Inflation, deflation, gold and currencies

[vincecate]

Even more "exciting", I think silver upcrashed over 6% today but it was unable to reach its Sunday night high.

The 2013 SLV $50 strike calls are up 28.46% today. If you held a 5 year bond with 2% interest for 5 years you get less than half of the percentage gain of this one day in SLV options. Ya, silver is exciting, that is for sure. And yes it is clearly possible to go down as evidenced by Sunday to yesterday. I took a bit out and put more into S&P puts.

[Higgenbotham]

I took a bit out and put more into S&P puts.

Another thing that might be timely to mention again. You might remember I was talking about some long term 45 year cycles where the stock market went from a significant high to a significant low a little over 45 years later. One was from the September 1929 high to the December 1974 low. I mentioned the February 1966 high and said if the cycle holds a significant low might be seen between April and June of this year. Instead, we are seeing new 2 year plus highs. To me, this means QE2 has probably helped invert this cycle into a high. We may be looking at a very significant high somewhere between now and June. I have some other long term work (2 other cycles) saying April 27 plus or minus a few days could be a cycle inversion that should have been a low. It doesn't look like today is the end of it though. I had similar cycles dates in late May of 2007 and the market continued higher in fits and starts until mid July. One thing I'm considering though is that was the end of a 5 year run and this run is only half as long, so if we really are seeing something similar the overshoot may not last as long.

[vincecate]

You might remember I was talking about some long term 45 year cycles where the stock market went from a significant high to a significant low a little over 45 years later. One was from the September 1929 high to the December 1974 low.

I think these major swings in P/E valuation are due to swings in interest and inflation rates. The Fed is clearly manipulating interest rates and so may have shifted the timing on things. I don't believe that printing money to hold down interest rates can work long term (more than about 3 years if aggressive like this) and so they are going to experience a fail sometime soon. Short term they can use new money to hold down interest rates but long term more money causes inflation which will drive up interest rates. When inflation and interest rates start going up and people realize that the Fed does not actually control them so much as influence them, then they will panic. When they realize that the "Bernanke put" is a figment of their imagination they will sell.

I miss the BPI. It would be so cool to be able to watch this unfold in real time.

[Higgenbotham]

I think these major swings in P/E valuation are due to swings in interest and inflation rates. The Fed is clearly manipulating interest rates and so may have shifted the timing on things. I don't believe that printing money to hold down interest rates can work long term (more than about 3 years if aggressive like this) and so they are going to experience a fail sometime soon. Short term they can use new money to hold down interest rates but long term more money causes inflation which will drive up interest rates. When inflation and interest rates start going up and people realize that the Fed does not actually control them so much as influence them, then they will panic. When they realize that the "Bernanke put" is a figment of their imagination they will sell.

The 45 year cycle was tracking OK until QE2 was announced. The high "should" have ideally been early April 2010 and it was only about 20 days late. From there, the stock market "should" have gone down about 50% for a little over a year. When the economy began to accelerate downward, Bernanke all but said QE2 was coming, which broke the cycle. I can't think of any good way to figure out how much time QE2 bought, if any, beyond the time it ends. I can't figure out what the net effect on interest rates has been as a function of time except to think it will raise interest rates longer term. I think QE2 has raised the inflation rate from some negative number to a positive number which, once QE2 ends, may cause inflation to go strongly negative and then strongly positive. I believe QE2 is starting to exert negative effects on home prices. In other words, home prices are now falling faster because of QE2 than they would be otherwise. If the Fed sees negative effects from QE2, they may delay any further action (QE3) so they can blame any negative effects on stopping QE2 rather than addressing the fact that the policy has failed.

[vincecate]

John said the recent blip up in the dollar index was consistent with deflation, so clearly the huge drop since then is consistent with inflation.

http://quotes.ino.com/chart/index.html? ... =&w=&v=d12

[RDRUNR]

I think gov't have 2 choices really:

1. Inflate the currency to pay off debts = kill the value of their currency but save their debt rating.
2. Default on debts = kill their credit rating but defend their currency.

So far #2 is winning and accelerating with twin turbos.

Even if they default, they are still spending nearly twice what they get in taxes. Defaulting eliminates the debt but does not fix the deficit. They are still broke and would get hyperinflation, I think.

What makes you say #2 is winning? You mean other countries?

I don't believe there has ever been a case where a country defaulted on debts in paper money that they could print themselves. There have been over 100 cases of hyperinflation. So if you invest based on the odds, I think you have to go with the hyperinflation not default.

Re: #2 is winning. Yes, by other countries and by the USA as well in decreasing values of assets (like housing). Inflation is in food and fuel (which are really small expenses) vs huge expenses like homes (and minor expenses like autos, electronics, computers).

