Oops! This was supposed to launch at 1, but somehow didn’t
After a near decade of an aggressive rising inflation level, we are still in a period of Deflation. As someone else (David Rosenberg perhaps?) has said, as of right now, “Deflation is a fact; Inflation is an Opinion.”
>
chart via Arbor Research
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof. —John Kenneth Galbraith
Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by...
read more »
Tweet
Facebook
Reddit
Digg this!
June 18th, 2009 at 3:07 pm
That’s a great quote above.
It’s funny how many people are so terrified of inflation, all I still see is massive credit deflation no matter where I look.
June 18th, 2009 at 3:16 pm
“Deflation is a fact; inflation is an Opinion.”
That statement may have meaning to consumers in the here and now.
But the “here and now” is not the controlling issue for investors.
The more that analysts tell us not to worry about inflation, the more bullish I become on commodities.
June 18th, 2009 at 3:18 pm
@DL: I hear you, but don’t you think that the inflation trade is by far the more crowded trade right now? To me, it seems that it almost seems to obvious, and too many in the mainstream are expecting inflation for it to be a problem right now.
June 18th, 2009 at 3:19 pm
DL,
I’m curious, you going to buy OIH back at a certain point if it keeps trending down?
As far as investors and inflation, it is possible if credit deflation truly takes hold that things go far far lower from here, we might then at some point have massive inflation but that might take us from severly depressed levels to where we are right now, in which case it’s not a great time to “invest” based on coming inflation.
What do you think about that?
As an aside, very few analysts seem to be saying not to worry about inflation, I’m seeing more of the opposite of that. The deflation crowd is the minority.
At least you don’t have to pay to comment. : )
June 18th, 2009 at 3:32 pm
Ben22@ 3:19
I just bought a significant position in XME. (No OIH for now).
………
The CRB index got up to about 470 in July of 2008. Currently it’s around 260. I think the index will move above the 400 level sometime during Obama’s first term.
June 18th, 2009 at 3:43 pm
I preach on this too much, but the CPI doesn’t measure really anything that could remotely be considered indicative of either inflation or deflation.
[BR: Precisely what it measures matters less than the enormous drop vs the prior data series; regular TBP readers know I am no fan of CPI -- but the worst drop in 50 years is noteworthy]
Price decreases due to drops in demand are not deflation. Likewise, price increases due to expanding demand are not inflation.
[BR: Disagree: Too much money chasing too few goods -- your "price increases due to expanding demand" -- is inflation. And Demand destruction, regardless of the source, is the deflationary portion of recessions.].
Inflation is everywhere and always a monetary phenomenon. It is when the money decreases in value, resulting from the supply of money exceeding its demand.
[BR: Thank you Milton Friedman. The cmtee is still debating the posthumous Nobel Prize withdrawal]
It reveals itself mostly through internationally-traded commodities, particularly if the currency is the dollar, which is used to price most such commodities. If these are all, or most, simulatenously going up in price, regardless of their underlying supply/demand metrics, it is a pretty fair bet that you have a currency that is being oversupplied. It may or may not be reflected in the value of the currency in forex markets, as they are relative values, and each of the traded currencies may be deflating, inflating or staying the same relative to the currency in question.
The CPI right now is measuring the domestic demand destruction accompanying the recession, except for those items bought and priced internationally, like the oil that goes into gasoline, which is measuring the devaluation of the dollar.
[BR: Agreed!]
June 18th, 2009 at 3:44 pm
Please NOTICE the VERY quick reversal time to go from DEFLATION to crazy inflation levels, less than a year …also notice how shallow the current deflation/cpi is. The quick reversal is keeping a bid under gold and a offer above $USD index.
June 18th, 2009 at 3:48 pm
The thing about this “downturn” that strikes me is the slow-motion aspect of it all. Especially as compared to the whipsaw moves in 1987, and the excruciating meat-grinder decline of 2000-2002+. It’s like that massive ocean wave in the Perfect Storm.
So, DL — while the “here and now” is not the controlling issue for investors, and we may eventually get inflation, you might find that investing for inflation over a decade of deflation (or however long it takes us to work off the debt overhang the Bernanke and Co. are so assiduously building) carries its own brand of pain and discomfort.
Best of luck.
June 18th, 2009 at 3:48 pm
“period of deflation”? as charted, it’s about 1.5% that’s a pretty piddly annual deflation rate. as context, the rate of *deflation* now is smaller than the rate of *inflation* has been since around 1959.
i read that economists are most worried about a deflationary spiral. looking back in history, and forward to the bloated money supply, it’s easy to predict the tide will rise substantially within the next decade.
June 18th, 2009 at 4:01 pm
Ben22 or someone yesterday posted this link to Hugh Hendry’s report to his shareholders. I think it’s worth a read by everyone here. He is a very sharp guy.
http://www.scribd.com/doc/16525584/Eclectica-Fund
He’s not saying a lot of general things that most here believe, but there are some interesting original ideas and a lot of deep thought behind it. And I don’t mean 42 :)
June 18th, 2009 at 4:02 pm
constantnormal @ 3:48
“So, DL … you might find that investing for inflation over a decade of deflation carries its own brand of pain and discomfort”
I would certainly not contemplate the idea of putting on a position and leaving there for 10 years. I’m simply trying to catch some of the rallies, and to be in cash part of the time when the risk/reward appears to be unfavorable.
June 18th, 2009 at 4:03 pm
RIMM reports shortly- should be interesting
June 18th, 2009 at 4:14 pm
@Curmudgeon – You are spot on…it is all demand driven, however, “inflation/deflation” is how we frame it and respond.
I am with Mannwich in that the inflation trade is WAY overdone. Go long XME all you want, it should be ok, but SH and XLE seem to me to be stronger trades.
June 18th, 2009 at 4:18 pm
I guess when the big post mortem is done on this period, a big question will be whether QE policies kept deflation at that low level — and saved everybody’s bacon.
How long can we “fake it till we make it” and keep all that parked electronic money from the Fed’s balance sheet walled off from becoming money truly in circulation and causing hyperinflation?
What I’m seeing anecdotally, that worries me, is that consumers are getting degraded services right now for their money. So my subjective sense is that what is being received is worth less in real terms than a few years ago because payrolls have been cut so severely that staffing has become too lean. Skeletal in fact.
June 18th, 2009 at 4:18 pm
Headline-
“Reappoint Bernanke, He’s a ‘National Hero’: Welch”
excerpt-
“I think he saved the system, I think he’s a national hero,”
bit premature I would think- that’s what they said about Greenspan and Summers at the turn of the millenium- didn’t turn out so good-
http://www.cnbc.com/id/31423019
June 18th, 2009 at 4:18 pm
phb:
You mean long XLE, short SPX…?
Actually I think the idea of going long OIH and short SPY (in equal amounts) is not a bad way to go.
Or long EWZ/ short SPY
June 18th, 2009 at 4:22 pm
Re RIMM per CNBC-
“Revenue was $3.42 billion, roughly in line with estimates. Shares fell nearly 5 percent in after-hours trading, however, as the company provided weak guidance.”
June 18th, 2009 at 4:24 pm
@Mike in NOLA:
Props…good article. Humility in analysis…there’s something that’s not likely to lose value due to oversuupply.
June 18th, 2009 at 4:27 pm
@ahab: Think the NAZ today may be the canary in the coal mine. Finished the day slightly in the red. Might we see a sell off in the NAZ tomorrow? It’s all too convenient, since the pundits can just attribute it to RIMM’s “weak guidance”.
June 18th, 2009 at 4:28 pm
Thank goodness I found today. We have all been stuck in yesterday.
Rosenberg is expecting another round of deleveraging, 2008 style, in which case Treasuries will do fine.
The reflation trade has been profitable and a useful rehearsal for what will inevitably happen later.
But it’s likely that a lot of debt will have to be written down or paid off in the second half of 2009 – that means that the $ will be a safe haven once again and the velocity of money will decline – and that’s credit deflation.
June 18th, 2009 at 4:29 pm
Ahab –
The “system” Bernanke saved was GE (and Welch’s legacy).
I believe with every fiber of my being that the reason the fed has been so opaque about it’s balance sheet is because they are keeping GE afloat.
