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the contrarian - Are We Looking At Hyper-Stagflation?
If ever the stage was set for inflation, then, this would seem to be the time.
However - and here's the rub - having been an economy watcher for longer than I care to admit, I've never seen the so-called body of conventional wisdom correctly call a significant turn in economic conditions. It's had a decent track record in prognosticating a continuation of already existing conditions. But, as for nailing the timing of changes in the general direction of major trends, it's been an utter failure.
He makes a very good point. I think that if oil continues to rise, we're going to have yet another deflationary crash. The stock market is certainly primed for it. It's had an amazing run.
What if, instead of runaway, or hyper inflation, we enter a period in which the forces of deflation and inflation seem to offset each other? In such an environment, we might see prices continue to increase for a time until the negative impact on the consumer causes the economy to contract once again. Then, as soon as it appears that a floor is being laid to the new downturn, prices once again begin to soar. And this relatively rapid and concentrated up/down trend continues, negating the possibility of a return to what we might call normal conditions.
Behold Greenspan's Age of Turbulence. Greenspan ought to know. He helped create most of it.
This theory allows the market to inflict maximum pain on the most participants. Any fixed investment style stagnates, much like any fixed gambling style stagnates within a casino.
Think about it.
The stock market investors made a lot of money when the stock market skyrocketed. They then lost a lot of money when the stock market crashed.
The commodity investors made a lot of money when commodities skyrocketed. They then lost a lot of money when commodities crashed.
The housing investors made a lot of money when housing skyrocketed. They then lost a lot of money when housing crashed.
The long-term bond holders made a lot of money when interest rates fell. They then lost a lot of money when interest rates rose.
Why do we do it? The government wants us in the casino. CNBC wants us in the casino too. Think Fast Money! Think Mad Money!
Meanwhile, the casino continues to take its cut every time we make a bet. That allows the government to take a cut every time we win. Further, the casino is actually allowed to gamble against us and somehow we are all okay with it. Go figure.
December 7, 2007
Why Does Goldman Sachs Need 10 Acres of Trading Floor?
In the case of the new Goldman Sachs headquarters, we're talking about multiple huge floors: six, to be precise, each one 72,000 square feet. That's 432,000 square feet in all, or roughly 10 acres.
If I was playing poker and saw that my opponents were using 432,000 square feet of office space with the sole purpose of helping them win the game, I'd be very inclined to walk away. In fact, I do walk away. Day trading is not something I'm even remotely interested in. My idea of a gambling thrill is to buy the 10 year TIPS directly from the government and hold it until maturity.
Warren Buffett once said that inflation is like a tapeworm. In my opinion, there's more than one tapeworm in our society though.
Preliminary 2025 Housing Forecasts
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Today, in the CalculatedRisk Real Estate Newsletter: Preliminary 2025
Housing Forecasts
Excerpt:
Towards the end of each year, I collect some housing for...
54 minutes ago
13 comments:
It's funny you say this. Just today I had the mini-epiphany that the deflation/inflation trades were going to both be right, and that the key is to time between the two. Gold, stocks, bonds/dollar will each have a turn in the sun. As an investor you'll need to actively rotate among them. Sell whatever is in favor, buy whatever scares the heck out of you.
Right now, long bonds are scary, but 6 months ago oil was scary and TLT was at $120. Three months ago stocks were scary and cash was king.
I'm thinking for a low fuss investor rebalancing equal weights of SPY, TLT, GLD, and OIH three or four times a year might be good way to keep ahead of inflation, if not the tax man.
Rebalance every time one of them makes a new 52 week high, but never more than once every 60 days. I wonder how that would back test over the last 24 months.
AllanF,
"Just today I had the mini-epiphany that the deflation/inflation trades were going to both be right, and that the key is to time between the two."
The government shut down one of the best theoretical deflation/inflation trades recently, and it didn't even require timing.
I-Bonds can't lose money during deflation as they have a 0% interest rate floor. Good as cash.
