Posts filed under “Think Tank”

Elements of Deflation, Part 2

Just as water is formed by the basic elements hydrogen and oxygen, deflation has its own fundamental components. Last week we started exploring those elements, and this week we continue. I feel that the most fundamental of decisions we face in building investment portfolios is correctly deciding whether we are faced with inflation or deflation in our future. (And I tell you later on when to worry about inflation.) Most investments behave quite differently depending on whether we are in a deflationary or inflationary environment. Get this answer wrong and it could rise up to bite you.

The problem is that there is not an easy answer. In fact, the answer is that it could be both. Today I got another letter from Peter Schiff, who seems to be ubiquitous. He says the rise in gold is because of rising inflation expectations among investors. Gold is predicting inflation. Maybe, but the correlation between gold and inflation for the last 25-plus years has been zero. I rather think that gold is rising in terms of value against most major fiat (paper) currencies because it is seen as a neutral currency. The Fed and the Obama administration seem to be pursuing policies that are dollar-negative, and they give no hint of letting up. The rise in gold above $1,000 does not really tell us anything about the future of inflation.

In fact, it is my belief that if the Fed were to withdraw from the scene of economic battle, the forces of deflation would be felt in short order. The answer to the question “Will we have inflation in our future?” is “You better hope so!”

I wrote in 2003, when Greenspan was holding down rates too long in order to spur
the economy, that the best outcome or endgame over the course of the full cycle would be stagflation. I still think that is the most likely scenario. The Fed will fight deflation and knows how to do that. They also know what to do when inflation becomes too high. But there is a cost.

It is not a matter of pain or no pain; it is a matter of choosing which pain we will face and for how long, and perhaps in what order. As I wrote a few weeks ago, like teenagers, we as an economic polity have made some very bad choices. We are now in a scenario where there are no good choices, just less-bad ones.

In a normal world, the amount of monetary and fiscal stimulus we are witnessing would
produce inflation in very short order. That is what has the gold bugs of the world excited. It is their moment. They keep repeating that Milton Friedman taught us that inflation was always and everywhere a matter of too much money being printed. The answer to that is that the statement is mostly true, but not always and not everywhere (think Japan). The reality is somewhat more nuanced. Let’s review something I wrote last year about the velocity of money, and this time we are going to go into the concept a little more deeply. This is critical to your understanding of what is facing us.

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Category: Think Tank

Reflection on 9/11

September 12, 2009 It has been two pensive days. Somehow the words won’t come. Difficult for me since I write 100 times a year. I sit staring at the keyboard. No words. Everyone is/was so busy with 9/11. Public moments of silence, ceremonies, TV filled with remembrances, talk shows, websites, commentaries, footage of planes and…Read More

Category: Think Tank, War/Defense

Gold net longs at record highs

According to the just reported CFTC data for the week ended Tuesday, the net spec long position in gold rose to an all time record high (dating back to 1993), up 22% on the week to a net 225k contracts. Silver net longs rose to the most since Aug ’08 and net longs in platinum…Read More

Category: MacroNotes

India vs the US: A Visual Comparison

Another interesting chart via Jess Bachman of WallStats: > Graphic via Mint

Category: Think Tank

Today’s data

The preliminary Sept U of Michigan confidence figure was 70.2, almost 3 points higher than expected and is up from 65.7 in Aug and is the 2nd highest reading going back to Sept ’08. Current Conditions rose 5.2 points to 71.8 to the most since June and the Outlook rose by 4.2 points to 69.2,…Read More

Category: MacroNotes

Baby Bush: The Worst President in History?

Doug Casey is chairman of Casey Research, and is a best selling author, international investor, and entrepreneur. He travels the world looking for exceptional opportunities in real estate and undervalued companies in the natural resource sector (precious metals, oil and gas and more). The author of four best selling books, his Crisis Investing was #1…Read More

Category: Bailouts, Politics, Think Tank, War/Defense

Import Prices

August Import Prices rose 2% m/o/m, higher than estimates of a gain of 1%. The y/o/y drop was 15% mostly due to the fall in energy prices since last summer. Ex all fuels, m/o/m prices rose .4% and are down 5.1% y/o/y. The month of August saw little change in the $ but that of…Read More

Category: MacroNotes

China remains the straw that stirs the global economic drink

The most important country in the world, China, in terms of lighting the match under global economic growth had a slew of economic data overnight and the positive reaction sent the Shanghai index to a 3 week high. Most importantly, August Bank loans totaled 410.4b Yuan, about 90b more than expected and through 8 months…Read More

Category: MacroNotes

30 year bond auction

The 30 year bond auction was solid as the yield at 4.238% was below expectations of 4.27-4.29%. Also, the bid to cover at 2.92 is the highest since the 30 year was reintroduced in Feb ’06 and well above the average over the past year of 2.32. Indirect bidders totaled 46.5%, slightly below the previous…Read More

Category: MacroNotes

Bill King: Bond Divergence

> During European trading on Wednesday, the dollar fell to a new ’09 low. This produced a SPU rally into the NYSE open. US traders then poured into stocks on a ‘cash is trash’ rally. But that was it for the rally. As we have asserted for months the major prop under stocks is dollar…Read More

Category: Think Tank