June 18th, 2009 at 4:30 pm
Inflation is occurring where it can do the most damage. In my business almost all costs are up: plumber-in 2000 a service call was $45, even on Sundays. And it always seemed things like to go haywire on Sunday. Now a call is $145. Needless to say I am a much better plumber than I used to be. I’ve spent about $700k since 2000, but if I were starting today, there would be no way I could get anything done. It would cost at least twice as much, and take twice as long. City inspectors are bickering with the power co about how to produce the most hassle at the greatest expense. It took 3 weeks to get the power turned on after a fire renovation. You don’t need a two gang meter-no wait you do. F….k! Then I hired a guy to pour a sidewalk and he got everything laid out. Then he informed me that I had to pay the concrete guy separately. WTF? Now the IRS is after me about employee taxes from 2000! I thought that they couldn’t go back that far, but that didn’t stop them from sending me a nasty letter threatening liens ect. Are we going to recover by hassling the hell out of people and trying to rip each other off. People’s mood does seem to be getting worse.
June 18th, 2009 at 4:31 pm
@mark mchugh: Totally agree with that. Couldn’t have GE, another “U.S. Institution” be exposed along with GE AND Chrysler.
June 18th, 2009 at 4:32 pm
I meant GM AND Chrsyler……..
June 18th, 2009 at 4:32 pm
ideas-
outside of the $ and inverse ETFs- what would be a good deflation trade- a real company a real stock-like KO or MCD- but something that could conceivably go up as the market is going down?
such a creature?
June 18th, 2009 at 4:35 pm
@ahab: Treasurys for a trade should work well, no?
June 18th, 2009 at 4:35 pm
Ahab,
If you really believe in deflation…. and I don’t…. then either buy the inverse ETF’s, or short the SPY, or just buy TLT.
June 18th, 2009 at 4:36 pm
@ahab: UUP might work as well on a strengthening dollar trade.
June 18th, 2009 at 4:39 pm
mccugh-
I hadn’t thought of that- but i am sure Welch is estatic regardless- the old guy just wants to enter the next world knowing its as it ever was and all is right in the world as he knew it
June 18th, 2009 at 4:41 pm
Well whats interesting to me is the amount of intelligent people I come into contact with that are CONVINCED that inflation is a no brainer and are currently snapping up commodities and inflation plays like its a layup… USO, UCO, GLD, DGP, UNG, UDN, TIP, TBT, EWZ, FXI, KOL, DBA… the list goes on and on… many of them are still long these trades despite some obvious trend breaks in the last two weeks.
And when I mention credit deflation, they look at me in shock and say… “how can there NOT be inflation right around the corner”?
They really get confused when I tell them I agree.
That said, for most of them, “right around the corner,” is next week, or next month. Too bad. Because the headwinds seem to blowing the opposite direction… which leads me to suspect that “right around the corner” is more like a year or so down the road.
There’s alot of commodity whacking to be done before that trade gets going IMO. But most of us have been saying that for awhile now…
It’s that damn intelligent thing again… gets us everytime.
June 18th, 2009 at 4:44 pm
Lefty,
Classic depression dynamics like 1873 and 1929 and even back to the 16th century. The bond tremors of the last few weeks are interesting and some spreads have widened significantly. This is exactly what we’d expect to see. If all the classic signs show up in the credit markets, stocks will break down hard. Everyone knows what trouble will look like, and if and when they see it, things will happen very fast. The lesson from the past credit contractions is speed once things get moving.
June 18th, 2009 at 4:45 pm
@ahab
The DEFLATION trade is to go “short” silver…
June 18th, 2009 at 4:46 pm
@ahab
and/or…go SHORT silver, long TLT, as a pairs trade…
June 18th, 2009 at 4:49 pm
I think we may have a deflation meme for the 2nd half, so you may be able to hold TLT for a few months here, with 4% on the 10-year as the backstop. Congress seems unlikely to sign any more spending packages for a while, so the $ will probably hold up better than expected.
As far as other deflation trades, if you don’t believe the recovery, you could get short oil or gold, or you can buy QID or SDS – or for more fun than a sack full of monkeys you might consider shorting any of the companies that are awash in debt, have enjoyed a big rally during the spring fling but don’t seem likely to survive and are unlikely to be TARPed. Every time I see certain retailers they are desolate. Coldwater Creek is one that is ALWAYS empty when I walk by – but there are others that will not see 2010.
Last fall very few longs did well but if you do “defensives” like MCD WMT and MRK you are unlikely to be annihilated.
June 18th, 2009 at 4:49 pm
@ahab
I wouldn’t get into those “money vampire” leveraged ETF’s though…Unless you’re VERY ACTIVE as a trader…
June 18th, 2009 at 4:50 pm
@LB
Hey LB
If you didn’t catch my comments in the other thread…The Mistress is having computer problems today…
June 18th, 2009 at 4:51 pm
@Transor Z:
QE can only be inflationary. Adding money to the supply necessarily serves to reduce its price (i.e., inflate the prices of things bought with it).
Flooding a market with money such that price declines are forestalled is also inflation, which is a monetary phenomenon, not a supply and demand phenomenon (or, at least not for the items bought with the money, it is a supply and demand phenomenon regarding just the money).
Electrons on the Fed’s balance sheet are every bit as inflationary as “real” money. If the Fed buys, say, a $250b tranche of RMBS from the gse’s in order to push down interest rates, it has 1) created money out of thin air, that 2) the gse’s will eventually use to fund mortgages, that 3) will in turn be used to purchase housing stock. It is inflationary, or in this case, anti-deflationary, all down the line. The only question is velocity, i.e., how many times it will change hands.
The effect is further magnified by the reduction in the price of money going forward.
The Fed is in full inflationary mode (buying $1.25 trillion of RMBS–more than the whole mortgage market for a year). It is a desperate attempt to return us to 2007. So we can do this all again, I suppose.
June 18th, 2009 at 4:56 pm
Investing aside, there’s no deflation in the cost of living or doing business in California. Gas back up past $3/gal where it will stay, food up up up, $14 cocktails for your night on the town, even house prices are up in San Diego and OC! Sales tax up , material costs up, transport costs up, fees for every service -up. One clear area of deflation: salaries – zero or worse. UC system told 8-20% cuts coming for all. San Diego city unions giving up 5%. People survived the 70s inflation with cost of living increases and major wage gains. What now?
June 18th, 2009 at 4:57 pm
cvienne says-
“The DEFLATION trade is to go “short” silver…”
also says-
“I wouldn’t get into those “money vampire” leveraged ETF’s though…Unless you’re VERY ACTIVE as a trader”
so . . . ZSL . . . not an option? hmm . . . and I was considering it
June 18th, 2009 at 5:01 pm
@ Curmudgeon
Vt=nT/M
V=nQ/M
My take here is that you have a very large denominator that will NOT play out to have a large numerator…Because I don’t think the “liquidity” is being used wisely…
Therefore, velocity = slow…DEFLATION = result
June 18th, 2009 at 5:03 pm
ahab @ 4:57
What’s so bad about going short SLV….?
June 18th, 2009 at 5:04 pm
@TC:
But is the QE here (i.e., to flood money into an asset/credit bubble burst crisis) something that can be quickly reversed and reabsorbed once you have “stability”? Like Vietnamization except without the communists quickly overrunning the country after you pull out?
Fighting deflation with inflation is inflation — great point. But in a depressed economy with over-leveraged consumers and low demand, will that keep velocity low enough for the QE reversal to be manageable?
June 18th, 2009 at 5:05 pm
“Adding money to the supply necessarily serves to reduce its price’
True. Except in the present case, when it is mostly stuffed inside John Thain’s commode [BAC], behind Pandit’s life-size inflatable model of Sandy Weill [C] or in Jeff Immelt’s lunch box at GE. Money that is held to prevent insolvency is not in motion, and therefore the velocity of money is not yet accelerated.
I didn’t get this for a while but reading Mish, Rosenberg and Gary Shilling on the topic was quite instructive. You can see some m/t/m inflation but the y/t/y data show deflation, ever since the oil spike. If some of us are correct, then the current oil spike is an “echo” and will burst, once GS has finished taking profits, leading to further deflationary data.
The QE (“printing”) was necessary to prevent the disappearance of the currency during the deleveraging process of ’08. I was in Argentina (’01) when the currency literally disappeared from the streets, and you wouldn’t want to see that happen here. Presumably we can expect several more cycles of deleveraging, QE and reflation. How do I know this? It’s all in the Japanese playbook, a volume very familiar to Geithner-san and Bernanke-sensei.
