Costco vs. The Deflationist

I went to Costco today. The parking lot was fairly packed an hour before closing time on a weekday no less. It seems I was not alone.

There was no basmati rice, again. There was a sign over the brown rice this time that said there was a five bag limit. Costco's rice shortage has clearly reached the Seattle area.

It would seem to me that hoarding starts at the bottom and works its way up. Rice is at the very bottom. Bedpans would likely be the very top.

August 31, 2002
Testing the Deflationist

Here is my favorite story that illustrates this. Before he died, I knew Dr. Norbert Einstein. He was Albert's cousin. He was a banker. He told me that only late in the German inflation did his Aunt Rosa catch on to what was happening to the value of money. She then wanted to get into goods and out of money. But the truly marketable goods were gone. They were being hoarded. All she found was a large inventory of bedpans. She bought them in late 1923. Then came the currency reform of December, 1923. It produced the recession of 1924. There was Aunt Rosa, figuratively sitting on top of a pile of bedpans.

We've been testing the deflationist for 5 1/2 years so far (since the article was written) and all we've managed to get out of him/her was $130 oil. That being said, it is possible that the hoarding of rice was the top of the cycle. See the parabolic chart below that's clearly breaking down.

Weekly Rice Chart

I have no idea where inflation is going to head in the short-term (hence my neutral short-term inflationary mood as seen in the upper left corner), but I'm sticking to my long-term stagflationary outlook just the same (as it relates to falling real yields but not necessarily parabolically rising commodity prices). I've based my outlook on one simple (Keep It Simple Stupid) idea.

It will be increasingly difficult to make money off of money in the future.

That's it. That's my primary prediction. I'm not a big believer in "sure things" as some of you already know, but the odds do/did seem heavily tilted in my prediction's favor. I started this blog just a few days after the credit crisis I might add. It is very difficult to make money off of money when there is a concern you'll lose it all. Safe really is a happy word you know.

September 4, 2007
"Safe" is a happy word

I'm told that we'll bounce back later this year and things will be fine again. I'm firmly in the once bitten, twice shy economic theory camp though. I can't speak for others, but I've been twice shy since the economic meltdown of 2000. I would even go so far to say that we're still in it. Some are actively trying to convert an Illusion of Prosperity into something more tangible. Rice comes to mind.