Deflation

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rayrock
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Deflation

Can you share your thoughts on Harry Dents comments on upcoming  DEFLATION
and his theroy to sell gold/silver at this time, http://www.hsdent.com/HS_Dent_Perspective_-_Video_April_2011_-_Inflation_and_Deflation
look at this video at 14:08 -16:00 min and 17:00-18:38 , commodity cycle chart at 20:05 min. Thanks and look forward to your comments.Ray

Edited by admin on 11/08/2014 - 06:04
Dr Durden
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I think he's correct in

I think he's correct in stating cash will be king during a deflation/deleveraging/money contracting time period, but that doesn't for a second mean you should sell all your PM's for cash or you have the wrong "investment." 

He also mentions commodity cycles but nothing about the fundamentals of supply and demand. When it comes to commodities, I think it's always important to remember the ability to drill, mine, or grow anything depends on the resources in/on the Earth and the demand for them. I don't see a point in the next 30 years where the supply goes up and the demand goes down, do you?

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Blorf
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PMs would go down in a

PMs would go down in a deflation, but less so than stocks/etc.  In a normal deflation, interest rates soar because no one wants to loan money.  PMs don't generate interest, so they get crushed.  But, we are in a bizarre catch 22 where interest rates can never be allowed to rise, or governments around the world would go bankrupt (the interest burden on our debt would obliterate the budget).

Cash would be king in a traditional deflation, since you'd reap huge interest on your savings... uncle sam is presently robbing savers and people on fixed income with interest rate policies... I'd bet on that continuing.

TheGoodDoctor
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All bets are off if we are

All bets are off if we are close to hyperinflation. From what I have read it goes like this: Lots of high inflation, then no one can afford jack (sell some PM's at the top). There is a comment that is often made that "The cure for higher prices is higher prices." Then deflation because no one can afford anything so prices go lower again. (Take stronger dollars from PM sales and scoop up bargains on real estate and other stuff that is on sale for cheap) Then more inflation or hyperinflation = doom. I don't know a timeline on this. I know it can happen quick if we are in a hyperinflationary situation. Maybe others can comment further on this.

Right now though, you can have inflation like we have been seeing in food/gas/commodities and deflation like we have seen in real estate. They can coexist. But TPTB are really trying to cover up the inflation through market manipulation with low interest rates (that won't go up any time soon because then the US would owe more interest on their debt principle thus costing we the taxpayers even more!) and also trying to re-inflate real estate which isn't working due to the large available housing inventory and the even larger inventory on the banks balance sheets that they have yet to put up for sale. I mean that would lower real estate prices if they did that! We can't have lower prices! Inflation or er a Bust? cheeky

I have also read that it won't matter during inflation and/or deflation, metals will rise during both because we are in a debt/currency crisis.

Hope this helps and let me know if I am off base on something.

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CK
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I'm calling for the deflation

I'm calling for the deflation to start hitting after the summer.  Stock market will get obliterated.  Commodities will get hit. Dollar will do very well.

This should last until Q1 2013.

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maravich44
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Fire on the Mountain

How did Robert Hunter/Jerry Garcia put it, "Caught in slow motion in a dash for the door". Nuf Said, you are correct.

TheGoodDoctor
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Ah, another fan of the Dead

Ah, another fan of the Dead eh? Nothing like being in "the heart of gold band" smiley A man after my own true heart! Cheers to you maravich44! yes

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TheGoodDoctor
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Dr Durden wrote: I think he's

Dr Durden wrote:

I think he's correct in stating cash will be king during a deflation/deleveraging/money contracting time period, but that doesn't for a second mean you should sell all your PM's for cash or you have the wrong "investment." 

He also mentions commodity cycles but nothing about the fundamentals of supply and demand. When it comes to commodities, I think it's always important to remember the ability to drill, mine, or grow anything depends on the resources in/on the Earth and the demand for them. I don't see a point in the next 30 years where the supply goes up and the demand goes down, do you?