June 18th, 2009 at 5:08 pm
Money that is held to prevent insolvency is not in motion, and therefore the velocity of money is not yet accelerated.
Well said, Leftback.
June 18th, 2009 at 5:09 pm
simonian – Some points true, some not. I’m not confident gas is going to stay above 3 too much longer. Prices are up marginally in OC and SD counties. 14 dollars for a cocktail? Where in SD are drinks that expensive? All the places I’ve been in LA have dropped prices on drinks because business is down. Rent is also down quite a bit, both in LA and SD County. My grocery bills have gone down the last six months, not up.
June 18th, 2009 at 5:09 pm
leftback @ 5:05
I think you’ve got to look at this through the political lens as well.
What does Obama want for the next 2-3 years?
June 18th, 2009 at 5:12 pm
Thanks ahab and Mannwich,
Usually when I mention that GE’s relationship with the Fed may be inappropriate, I hear nothing but eyeballs blinking.
And here’s what’s driving me insane:
The NY Fed is supposed to have 3 Class B directors (elected by member banks to represent the public)
Right now, we’ve got GE’s Immelt and two empty seats.
http://www.newyorkfed.org/aboutthefed/org_nydirectors.html
How can we seriously talk about expanding the powers of an organization that answers to no one?
(Sorry to be OT, – blame ahab)
As far as inflation/deflation goes, until massive amounts of supply destruction take place (like farms going bust etc.), I can’t see inflation as a problem.
When enough supply destruction has occurred, we will see inflation like we’ve never seen before, but I think that’s years from now
June 18th, 2009 at 5:17 pm
“The Curmudgeon Says:
June 18th, 2009 at 3:43 pm
Inflation is everywhere and always a monetary phenomenon. It is when the money decreases in value, resulting from the supply of money exceeding its demand.”
You sound like someone who has had the conventional wisdom of the Chicago school drilled into his brain.
This is, of course, going to be the Big question next few years. I’m in the camp of deflation next few years. I believe that the inflation of the last several years was a credit phenomenon. The cavaliers of credit (banksters with securitization) created dollars out of thin air when they leveraged the world up. Those dollars are disappearing quickly now that the shadow banking system has collapsed and nobody wants to borrow any more money to buy shit they don’t need from China. Bernanke is pushing on string and clinging to a belief system that is a bit flawed in regard to the current situation.
One thing for certain, this argument will definitely be settled over the next few years and it will be clear…
I’m hope the deflation argument is wrong, because that would be the single worst thing to happen to a nation of debtors….I’m sure this is all going to work out great…what could possibly going wrong?
June 18th, 2009 at 5:18 pm
It’s funny how many people are so terrified of inflation, all I still see is massive credit deflation no matter where I look.
———-
Deflation is my personal best case scenario.
I just don’t believe I could be so lucky.
June 18th, 2009 at 5:20 pm
To me, it seems that it almost seems to obvious, and too many in the mainstream are expecting inflation for it to be a problem right now.
—-
The inflation they see is that of a good growing economy, not that of a Banana Republic type.
June 18th, 2009 at 5:21 pm
@ahab
re: ZSL
Ben & I were both in ZSL last week…I know I bailed Monday (and I think Ben did too)…
My philosophy is that the leveraged ETF’s are just NINJA strikes…Even if you like a “directional” trade, I think the leveraged ETF’s are to use if you don’t think the total move is over, but you have a countertrend day that you can profit from…
JMHO
June 18th, 2009 at 5:21 pm
DL-
no margin account- should probably set one up just to pick and choose companies to short- but have made almost all my profits during this whole financial/economic meltdown by going long after a crushing sell off- usually in AAPL and GOOG- worked great- but there have not been many of those for a while- the inverse ETF’s have been ok- a few bucks here and there- but one SKF trade wiped out all my profit in those-
my natural inclination is to invest in an actual company stock- so I am patiently waiting for a sell off- much frustration- also-
not sure if there is an unlevered short silver ETF- only one I know if 2X inverse ZSL
June 18th, 2009 at 5:23 pm
DL: I rarely disagree with you, so I will amplify. I know we both believe in an oscillatory path forward.
“Through the political lens”, I believe that BHO is an honorable man who does not want to see 25% U-3 but nor does he want to see hyperinflation unleashed on the poor and pensioners on a fixed income. I believe that we will experience a deflationary grind-down (especially of the upper classes) that will be relieved by QE when BUT ONLY when another severe depression-like economic scenario looms, as I believe it will.
As Krugman has pointed out (read “The Sum of All Fears” for some charts) it remains likely that whatever you do, the jaws of the liquidity trap have snapped shut and we cannot escape. Printing is limited by the bond vigilantes. Only hubris and the myth of American exceptionalism fuels the belief that a Japanese Lost decade scenario can be avoided.
“Where in SD are drinks that expensive?”
At $14 you must be paying a “pole tax” (see the other thread for explanation by bruce ..)
June 18th, 2009 at 5:25 pm
Andy T @ 5:17
“I’m in the camp of deflation next few years”
Aren’t you somewhat bullish on oil, or am I wrong about that?
June 18th, 2009 at 5:27 pm
Leftback @ 5:23
Of course, “O” doesn’t want inflation.
What he wants is good job growth during the period October 2011 to October 2012. If commodity inflation is the price he has to pay to get that, he will pay it.
June 18th, 2009 at 5:30 pm
@mark mchugh
“As far as inflation/deflation goes, until massive amounts of supply destruction take place (like farms going bust etc.), I can’t see inflation as a problem.
When enough supply destruction has occurred, we will see inflation like we’ve never seen before, but I think that’s years from now”
—
Well said – and the “inning” that we’re in right now is one of people still trying to hold onto their jobs (therefore – artifical supply versus actual demand)…hell, the government is facilitating the process…
When those people eventually lose their jobs, and SUPPLY is shuttered versus demand…then the INFLATION part will kick in…
It won’t be for awhile…
June 18th, 2009 at 5:33 pm
Mchugh Says-
(Sorry to be OT, – blame ahab)
thanks man- loved being rolled under that bus
regardless- I am with you on the following statement-
“How can we seriously talk about expanding the powers of an organization that answers to no one?”
June 18th, 2009 at 5:34 pm
These comments are getting interesting.
We should define the deflation as debt or credit deflation, saying just deflation doesn’t describe it right. When people argue about inflation they often seem to miss that it is the issuance of massive credit that caused much of this inflation.
The current supply of dollar denominated debt is getting defaulted on or paid down faster than new money is being created. There isn’t anything inflationary about that and there is no way the Fed has printed enough to cause inflation when considering the size of the debt. Simply put, you can’t beat deflation in a credit based system.
I would think that those that are worried about inflation must also think that this recession is at, or very close to its end. During the early years of the Depression many were warning about inflation as well. They all ended up being dead wrong. This all started less than 2 years ago, and the problems are bigger than they were then. Why should we think it’s already over?
As British economist Ralph Hawtrey wrote: “Fantastic fears of inflation were expressed. That was to cry, Fire, Fire, in Noah’s Flood.” “It is after depression and unemployment have subsided that inflation becomes dangerous”
So, like DL was saying above, catch your rises along the way, and sure, maybe in time we get bad inflation but I wouldn’t hang all my capital on that today.
Inflation/hyperinflation seems like such a simple call to make right here that it must be wrong.
June 18th, 2009 at 5:35 pm
DL,
I doubt AT is an oil bull, he’s a dollar bull, with me.
June 18th, 2009 at 5:36 pm
@ahab
IMHO – you’re overthinking it my friend…
wait for an entry point and simply SHORT the SLV…
This is “off the top of my head”, but $14.50 seems like a reverse H&S pattern forming…There is also a GAP DOWN mover there (that charts tend to like to paint in)…
Don’t take my advice…but maybe you could short it there, and take a ride down to $11 or $12…
June 18th, 2009 at 5:36 pm
cvienne,
Yes, I’m out of ZSL for now but I might go right back and try again. I think there is a great trade going on there.
Seemed like a lot of people here got to ride that train for a few days.
June 18th, 2009 at 5:39 pm
The difficult thing for most people to grasp is the sheer size of the debt problem and how long this is going to take. Given the short attention span of the population, it is not surprising that the MSM is asking “is it over already?”. The answer of course is that it is, and it isn’t. The crisis of 2008 is over, but there will be another, and another….
