Guest Post: If This Is What Deflation Looks Like…

Submitted by Mike Krieger of Kam LLP

Automatons with business suits swinging black boxes,
Sequestering the blueprints of daily life
Contented, free of care, they rejoice in morning ritual
As they file like drone ant colonies to their office in the sky

I don't ask questions, don't promote demonstration,
Don't look for new consensus, don't stray from constitution
If I pierce the complexity I won't find salvation
Just the bald and overt truth
Of the evil and deception

There is an inner logic,
And we're taught to stay far from it
It is simple and elegant,
But it's cruel and antithetic
And there's no effort to reveal it

Graduated mentors stroll in marbled brick porticos
in sagacious dialog they despise their average ways
betraying pomp and discipline, they mold their institution
Where they practice exclusion on the masses every day

Decorated warriors drill harmless kids on pavement
Stimulating tyranny under red alert
Protecting the opulent and staging moral standard
They expect redemption of character and self-growth

Bad Religion, Inner Logic (1994)

If This Is What Deflation Looks Like…

Then I really, really, REALLY don’t want to ever see what inflation looks like.  Despite the title of this piece I do not wish to engage in some inane debate about whether deflation or inflation is the risk.  I have made it clear for two years now that we are in a highly deflationary environment occurring within the backdrop of a purely fiat monetary system that is governed by “experts” whose ideological framework is based upon the false economic religion known as Keynesianism.  So for people that are actually trying to preserve their wealth an intellectual debate on inflation or deflation might be interesting but is not particularly productive.  I can understand why many in the financial services industry see the greatest risk to be deflation.  Why?  Because for them it is.  Stocks, bonds and real estate will perform horribly in the environment that we have.  Even if they go up for periods, over time they will not make up for the cost of living increases in the things that we need.  This is the major disconnect happening right now between “Wall Street” and “Main Street.”  Wall Street has been coddled and pampered for two and a half decades by the natural forces of a secular bull market in financial assets as well as the Federal Reserve Chairman and a D.C. establishment that refuses to allow the free market to function.  So when a money manager of financial assets looks into his future and sees deflation he is correct.  When the majority of “Main Street” looks into their future they also correctly see inflation.  That is because when you have 40 million Americans on food stamps I am sorry but they have much bigger issues to deal with than the S&P500.  So the world we are looking at is where a BLT sandwich could cost $12 and home prices drop another 20%.  Investment professionals have a very hard time getting the heads around this concept for some reason but that is the reality we are looking at.  Goods that are wanted around the world will rise in price in debased dollars while non-essential items deflate.  The Chinese want pork but they could care less about some McMansion in Ohio.  There is nothing anyone can do to change this.  It is a natural cycle as simple, powerful and inevitable as any cycle in nature.  If it must happen, it will happen.

My problem with the “deflationists” that recommend a high allocation of assets to long-term treasuries is that there are a lot of better assets to buy in the type of environment we are entering.  As I have repeated over and over again these assets are primarily precious metals but also include other commodities.  Especially commodities that people need and are strategic to governments such as food and oil.  There are plenty of equities that are associated with these themes and in my opinion they will do far better over time than long-term treasuries.  Gold for example IS the end game.  Treasuries certainly are not.  Gold is the best way to short the market.  Gold is the ultimate form of payment.  Gold is your vote as an investment manager and a citizen against the maniacs running governments all over the world.  Without going too far into it in this email I think the move we just saw in gold and in the gold shares is the beginning of one of the most powerful moves we will ever see in our lifetime.  I keep reading technical guys talking about tops in gold.  We are very early into this gold bull market from a price perspective.  I think we could see similar gains of the last ten years compressed into the next two.  I also think gold shares will start to outperform gold itself, which would be an major transition.  The curtain has been lifted, the emperor has no clothes and the quicker you figure this out and act the better.

Ok, so some quick charts here for those that aren’t paying particularly close attention to the various commodity markets.  If this is deflation…

Corn 1 Year Chart

Cotton 1 Year Chart

Lean Hogs 1 Year Chart

Currency Comments 

Two weeks ago I discussed that the market would push the yen to the point where the BOJ would be forced to take aggressive action to stop it and then potentially the yen would start to collapse and the JGBs would go with it.  This would then herald the end of the government bond bubble globally (it’s really a fiat currency bubble).  Well, the yen did push the government in Japan and they did act and the yen got smashed by 3% versus the dollar in one of the most powerful reversals I have ever seen.  Does this mean the end of the yen’s rally and JGBs?  Way too early to tell, but I did get something else from it.   Surprise, surprise it is exceptionally bullish for gold.  Why?  Because it just proved to another segment of the investment world that perhaps remained in denial that all governments are playing games with your savings.  That fiat currencies are pieces of paper that are being fondled and molested by global central bankers.  That these games will not stop.  The Fed can buy all the SPU futures they want and the other players can sell the treasuries they recently bought back to the Fed and then goose the market, but the magicians of mayhem can’t print gold and that is all you need to know. 

Welcome to the Revolution     

There is a revolution happening in America and it is coming from all sectors and it is being brought to you by people from all walks of life.  My generation has been subject to vicious propaganda and brainwashing since we were born and we are waking up to it.  We are not happy about it and we are going to change this sick system.  Did anyone else find it odd that the media decided to blow up a story about some nut that wanted to burn Korans?  We are in a depression and THAT is a story they chose to headline?  Very suspicious.  Don’t fall for it.  Take the red pill and let’s get on with it.