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Thread: Deflation Watch

  1. #49

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    Default Re: Deflation Watch

    Good essay here on deflation.

    The effect is reduced productivity, which pushes through to reduced wages. If the cost of capital is such that using low-cost labour is cheaper than investing in machines, unemployment may fall, but so will productivity as workers have to use less efficient tools. Similarly, if it is cheaper to use poorly-paid temporary, part-time, casual and self-employed workers than to recruit full-time staff, unemployment will also fall - but average hours worked will also fall.

    QE props up the value of both pension investments and real estate. But it depresses returns on savings. Depressing returns is supposed to encourage people to spend instead of save. But when people are saving for their old age, and they see their savings whittled away in the form of below-inflation returns, they are likely to save MORE, not less. They will cut discretionary spending to increase pension saving.
    Coppola Comment: Inflation, deflation and QE

    QE helps companies to issue debt for zero cost. That debt is used to buy back shares (decrease shares outstanding=higher EPS). Earnings rise, stock rises, insiders make money.

    Main street can't issue debt at 0%, but they can buy a big screen TV with a credit card at 18% interest.

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  3. #50

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    Default Re: Deflation Watch

    CRB breaks long term support. Deflationary.

    CRB.JPG

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  5. #51

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    Default Re: Deflation Watch

    Well Bullitt,

    Me thinks you might have answered a question I had in CoolHand's thread. Looks like folks/funds are bailing from equities, bonds, precious metals and heading to cash. There is not enough 'cash' to go around - deflation. Cash gets expensive in relation.

    The FED has been fighting deflation since 2007 - as your chart shows. Deflation is a tough nut to crack. Don't be in debt. Go Full Dave Ramsey
    Lookin' up at the 'G Fund'!!!

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  7. #52

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    Default Re: Deflation Watch

    Yes, can't agree more. Don't be in debt.

    Much of the going to cash was forced liquidations to pay down margin calls after the oil crash.

    Oil is traded on heavy margin. I doubt many of those calls were even answered. Brokerages probably just liquidated anything and everything.

    Oil at $20 is not indicative of inflation and that CRB index is looking more and more like a collapsed bubble post 2008. Gold didn't do much for inflation after 2008's massive influx of fed money, but inflation did show in equities (tech), housing, bonds, cars (72 month loans).

    Where will it show up this time? Lot of bets being placed on gold but it's still too soon to be positioning a portfolio for something that may take months to years to show - if it even shows. I don't see any reason for it not to show up again in equities. Where else will people reach savings goals in a ZIRP world?

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  9. #53

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    Default Re: Deflation Watch

    Inflation in "stuff" is getting pretty low. Asset inflation, however, is alive and well, just look at $NDAQ.

    12-month percentage change, Consumer Price Index, All Categories.

    cpi.JPG

    https://www.bls.gov/charts/consumer-...line-chart.htm

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  11. #54

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    Default Re: Deflation Watch

    The easy trade is buy gold and commodities because the dollar will crash and inflation will surely happen once things pick up again. People said the same thing in 2008, I'm not sure why it's different this time.

    Boomers are dieing and spending less in retirement. Younger generations are so fixated on their instagram accounts and 'retiring at 30' that they aren't spending money and aren't having kids. Also, they aren't buying houses. Add creative destruction from technology on top of that and there are some very strong deflationary forces that governments have had a very difficult time countering this past decade.

    This inflationary bounce is only temporary, with supply chain interruptions mostly to blame. Sure, people are building decks and additions while they sit at home which drives up the cost of lumber, but it is not sustainable.


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  13. #55

    Default Re: Deflation Watch

    The difference this time is that there are TRILLIONS dollars more of "funny money" printed out than 2008. And the economy has crashed much worse, with negative GDP that makes the Great Depression look like a regular Recession.

    So...when the economy (not stock market) starts to fully recover when a vaccine is out, and distributed to millions, there will be several TRILLION more dollars in circulation than before...with growth expanding that monetary supply even more, with annual GDP numbers of +5-8% likely (no matter who's President).

    That kind of growth by itself would already spur 3-5% inflation, but add the several trillion dollars in circulation compounding that, and I don't see how we can avoid a 1970's style 8-12% annual inflation rate. We've been wonderiing the past 12 years if the US would ever have real inflation again, I think we're about to find out.

    Quote Originally Posted by Bullitt View Post
    The easy trade is buy gold and commodities because the dollar will crash and inflation will surely happen once things pick up again. People said the same thing in 2008, I'm not sure why it's different this time.

    .
    CURRENTLY 100% F (as of COB 10/27/2020) 2nd Oct IFT

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