Rosenberg FTW
Theres a guy who gets it.
Hugh Hendry as well.
They all think the end game is the same, just have slightly different ideas on how we get there and how to not blow up in the process.
Tomorrow we’ve got a heavy GDP revision and Bernanke speaking, should be interesting.
[quote]katzenjammer wrote:
Finally, you might want to check the date - we’re already in deflation. The question is, what is coming next.
[/quote]
The date is Aug 2010 and our last CPI print was up both MoM and YoY, and has been up slightly every month but one since Dec 2009. That is disinflation if youre gonna be like that about it.
Hey milk,
Do you feel it? I swear a big meltdown day is near.
Lifty,
You don’t need a tightening of credit (but it will happen). Remember , you can’t push a string.
Goldbugs,
If imploding credit reaches an “event horizon” where created money supply is less than imploding credit, everything will be sold in order to pay debt. That is why I believe the dollar is on its way up and gold will soon begin to sell off. This environment is otherwise known as deflation.
BTW, I have been wrong before (often). All I suggest is for those who are in now to maintain close stops.
Take care,
J
Haney,
Great post from Rosenberg.
I hope he, you and I are wrong. When I think of deflation I am reminded of an old Monte Python skit that went something along the lines of "No-one expects the Spanish Inquisition. "
Deflation is generally far worse than delation. Lifetimes of hard work are wiped out if not properly positioned. And the only proper position is cash, which is counter intuitive to most people today.
We will know tomorrow if it goes deflation or inflation, if the fed comes out and says its going to start pumping the economy with dollars then get ready for the inflation, if it says it is going to sit back and let the pieces fall where they may, then we will get deflation.
[quote]milktruck wrote:
[quote]katzenjammer wrote:
Finally, you might want to check the date - we’re already in deflation. The question is, what is coming next.
[/quote]
The date is Aug 2010 and our last CPI print was up both MoM and YoY, and has been up slightly every month but one since Dec 2009. That is disinflation if youre gonna be like that about it.[/quote]
Actually, this is hotly debated right now. In my view, though, that’s^ not really correct - we are in a period of deflation; it’s just that the Fed/Feddy Gubbymint has been desperately trying to cover this fact up. Whatever they do, however, in reality we’re still there.
Can’t wait for Bernanke’s speech…lol.
[quote]milktruck wrote:
Rosenberg FTW
Theres a guy who gets it.
Hugh Hendry as well.
They all think the end game is the same, just have slightly different ideas on how we get there and how to not blow up in the process.
Tomorrow we’ve got a heavy GDP revision and Bernanke speaking, should be interesting. [/quote]
Everyone can have a theory and then a guy like Rosenberg comes along with facts and a great track record for accuracy and destroys the theory.
Last month at the city wide investors meeting I attend in Houston, someone brought an article of his stating that he would get excited about stocks when he sees the S&P around 800 - 850.
[quote]JEATON wrote:
Haney,
Great post from Rosenberg.
I hope he, you and I are wrong. When I think of deflation I am reminded of an old Monte Python skit that went something along the lines of "No-one expects the Spanish Inquisition. "
Deflation is generally far worse than delation. Lifetimes of hard work are wiped out if not properly positioned. And the only proper position is cash, which is counter intuitive to most people today.[/quote]
I agree deflation on the level that I believe we will see is going to be very painful for many people.
[quote]katzenjammer wrote:
[quote]milktruck wrote:
[quote]katzenjammer wrote:
Finally, you might want to check the date - we’re already in deflation. The question is, what is coming next.
[/quote]
The date is Aug 2010 and our last CPI print was up both MoM and YoY, and has been up slightly every month but one since Dec 2009. That is disinflation if youre gonna be like that about it.[/quote]
Actually, this is hotly debated right now. In my view, though, that’s^ not really correct - we are in a period of deflation; it’s just that the Fed/Feddy Gubbymint has been desperately trying to cover this fact up. Whatever they do, however, in reality we’re still there.
Can’t wait for Bernanke’s speech…lol. [/quote]
You can base it on M3 and say we are starting to deflate, I believe, but still I think its pretty flat and turning over, but I havent looked recently. However, the deleveraging (credit) is whats going to really kill, more than contraction in money supply.
[quote]JEATON wrote:
Hey milk,
Do you feel it? I swear a big meltdown day is near.
Lifty,
You don’t need a tightening of credit (but it will happen). Remember , you can’t push a string.
Goldbugs,
If imploding credit reaches an “event horizon” where created money supply is less than imploding credit, everything will be sold in order to pay debt. That is why I believe the dollar is on its way up and gold will soon begin to sell off. This environment is otherwise known as deflation.
BTW, I have been wrong before (often). All I suggest is for those who are in now to maintain close stops.