Re: " don't believe there has ever been a case where a country defaulted on debts in paper money that they could print themselves". So let's clear up a big myth, there have been quite a few in fact in history, infact there have been more (250 defaults vs 100 (your stat) hyperinflations)... see this research paper from Standford U: http://www.stanford.edu/~tomz/pubs/TW2007.pdf (John, you might find this interesting too)

106 countries have defaulted a total of 250 times since the end of the NapoleonicWars. The most common defaulters—Costa Rica, Ecuador,
Mexico, Uruguay, and Venezuela—each experienced at least eight distinct spells of default. Ecuador and Honduras hold the record for the longest periods in default.

Any country that prints their own money can default on their debts and remove them from their books, thus starting with a 0 debt load again. (amoung other - and + issues)

> For the last 8 years, you've been saying it's 100% certain that
> there will be an approximately 30% deflation during the
> generational crisis period. Nothing beyond that.

Amazing! I've probably mentioned the 30% figure fewer than 10 times,
but I've written about deflation probably hundreds of times,
discussing it from every possible angle.

I guess I don't make much of an impression.

John

John, you make a very positive impression on those who are listening to you and trusting your amazing system. I'd also like to point out Higgenbotham who I read a lot of his well written posts (I think the "put your money where your mouth is aspect").

BTW - The US dollar dropped again yesterday so I purchased another $7k in USD.

[vincecate]

I don't believe there has ever been a case where a country defaulted on debts in paper money that they could print themselves. There have been over 100 cases of hyperinflation. So if you invest based on the odds, I think you have to go with the hyperinflation not default.

So let's clear up a big myth, there have been quite a few in fact in history, infact there have been more (250 defaults vs 100 (your stat) hyperinflations)... see this research paper from Standford U: http://www.stanford.edu/~tomz/pubs/TW2007.pdf (John, you might find this interesting too)

106 countries have defaulted a total of 250 times since the end of the NapoleonicWars. The most common defaulters—Costa Rica, Ecuador,
Mexico, Uruguay, and Venezuela—each experienced at least eight distinct spells of default. Ecuador and Honduras hold the record for the longest periods in default.

Yes, total for all types of defaults may be more common than hyperinflation. But I am only talking about defaults on debts denominated in the local currency (US debt is in US dollars). This paper does not say which of these 106 countries could print their own money nor how many of the 250 defaults were on debt denominated in the local currency. It is just a total of all defaults. Most such borrowing is not in the local currency. When Costa Rica borrows money from people in America and Europe it is not in Costa Rican dollars. There might have been a default in a local currency but this paper does not prove that and I have never been able to find such a thing. Normal case is really that countries that can print their own currency print to pay off a debt in the local currency. Many cases of that.

[OLD1953]

I just don't think we are far enough into the singularity for Bernake and all his computer models to be that accurate and have that level of control.

Moreover, it's simply incorrect to call every price increase inflation and every price decrease deflation, at least if you are talking about monetary inflation/deflation. Prices rise and fall for many reasons, some long term and some short term, but monetary inflation/deflation is only one influence among many on retail prices. The decline of the cattle herd from 140 millions to the current level of near 90 millions, while the population of humans in the USA increased by about 100 millions has a lot more to do with rising beef and milk prices than any monetary inflation.

[Higgenbotham]

For the last 8 years, you've been saying it's 100% certain that there will be an approximately 30% deflation during the generational crisis period. Nothing beyond that.

I've never heard you opine that US dollar fiat in its present form will be the world's money indefinitely...

Maybe I wasn't clear enough here, but this site is discussing the next few years in terms of seeing deflation. That's been the context of 98% of my discussion too. That's what "nothing beyond that" means, not that there wasn't detailed discussion about the next few years. Beyond the next few years, any prediction is almost impossible except to say that the ultimate fate of the US dollar world reserve currency system will be either hyperinflation or, if one prefers, the complete collapse of the US dollar world reserve currency system. Vince asked whether by that I mean in 50 years or something like that. Yes, sometime beyond the next few years; it could be in 2015 or 2050 or even later.

[jusme]

For John and all who post.

Their is much appreciation.On all this site's pages there is ton's of knowledge , personal skill's and experience and powerful thought provoking discussion's .

I don't know of anyother site that offers that ?

Without a fee that is ?

My personal regret is I didn't find it sooner.

But all that have contributed have been benificial to me in things I knew 'nothing' about.

And helped me .

Thank you all.

Keep up the great discussions

Donate if you can.

John the greatest gift of man is being of service to your fellow man unshelfishly,for their benifit.

This site is it !

We are paying attention.

And the one's that wanted to take up time and space arguing and calling you a 'Doom's Dayer' have pretty much thined out.

Keep it up and going ya'all.

To get through all this uncertainty we need each other.

Jusme