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Graham Summers' Weekly Market Forecast (Deflation is Back Edition)
The markets have entered a new round of deflation. The only asset class that has yet to realize this is stocks.
Here’s the 30-Year Treasury Bond:
As you can see, we’ve already surpassed the former all-time established during the nadir of the 2008-2009 Crisis. To say this is deflationary would be an understatement. Indeed, on the shorter end of the bond curve Treasuries are yielding 0% (the 3-month), 0.02% (the six month) and 0.2% (the two year).
Put another way, investors are essentially willing to lend to the US for almost NOTHING in return for up to two years… based solely on the notion that by doing so they’re at least “guaranteed” a return OF capital.
DE-flation.
Here’s Gold:
Considering that Gold is a leading indicator for stocks… and that the precious metal only breaks below its long-term uptrend in times of systemic risk, the above breakdown is a MAJOR red flag that something BAD is brewing in the financial system. That something is another round of DE-flation.
How about Agricultural commodities… which anticipated QE Lite and QE 2 before every other asset class?
As you can see, we’ve wiped out ALL of the QE 2 gains and are now on the verge of breaking back into a trading range that goes back to 2009. Again, DE-flation.
And then there’s stocks… the most clueless of asset classes, which simply don’t “get it”… yet.
As you can see, while Europe’s banking system is imploding, Gold has broken its long-term uptrend, and US Treasuries are signaling a Crisis even worse than 2008, stocks are bouncing off of support as though there’s no real danger.
This can be attributed to three factors:
1) Light volume (fewer and fewer folks are investing in stocks which allows Wall Street to move the market more easily).
2) End of the year performance gaming by hedge funds and institutions (most of which have had horrible years)
3) Misguided hope and delusions… just like the ones we had in 2008 when stocks didn’t “get it” until the whole system was ready to collapse
In simple terms, the best analysis of today’s markets is that we are getting MAJOR red flags across the board that another round of DE-flation is here.
Against this backdrop, stocks are as clueless as they were in 2008. And given that most traders will be taking off early this week, those remaining will be able to move the market any way they please as volume will be even lower than the abysmal levels we’ve seen for most of 2011.
So my advice is to avoid trading this week if you can help it. There is simply too much uncertainty in the market: stocks could rally based on end of the year shenanigans… or they could just as easily collapse due to Europe or any number of other issues in the system today.
However, the larger picture indicates that deflation is back and it’s back with a vengeance. It would be wise to prepare in advance for this as stocks are ALWAYS the last to “get it.” And by the looks of the recent action in Gold and Treasuries, “It” is going to be something VERY unpleasant.
If you’re looking for specific ideas to profit from this mess, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
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Good Investing!
Graham Summers
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Bernanke is buying ALL of the USTs.
What part of that do you deflationistas not understand
Bernanke is buying ALL of the USTs.
What part of that do you deflationistas not understand
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Ummmm i thought China and the Euros were buying UST's-
NEW YORK, Nov 21 (Reuters) - U.S. Treasuries prices rose on Monday as stock market losses and the difficulties some euro zone countries face selling debt in the capital markets spurred a flight to safe-haven assets like Treasuries.
http://www.reuters.com/article/2011/11/21/markets-bonds-idUSN1E7AK10T201...
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China's $3.2 trillion foreign reserves have been falling for three months despite the trade surplus. Hot money is flowing out of the country. "One-way capital inflow or one-way bets on a yuan rise have become history. Our foreign reserves are basically falling every day," said Li Yang, a former central bank rate-setter.
http://www.telegraph.co.uk/finance/china-business/8957289/Chinas-epic-ha...
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You inflationists need to explain why there is no real inflation happening-
http://bit.ly/sAt2We
http://research.stlouisfed.org/fred2/series/MULT
>> You inflationists need to explain why there is no real inflation happening-
For the same reason unemployment and M1 are going down ... you are believing the fox telling you all the chickens are still in the hen house.