Uh nope! smiley

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“Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.” Norm Franz

maravich44
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Strange Tales from a Strange Time

@The Good Doctor,and a big HST fan also, that post was directed to you but I forgot to reference it properly. Good to chat with like minded folks,funny you mentioned Breaking Bad, I am defenitely hooked on that,have been watching last years re-runs just to calm the Jones for tonights show.  Keep up the fight.

TheGoodDoctor
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I wanted to add a PS to this

I wanted to add a PS to this post above. The way you will know when to sell is when the price of gold to DOW ratio is close to 1:1. Then you would want to cash out and buy some of the DOW and maybe some other assets like real estate. But there is also a gold to real estate chart somewhere too. Mike Maloney seems to think that we will get to a ratio with silver that will be 500 oz. will buy a house in time. And that is an average priced house today. I'll have to see if I can dig this chart up too.

Eventually you will want to do the same on the opposite side of the DOW to gold ratio when the DOW is high in terms of the ratio, you want to bail on the DOW and buy PMs. Like in 1999.

A price of silver ratio with the S&P works too. Though I don't know if that was purchasing only or when to get out too?

I wish I saved the charts from the Porter Stansberry e-mails I get. But boy does this not only help you to time your purchases (over time). Basically you can figure out when the buck is strong and the DOW to gold ratio is high. Like in 1999 for instance. Then you want to buy gold/silver. I'll see if I might find those charts. I think I may have sent them to a friend so they could be in my out box.

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After the Storm
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Private verses Public Deleveraging

You have to separate deleveraging into two catagories. Private verses Public. Private deleveraging like the 30's and 2008 are deflationary. Public sector deleveraging, however, is inherently inflationary. The private sector doesn't have the ability to print money and must simply deflate the excess. Governments have the ability to print. Thus public sector deleveraging is inflationary. When the debt was moved to the public books it changed the affect of the deleveraging.

Cash was only king in the 30's because it was tied to gold.

I look forward to joining some of the converations.

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donpaulo
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I think its possible to have

I think its possible to have prices moving higher and lower at the same time. For example I can buy a plane ticket to Kuala Lumpur for about 400 bucks which is 7 hours by plane, or I can buy a ticket to NYC for about 1900 bucks which is about 12 hours.

In the case of deflation where cash is king then it would be prudent to have some on hand, however that flies in the face of the dangers of hyperinflation or perhaps better put a slow steady decline in purchasing power that affects one on a monthly basis.

I think PM helps to hedge in both circumstances which is a main reason why I hold physical.

Elijah Craig 18
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Spammers

Damn, nothing worse than Spanish spam on a predominately English speaking site. smiley

Hey, Cialis is inflationary, right?

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ouchtouch
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Massive deflationary

Massive deflationary deleveraging with the Fed trying desperately to stop it.  I think the $US and gold and silver will strengthen against everything else.  Versus each other, it's hard to predict.  I prefer to hold all three, but much more metal than cash.

Vypuero
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you can't have deflation in a fiat currency

They will always inflate instead, and eventually we will have a "pop" of hyperinflation NOT due to money printing, but instead due to people losing all confidence in the currency.  No demand for $ means they all get spent as fast as possible for as much tangible as possible, leading to the hyperinflationary collapse.  Deflation would be better to have, as it would increase people's purchasing power, but that won't happen.

After the Storm
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Currencies are "shares" in countries

Currencies are essentially "shares" in countries like stocks are shares in companies. When private companies are  deleveraging their stocks come down. When countries are deleveraging their stocks(currencies) come down also. This is why when the deleveraging occurs in the public sector(with countries) it is currencies that are crushed. I am on the side that the EURO is the currency presently ready to come down. This is why, though you have some cash, there will eventually be a lean toward the PM's by more than just our little world. 

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Tom L
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Deflation in what?

Asset price deflation and commodity price deflation are two different things.  Different markets respond to changes in the currency system differently.

I expect rising commodity prices due to money printing and credit contraction due to bad business fundamentals/environment.  If risk tolerance lowers (ie. interest rates go up) to offset uncertainty in the currency that will be PM bullish.  Yes, rising interest rates will be the signal of hyperinflation (cf. Iceland, Ireland and Greece).  This will also be 'deflationary' in the credit markets and likely put a damper on overall business as the cost of borrowing will skyrocket.