Spreads are widening a little in IG and HY, by the way. Remember July 2007? Keep an eye on the credit markets for an indication of the prospects for the rest of the year. There is a whole lot of consumer and corporate debt that is going to have to be rolled over or written off over the next few years. Pull up a chair, we’re just getting started….
June 18th, 2009 at 5:39 pm
I believe that we will experience a deflationary grind-down (especially of the upper classes) that will be relieved by QE when BUT ONLY when another severe depression-like economic scenario looms, as I believe it will.
———–
In my mind no matter what, rates are going up.
If rates go up, assets valuations drop.
If asset valuations drop businesses fail.
If businesses fail, there will be less supply. I don’t think we have as much capacity of essentials as we had in the great depression. In the 30s they were dumping food to raise prices. Our excess capacity is for stuff we can do without. We’ve barely invested over the last 3 decades in the production of essentials!
Once the zombie companies fail, the incumbents will not sell unless they cover their costs.
When they are truly caught between a rock and a really hard place, it will be too easy for government to send cheques to everyone with a pulse.
I REALLY have a hard time not seeing inflation coming.
June 18th, 2009 at 5:39 pm
@ben22
I agree with the way you brought the argument into FOCUS…”Credit deflation” is the monster…
Think of it like playing with a “margin account” as a trader and being behind the 8-ball…
Been there – done that – don’t want to go back…
June 18th, 2009 at 5:41 pm
@AT,
You said:
I’m hope the deflation argument is wrong, because that would be the single worst thing to happen to a nation of debtors
Wow, I couldn’t agree more. The fact that so very few people think it can happen is what scares me the most. Staying in the safest dollars that remain will be the key but most don’t know how.
this is why I have expressed concern about being short if this really takes hold.
June 18th, 2009 at 5:41 pm
ben22 @ 5:34
“I would think that those that are worried about inflation must also think that this recession is at, or very close to its end”
And what about the 1970’s…? Didn’t we have negative GDP accompanied by very elevated commodity prices?
As to when the recession ends, I think that one of the issues during 2010 and 2011 will be that of how the government economists distinguish “real GDP” from nominal GDP.
(And my question to Andy T was more about oil prices during 2011-2012, than about the next 6 months).
June 18th, 2009 at 5:43 pm
@ben22
I give YOU 100% credit for that trade my friend (ZSL)…
If you’re ever in my neck of the woods, I owe you (& your wife as the case may be) a dinner…
I hadn’t really been thinking about it…I was just nodding my head on yours (&lefty’s) long dollar arguments…
That day that you texted out “anybody know a SHORT SILVER ETF”…I said BANG!
Looking at the SLV chart…there might be a “re-entry” point for ZSL…
June 18th, 2009 at 5:45 pm
@danm (5:39)
Nobody is really arguing with you there…
It’s a matter of TIMING…The markets can stay irrational longer than you can stay solvent…Consider that b4 jumping in on the INFLATION trade just yet…
June 18th, 2009 at 5:52 pm
DL,
Yeah, that is a good point about the 70′s, however, we have pushed so much consumption forward due to credit expansion during the last 25 years that I have a very hard time making an apples to apples comparison between then and now.
At the end of the day I see the Fed trying to reflate out of complete desperation and I think they are going to fail.
June 18th, 2009 at 5:53 pm
ben22
Got it.
(Off to the gym).
June 18th, 2009 at 5:55 pm
@ben22
“At the end of the day I see the Fed trying to reflate out of complete desperation and I think they are going to fail.”
ESPECIALLY if BO appoints Larry Summers…
June 18th, 2009 at 5:55 pm
b22 Says-
“Staying in the safest dollars that remain will be the key but most don’t know how.”
what about Peter Schiff’s belief to get out of USD altogether- I think he is looking at more of a long term play- but- I would think the US $ will have to ulimately be devalued
June 18th, 2009 at 6:00 pm
@ahab (5:55)
84 is presently the countertrend target…
June 18th, 2009 at 6:04 pm
Is this doesn’t sound scary- I don’t know what does- from CNBC-
“The Treasury announced Thursday a record $104 billion worth of bond auctions for next week, part of its herculean efforts to finance a rescue of the world’s largest economy . . .worries about supply have weighed on the U.S. government bond market, which will see a mammoth $2 trillion worth of new debt issued this year. ”
2 trillion- simply staggering- where does the demand come from- it would seem they will overwhelm the market and rates will have to skyrocket to get people to bite-
am I wrong?
June 18th, 2009 at 6:04 pm
The set-up into 70s stagflation (normal interest rates going in – 7-8%, and wage inflation pressure from strong unions) was very different from what we are facing now (ZIRP, rising unemployment and no wage inflation).
Which is not to say we will not get there eventually. The reflation trades are all good ones in the long run, but it will all be a matter of timing the entry points. The dollar will be debauched in the long run, but there are a lot of other assets that need to be devalued before that finally happens. Pitchforks will remain useful, I suspect.
June 18th, 2009 at 6:06 pm
ahab,
Re: Schiff
Use last year as an example of why his thesis, while mostly right, is also very flawed. Probably don’t need to say much more about it.
Eventually yes, we know the dollar is in trouble, even if we had no issues we could make that statement with confidence because all fiat eventually has problems so eventually he’ll be right. In the meantime though, his clients got the beat down last year, well, at least according to the statement Mish put up. I know everyone saw that.
June 18th, 2009 at 6:09 pm
DL: I see oil putting in a seasonal peak around here…I think 77 will be difficult resistance to overcome, though I’m not shorting it yet, because just don’t see serious peaking action yet. My call is for oil to trade lower next couple of months (50′s?) and then we get a pre-winter rally (must run up heating oil prices before winter similar to how gasoline trades higher right before driving season)….I cannot see oil trading above $90 again for a long time….
Here’s the problem for oil…that move down from 147 to 33 was only the “initial” leg down…..there’s no way that move “completed” some correction…so we’re going to get another big leg down similar in % loss sometime in the next several months. Also, not that it matters, but I understand that oil fundamentals absolutely SUCK.
June 18th, 2009 at 6:09 pm
Ahab – 2 trillion? Are you serious? Where the f**k is that money coming from? Aren’t all the developed countries in the world trying to finance massive deficits right now? China has about 1.4 trillion in cash if I’m not mistaken. . . .
Is there some trans-dimensional alien bank we don’t know about pumping money into our system?
June 18th, 2009 at 6:10 pm
cvienne,
the appointment of summers to Fed chair is something I’ll have nightmares about until I know for sure. to me he is someone to fear, not to be excited about. He looks like he’d eat his own children.
@ ahab,
2 trillion- simply staggering- where does the demand come from- it would seem they will overwhelm the market and rates will have to skyrocket to get people to bite-
Not if the stock market starts to crack again soon.
June 18th, 2009 at 6:13 pm
Damn. Y’all started without me. Again.
I’ll have to be contrarian, and longish-term here and forecast inflation within the next year to 18 months. Why? Because we can. In fact, that’s all we can do. it’s the only tool we have.
Additional, forced deflation will set the already certain defaults in motion at high speed. It will also destroy the tax base. Money as liquidity to the banks won’t matter, because the banks can’t function by holding money, and no one in their right minds will borrow without a job, or with their future income stream in question. We’re looking a zero velocity. When the resets in Alt-A, option ARM, begin, and CRE, and CC Debt defaults get rolling, it will make the past year look like the good old days.
When the political chickens come home to roost, the Federal Government (whatever that is) will, by god, pull the trigger — even if it means free money directly to Joe Blow from Idaho.
I’m not saying it’s right, but I am saying it’s all we have, and that’s what we get for having dream-based currency.
June 18th, 2009 at 6:13 pm
@ahab
“The Treasury announced Thursday a record $104 billion worth of bond auctions for next week, part of its herculean efforts to finance a rescue of the world’s largest economy . . .worries about supply have weighed on the U.S. government bond market, which will see a mammoth $2 trillion worth of new debt issued this year. ”
Yeah – for NEXT WEEK, the money to buy those will come from GS, MS, & JPM who will sell their commodities profits from 3 1/2 months to buy a 4 handle on the 10y…The FED will mop up the rest…
Going forward????
Who’s to say?
June 18th, 2009 at 6:15 pm
There are two big things that are difficult to comprehend 1) The size of the debt levels. 2) The size of the bailouts and guarantees in aggregate.
I guess the question is will we see Japan or Zimbabwe as the outcome.
If I knew a less extreme example than Zimbabwe I would have chosen it.
My feeling is that the long term record for fiat money is to lose value. Thats inflation isn’t it?