Listen to the chickens: http://www.shadowstats.com/
For the same reason unemployment and M1 are going down ... you are believing the fox telling you all the chickens are still in the hen house.
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LMAO--John Williams doesn't even know how to interpret his own charts-
No deflation.
I'd worry about deflation after the presidental election.
There is deflation in the sense that the money supply is contracting, and money is in short-supply. Enormous black holes of debt fill the system pulling every leverageable asset into a financial abyss. Energy and food remain essential, however. The demand is insatiable. The supply of consumer goods is also beginning to contract. Therefore prices, especially for energy and food, are not going down. This is called a depression.
The supply of consumer goods is also beginning to contract. Therefore prices, especially for energy and food, are not going down. This is called a depression.
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Prices will always seem too high for cash strapped consumers but-that does apply a brake to rising prices-i agree that there will likely be supply crunches coming-but they will be government induced-
Profit margins in a free market would not be radically changed by the falling commodity price alone-because input costs would normally fall in line with declining prices-as wages/employment and affordability drop out from under prices-
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Wheat and soybeans fell to the lowest in more than a year and corn declined after the U.S. government said global crop inventories will be larger than expected.
China, the biggest producer of pork, will harvest 191.75 million tons of corn this year, the most-ever, up 8.2 percent from the previous record of 177.25 million set last year, the agency said. Reserve inventories may rise 6.6 percent to 57 million tons, the most since 2003. Two years ago, China became a net importer of corn for the first time since 1996.
“Total world supplies are in surplus and that will slow U.S. exports,” said Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago. “Confirmation of a record Chinese crop means they will not be back to buy any U.S. corn before next June.”
http://www.businessweek.com/news/2011-12-12/wheat-soybeans-corn-drop-as-...
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Dec. 15 (Bloomberg) -- Returns for the largest oil tankers hauling 2 million-barrel crude shipments on the industry’s benchmark route fell for a third day, to the lowest level in a month, as the supply of vessels exceeded cargo demand.
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No, but you are almost there.
We are entering (or allready in) a deflationary depression. The only asset you can expect to see a generally up trend in for the next four years or so will the the US dollar.
As you can see, while Europe’s banking system is imploding, Gold has broken its long-term uptrend
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Gold has not broken its long term up trend-it has simply broken the 200 DMA-
Use the 65 WMA for the "long term" trend and the price violated/undershot that back in 09 at around $900-then it doubled in price on the next leg up-
http://www.resourceinvestor.com/News/2011/12/PublishingImages/December%2...
Gold has had an inverse relationship with 30 year bond yields since 2001--Low or negative long bond rates have been a signal to be bullish for gold-
Yep. Gold to Da Pits
I can’t draw, or be creative like WB7. So please use your imagination..
In the background of this cartoon is a gold chart…down…down……......down! $1000 in sight, even lower! OMG! Catastrophe!
The caption reads in large bold caps:
BACK UP THE TRUCK!
Centre, a huge pick-up truck is in the process of tipping out its vast load of gold – Bars of all sizes; Kruger’s, Eagles, Sovereigns…thudding, tumbling, crashing out .
Foreground, left stand a bunch of gold bugs, disconsolate, wringing of hands, misery personified…”Why?” “How?” ‘What happened to ‘To Da Moon’?…
Foreground, right are JPM, GS and the Banksters… smirking & laughing, sipping champagne and slapping one another on the back as the vast hoard of gold is tipped - into their vaults.
The Banksters are saying:
‘We did it again!’
‘Was that easy, or what?!’
‘Like candy from a baby!’
‘David called…He’s very, very pleased with you boyz..”
And behind the Banksters, in the shadows, Chinese ComCapitalists sip green tea, smile slightly.......’Ah! Gold!’
Inflation and deflation are not monolithic. When a preponderance of asset balances are inflating, we are in inflation. The obverse with deflation. The inflating price of some or even most retail items cannot put us into inflation. Increases in real estate and labor costs are required for that.
