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.
In the class of FDR, Their is no right or wrong, Its only correct and the results are measured in wealth gains or preservation or a fail in losing wealth/purchasing power over a term.
ReplyDeleteReading your position and arguments FDR deflation is the order of the decade.
Reading this blog and KCBs obserations his area I think needs breaking down as I live in the UK and prices are going up bigtime.
I would describe the UK anyway as TRIFLATION for the next decade.
1 Deflation in UK assets and companies and pensions for reasons well broken down on your blog and I can add more.
2 Imported Inflation via the debasing of sterling, I estimate about a 20% devaluation of sterling over the past few years and now its showing up big time in higher prices even the official iffy CPI data for January states a 3.5% inflation YoY rate.
With the US and the world reserve $ this area is much muted.
3 Tax price inflation, Cap and trade scams, Sales tax increases,Higher import taxes.
Taxing goods via red tape, Energy or directly drives prices higher and near imposible to hedge for other than spend currency now as money/goods are being taxed higher currency wise.
FDR I would like to hear your views on triflation type events going foward.
I am short stocks and housing due to deflation. I am long in PMs as a currency hedge for sterlings debasement or a total foulup.
The tax driver its on my chin unless I move elsewhere.
I understand where you are coming from regarding the feds interest rate a non event regarding flations but the market price of currency/credit is very flationary and for me cash isnt expensive in historic terms.
I believe governments and banking powers are a very strong force next to fundamentals for the next decade hence nothing is a dead cert for me.
Hi Anon:
ReplyDeleteIt's true that right and wrong is determined by results, not feelings. Most people may "feel" there will be inflation, or hope for it, but people said the same things in the early 1930s.
Schopenhauer was exactly right, human truth must pass through three phases:
1. Ridicule
2. Violent opposition
3. Acceptance as self-evident
I don't doubt that the UK is undergoing a wide range of economic swings. As you know, I think the UK is in the worst financial shape of the major nations.
On government and central banks (if that's what you mean by "banking powers"), I disagree. They have little to no say in all things economic. When they try to squash the natural inclinations of nature, those flourish in the hidden form of black markets. When they feign control, times like these reveal the futility of what is not and never was.
Central banks are simple, petty thieves in an enormous global market. Like the Wizard of Oz, they are men behind curtains, pretending to be something they're not.
That's no accident, the Wizard of Oz was written to ridicule the same money changers propped by the same political farces. That's why Dorthy's slippers were made of "free silver" not ruby, in the original book.
Dorothy's slippers!! Honestly FDRAOA you come up with little factoids I can't find anywhere else.
ReplyDeleteSpeaking of Fabonacci numbers - a 62% retracement from S+P low of last March brings us to 1085 or so - exactly where we are now
On the Wiz of Oz, most people think since the movie was released in 1939, it was set in the Great Depression. It was actually written two depressions prior in 1896 (ish). I think it's popularity results from the same recycled characters in all of our political-financial experiences: the Scarecrows--the Tinmen--the Cowardly Lions--the scary Wicked Witch of the East who's wealth was stolen by the Wicked Witch of the West--a duped and innocent Dorthy--and the good nature, common sense farmers at home who pay for it all.
ReplyDelete"The coming battle: The true history of our national debt" is a book that was published in 1899. Kinda of a hard read, has lots of congressional testimony text. Illustrates how people WERE actually educated about currency, as opposed to now. The crime of 1873, silver demonitization, and the national currency act of 1863, which started us down this path of treasury bonds (debt) backed banking are among the many subjects discussed from a close perspective in time...
ReplyDelete"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."
ReplyDeletedoes it mean that when Bernanke reverses his policy of "extremely low rates for an extended period of time", the rates would start climbing and so the stock market?
Thanks for another gr8 post!
"does it mean that when Bernanke reverses his policy of "extremely low rates for an extended period of time", the rates would start climbing and so the stock market?"
ReplyDeleteSort of.
I would answer "yes" if you said, "if Bernanke follows the market rate higher."
If Bernanke manifests dark Fed policy of raising the wholesale rate for reserve cash, so cheap reserves are unobtainable for non-cartel banks, then no.
