Financial topics

[aluk22]

I can't tell how many people like me there are but I'd like to say to all who post here how much I enjoy reading all this. All of you people strike me as really brilliant and informed and I've learned so much from your posts. I wanted to state my appreciation. It is hard to find people with such in-depth knowledge willing to share it in such detail. It's a delight to read you people going back and forth on such a range of economic and financial issues. Also, I appreciate that all of you are so civilized in your rhetoric.

[OLD1953]

The market is up because the market is up, and that's a good reason to stay away from it. If there isn't a fundamental reason for the markets to rise, or the fundamentals say the markets should fall when they don't, it's a good time to stay out of the markets because eventually something will happen to make reality and the markets match.

John, I honestly can't say if the sunspot cycles have influenced evolution or not. There are cycles, and metacycles and supercycles (sounds like the market, LOL) and some cycles are shorter than others, but the overall average length of a sunspot cycle is 11 and a fraction years, which makes seven cycles line up at eighty years fairly closely. They do influence the weather patterns and climate, plus radiation cycles during times of magnetic field reversal would follow the sunspot cycle, so they also influence the availability of food and several other matters. But is it regular enough to provide that much influence? I just don't know, and can't see any obvious mechanism there. Good question, no answer, at least from this quarter.

[Lily]

I'll have a more in depth response to everyone later tonight, but for the moment, there's this:

http://www.usatoday.com/money/industrie ... tion_N.htm

U.S. consumers face "serious" inflation in the months ahead for clothing, food and other products, the head of Wal-Mart's U.S. operations warned Wednesday.

The world's largest retailer is working with suppliers to minimize the effect of cost increases and believes its low-cost business model will position it better than its competitors.
Still, inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."

Are you still stubbornly sticking in the deflation camp, John, or are you coming on board with us yet?

[John]

Dear Lily,

> Are you still stubbornly sticking in the deflation camp, John, or
> are you coming on board with us yet?

There isn't a snowflake's chance in hell that the (hyper)inflation
scenario that you and others fantasize will actually occur.

John

[vincecate]

Are you still stubbornly sticking in the deflation camp, John, or are you coming on board with us yet?

There isn't a snowflake's chance in hell that the (hyper)inflation
scenario that you and others fantasize will actually occur.

If people stopped buying US Treasuries and $7 trillion came due over the next 12 months they will either print to cover it, or default. Many times the historical pattern has been to print. I don't believe we have ever found a single example of a government that could print its own local currency defaulting on debts in its own local currency. Monetizing debts that are that large compared to the GNP has always at least resulted in high inflation if not hyperinflation. Why are you so sure they would default in that situation? Or do you just think there is not a snowflakes chance in hell that people will stop buying Treasuries even after it is clear the interest rate is below the inflation rate?

The billion prices index is showing 3% inflation in the last 4 months (so about 9% annual rate). It seems to lead the CPI, so the CPI may soon indicate the same thing.

http://bpp.mit.edu/daily-price-indexes/?country=USA

Why is predicting inflation and hyperinflation "fantasizing" when predicting deflation is not? Or is it correct also to say you fantasize about deflation?

[John]

Dear Vince,

As I've said several times, show me a country that experienced
hyperinflation during the Great Depression, and then you'd at least
have a valid comparison and something approaching a valid argument.

The BPI was tuned to prove a certain point. In the 1970s, the CPI was
over 10%. What would the BPI have been, if it had existed? 10%? 2%?
50%? Who knows? The BPI has no historical validity. The CPI, as
flawed as it is, is the only measure with historical validity.

John

[vincecate]

As I've said several times, show me a country that experienced hyperinflation during the Great Depression, and then you'd at least have a valid comparison and something approaching a valid argument.

During of the Great Depression people were turning in Federal Reserve Notes and getting physical gold. There were 2.5 times as many federal reserve notes as gold that backed them. So returning to gold was reducing the money supply by a factor of 2.5 and very deflationary. Once the government stopped redeeming FRNs for gold, the deflation ended. Since we can not turn in FRNs for gold now, that period of deflation is not a valid comparison to the current situation.

You are predicting 30% deflation, like back then, when this has never happened with a pure fiat currency. Hyperinflation has happened over 100 times in pure fiat currencies. How can you be so certain you are right on this? How can you think hyperinflation is such a foolish prediction? It seems like history is on the hyperinflation side. Is this deflation a "generational dynamics prediction" or is this just your own prediction?

http://howfiatdies.blogspot.com/2010/11 ... ndard.html

[vincecate]

Still, inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."
[...]
"Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along," Long says. "Except for fuel costs, U.S. consumers haven't seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."

http://www.usatoday.com/money/industrie ... tion_N.htm

Vince comments: If China has inflation, and China is sort of pegged to the dollar, and most the stuff in American stores comes from China, how could America not get inflation? If China lets their currency appreciate compared to the dollar, then it will make inflation even higher. If China sees 5% inflation and their currency appreciates by 5% then America will see 10% inflation in all the stuff from China, which is lots of stuff.

[at99sy]

Still, inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."
[...]
"Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along," Long says. "Except for fuel costs, U.S. consumers haven't seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory."

Inflation or deflation is probably a moot point as far as the average American is concerned. What I see is that our grocery bills are up 40-50% in the past 6 months,
Gas is almost $1 per gallon higher and that increases the cost of EVERYTHING in this country. Packaged food is getting smaller and the quantity per package is being reduced in weight/volume etc; also raising the cost per unit.

Deflation may happen systematically due to a massive reduction in capital or physical currency but until then I think we see the trend in prices rising dramatically until the bottom falls out. If we get to the point where producers and consumers can no longer produce and consume, then massive losses across the socioeconomic spectrum could lead to major deflation.

I see inflation kicking in hard soon and sticking with us for a long time. If we look at the reactions and policies that the Fed and friends have taken to postpone the crash, I see no reason to expect they will do anything more than continue to kick the can until it just can't kick any more.

Then it will be game on and every one for themselves.

sy

Happy April Snow for us in New England. yippee

[John]

Those of you who are talking about inflation aren't thinking ahead.

The increases in food and energy prices are causing enormous
hardship, but they don't indicate inflation, because people spend
less on other things. This morning's jobs report included the
crucial fact that wages are not going up. Until people have more
money to spend, there won't be inflation.

Even if there were a little inflation today, then it wouldn't matter
because I'm not talking about the world was it is today, with the
stock market overpriced by a factor of 2, huge bubbles in China, and
huge and growing debts in the US and Europe.

I'm talking about a world where:

• The stock market has fallen 50% or more
• Unemployment is sharply higher
• The housing shadow inventory is thrown on the market
• A couple of European countries have defaulted
• The US has defaulted or is close to default
• Labor unrest is spreading across Europe and across America
• Unrest is growing in the Mideast
• Unrest is spreading through China

In that world, the Fed will try all kinds of things, including QE3,
QE4, QE5, etc., but it won't keep up with the deflationary shock,
and it won't weaken the dollar against the euro because the euro
will be in worse shape.

You have to think ahead and take the long view. You can't assume
that what's true today will continue to be true, especially in
times like these.

John