Thursday, February 25, 2010
kcb comment: "Oil is down 50% from peak, huh? Then why is gasoline here down only 25% from peak?
Food prices are essentially unchanged. If the costs to food suppliers have dropped so much as has been claimed above, why have food prices remained stable?
Why have power prices remained unchanged?
Why are automobile prices essentially unchanged (the Ford Mustang GT price is a good example of this)?
Deflation seems like a fairy tale from here. How do you explain that, FDR?"
One of the main reasons I like this blog is that I can gauge sentiment directly. You can do the same at home just talking to a few people. It's quite amazing, you don' t need a large sample size.
Nature has programmed people to think alike. We "think" we have original thoughts, but frankly, we don't. We all think, feel, and more importantly, react, the same way to the same things at the same times.
Nature has programmed our emotional reactions precisely the same way. We all have same thresholds for taking action. "Ok, I've had enough" goes through millions of minds at precisely the same moment.
How could it be otherwise?
If you want to know how similar your thought processes are to others, just look at another human being. Find one. You can pick them out. They all have 1 core body, 2 big legs, 3 other primary appendages for a total of 5, each functional appendage splits to 3, then to 5, and key divisions within those also occur at Fibonacci's 0.62, 0.38 or 0.5, etc.
My point is, were are products of a very simple (better word: elegant) design. The same ratios also manifest mentally in everyone, probably because they exist physically. Our mental ratios are every bit as standardized. Maybe more so.
We shouldn't feel bad, we are all human and have no way to really understand how similar we think unless the study of EWs and markets reveal it to us. Schools can't teach it. They have been financially-evolved over thousands of years to teach the opposite of this simple truth as gospel, to encourage profitable behavior for powerful, not the students. So like all things financial, we must first un-learn our collective education to discover truth.
Just like lots of gold comments occurred on the blog at the gold top, we have lots of comments expecting inflation now, and that means we've hit a mental threshold. This is excellent confirmation that a new leg has begun.
To answer your qs:
I would say you've proven the opposite, that inflation is a fairy tale. You've shown that prices are lower and falling, given 0% for years now. Showing any amount of price decline puts one in the deflation camp.
Some prices might be unchanged, that's entirely possible in a deflation given a transaction volume decrease, it only takes one person to set a price. Your example of auto sales is a good one, transaction volume is down 50%. Car companies have two choices, let half their people go and build half the number of the same cars at the same price, or drop the price. Both will happen eventually.
In Aug 2007, everyone who is someone knew lower Fed rates were coming (it was incredibly obvious since the 3-M Treasury had dropped from 6% to 3%, and Bernanke was still asleep at 6%--the guy really has no clue). At that time, I pointed out that lower Fed rates ALWAYS foretell lower stock prices, and that there had never been an exception to that rule since the Fed was created. Needless to say, 99% of people reading that freaked, regurgitating what the Fed taught them in public and private schools, that low rates are severely inflationary and that the Fed controls markets.
Boy, were they wrong.
The truth is always simple.
Jim Rogers was correct when he said, "the Fed is irrelevant." They are. Just like any thief, they don't make the money nor do they know how. Or, they wouldn't be thieves.
Fed rates simply follow the market, and they are utterly helpless to control it. Just like everyone else.
Posted by fdralloveragain at 7:09 AM