Real estate, which was 80% of the wealth of the country, has and is in most areas deflating. The value of your labor has and is deflating. The total worth of stocks has deflated.
It doesn't matter what cans of soup cost, or even what the rest of the economy is doing. The big picture items put us in massive deflation. We are in asset deflation, wage deflation, and have recently seen commodity deflation. How quickly people forget that oil was at $140 a barrel and gas at $4.60 a gallon about 3 years ago. Oil has deflated by 40% from its last high.
If we were in inflation, the two-year Treasury bond would be yielding much more than .2%. Treasuries are a much better indicator of inflation/deflation than food and retail items.
"Hey, my house is down $100k in value and I'm out of a job, but groceries cost more! Inflation!!!"
No, that's general deflation and more expensive groceries.
Do any of these Deflation Bugs go shopping in grocery stores or dept/clothing stores? I see lots of deflation and I also see dead people.
Do any of these Deflation Bugs go shopping in grocery stores or dept/clothing stores?
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Does shopping relate to monetary phenomena?
Prices are coming down-we just haven't seen the pass-through to consumers yet-but we will-
I am sure Ben will QE Tuesday just to slap you good in the face. No offense, that's just how it works.....
Not likely - it would seem the Fed has run out of puff. Read The Status Of QEIII
All the agriculture charts suggest soft commodities topped some time ago, so whilst food prices are very high it looks increasingly likely they are headed much lower IMHO.
Well folks and it's tuesday... IWM up nearly 4%.....This guys timming is perfect to fade
There is a very good article floating around by Charles Hugh Smith that summarises the deflation and collapse argument quite well - it can be read here.
Guest Post: Three Charts That Blow The Doors Off Any Hope Of A 2012 Rally
(posted at 10am today)Sorry didn't see it on ZH, must have rolled over to page 2.
Hyperinflation Watch - More Deficits, More Debt - James Turk
The true nature of what we are facing is both deflationary (in terms of a massive increase in the total money supply) and concurrently deflationary in terms of the collpapse of multiple, massive, securitization, OTC and other derivative based asset bubbles, based on unbelievable levels of fraud, based in lending where there was zero credit worthiness, based on a faux credit rating system, that worked with rehypothecation to allow the massive asset bubbles to form in an environment where the largest TBTF "market makers" and their pawns in government defeated all attempts at regulation and transparency (see the free online PBS Frontline Video, entitled: "The Warning", about Brooksley Born's heroic efforts to bring regulation and transparency to OTC derivatives at the hands of the likes of Rubin, Summers, and Greenspan and carried forward by their understudies, Paulson, Geithner and others).
The combination of a collapse in the asset bubbles (real estate and sovereign debt), lead to massive printing (ongoing) and in turn we have the perfect debt and liqudity storm combined with multiple asset bubble collapses which are leading to a category V financial hurricane and the Fed is in the eye of the storm. The even horizon is near and the very existance of the very global financial hiearchy depends on how quickly the ECB gets its head out of its ass and joins the Fed in a pledge and action of massive (shock and awe levels of printing, i.e. QE) in my opinion. Shor t of that, it will be massive chaos and revolution and the most rapid destruction of trust and the value of the fiat currencies imaginable. If Ben and Draghi and Merkel can get together with Cammeron, they could push it back 10 years and prevent a Paul/Gingrich Ticket and the end of the central banking system as we know it. Perhaps they have a Plan C, but in either case, the only semi-place to be is with God and Gold and Silver, because personally, I don't have faith in the debt or in the currencies which are underpinned by it.
Whether its deflation and default or currency devaluation, the currencies backed only by debt and hot air will fail and money will be required as always throughout history it has been. I find this analysis of "Total Money Supply" and its continuing parabolic rise to be as good a reason as any to be moving into physical gold and silver in my own local vault. Here is a nice article on the subjec of the parabolically increasing money supply and the monetary push inflation side of the category V credit/liqudity storm.
Money supply explosion will lead to accelerating inflation