What if Ben in his desperation to fix the system devalues the $US in a serious way. This is what he has said he will do. Why not believe him?
June 18th, 2009 at 6:16 pm
@ahab
Part 2 will come…(or NOT REALLY NEED TO COME), from the ‘beatdown’ that HC reform & CAP and TRADE will get in Congress once thet realize there’s no money to pay for them…
…everyone will muddle along…(to FRANKLIN’s chagrin)…
June 18th, 2009 at 6:16 pm
cvienne – interesting theory. I like it. It ties in nicely with your prediction for the markets next week.
June 18th, 2009 at 6:17 pm
@ cvienne
I have everything to gain with deflation, so I am not yet ready to jump into an inflation trade but I am getting real nervous…
The thing is I’m in Canada and our dollar has increased more than 40% since the start of the debacle. This and the protectionist measures of the US are making it very hard for our firms to export to the US.
Our government is feeling the heat and starting to inject a LOT of money into the system, I guess to devalue our currency and to stimulate the economy.
I swear, the money is flowing. EVERYWHERE the money is flowing. Our library just got close to a million. Our arenas got 50 million. I’m getting 5K back for a 20K home reno! The infrastructure projects are baffling (and there are ALWAYS cost overruns!)
There’s not enough labor for all the infrastructure projects out there…. remember we did not need engineers for the last 30 years!!! The builders are already adding the subsidies into their prices so that is inflation now.
Watch out. Once your excess inventories are liquidated, you’ll be importing your inflation.
June 18th, 2009 at 6:18 pm
ahab,
A few smart commentators suggest that the US consumer (via 401K) might have become the marginal buyer of excess Treasury issuance, as private investors now seem to avoid stock funds (I think Brad Setser posted on this recently). Indeed, Mrs Watanabe may have been the marginal buyer of JGBs during the Japanese experience.
I am not an Efficient Markets guy but I will tell you that if $2T of issuance was enough to collapse the bond market, it would be broken. This is carefully calibrated as the Fed and Treasury dance between the elephants.
Peter Schiff may be correct by 2020 but there are many twists and turns along the road. The reason the $ will not be destroyed is that so much debt is denominated in the instrument. Repayment and savings will support the $.
June 18th, 2009 at 6:19 pm
@Andy T:
Of course Milton Friedman said “inflation is everywhere and always a monetary phenomenon” and is considered the godfather of the Chicago school, but what he actually meant is lost on most folks:
Ceteris paribis, rising prices that are the result of money being increased in excess of output increasing is inflation. Inflation is a change in the accounting, not in the underlying supply and demand fundamentals.
I believe he was correct. If that makes me Chicago, so be it.
What the CPI measures, and what most commentators (even at the Fed) speak about when they fear deflation is declining prices due to declining demand. This is not monetary deflation (the obverse of inflation). This is simply price decreases along the demand curve. The money is measuring what the market is doing.
That said, there is absolutely no reason you can’t have inflation and declining demand. If money supply is increasing in excess of output increasing, even though actual prices are falling or staying steady, you have got less deflation than the market otherwise would, and that’s inflation.
It is often thought, even in the face of near-term experience, that there can’t be inflation and recession nor deflation and growth. I submit the 70′s (73/74 &79/80) as inflationary recessions. The 90′s saw deflationary expansion.
This era is often compared to the Great Depression, when real prices declined steadily, in other words, there was real deflation. There is a big difference with now. Money (and therefore prices) were tied to the stocks of gold, and as stocks of gold decreased, related to the run on the banks by foreign creditors at the GD’s early stages, prices plummeted, i.e, gold, and the money, became more valuable. Gold policies were modified by Roosevelt in 1933, preventing further outflows of gold, but the damage was done.
In this era, there is no such limiting factor as the stock of gold on hand. Money supply can be increased virtually infinitely. And that is the danger that I see. The incentive for doing so is extremely great for a nation that owes well over $10 trillion already and is slated to borrow another $2 trillion this year, and can borrow in its own currency. I don’t trust the mere mortals running the Fed to do anything but what the short-run incentives command.
June 18th, 2009 at 6:19 pm
@ben22 (6:10)
“2 trillion- simply staggering- where does the demand come from- it would seem they will overwhelm the market and rates will have to skyrocket to get people to bite-
Not if the stock market starts to crack again soon.”
LOL – you answered the samew way I did (6:13)…
June 18th, 2009 at 6:22 pm
Simon,
I think he’s already tried that and failed right? When everyone else is doing the same it’s tough to get ahead. He also said subprime was contained so there is a starting point for why not to believe him. He seems to know textbook theory in and out, too bad this isn’t just a classroom project.
June 18th, 2009 at 6:23 pm
@danm
re: the looney…
During the period that there is a RACE TO THE BOTTOM (with all currencies)…inflation will not be an issue…It’ll be a “flavor of the day” argument…
June 18th, 2009 at 6:26 pm
Simon Says-
“What if Ben in his desperation to fix the system devalues the $US in a serious way. This is what he has said he will do. Why not believe him?”
exactly- I would think that will be the ulitmate destination- with some support in the interim as mentioned by others on this blog
June 18th, 2009 at 6:28 pm
@Ben He had to say Subprime was contained. Imagine him saying Subprime is a disaster. Also that was something he didn’t see himself as having control over. He has managed to avert the first wave of disaster…
June 18th, 2009 at 6:29 pm
“2 trillion- simply staggering- where does the demand come from- it would seem they will overwhelm the market and rates will have to skyrocket to get people to bite-
Lemme see:
1/2 of 4% on the 10-yr = +2% [plus trading gains if it goes to 3% or lower]
v. a -20% correction from 950 to 760 in SPX…or a similar correction in JNK or CMBS… or whateva ya flava.
Even Lefty can do that kind of arithmetic, and so can the bond traders. They are smarter than InvestTools.
June 18th, 2009 at 6:31 pm
“Imagine him saying Subprime is a disaster”
LOL. Like Clinton saying “I did get a blow-job from that woman”.
June 18th, 2009 at 6:34 pm
leftback Says:
“Like Clinton saying “I did get a blow-job from that woman”
now that would have been funny- and truthful- and every man would understand
June 18th, 2009 at 6:35 pm
I mean shorter term I also think bonds will go down and the $US will go up. I just think its riskier this time round. The markets ryhmes not repeat as they say. I’m no guru here. I’m pretty serious about switching from $NZ into $US in a wee while I just can’t ignor the Gold Chart.
June 18th, 2009 at 6:42 pm
@leftback (6:29)
“Lemme see:
1/2 of 4% on the 10-yr = +2% [plus trading gains if it goes to 3% or lower]
v. a -20% correction from 950 to 760 in SPX…or a similar correction in JNK or CMBS… or whateva ya flava.”
LMFAO :-)
yea brother…did you see that 20,000 contract purchase on the August SPY75 puts today?
June 18th, 2009 at 6:46 pm
@cvienne: Schadenfreude Asset Management’s desk leaves a VERY large footprint…
June 18th, 2009 at 6:48 pm
lftbk-
from previous posts- you are of the belief that if treasury rates become too rich then there would be an understanding that the big banks woould switch into treasuries-
if we accept this as true- then the stock market would take a beating if necessary to contain the rise in treasury rates- so a rise in rates would presuppose the stock market “cracking”- using b22′s wording
June 18th, 2009 at 7:01 pm
@ahab:
There you go. It’s pretty easy this investing biz isn’t it? Would you rather hold Treasuries or a bag of manure?
Remember the capital structure and what happens during a typical bankruptcy. Common stock is garbage, expendable and goes to zero. Now when the corporation is the US of A, they will protect the bondholders, will they not? This is where the whole Green Shoots thing starts to look tenuous, old sport, and then everyone goes off to the beach, the stock market slides a bit, spreads widen and Treasuries find the old flight to safety bid…
and recent buyers of common stock in “C” realize, after a few weeks, with that sinking feeling in the stomach, that they are underwater, sometimes on margin, with money they borrowed from their girlfriend’s sister and promised to TRIPLE up on to buy that big diamond, and worst of all, their new best buddy Brian the Broker is not answering the phone. They look in the mirror, and realize they are, after all, despite their bravado…
Nothing More
Than
InvestTools.
