Doom and Gloom, Inflation Thoughts

Recession, Far From Over, Already Setting Records

I'd quote the article, but I think the headline says it all.

Analysts query IMF gloom

Pessimism may have replaced irrational exuberance as the new bubble in economic forecasting, though. “There’s an air of pessimism all around,” said Mr Khan. “In a sense, you can’t lose by being the global bearer of gloom and doom.”

You could lose being the global bearer of irrational exuberance though, for a good ten years and counting.

Gloom and doom are good for business books

As we'd mentioned in an earlier review, one business sector is booming. Books examining the current economy and the causes of its precarious condition are apparently a growth industry -- at least on the production end.

The bulls would tell us that from a contrarian standpoint, we must be close to the bottom. The bottom didn't immediately fall out of the stock market and/or real estate market when the bookshelves were full of books telling us all how to get rich though. The bookshelves are just now filling up with books urging caution.

When the majority of books told us to buy stocks and real estate, we bought stocks and real estate. It became a positive feedback loop and was self-reinforcing. Prosperity seemed never ending.

So what's going to happen when we are told to do the exact opposite? What's going to happen when the majority of books tell us to save money and pay down debt in order to weather the financial storm? Oh oh.

So the premise herein is: forget about a recession; we're either in or heading into a depression; take the requisite steps, include getting out of stocks, selling short, buying gold and investing in currency.

How are any of those "requisite steps" going to help our economy's situation?

Further, couldn't give gold away at $250 an ounce just a few years ago but everyone wants it at $900 an ounce? I just saw yet another advertisement on TV. They want to buy gold from me. They listed off a LOT of local hotels I could sell it at. I sold 3 silver dollars at a local hotel in 1982. Using hindsight, it was actually a great time to sell, not buy. Heck, even though I am and was a bear, I sold all my gold and silver in 2006. At the time, I thought I got a really good price. I still do. A return in excess of 50% in just two years seemed just that, excessive.

I'm really starting to warm up to the idea that overcapacity is trumping money printing and that deflation might be with us a lot longer than I originally thought. I offer a few examples to prove my point.

Albertsons is having a great sale this week. Buy 10 boxes of Keebler Chips Deluxe Cookies (12.5-18 oz) for just $1.97 each and get two free movie tickets for free (up to a $24 value). This is how I see it. Go see a movie with your girlfriend and get 10 pounds of cookies for free. Wow. That's not exactly what I would expect to see if inflation was about to skyrocket. I should also point out that neither the cookies nor the movies are even made in China.

Last week we managed to buy Tillamook Yogurt at 3 for a dollar. We bought close to 40 of them over the past week. I'm actually back to enjoying the grocery fliers again.

I have little brand loyalty and abuse the @#$% out of the government's CPI substitution adjustments, primarily because I do much more than just substitute. I actually back up the truck.

A Better CPI

Substitution bias occurs because the CPI measures the price changes of a fixed basket of goods and services and thus does not capture the savings that households enjoy when they change their spending in response to relative price changes of goods and services.

A lot of people complain about the substitution bias adjustments. I don't. It seems perfectly rational to me. Further, it is my belief that the government actually underestimates the effect of substitution, at least as it relates to me. I don't just substitute if it is a really good deal. I'll actually buy more of it, perhaps a LOT more.

Mountains of cookies and yogurt over the past two weeks, with no reduction in my lifestyle whatsoever. Cookies freeze well. Yogurt keeps a month and a good third of it has already been eaten. That's just a sampling though. I obviously don't just eat cookies and yogurt. Chuck roast is $1.59 a pound this week. It freezes too.

Don't get me started on peak oil though. I'm not THAT deflationary, nor will I ever be. I'm buying more inflation protected I-Bonds on Monday. I'm still willing to hoard anything that Mad Max would want, but only if the price is right. Near as I can tell, "the worst diamond market in living memory" never entered his thoughts though. Some stores of value might not actually be forever.