Wednesday, April 8, 2009

CPI is Plunging

Do we need anymore evidence than the latest BLS "Housing" data, which is embedded in their CPI-U?

Nationwide Housing Prices:
Aug 2008: 0.0
Sep 2008: -0.1
Oct 2008: 0.0
Nov 2008: -0.1
Dec 2008: 0.0
Jan 2009: 0.0
Feb 2009: 0.0
Last 3 months: 0.0
Last 12 months: +1.9

Compare to:
"The Standard & Poor’s/Case-Shiller 20-city housing index fell by a record 19.0 percent from January 2008, the largest decline since its inception in 2000."
- New York Times


  1. haha, that is awesome.

  2. If the .gov cooks the numbers enough, then they will be able to maintain their statistical baseline such that the banks are able to maintain their balance sheets at such a anomalous non-clearing level.

    The effect of this raging stupidity will be comparable to a supernova unleashed at the altitude of the moon vs. the current 500 megaton EMP incoming over NYC/DC.

    Really, really smart.


  3. FDR,
    I must say, the staying power of the gold & silver bubble has me perplexed. On MW, the gold bugs are fanatical. Even if you write even a balanced opinion on gold, you are likely to get a majority of thumbs down. A day or two ago, a guy wrote,

    "There are two choices at hand -

    1)To Inflate and collapse currency


    2)To Not Inflate and collapse the existing world financial system (most banks/financial institutions)"


    To which I responded, "Option 1 obsolves all debts. I'll will be easy for everyone to pay their mortgages if we are awash in dollars.

    Option 2 results in deflation and continues the enslavement of the masses.

    So which will it be? IMO, the powers that be aren't going to release the stranglehold on the masses that they took so long to put in place....Option 2 is the plan, but they are going about it methodically to keep the pot from boiling over. And deflation isn't going to be fun for holders of gold.

    I respect gold as an investment, particularly as a hedge against catastrophe, but I think it is risky to invest greater than 50% in it, as I sense some on this board are doing. (I read comments on here like, "I can't wait until I get my tax refund so I can buy more gold.")"


    My hypothetical 50% is pretty darn bullish on gold....I still got a majority of thumbs down.

    Just for kicks, I have been monitoring Ebay prices for pre-1964 "junk silver" coins. They are closing at about 10x face, when the price of silver imputes to about 8.8x face. While there is a premium to the stated market rate, there is definitely no shortage. You can buy all you want at 10x face all day long.

    I get the hedge angle, but I am surprised at the staying power in the face of such obvious price deflation and demand destruction of everything else.

    It has all the typical signs of a bubble:
    1) Folks going "all in".
    2) Irrational logic (e.g. "Gold goes up during inflation AND deflation)
    3) Many of the buyers appear to be unsophisticated traders
    4) Too many average Joe's in public are talking about gold
    5) Hypesters on T.V. (Hey, if gold was going to $2,200/oz they wouldn't be selling any, they would leverage long.)
    6) The buyers won't even consider the merits of the other side of the trade....they totally have blinders on.

    Any thoughts on why the price action is so sticky to the high side?

    My only guess is that the Fed is propping it to head fake inflation and burn as many folks as possible. More sheep to the slaughter.

    What do you make of the gold bugs' claims that the COMEX is manipulating prices lower and the the major banks are shorting gold big time and the COMEX is just covering for them?

    Love the blog.....HOLYMOLEY

  4. HOLYMOLEY - While I don't consider myself a "gold bug" (I'm trading long and short positions while mostly holding cash) I am trading gold on its swings and I'll tell you why and how.

    Every financial crisis the US has had finds the Dow/gold (or S+P/gold, but data is not as historical) vacillating from extreme highs where equities are the preferred investment, to commodities (especially gold) is the preferred investment to retain wealth.

    Currently we are still on a downward path in the Dow/gold ratio - which by historical standards should reach a least 5, possibly lower.

    Just like any other trend, there will be points of resistance and support. I use this as one of my major guides to where the market is headed next and over the past year it has served well.

    The point is - if you believe that gold is going to crash, you may be right but IMHO it means the market must crash even that much more. My strategy has been to ultrashort the market, and go ultralong gold when it has corrected downward. I may get it wrong, but it is what I'm doing.

    By trading this way whether there is ultimately deflation or inflation, I should come out ahead, since it is hedging inflation with gold and deflation by shorting the market.

  5. "Any thoughts on why the price action is so sticky to the high side?"

    Yes - it's an 80 year inflation culminating in a 6 year long acute bubble - it will unwind a lot faster than it wound, but don't expect it to unwind overnight. I think the next month or two will bring much lower prices based on the price action to date.

  6. Hi FDR,

    This isn't related to the article so please excuse it's irrelevance.

    Regarding your prediction for gold's price by year end, I'd be interested to know how you reached that conclusion.

    Was it that you anticipated a Fed / IMF sell-off; are going by the general axiom that gold loses value during deflationary periods; reached the conclusion through EW analysis, or a combination of the above?



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