To counteract this the Fed will inflate the money supply to pump prime the credit markets and aggregate demand via government spending/stimulus.  It won't work.  It hasn't worked b/c the debt load is too big.

At this point the only thing the Fed can do to trash the price of gold is to do nothing and let the credit markets implode.  Bernanke won't do that.  He subscribes to Milton Friendman's analysis of the Great Depression which stated that the Fed wasn't accommodative enough with money.  Friedman was wrong.  So, he's going to print because he believes the only way out of this mess is to keep the current banking system functional. 

Ta,

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zman
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interest rates soar during deflation?

This was not the case in 2008, 10 year hit 2.0%, Fed lowered rates down to 0%. During deflation , no one wants to borrow money, thus the lower interest rates. If you think a asset can get cheaper down the road, why borrow money today to buy it?

You are saying, I could get a 10-15% rate of interest and every asset becomes cheaper during that process, sign me up for that plan.

We have real interest rates which are negative, 10 year at 3% and a 10% rate of inflation, which makes gold and silver the best investments. Just wait until we have a 10 year at 3% and a 20% plus inflation.

Tom L
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zman wrote:This was not the

zman wrote:

This was not the case in 2008, 10 year hit 2.0%, Fed lowered rates down to 0%. During deflation , no one wants to borrow money, thus the lower interest rates. If you think a asset can get cheaper down the road, why borrow money today to buy it?

You are saying, I could get a 10-15% rate of interest and every asset becomes cheaper during that process, sign me up for that plan.

We have real interest rates which are negative, 10 year at 3% and a 10% rate of inflation, which makes gold and silver the best investments. Just wait until we have a 10 year at 3% and a 20% plus inflation.

No, what I'm saying is that rising interest rates will be the signal that failure of confidence in the currency will be reigning supreme and this will absolutely be PM bullish.  It will be so until the following happens:

Either rates rise enough to restore confidence in the currency (the Volcker strategy) at which point the top in the Gold Bull Market will be in. This can only likely occur if we become a creditor nation again and not a borrower... yeah right!

Or, The dollar ends in a hyperinflationary explosion ala Iceland.

Ta,

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Tom L
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zman wrote:This was not the

zman wrote:

This was not the case in 2008, 10 year hit 2.0%, Fed lowered rates down to 0%. During deflation , no one wants to borrow money, thus the lower interest rates. If you think a asset can get cheaper down the road, why borrow money today to buy it?

You are saying, I could get a 10-15% rate of interest and every asset becomes cheaper during that process, sign me up for that plan.

We have real interest rates which are negative, 10 year at 3% and a 10% rate of inflation, which makes gold and silver the best investments. Just wait until we have a 10 year at 3% and a 20% plus inflation.

In 2008 the blow off of the commodity mini-bubble engendered by Greenspan happened. The was 6 months before the credit markets seized up and both of these things happened b/c The Bernanke tried to ease off the monetary spigot. He held the AMB flat for nearly 9 months and it crushed commodities.

The Fed, contrary to popular belief, does not SET interest rates.  Rather it targets a rate it thinks the market should trade at and expands/contracts the money supply by altering the size of its balance sheet accordingly.  It is able to do so effectively, and thereby providing the illusion of control of interest rates, so long as the default-risk premium on  T-bills is believed to be zero.  When that is no longer the case the bond market will push interest rates where it wants to to offset the risk of holding the bonds. 

If confidence is low in the validity of an investment the rate of return rises to meet the increased risk.  Low confidence in Treasuries = low confidence in the US Dollar, which is PM bullish.

Ta,

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Violent Rhetoric
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Hunt and Hoisington have good

Hunt and Hoisington have good thoughts on deflation / inflation. Each quarterly is about 4-6 pages and is written in a relatively easy to read format. Highly recommend adding this to your macro reading list.

http://www.hoisingtonmgt.com/hoisington_economic_overview.html

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