Take care,
J[/quote]
Yeah man, I am going to be short equities for a little longer, hopefully take most of my position off around S&P 975 and let some ride. I am thinking we get down there sooner than later, but I think we have at most 6 months till we get more quantitative easing and I want to be in cash and physical PMs before then, as I get to be more of a conspiracy theorist every day.
I was thinking of selling puts (or credit put spreads) with strikes around 450 once I get flat, if volitility has spiked, but Ill cross that bridge when I come to it and look at whats going on then. besides possibly selling volitility I am going to wait till we get to a QE2 top and buy puts on the way down again. If the US follows Japan, they got a top every 2 years or so and it was better to get caught short than long. Basically Im playing both sides, using money made on the deflation hypothesis to fund hyperinflation hedges (PMs, Far OTM leap calls on DBC and SPY).
I will hedge my Physical PMs with paper at some point in the medium term, but thats going to be rough to time.
The thing is, do you try to figure out each step along the way or do you play for the end game? I know you have a shorter time horizon than I do trading-wise, and my situation in life is likely very different from yours and my speculation has a few different things influencing it that are not exactly annual-return-correlated. So I think we will have different answers to that question along the way.
[quote]haney1 wrote:
[quote]milktruck wrote:
Rosenberg FTW
Theres a guy who gets it.
Hugh Hendry as well.
They all think the end game is the same, just have slightly different ideas on how we get there and how to not blow up in the process.
Tomorrow we’ve got a heavy GDP revision and Bernanke speaking, should be interesting. [/quote]
Everyone can have a theory and then a guy like Rosenberg comes along with facts and a great track record for accuracy and destroys the theory.
Last month at the city wide investors meeting I attend in Houston, someone brought an article of his stating that he would get excited about stocks when he sees the S&P around 800 - 850.
[/quote]
Earlier this week he said also he would get excited if Bloomberg ran for president, haha.
[quote]milktruck wrote:
[quote]haney1 wrote:
[quote]milktruck wrote:
Rosenberg FTW
Theres a guy who gets it.
Hugh Hendry as well.
They all think the end game is the same, just have slightly different ideas on how we get there and how to not blow up in the process.
Tomorrow we’ve got a heavy GDP revision and Bernanke speaking, should be interesting. [/quote]
Everyone can have a theory and then a guy like Rosenberg comes along with facts and a great track record for accuracy and destroys the theory.
Last month at the city wide investors meeting I attend in Houston, someone brought an article of his stating that he would get excited about stocks when he sees the S&P around 800 - 850.
[/quote]
Earlier this week he said also he would get excited if Bloomberg ran for president, haha.[/quote]
Yeah, I read that too. Interesting take.
[quote]milktruck wrote:
Hyperinflation is not usually lots of inflation, it is loss of confidence in a currency. Inflation is fiat chasing goods.[/quote]
No it isn’t. What makes people lose confidence in the currency?
Is it possible for people to lose confidence in the currency while the monetary base shrinks?
Is it possible for prices to drop when the monetary base shrinks?
If it is “confidence” that sets the value of money then we would have to ignore supply and demand.
I would say people’s confidence in a currency is based on its purchasing power. Not the other way around.
Loss of confidence is Demand for a currency going to zero. Confidence underlies supply and demand, especially when it is confidence in fiat money that is worth something because the government says it is.
Its like losing weight versus liposuction. The results seem like a difference in rate, but the underlying method of acheiving it are categorically different, not different in rate (as in, liposuction is not really fast dieting).
[quote]milktruck wrote:
You can base it on M3 and say we are starting to deflate, I believe, but still I think its pretty flat and turning over, but I havent looked recently. However, the deleveraging (credit) is whats going to really kill, more than contraction in money supply.
[/quote]
think about it this way - say, for example that da feddy gubbamint had a truly massive
employment/jobs program. So now “reportable” unemployment is now 6% - would you agree with me if I were to say that we had low/normal unemployment?
Yeah I agree CPI is massaged heavily, if thats what your analogy is getting at.
Although, deflation is a misnomer, according to the only person worth watching on CNBC, Rick Santelli -
â??deflation is the most disingenuous argument especially in the current conditions. [When the bubble process ends prices have to come down to reality] the process really is deleveraging, but what happens when prices go down you get the economists call it deflation. Deflation is always the biggest bogeyman in a central bankerâ??s closet. It also allows them to use the only tool in their toolbox, which is to spend money, and usually money they havenâ??t collected yet, so itâ??s usually a deficit form of spending. Think about what economists are trying to do: we go up too high in leverage, prices are too high, we try to correct that process, itâ??s called deflation, and they try to put money in to prop it up at an artificial price-deleveraging is the word we should stick toâ??