I-Bonds can gain during the inflation phase though, and that gain is locked in.
In therory, severe deflation toggling with severe inflation would allow I-Bonds to appreciate even if inflation averages zero.
Sort of a tails I don't lose, heads I win investment. Well, at least it was until the government slapped a 0.1% real rate on them for those who buy today. After taxes, it is now a tails I don't lose, heads I don't lose much investment.
Of course, Ben Bernanke will no doubt publicly wonder why we don't save again soon, an blame others for their "savings glut".
Stag,
Why do we do it? The government wants us in the casino. CNBC wants us in the casino too.
We really do have a casino economy. And the casino has some very big and "legitamite" sponsors - the Government and the Fed.
Mr. Suspicious here doesn't buy the "independent" Fed tripe either. Although I do admit that the Fed and Gov't independently promote the casino.
With the government in on the con, the marketing of the casino is incredibly effective. The vast majority of casino participants have been repeatedly swindled. Sham after sham, lie after lie, scam after scam. And yet the majority are still hoping that wall street will make them rich. I don't get it.
The "accepted" theft known as inflation is a big part of the equation too. If wall street had to survive on real growth, the casino would shut down immediately. Fees and taxes would consume the majority of the gains.
What a sham(e). I'm coining a new word - CONsino.
June 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said large U.S. budget deficits threaten financial stability and the government can’t continue indefinitely to borrow at the current rate to finance the shortfall.
“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” Bernanke said in testimony to lawmakers today. “Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance.”
http://tinyurl.com/o347pd
This corrupt tool is a real piece of work, with the FED now tunning an insolvent banking system into an insolvent country to bail out the same banks that the FED was suppose to regulate. WTF! Of course the prostitutes that infest the District of Corruption also have way more then their share of the blame here with thier little fiat currency which is backed by nothing but bs.
Kevin
I don't disagree on I-bonds, but neither are they an alternative. One has to invest with the assets one has, not the assets one wishes he had.
That is, an alternative going forward.
mab,
"What a sham(e). I'm coining a new word - CONsino."
Our new coins don't have any silver in them...
It's a CONsino COINsino!
Kevin,
What Bernanke meant to say is that the freshly printed money must be dropped from the helicopter in a prudent and fiscally responsible way now that the Chinese are laughing at Geithner.
AllanF,
"One has to invest with the assets one has, not the assets one wishes he had."
Too bad we aren't too big to fail. If we were, then we could pretty much invest with any assets, either real or imagined. Sigh.
Stag,
This is priceless.
http://money.cnn.com/2009/06/03/real_estate/Geithner_housing_market/index.htm?postversion=2009060314
I knew Geithner was in over his head, but I didn't know he was under water. ;)
Mark,
Speaking of casino's, I got basically shown the door while down in the bahamas at a casino after winning a few bucks:
http://economicdisconnect.blogspot.com/2009/05/back-to-work.html
Great analogies, I never thought about things this way. Well done.
mab,
From your link...
"The Geithners paid a premium for the house when they bought it in 2004, plunking down $1.601 million after a bidding war. The "exquisitely renovated" home was originally built in 1931, according to a listing for the 0.2 acre property."
0.2 acre? $1.6 million?
Let's see. The US has roughly 2.3 billion acres of land.
Too bad Geithner didn't buy it all on credit. I guess the bank couldn't spot him the $18.4 thousand trillion it would have taken.
Hey, have I mentioned lately that this country is running out of land? Yeah, there's only about 7 acres per person. We might have to start doubling up in tract housing just to conserve it.
GYSC,
"At around $600 the simple wiping of my hands was not enough, so I was asked to not pick up my beverage and still wipe my hands!"
Hahaha!
Back at you, not that I was ever asked to leave.
The "Sure" Thing
http://illusionofprosperity.blogspot.com/2007/09/sure-thing.html
It reviews my exploits at the horse track. In a nutshell, things were not as they appeared.
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