June 18th, 2009 at 7:12 pm
lftbk-
the question I have is the connection- I was an early believer in the TARP/Fed/TBTF Bank connection- as far as supporting asset prices- especially equities- however- in your scenario- we have to assume that connection is legitimate for your thesis to work as desribed- no?
if the banks do not switch investment positions- then that would bode poorly on Treasury prices and rates- if the debt needs to be sold- then rates will rise until they meet a willing buyer-
a possibility?
June 18th, 2009 at 7:14 pm
I am inclined to put more credence in Rosy and Shilling for the short to intermediate term.
Look at who the inflationists are for God’s sake.
CNBC in general, Kudlow in particular followed by his girl in waiting M. Francis.
Art Laffer along with Don Luskin.
All the Gold bugs and the Austrian school. (Faber, Schiff)
Who has been correct to date?
June 18th, 2009 at 7:14 pm
Welch is CNBC’s pet rock
June 18th, 2009 at 7:25 pm
1951 is a bad example: The inflation wasn’t the result of Keynesian pumping. It was the Korean war. Sometimes, before pointing out patterns in the charts, we need to look out of the window at the real world! In fact, all the major spikes in inflation on that chart seem to correspond more to war spending (WWI, WWII, Korea, Vietnam) than even social spending and definitely not to Weimar-esque debt monetization.
June 18th, 2009 at 7:27 pm
@cvienne at 6:13 pm
So, if “the money to buy those (Treasuries next week) will come from GS, MS, & JPM” and the FED has built the reserves of those banks up with taxpayer money, aren’t they in effect monetizing debt? In addition, another thread shows that our government has in one year spent and/or promised the same amount of money that they spent in 206 years, combined. How can this not be “monetary” inflation? I disagree, inflation is not an opinion, it’s a fact. The CPI is a bogus number to start with and core doesn’t measure food and energy. Only the dead have no need for food or energy. A cap may have been put on rising prices for now because of “credit” deflation. However, money is tangible, credit is an accounting entry.
June 18th, 2009 at 7:37 pm
What’s with the unrelenting Rosenberg goofest? He was talking collapse from 2003. That’s a lot of wrong. Why not chicken entrails or goat testicles instead?
June 18th, 2009 at 7:47 pm
“Through the political lens”, I believe that BHO is an honorable man…”
He is. But he is no Rooseveldt – either one. In other words, he is not a decisive man and he does not have a strong agenda of his own. He will act like Lincoln through much of the early war years: he’ll keep hoping for strong advisors and subordinates who will do the right thing. He will be sorely disappointed.
June 18th, 2009 at 7:59 pm
Simon Said:
@Ben He had to say Subprime was contained. Imagine him saying Subprime is a disaster. Also that was something he didn’t see himself as having control over. He has managed to avert the first wave of disaster…
Um, if you think he averted the first wave of disaster with subprime you and I live on different planets.
If you think watching Bear, AIG, Lehman, FRE, Fannie, Washington Mutual, Merrill etc fall apart, the whole system come to its knees was an aversion of disaster I’m completely lost.
June 18th, 2009 at 8:07 pm
@LB
I was thinking that was you…or your evil twin…WTF?…If its all in the family, what difference does it make?
June 18th, 2009 at 8:34 pm
@Pat G (7:27)
Vt=nT/M
V=nQ/M
My take here is that you have a very large denominator that will NOT play out to have a large numerator…Because I don’t think the “liquidity” is being used wisely…
Therefore, velocity = slow…DEFLATION = result
—
IMO – It’s a question of FLOW…
My assertation is that M (the denominator in both instances whether “direct” or “indirect”) is the deciding factor here…
Thereby leading to a reduced V or Vt…
Therefore: DEFLATIONARY BIAS…
June 18th, 2009 at 8:53 pm
@Pat G: For what it’s worth, I’m not seeing food prices increase. I don’t know where you live, but prices haven’t increased for a while in Minny. If anything, there are far more sales and price cuts here. Gas, however, is a different story. Up to $2.65/gallon or so.
June 18th, 2009 at 8:53 pm
@LB
Just out of curiosity…Do you see an October 31st 104 conclusion on that?
I mean hell…I might as well just book it and go to Tahiti…why sweat & bother?
June 18th, 2009 at 8:57 pm
@Manny
That’s partly the ETHANOL effect (food prices)…Meat & Dairy are down because corn prices (feedstock) has come down off bubble (plus PACKAGING & SHIPPING have come down off the oil bubble)…
BTW – you got me inspired…I went out for sushi 2nite…I’m certain to feel your sake hangover tomorrow :-)
June 18th, 2009 at 9:04 pm
@cvienne: Good to hear! I love sushi in the summertime. The sake was good but definitely takes some getting used to. I must have popped about 8 Advils (not all at once) total last night and today.
June 18th, 2009 at 9:17 pm
Good ole Mish did a post on continuing UE claims for those who haven’t seen it. Addresses the question about the drop in claims and the fact that it’s just due to those dropping off the rolls.
http://globaleconomicanalysis.blogspot.com/2009/06/continuing-claims-drop-first-time-in-21.html
One thing I was heartened to see in that post is that there was at least one MSM source that did some critical thinking instead of just figuring it must be just great news of the impending recovery.
http://finance.yahoo.com/news/Jobless-benefit-rolls-drop-apf-1306581616.html?x=0&sec=topStories&pos=3&asset=&ccode
June 18th, 2009 at 9:21 pm
@Manny
2 Advils already…
Probabaly a Tylenol – 3 to come…
I’m trying NOT to devolve into “junkie” status, but I’ve been subbing 3 extra fitness classes per week (for the last 2 weeks & for 3 weeks to come) on top of my regular 4…(cause it seems all the ladies are pregnant these days)…
I give it all I can (off the bench), but I’m in PAIN brother…
June 18th, 2009 at 9:23 pm
Looking back over the deflation/inflation crowd responses, I think that the basic difference in their perspectives is that the deflationistas see the debt overhang as preventing much of an inflationary impact from the Fed’s monetary stimulus, due to the adverse repercussions on the USD (which is the only way we’re going to get substantial inflation, IMHO — by massively destroying the dollar — and I think that the Powers-That-Be lack the cojones to do so). The inflationistas think that the Powers-That-Be have no alternative but to destroy the dollar.
If I could introduce a bit of evidence … check out Vince Farrell’s excellent summary:
http://www.ritholtz.com/blog/2009/06/thats-a-lot-of-money/
If you believe that the debt bubble has sprung a leak, and we are trending back toward the mean in the excesses of household debt to disposable income, that our savings rate is trending back toward the levels before this debt binge began, then you’re a deflationista.
If however, you think that we are going to crank our household debt up to even higher levels, that the debt bubble is NOT leaking, then you’re an inflationista. I do not believe anyone can rationally support the notion that we will shrink the debt bubble and experience sufficient inflation to overcome the deflationary aspects of debt reduction and increased savings.
Maybe Bernanke thinks that was, but I qualified my previous statement to “rational” individuals.
June 18th, 2009 at 9:26 pm
@manny
Oh…& Manny
Do you know I can brew my own sake these days?
I’m still perfecting the technique (so its ROCK GUT so far)…but I portioned off a rice field in my WVA property and am fermenting the rice crop to see how it goes…
I’m just trying to get a jump on things so that if the s*** REALLY hits the fan in a couple years and stuff is hard to come by, I can still get DRUNK! :-)
June 18th, 2009 at 9:32 pm
@constantnormal (9:23)
I think you made the perfectly rational case there (from BOTH sides)…
Simply stated…whether you like or dislike BB, one thing is clear…If he were WORRIED about inflation, the Fed would start “tightening” right away…
I mean, COME ON…No Fed chief (save Larry Summers in the future) worth his salt would EVER let inflation out of the bag…
It’s a TELL that helicopter Ben is still worried about deflation…He’s probably right!
June 18th, 2009 at 9:33 pm
“was” = “way”
malfunctioning WordPress edit button
June 18th, 2009 at 9:40 pm
Got a good chuckle out of this video clip interview with Maria B. a short time ago. Mr. Biderman at Trim Tabs is shorting the banks. You could almost see him chuckle a few times during the interview with the annoying Maria B, who interupts him every chance she can……
http://zerohedge.blogspot.com/2009/06/trimtabs-ceo-provides-realistic-view-on.html#disqus_thread
June 18th, 2009 at 9:42 pm
onlooker-
as I suspected- on a post from a previous thread I said-
“regarding the drop in continuing claims- any analysis how much of that may be due to expiration of benefits and people dropping out of the picture???”
so- we can’t look at it as good news- most likely bad news
June 18th, 2009 at 9:50 pm
@Manny
OMG…that Maria B/Biderman clip was a “classic”!