Just dropping by to say I find these financial threads the most interesting of all the PWI threads. I like learning. Even if it’s like a foreign fucking language to me (puts, shorts, PM, OTM, q ratio, etc etc). It makes my brain tick, athough I don’t have any money to invest at the moment.
Milktruck, I agree that the CPI is being massaged - just like unemployment - every admin does it. What I’m saying is that the printing press ($) and spending have been keeping prices from fallng; indeed, the fact that these actions haven’t created any inflation is significant. In reality, we’re in deflation - it’s just being hidden by an artificial and unsustainable series of actions. Nevertheless, the underlying reality is still there - which we ought to recognize, as citizens as well as investors. Not sure I understand santelli’s argument do you have more? Soryy I’m on an iPhone
[quote]katzenjammer wrote:
Milktruck, I agree that the CPI is being massaged - just like unemployment - every admin does it. What I’m saying is that the printing press ($) and spending have been keeping prices from fallng; indeed, the fact that these actions haven’t created any inflation is significant. In reality, we’re in deflation - it’s just being hidden by an artificial and unsustainable series of actions. Nevertheless, the underlying reality is still there - which we ought to recognize, as citizens as well as investors. Not sure I understand santelli’s argument do you have more? Soryy I’m on an iPhone [/quote]
This is from a post Jeaton in his market prediction thread
"The monetary base is coin, paper and commercial banks’ reserves with the central bank.
Money supply is the total amount of money available in an economy at a particular time. It includes all of the monetary base plus all of the additional money created through credit via the process of fractional lending.
The money multiplier measures the amount the money supply increases above and beyond the monetary base.
Therefore, if deposits are up and the coin and paper remain constant, then commercial reserves would be increased (but only reserves, which remember are only a fraction of the total money supply).
Now, if deposits are up but the money multiplier is the same, then you DO NOT have more money being lent. Actually, it would appear that less money is being lent. You simply have larger reserves on hand.
Expansion of money supply is primarily accomplished through the issuance of credit/loans through the process of fractional lending. That is the purpose of the money multiplier, to determine the amount of money that has been created through fractional lending, above and beyond the monetary base.
If the money multiplier is decreasing then it means that existing loans/credit is being retired at a greater rate than new loans/credit is being created. The money supply is shrinking. (Deflation)
Central banks mandate reserve requirements, the fraction of demand deposits that have to be kept on hand for the purpose of redemptions. In this way they can limit or control the amount of money creation. They also insure that the banks have enough cash on hand to cover normal withdrawals.
So what happens if a “black swan” event occurs and an abnormally large amount a people show up at once to redeem cash? This is a bank run or systemic crisis, such as happened in the GD. The central bank has devised methods to divert such events. They regulate banks, insure deposits, and act as a lender of last resort.
This seems to have worked just fine for the last eighty odd years. Then again, we have not experienced economic conditions and the gross negligence of that period, at least until now.
The public is for the moment pacified by the belief that if something were to happen at their bank that they are insured by the government and therefore have no risk of loss. They forget that they are the government, and also that the funds that are set aside to cover such loses are finite. Again, the system is set up to handle normal events and failures just as fractional lending is set up to handle normal rates of withdrawals with a added protection factor figured in. Black Swans are not accounted for.
Finally, I think part of the confusion lies in fully understanding money creation. When a loan is made, the borrower receives the funds for the intended use. Money supply is increased. However, the monetary base is not. That is the reason a multiplier is needed in the first place. It is not as if a call goes up to the Federal Reserve, they call the Treasury Dept., and the printing presses are started up. An amount of paper currency equaling the loan is not created and then shipped to the originating bank. Remember, it is fractional lending.
Now, before I start getting pounded, yes there are mechanisms in place by which additional currency can be created and put into circulation. However, it is relatively rare and not anywhere on the scale of which would be required to offset deflationary pressures if and when they occur. If they did do so, it would take a matter of time just to offset the real difference between the monetary base and the money supply. In the beginning they would simply be replacing credits on an electronic ledger with real bills."
[quote]katzenjammer wrote:
Milktruck, I agree that the CPI is being massaged - just like unemployment - every admin does it. What I’m saying is that the printing press ($) and spending have been keeping prices from fallng; indeed, the fact that these actions haven’t created any inflation is significant. In reality, we’re in deflation - it’s just being hidden by an artificial and unsustainable series of actions. Nevertheless, the underlying reality is still there - which we ought to recognize, as citizens as well as investors. Not sure I understand santelli’s argument do you have more? Soryy I’m on an iPhone [/quote]
I also I can’t speak for Jeaton, or milktruck but I would say that the propping up of the currency and market is running out of steam and that is why I don’t accept that we are in a true deflation yet, but that it is on its way. The pressure is more than the fed can bolster up.