Thread: Deflation Watch

Originally Posted by Silverbird

Deflation - Prices go down because people can't afford price hikes. Business builds but very slowly. Prices rise as employment goes up (and people can afford things). Can get dicey because raw material prices are independent of it (except petroleum). This is where I see things headed.

Stagflation - Prices go up and no one can afford anything on the market.

In deflation prices drop and customers expect them to drop - so they, we, do not purchase items. We expect them to be cheaper next month than they are this month. Thus, businesses dump production because items are not being sold. Prices WILL NOT rise. Employment WILL collapse.

To the best of my knowledge the United States has only suffered stagflation during the illustrious realm of Jimmy Carter I. In stagflation you have rising prices because of inflation and employment crapping out because business is not really rising. The inflation is NOT the result of an improving economy. Folks who are employed get very large labor price increases, those who are unemployed will be on the Alpo Meal Deal.

Stagflation is rarer than Deflation. It takes a special economic planner to create stagflation. I think we have one

I think we will go through a bout with deflation - already in progress - and then go through years of stagflation. How else will the economy react to increased regulation (cost), increased commodity pricing, higher taxes, and a generally bad business climate? Anyone expect a boom.

We are in the realm of Jimmy Carter II, we will have to await Ronald Reagan II before we can get out of this mess.

Our economic leaders will NEVER admit to deflation. There may be a few Fed hawks that will occasionally, but their statements will be muted. The lucky thing for the central planners is that things like house prices are delayed by over a month (at least the public version of it is) so they have at least one more month until we see the drop in home prices after the home buyer credit has dried up.

Boghie and I were talking the other day about 4th Turning, aka Winter. He thinks this 20-year portion of the 80-year Kondratieff Cycle started back in 2000. I'm inclined to agree. There's a checklist for Winter. I didn't know that til tonight. The full list is included in the article referenced, Here is part of the list....with commentary from Tim Wood (my inserts in blue).

I have said for years that the deflationary forces of K-wave winter is a global phenomenon. With the credit issues now surfacing overseas, this is proving correct. ...when the Phase II decline gets into gear, it is going to be far worse than Phase I (March 09 low) and farther reaching as well. Also, the credit crisis that continues to materialize will deepen and is a direct result of the forces of the deflationary K-wave winter that I believe lies ahead (Wood refers to 06 as early Winter, so he apparently agrees Winter started sometime around then or earlier-he doesn't actually say in the article)..

the checklist associated with K-wave winter. from David Knox Barker’s book The K- Wave.

“Global Stock Markets Enter Extended Bear Markets”
I have said since 2007 that this is where we are, and ever since the 2009 low I have explained that we have been in a bear market rally. The Phase II decline is out there and it will be global in nature.

“Trends During Winter: Stocks Down, Bonds Up, Commodities Down”
I believe that the bust in commodities in 2008 was associated with this trend change and that since the 2009 lows, commodities have also been in bear market rallies.

“Interest Rates Spike In Early Winter Then Decline Throughout”
In June 2004 the Discount rate was at 2.00%. By June 2006 it was at 6.25%, and in August 2007 the Fed once again began to cut the Discount rate. This too fits.

“Economic Growth Slow or Negative During Much of Winter”
I doubt that many will argue this point at this time.

“Commercial and Residential Real Estate Prices Fall”
This obviously began back in 2006 and is still ongoing.

“Bankruptcies Accelerate and High Debt Eliminated by Bankruptcy”
This has obviously begun and was no doubt been related to the housing and credit bubbles. But I suspect it will worsen as the Phase II decline and the deflationary forces take hold once again.

“Social Upheaval and Society Becomes Negative”
Just wait!

“Banking System Shaken and New One Introduced”
The banking system was shaken in 2008, but there should still be more to come.

“Free Market System Blamed and Socialist Solutions Offered”
Just wait, we have only seen the beginning!
....
“Debt Level Very Low After Defaults and Bankruptcy”
This has not happened..

“Trade Conflict Worsen”
It’s coming.

“View of the Future at a Low Ebb”
When the cheerleading on CNBS stops, we will be there.

.....
“Real Estate Prices Find Bottom”
This has not happened.

“There is a Clean Economic Slate to Build On”
Not happened yet.

“Investors are Very Conservative and Risk Averse”
Again, this has absolutely not occurred.

“Interest Rates and Prices Bottom”
Not happened.

“A New Economy Begins to Emerge”
Has not happened

“Stock Markets Reach Bottom and Begin New Bull Markets (end of Winter?)”
Again, we aren’t there yet. ( Birchie disagrees, of course . )

http://www.financialsense.com/Market/daily/friday.htm

Deflation—Not Inflation—May Be Bigger Threat to Economy

Economists and policymakers generally don't take the D-word lightly, but when enough economic indicators show falling prices, it's time to ask if deflation, not inflation, is the more immediate threat to the US economy.

By one measure or another, reports on producer prices, consumer prices and import-export prices in the past week all showed declines—meaning falling prices—and they're hardly the first negative readings this year.

"There's clearly deflationary pressure," says Dean Baker, co-director of the Center for Economic and Policy Research, who worris that the "economy is just drifting along."

"We haven't seen an economy like this in 70 years," adds David Resler, chief economist for Nomura Securities.

http://www.cnbc.com/id/37750600

Deflation is here!!!
Excepting fuel and food!!!

What a joy. Folks will be outa work, there will be $5 gas, and grub will be pricey.

How about that Hope and Change

does that mean there will be more beach frontage?

Originally Posted by crws

does that mean there will be more beach frontage?

Why, yes, it shore does...

But, realize that gubmint employees will get hurt hard too

All those Tea Party Patriots will push the gubmint to shrink. And, there are vast numbers of folks who don't dress in funny clothes and carry odd signs that will go the same way. They will simply refuse to fund the beast.

So, were you planning on a big Alt-A mortgage for a nice bungalow in San Diego?

dang!
my ninja loan lender is oob

Hey- ps.
My experimentation with quadruple witching week netted me + 1.972%. That's with 20% F & 80% S.
Monday & Tuesday were up, W,T,F shrunk slightly each day.
I'll take it.

"After a period when much of the focus had been on price promotions and major sales events, it appears, as evidenced by Wal-Mart Stores Inc.'s (WMT) recent performance, that increasingly price may no longer be enough to influence customer purchases," said Michael Exstein, retail analyst at Credit Suisse.

Wal-Mart, despite being a low-price leader, has been seeing its U.S. same-store sales fall since last year. The retailer is trying to counter the situation by reducing prices even further.

http://online.wsj.com/article/BT-CO-...atestheadlines

Since most Walmart shoppers don't even qualify for a credit card, it looks like Wally World will just have to counter with even more price cuts. Hooray, lower prices!
------

Target Corp. (TGT) said earlier this month it will start giving its credit and check card users a 5% discount on purchases at any of its stores or its Web site.

http://online.wsj.com/article/BT-CO-...atestheadlines

And deflation pressure increases!

VAT INCREASE to 20% IN UK

http://online.wsj.com/article/BT-CO-...eadlinesEurope