from ex NZ prime Minister Robert "Piggy" Muldoon.

“New Zealanders who emigrate to Australia raise the IQ of both countries.”


Lucky Guesst's picture

Ha-Ha! That is so true. They spend half the program repeating the teaser of what is coming up and they video conference most the guests whose opinions/talking points are being sold as "news".

DosZap's picture

I love it when we make up new words for the SOS.

Less for same, is INFLATION.

Call it whatever you will, if your getting less, and paying the same, they (whoever they is) has inflated your price.

Oh regional Indian's picture

Too few people making too many things for inflated wants and derided needs.

Recipe for disaster and resulting in this value deflation type behaviour.

Anyways, soon enough, people will be glad to get what they can. These are still luxurious times. Will be remembered fondly for their excesses for some time to come.

Belt tightening by demand reduction, not starvation.


Hook Line and Sphincter's picture

Again, I must remind you all that inflation is like a really good personal trainer.

Soy - you shouldn't be eating this crap, it's an estrogen mimicker that will make you grow tits if your a man.

Ice cream- whaaaa, your ice cream costs more!

Coffee -  a non-necessity once you have weaned yourself.

Corn - Just what my GM craving body needs more of.

Oil - get a bike, lose some weight. Get a motorcycle and get there twice as fast.

Milk - for goodness sake, all mammals lactate. Get creative. Dogs, cats, even the wolverine can produce quality nutritious milk.

RobD's picture

Milking a wolverine must take some talent, not sure I would go there. LOL

RockyRacoon's picture

My dog is looking at me real funny like.  Can she read?

Coconuts, bitchez!

Lucky Guesst's picture

You obviously haven't noticed the price of pet food. Try a goat, don't they eat whatever?

goldsaver's picture

Nah, misconception. Goats it brush, leaves and hay. My damn goats are even picky about what grass variety they eat. Pisses me off when I have to feed them straw but still mow the goat pen.

Temporalist's picture

The Original Weed Eater: Coming to a Golf Course Near You? Kentucky

Portland, OR - Invasion of the goats, coming to a weed-choked lot near you

It’s finally happened. The job outsourcing phenomenon has moved to another level. Forget outsourcing jobs to other countries—now they’re being outsourced to other species.

Even Steven Colbert reported on goats stealing landscaping jobs in CA.  I think you are overfeeding them the good stuff.

DosZap's picture

Milk - for goodness sake, all mammals lactate. Get creative. Dogs, cats, even the wolverine can produce quality nutritious milk.


Yes, but your neighbors will have you least use farm animals.

Goats are good.

Hook Line and Sphincter's picture

Goats are good. In fact, I made good use of their udders in 10' squirts to nail my buds as a kid. College days were interesting as well, living in the suburbs I was too hormone laden to mow the backyard...ever. Thus, I took care of business with my Enduro and a goat I 'borrowed' from a girlfriend. This was an ace until it bleated all night and my Neeey-boars called the cops!

Punderoso's picture

The box of cheerios costs the same but the number of cheerios they put in the box can decrease and they hope you don't notice. If you do notice and complain about that they can keep the number of cheerios the same but just make each cheerio smaller and they hope you don't notice. If you do notice and complain about it they can just switch to cheaper ingredients to make the cheerios and hope you don't notice.

All the time the government bureaucrats say: "move along there is no inflation here, the CPI says so!"

Wait I have seen this game before, isn't this done with currency every day.  Hell, the In the Roman empire they began shaving their gold coins or mixing in lesser metals and hope the citizens didn't notice.  Our Fed, debases the dollar and hopes you don't notice. Some scams never die.



RockyRacoon's picture

They're making the holes bigger.  Used to be you could hardly see thru one.

Waterfallsparkles's picture

I know this may be off topic but why are all of the Major Companies holding all of their Cash Overseas?  We saw the with Microsoft where they had to borrow money to pay a higher dividend.

On topic.  I often have wondered how the fed would value an 8 oz can of tuna that is now a 5oz can that is still priced the same just a smaller quanity. I also think that they are putting in more water than before so I am not sure how much of the 5oz is water.  Would they just compute that a can of tuna is the same?  Anyone know?