Dear FDRAllOverAgain,
ReplyDeleteYou claim that the Fed is stealing money on behalf of its private owners. I believe this can work in a big way only if the Federal Reserve records its purchases of US Government debt as an Expense. However, as far as I can tell from the Federal Reserve's Income Statement they are not recording the purchase of Treasury Securities as an Expense. Only about 10% of the total interest income is lost to operating expenses like salaries. Therefore, roughly 90% of the interest income they are earning is available as net income prior to distribution. Approximately 90% of these profits gets paid to the US Treasury. The real beneficiary of all this debt financing to me seems to be the US Government. Please tell me what I am missing?
"Speaking of Fabonacci numbers - a 62% retracement from S+P low of last March brings us to 1085 or so - exactly where we are now"
ReplyDeleteExcellent observation.
FDR:
ReplyDeleteone of your best piece of writing.
I find that no matter how one explains to people what is happening they simply cannot see it. I think the few that can see it are those who are meant to see it.
Now I am wondering how did you wake up?
chocolateMan
FDR wrote: "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."
ReplyDeleteWell, yes, strictly speaking that's true.
But I don't dispute that there may be some mild deflation in some areas.
I dispute that there's massive deflation happening right now.
Or, rather, I see no evidence of that.
When food prices drop to half of what they are, then I will certainly acknowledge the "massive deflation" scenario.
Basically, FDR, you've made some testable predictions, and some of those predictions have not come true. The only thing saving you is that you didn't put any specific timeframes on them, which tends to reduce their usefulness as predictions, since just about anything will come true if you give it enough time.
I too am curious about how the fed accounts for its ezpenses and calculates its profit. Could you spell this out more? Thanks!
ReplyDeleteRegarding food prices, looking at a 2 year chart of the DBA ETF I see a crash and a then a flatline since this deflation started. There was very little bounce from last year's lows.
ReplyDeletehttp://finance.yahoo.com/echarts?s=DBA#symbol=DBA;range=2y
This ETF contains a breadth of agri commodities including hogs, cattle, wheat, soybeans, coca, sugar, coffee.. This accurately reflects the pain currently being felt by farmers everywhere. If prices have increased at your grocer then I'd guess it's due to something other than rising input costs.
Anonymous said...
ReplyDeleteRegarding food prices, looking at a 2 year chart of the DBA ETF I see a crash and a then a flatline since this deflation started. There was very little bounce from last year's lows.
As kcb has said, you can find that oil prices are down significantly but the retail price of gas is still up.
You can find many examples of commodities prices well off their highs but retail prices are a different story.
If you look closely, vegetable and meat prices are rising and packaged goods are being sold at the same price but re-sized smaller. If you look at the cost of living from a fixed income point of view, very little is cheaper to come by today..
Anonymous wrote: "If you look closely, vegetable and meat prices are rising and packaged goods are being sold at the same price but re-sized smaller. If you look at the cost of living from a fixed income point of view, very little is cheaper to come by today."
ReplyDeleteThat is exactly the standard by which price deflation must be measured. It makes no sense to measure it any other way.
If the actual dollar cost of living isn't dropping significantly, then you do not have significant price deflation.
This is why, from my point of view, what FDR's been saying has thus far been a fairy tale. And it will remain so until the actual retail prices drop significantly.
They might, but I'm not holding my breath for it.
"Anonymous wrote: "If you look closely, vegetable and meat prices are rising and packaged goods are being sold at the same price but re-sized smaller. If you look at the cost of living from a fixed income point of view, very little is cheaper to come by today."
ReplyDeleteThat is exactly the standard by which price deflation must be measured. It makes no sense to measure it any other way.
If the actual dollar cost of living isn't dropping significantly, then you do not have significant price deflation.
This is why, from my point of view, what FDR's been saying has thus far been a fairy tale. And it will remain so until the actual retail prices drop significantly.
They might, but I'm not holding my breath for it"
Wow, that must add up to 10, even 20 dollars a month. Clearly hyperinflation is no fairy tale.
"Wow, that must add up to 10, even 20 dollars a month. Clearly hyperinflation is no fairy tale."
ReplyDeleteNo one ever said anything about hyperinflation but it has been FDR's contention that we are in a rather steep deflationary cycle and that currency exchange rates are of little significance..... and from the retail perspective, I just don't see it in much of anything but real estate.