Deflation Watch

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Warren, I read that link in CB's thread. What are prices year over year? CNBC never looks long term. Look.... If demand was there then this scenario below wouldn't be happening.

Dunkin Doughnuts a month ago offered a free coffee to anyone on Wed. with a coupon. Burger King countered this month by offering a free coffee on Friday during breakfast hours. McDonalds countered by offering a free coffee every day for the next two weeks. (Sorry, no time for finding links.)
 
Bump...

I know most of us do not believe we are in a period of deflation. Housing prices going up, cost of fuel going up, stock market booming... But...

The FED is now talking about taking the punch bowl away. And, we have inflation of a point and a half. And, we have over $5 Trillion more debt to service. And, Kalefornea is unexpectedly experiencing very low 'growth'. And, Blue Model state and city gubmints are being crushed by the promises of former politicians.

Finally, it is the FED that is buying the vast majority of our Federal debt.

Winter is coming:worried:
 
Boghie said:
Bump...

I know most of us do not believe we are in a period of deflation. Housing prices going up, cost of fuel going up, stock market booming... But...

The FED is now talking about taking the punch bowl away. And, we have inflation of a point and a half. And, we have over $5 Trillion more debt to service. And, Kalefornea is unexpectedly experiencing very low 'growth'. And, Blue Model state and city gubmints are being crushed by the promises of former politicians.

Finally, it is the FED that is buying the vast majority of our Federal debt.

Winter is coming:worried:
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talk is just talk, check out the M2 money supply stats, they keep going up. Meanwhile, revisited Boghie's inflationdata site, Current Inflation Rate: InflationData.com ; lower than we have been since Nov 09, as of April, future back to the past? Good job bringing the thread forward again, Boghie.
 
It's hard to try to believe something that is counterintuitive. Especially when the coffee can's size on the shelf keeps shrinking. And the grandma looking at shelf prices says aloud "prices keep going up" in an almost confused tone. But the trusted news sources, the government and the media celebrities, tell us inflation is low and government should be borrowing for investment now because interest rates are low. It's as hard as ever to be a dumb serf. My random thoughts, not from the linked story. Global Thermonuclear Devaluation | Zero Hedge
 
Warrenlm said:
It's hard to try to believe something that is counterintuitive. Especially when the coffee can's size on the shelf keeps shrinking. And the grandma looking at shelf prices says aloud "prices keep going up" in an almost confused tone. But the trusted news sources, the government and the media celebrities, tell us inflation is low and government should be borrowing for investment now because interest rates are low. It's as hard as ever to be a dumb serf. My random thoughts, not from the linked story. Global Thermonuclear Devaluation | Zero Hedge
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The FED will want to see a broader base of inflation before it starts tightening the money supply. Food, energy, education, and healthcare are sectors going through inflation. Other sectors, not so much. Especially labor. What about the price of borrowing.

The FED - and us - would rather be fighting inflation. They would constrict the money supply. Deflation is tougher. The only thought they have is to inflate. That is what is happening. The FED is inflating to normalize deflation. Hopefully, the FED will allow prices to drop slowly and in a measured pace rather than just whack the deflation in the head. I think they have been pretty successful.
 
Boghie said:
The FED will want to see a broader base of inflation before it starts tightening the money supply. Food, energy, education, and healthcare are sectors going through inflation. Other sectors, not so much. Especially labor. What about the price of borrowing.

The FED - and us - would rather be fighting inflation. The only thought they have is to inflate. That is what is happening. The FED is inflating to normalize deflation. I think they have been pretty successful.
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If you mean they've been successful at inflating prices of things people need-like food, water, place to rent/buy, then yes they've been successful. People on fixed lower income, or simply subsisting even tho working flat out, due to insufficient income, may not agree that the success is so great. Low-income disabled vet neighbor complained to me last year about water rates going up, becoming even more a stressor on an $800/month income. Family member barely making it commuting 60 miles one way each day, leaves home 5am, doesn't get home til 7. Old beater vehicle, barely enough cash and barter resources to trade down into a more efficient alternative beater to help with gas expenses. Stagflation-yes we can.
 
Good points. I'm not going to disagree about food prices going up.

I think food prices are up for two reasons. First, anyone with a trading account can buy oil or metals from the comfort of their own home. Second, companies have to pay out more for retirement benefits and healthcare than they did 10 years ago. The little guy always gets hit with the tab.

Ever seen a realtor tell you that right now is not the time to buy? Never. Not even during the entire 2008 crash. Instead, it's always the same headline with housing and cars- Now is the time to buy.

60 months at 0% for a Chevy Malibu. Borrow short, lend long, but somehow lending long at these rates is profitable to somebody.
Best Chevy Deals | U.S. News Best Cars
 
alevin said:
If you mean they've been successful at inflating prices of things people need-like food, water, place to rent/buy, then yes they've been successful. People on fixed lower income, or simply subsisting even tho working flat out, due to insufficient income, may not agree that the success is so great. Low-income disabled vet neighbor complained to me last year about water rates going up, becoming even more a stressor on an $800/month income. Family member barely making it commuting 60 miles one way each day, leaves home 5am, doesn't get home til 7. Old beater vehicle, barely enough cash and barter resources to trade down into a more efficient alternative beater to help with gas expenses. Stagflation-yes we can.
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Alevin,

Labor is NOT inflating. It is deflating. Most of us are going to see that for the first time over the next few months. Many (Most) in the private sector have felt that pain for a number of years.

Remember the wistful thinking during the whole NSPS thang. How, exactly, were the cost of living increases going to be implemented in NSPS. I was seen as going Full Retard in 2006 (I think) when asking the HRO types about what would happen in a deflationary environment. You DumbA$$, that can't happen - see housing and wages and...

Ah, the good old days...

But, Alevin, deflation (especially spiraling deflation - which is where we were headed in 2008) is orders of magnitude worse. Salaries would drop constantly. Unemployment would rise constantly. Production would fall constantly. And some Dear Leader would show us the way out.

Our inflation is minuscule - about 1.5% overall. The real problem is that inflation is taking hold where the folks you are mentioning get hit. However, one can make the claim that those sectors are inflating because of choices we dumba$$es made. We made choices that have costs. Certainly we made well informed choices.:p
 
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.
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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.
 
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:sick:
 
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?
 
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.
 
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.

Bullitt said:
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.

.
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