I’ve got 2 hand it to Biderman for keeping a straight face…
June 18th, 2009 at 9:58 pm
I’ll 2nd cvienne’s comment Re trimtabs link- dude knows what he is talking about- and he actually did start laughing about the “shorting banks” question
June 18th, 2009 at 10:10 pm
@ahab (9:58)
I’ve gotta think even Dicky Bove is ‘shortin’ the banks right about now,,,
June 18th, 2009 at 10:12 pm
This is really rich:
http://www.reuters.com/article/ousiv/idUSTRE55G3UP20090617
JPM analyst predicts: “If we end up with a V-shaped recovery, we could go back to our record high of 1,500 in 2011-2012,” he added, referring to the S&P 500.”
Another monkey getting paid way too much to not have a clue about the debt bubble we built and the debt deflation we’re going through.
More: “The biggest risk is that we’re implicitly assuming the consumer is stabilizing. There’s a lot of potential shocks. If oil goes to $100 a barrel, you can’t have a recovery,” said Lee, adding the other risk would be if savings rates somehow overshoot.”
Of course he’s right about oil, but… Unbelievable.
June 18th, 2009 at 10:17 pm
More on that JPM analyst B.S. at:
http://www.financialarmageddon.com/2009/06/strategist-fail.html
Michael Panzer’s got a great take on it.
June 18th, 2009 at 10:17 pm
NOTWITHSTANDING…
Something in my ‘spider senses’ is tingling that says that the quarter will hold out…
My current thesis is that we end the 1st HALF at an annoyingly AGONIZING 903 on the S&P…
Which means the gain on the year in ’09 will be exactly…
SQUAT!!!!!!!!!!!!!!
Then…(as always), ben & karen will get the call to EXIT on 7/2…
So if everyone on TBP plays fair and keeps their claws in their mittens, WE ALL GO HOME HAPPY CATS!
June 18th, 2009 at 10:19 pm
@OT (10:17)
That almost makes me want to SHORT the FXI more than the SPY!
June 18th, 2009 at 10:24 pm
onlooker-
the only way a trajectory like that could conceivably happen is by a new bubble- and where would come from? Nowhere. He qualifies his statement with an egregious assumption- that if there was a V shaped recovery then it could happen- but there will be no V shaped recovery- so its a bullshit prediction-
much like the old saying- if my grandmother had balls . . . then? . . . well . . . she doesn’t so let’s look at reality.
June 18th, 2009 at 10:27 pm
That’s JPM’s Chief U.S. Equity Analyst. I know, I’m being naive if I think his job is to actually predict the market’s direction and give honest advice to the investing public. But there is a part of me that continues to be astonished at the hubris of this industry and the complete lack of integrity. Or else they’re just stupid and blinded by their own biases. Naw, they’re crooks.
June 18th, 2009 at 10:27 pm
@OT
You know? Come to think of it…
ben22 made an EXCELLENT point today…One I hadn’t considered ( but NOW I’m considering)…
This is setting up to be VERY ugly…To the extent that I’m actually fearing a market closure…(a situation where, if you’re holding shorts, you may not even be able to redeem)…
ben may be right…so watch out…
I don’t even know how to express such a scenario so I welcome “cvienne – you’re an ‘effin dimwad” remarks…
June 18th, 2009 at 10:29 pm
It’s just so damned aggravating though because they’re just no better than the friggen con artist that’s calling your grandmother to take her last precious dollars with their smooth talking B.S.
June 18th, 2009 at 10:30 pm
@OT
“JPM’s Chief U.S. Equity Analyst” = SPOKESPERSON WHO FUCKING HOPES HE CAN SELL YOU HIS BOOK WITHIN THE NEXT TWO WEEKS…
June 18th, 2009 at 10:31 pm
@lefty (re: 10:30)
…so he can buy TLT…
just trying 2 help u out there brother :-)
June 18th, 2009 at 10:33 pm
Here’s this knucklehead’s (con artist’s) prediction for ’08 last Feb:
http://www.cnbc.com/id/23560001/
That worked out well. Short recession, SP500 1450 year end ’08
Worthlessly clueless or absolutely crooked. I still struggle with which is worse.
June 18th, 2009 at 10:42 pm
onlooker-
the guy is a fucking idiot- and a shill- which is worse- and that he has a job and is employed at JPM should send a chill up anyone’s spine-
if i were he- I would commit suppuka on the spot- just to end my humiliation
June 18th, 2009 at 10:45 pm
@OT
…let me clarify…
…He’s absolutely worthlessly cluelessly crooked…DOES THAT HELP?
& he’s got a limp dick to top it all off!
June 18th, 2009 at 10:47 pm
@OT
Actually – I think Abbey Joseph Cohen had the S&P at 1,800 back then…I’ll dispense with the rest…
June 18th, 2009 at 10:50 pm
cvienne-
you are a funny dude
June 18th, 2009 at 10:58 pm
As to AJC, what dirt does she have on the GS board of directors? What else could explain her continued employment there? Really? Or is it some form of nepotism? I’m really baffled and disgusted.
June 18th, 2009 at 11:02 pm
@ahab
My only REGRET is that Franklin411 will be leaving us within a short time period…
Every Cossell needs an ALI…
Otherwise there’s no FLAVOR…Sigh :-(
June 18th, 2009 at 11:07 pm
@OT (10:58)
I’m glad you brought that up…
That’s always been a big ???? in my mind…
The best I’ve been able to answer (MUCHOS GRACIAS TO BR & THE BLOGGERS ON THIS SITE) is that GS is just a great racket…
So they troll her out there (like their effin’ CONVICTION BUY LIST) simply to sell you their book…
It’s like “Occam’s Razor”…The simplest explanation is the best choice…
GS understand that PEOPLE are SHEEPLE…Hence…they MAKE $$$
June 18th, 2009 at 11:22 pm
cvienne – where is Franklin going?
June 18th, 2009 at 11:29 pm
@ Thor
He signed up for AmeriCorp and will be in New Orleans all summer removing contaminated Chinese wallboard from FEMA trailers.
June 18th, 2009 at 11:39 pm
Lloyd’s sorry, now leave him alone to make some more huge money, please:
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5554488/Goldmans-Blankfein-issues-apology-as-bank-prepares-to-repay-10bn.html
Just more of the ensuing campaign to have everything left alone so the banks can go back to business as usual.
June 18th, 2009 at 11:40 pm
@Thor
Good to hear from you Thor…:-)
I was getting lonely here on the East Coast…
re: Franklin…NOTHING…just conjecture…
I’m thinking that the markets are going to tumble over the next 3 months…(not starting TOMORROW – maybe not starting within the next 3 weeks or so – but it’s COMING)…
When that happens…a lot of GREEN SHOOT confidence is going to evaporate…I’m thinking he’s either going to have to come up with some sophisticated & steadfast arguments…or get pulverized…
My anticipation is that the WEIGHT of the pulverization will keep him away…
I HOPE I’M PROVED WRONG….I hope he stands fast…I TRULY DO…
I won’t criticize him in that moment…He’s a VERY good pH balance on a blog like this…
Actually…THAT SAID…YOU – THOR are too…You present a very compelling antithesis to many of the posts here…You possess a very balanced comprehension of the “gravity vs. hope” thesis…
If this were a SUPREME COURT tribune, I wouldn’t even qualify as a justice…but if I happened to BE a justice…I’d give you an UP thumb…
June 18th, 2009 at 11:44 pm
@OT
YOU…my friend…are pulling out some good research tonight on these articles!
For the record…Lispy Lloyd is basically saying…THANKS SUCKAS…now let’s get on with raping you all of your hard earned cash…
That’s NOT an insult BTW…That makes him a GOD if he cam pull that con off with sound bytes…
As long as he gives to charity on his deathbed :-)
June 18th, 2009 at 11:59 pm
Cvienne – thanks so much. I must admit that I have a bad habit of playing devils advocate sometimes. Usually when I’m quiet (like now) it’s because you all are talking about things way over my head ;-)
I don’t know about any sort of balanced comprehension but than you for that compliment. I must admit that at time I feel a bit over my head with a lot of the topics you guys discuss. Economics has never been much of an interest to me, my wanting to learn about it, and discuss these things with you all is because it’s clearly extremely important to the country right now and I like to have an idea of what’s going on.
Again, I have to apologize to Manwich. I’m particularly sensitive when it comes to politics because I grew up in San Francisco and it was pretty much rammed down my throat from birth. I clearly misunderstood the point he was trying to make!
June 19th, 2009 at 12:05 am
Also – my social community is extremely political and people in this community tend to be very very pushy when it comes to social and moral issues and what “we” are supposed to “believe” and “fight” for. Not fun.
June 19th, 2009 at 12:21 am
@Thor
Although I don’t presume to speak for him (Manny)…I’d pretty much decipher that he likes to hear arguments such as yours so as to help bring the context of TBP into better focus…
I think that happens a lot on this site…
A lot of arguments awkwardly stumble about left or right, and then are brought into sharper focus through debate…
Let me give you an example…
I’ve heard you refer to your “partner”…I know what that means…Probably most here do too…there’s no BIAS towards that…we’re all God’s creatures…Hell, I have a stupid story of my own…I’m hetero, & I’m white…but my “girlfriend” is black (she’s a YALE medecine grad)…We go back and forth all the time about POLITICS (I think – in a GOOD way- she thinks so too I’m sure)…You can imagine what the “O” phenomenon has brought into that!…But it’s been GREAT…I swear…For BOTH of us…
So whatever…I don’t have to go on…keep BRINGIN’ IT and not only will nobody mind, but they’ll RELISH it…
June 19th, 2009 at 12:24 am
That one about Lloyd I got via naked cap. So the hat tip goes there.
June 19th, 2009 at 1:01 am
Thanks again Cvienne – you’re a good guy and I appreciate your understanding. I’ll do my best ;-)
Thanks again for the partner thing. Definitely not something I try to hide, it’s just not something that I really think about all that much, the mo thing is a very small part of who I am, not something I define my identity from.
June 19th, 2009 at 2:29 am
The Curmudgeon @ June 18th, 2009 at 6:19 pm
I respect your views entirely, and understand your viewpoint well. Thank you for the well thought out response on the topic….I wish we could somehow “see” the future so that we’d both know the answer for certain, because this is the Trillion dollar question my friend. – Andy.
June 19th, 2009 at 8:46 am
I’m not quite willing to declare deflation the winner just yet.
Prices are falling both as a reaction to lowered demand and lowered commodity cost pass through.
Demand is lower and inventories are being reduced as a direct effect. Price is the mechanism being used to clear the shelves. Eventually, an equilibrium will arrive. At that time, the nature of changing prices will become more clear.
Last year, commodity prices went ballistic. Second round effects caused a lot of items to go up in price. Lower commodity prices from after the bubble burst are now filtering through inventories and lowering prices. If oil remains in bubble mode, they will rise again.
June 19th, 2009 at 9:41 am
Hobo,
Interesting analysis but when you say this:
Last year, commodity prices went ballistic. Second round effects caused a lot of items to go up in price. Lower commodity prices from after the bubble burst are now filtering through inventories and lowering prices. If oil remains in bubble mode, they will rise again.
Couldn’t you apply the massive growth of credit to these “second round effects” causing items to rise in price, if credit is taken away then it does the reverse doesn’t it? We’d see that less people can afford the things they buy. That’s why it needs to be called credit deflation to describe it accurately.
The reason it’s hard to declare it a winner just yet is because it has hardly even started, we’ve only gotten a little taste, but it’s out of the bag now. Good luck to the Fed trying to put it back in there. They certainly haven’t printed enough money to do so.
June 19th, 2009 at 10:46 am
So we had deflation from 1929 to 1934 and it took almost a decade after that (and the economic superpower of a world war) before inflation finally broke into the double digits. As always, the most crowded trade (inflation) is dead wrong. Nobody can price their products higher than what the costumers can afford, so unfortunately it will take a dramatic increase in labors ability to demand higher salaries, to get any kind of inflation going.
June 19th, 2009 at 11:27 am
Open Question:
Monetary policy in a fiat system is related in a complex way to GDP plus notional holdings floating around — taxable value — so that the currency can be supported by the full faith and credit of the sovereign, correct?
Now take a Marvin Martian ray gun and zap asset values in a huge amount, say ~ 20% of GDP (~$14 trillion GDP and ~$3 trillion in RRE asset values) vaporized. Poof. Bubble bursts. Cascading property tax abatements for a few years. But tax rates must either increase to keep pace with value losses — further squeezing homeowners/consumers already in a bad place — or gov’t services are cut in draconian fashion.
M hasn’t remained constant; it has gone crazy-vertical as the Fed’s balance sheet skyrocketed almost overnight in fall 2008. Against a backdrop of a huge hit in national asset values plus huge drop off in consumer demand. Overcapacity plus low demand across the board means prices start to come down. To go with Curmudgeon’s point, this is not deflation; this is supply & demand at work.
Deflation, in the strict monetary sense, is an upward adjustment in the buying power of a dollar. Good for creditors, bad for debtors. Paradoxically, however, the economy (or maybe just select areas?) has been flooded with new dollars that should dilute the value of individual dollars (you would think), causing inflation (downward adjustment in measuring the buying power of an individual dollar). Inflation is good for debtors, bad for creditors.
First question: Is it possible to have true deflation without money supply being physically destroyed? In the 30s we saw destruction of supply to support prices (esp. food). But we also saw confiscation of gold because US money supply was being destroyed as gold reserves were depleted. Correct?
Second question: With an unprecedentedly massive QE, why no inflation right now? Which is to say, from a monetary standpoint, my dollars still buy a very comparable basket of goods (how else to measure inflation?) to what they bought a few years ago. Forget oil for the moment. Is it because the velocity of all that new money is extremely low — or is there another reason?
June 19th, 2009 at 12:24 pm
Transor Z-
in a nutshell- the argument against inflation is- via Seeking Alpha-
“The absolute dollars of wealth destruction and credit contraction significantly outweigh the expansionary potential of the money supply’s growth.”
June 19th, 2009 at 1:15 pm
Transor, regarding this para:
Second question: With an unprecedentedly massive QE, why no inflation right now? Which is to say, from a monetary standpoint, my dollars still buy a very comparable basket of goods (how else to measure inflation?) to what they bought a few years ago. Forget oil for the moment. Is it because the velocity of all that new money is extremely low — or is there another reason?
I sort of disagree with your statement here. Doesn’t your cash buy you more gas, oil, stocks, clothes etc than it did last summer? That might, on a very simple level help explain my bullish stance on the dollar in what I believe to be a credit deflation environment. Look at what the Yen did for Japan and you’ll see what I mean. Cash is king during deflation.
QE isn’t working, clearly. The bond market is not letting it work, the Fed has no control, long bonds yields have shot right up since they announced what they were going to do. I think anyone that believes they do is wrong. The proof will be if they can get us out of this, which I don’t think they can.
June 19th, 2009 at 2:14 pm
@ben22:
No argument from me. If you believe David Rosenberg’s work, as one example, we’re already at an annualized -5% “deflation” rate. So no doubt you can find good support for the claim that we’re getting more for our buck right now.
What I’m struggling with is the brain-teaser Curmudgeon reminds us of, when he rightly (I think) points out the circularity of measuring our favorite monetary phenomenon by looking at prices. I used the word “comparable” advisedly — on the assumption that a few percent +/- shouldn’t matter when you’re looking at the monster Fed balance sheet that should be generating inflation already — bigtime inflation in a way felt by consumers. Except it isn’t.
So you get to the interesting question of whether it is creating inflation — but only in a strictly academic sense. Kind of like in a “if a tree falls in the forest and no one hears it” or “no harm, no foul” sort of way. IOW, $10 trillion allocated for such a specialized purpose (propping up the banks) might as well be its own (illiquid, practically speaking) class of M.
The other possibility, which seems to be the majority view, is that it will inevitably create inflation because it is only a matter of time before banks have to tap into it. But this assumes no exit strategy on the part of the Fed and a plan that amounted to building the biggest dyke they could and then whistling past the graveyard. Could be. Could be there is a plan. Only a few people are privy to the truth on that one. Are bond vigilantes keeping the QE money in port? Dunno. I can’t figure it out.
Anyway, thanks to you and Ahab for responding. I’ve been half-jokingly calling this site “Ritholtz University” lately and I appreciate the insights from smart people.
June 20th, 2009 at 9:14 am
[...] Read the original: CPI June 2009 | The Big Picture [...]