Tuesday, May 12, 2009
Inflation starts this autumn
Market Oracle: This is Not the 1930’s Depression, Which Means High Inflation to Come
In his April 3rd Interest Rate Observer , James Grant reported that the combined Federal Reserve and US government response to this economic crisis, defined as the change in the Federal Reserve’s balance sheet plus the US government’s fiscal deficit as a percent of GDP, is some 30% of GDP. To put that number into perspective, that’s 10 times the postwar recession average of 2.9% and 3.5 times the previous record of 8.3% seen in you guessed it, the Great Depression.
Posted by sold 2 rent 1 @ 01:36 PM (1949 views) Add Comment
45 Comments
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1. sold 2 rent 1 said...
The size of today’s government’s reflation efforts truly dwarfs anything we have seen in the past and suggests some truly eye-popping price inflation rates in the future. On that score, it’s interesting to note that the greatest price surge in the post gold standard / FDIC era, one that saw the CPI rocket to 15%, began during the 1973-74 recession with a combined Federal Reserve and government response of a mere 4% of GDP. At today’s 30%, and we are not done yet, one can only imagine the kind of price inflation that awaits us this time around.
2. sold 2 rent 1 said...
The deflationary pressures will continue to build over the summer, so governments will create more and more money to combat it. At some point this autumn inflation will explode out of the gate. BTW the resonance with the 1973 oil shock isn't until December 2009. So between December 2009 and April 2010 prices in the shops may well double or triple
The silver mania will blow the gold mania away
http://www.advancedsilversolution.com/
http://www.americanbiotechlabs.com/
This colloidal silver solution claims to have a US patent and 7 independent trials including 1 in West Africa curing HIV and malaria in 5 days. It also cures flu in 2-6 hours.
All madness? Let’s wait until winter 2010 for the colloidal silver mania as the only cure from a flu pandemic.
3. general congreve said...
I take the coach to gatwick airport quite regularly. In the past six months the price of a return ticket has gone up each time I've used the service. Was £28 for a long time before all this bailout/QE business started, then it was £30, the it was £32, now it's £35. 20% increase in roughly 6 months, 40% YOY then. And oil has crashed. WTF?
Admittedly it's a one off, can't say anything else stands out just yet, but has anyone else noticed anything like this?
4. sold 2 rent 1 said...
general congreve,
Next winter we will no longer talk about inflation as a year on year percentage as prices will be rising to fast. We will talk about prices doubling and tripling in months.
5. denzil said...
S2R1 said:
"Next winter we will no longer talk about inflation as a year on year percentage as prices will be rising to fast. We will talk about prices doubling and tripling in months."
If you are right with your prediction of triple digit inflation then those STR sitting on their nest eggs should really be considering buying back into property because that nest egg could devalue very rapidly.
S2R1, what is your stance regarding buying back into property?
6. crunchy said...
sold 2 rent 1
I love it! Now that's what I call conviction! Thanks for your insight.
7. sold 2 rent 1 said...
denzil,
"If you are right with your prediction of triple digit inflation then those STR sitting on their nest eggs should really be considering buying back into property because that nest egg could devalue very rapidly."
Correct. That is why I am fully loaded into precious metals and energy stocks (next winter could be another cold one)
There will be many STRers who will watch their savings devalue much faster than the property they seek. Such is life.
Peak destruction should be around 16 April 2010, but what will it be?
Peak destruction could entail one of the following:
Gov attempted gold/oil/silver confiscation
Banking collapse with no bailouts
Dirty bomb in major Western city (don't rule out London)
Portfolio planning is very tricky in this situation - but I am relying on more intuition closer to the event.
We shall see what is in the cosmic plan in less than a years time.
8. sold 2 rent 1 said...
crunchy,
"I love it! Now that's what I call conviction! Thanks for your insight."
What you pay attention to, you become conscious of...and eventually your consciousness starts paying out in intuition.
Now where's that tin hat gone - incoming!!!!!!
9. crunchy said...
Hey str1,
Does a tin cup cake container qualify, I only have a small brain. lol Peace.
10. happy mondays said...
@ s2r1 but I am relying on more intuition closer to the event! unfortunately most have lost that ability and rely on being told by others,rather than listening to self.. Thats suits a small minority of phychopathic egomaniacs, which keep us in our place.. Not for long my gut instincts tell me !
11. Cheekie Charlie said...
S2R I disagree entirely with your predictions. All of that QE money is being shovelled into a black hole. For inflation to take off you need need money in peoples pockets! In the next five years we're getting, high unemployment, wage deflation, credit rationing, high taxes, and of course falling property values which people will not be able to borrow against!
12. george monsoon said...
Can someone translate this article into plain english?
13. debtfree said...
s2r1,
Too much knowledge and you will lose your wisdom.
:o)
14. titaniccaptain said...
Hi S2R1,
I have a few questions and points from the article so stick with me whilst I randomly go over both, as someone who is in the deflation camp I want to believe that hyperinflation is coming so I can start making provision for it. So I am going to play Devil's advocate.
From the article:-
"To paraphrase Rothbard, there is nothing like a bank run to squeeze inflation out of the system. So when things started going wrong in 1929 and worsened thereafter, true to form, scared depositors, fearing for their savings, withdrew their money from the banking system en masse. Deflation, via a contraction in bank loans and deposits, engulfed the early 1930’s. To make sure this never happened again, the government in 1933 created the FDIC giving the US banking system federal deposit insurance. Today, back-stopped by the Federal Reserve’s printing press, the FDIC insures all bank deposits up to $250,000. (2) And when and where FDIC insurance falls short, both the government and the Federal Reserve have shown they will stop at nothing to provide trillions of dollars in asset and or debt guarantees, even equity capital to any and all banks to keep depositors in the banking system. I ask you, when’s the last time you saw a bank run? That’s right, the Great Depression. Today, the banking system can inflate without fear of a bank run. "
...........but the incentive to throw this newly found capital position into investing is negated by the deflating economy so this newly found capital would be exported into emerging countries or (as crazy as it sounds) even into the banks buying gold as a hedge against the possibility of any hyperinflation which would devalue the capital position of the banks.
If the banks did buy gold then if gold was confiscated would that not mean that the banks would be forced into deflation by having their assets striped or would the gold confiscation be only limited to personal wealth and not corporate?
We have also had signs of wage deflation as has been revealed in todays unemployment figures.
http://news.bbc.co.uk/1/hi/business/8046128.stm
Granted that the deflation in wages has come from the reduction in bonuses but cutting bonuses is only the start of employers realising that pay can be cut and is a good way to prevent redundancies and keep employees and maintain a workforce for a given company. And what started out as a reaction to public sentiment with the bonus culture has gone alot further.
Also if wage deflation really takes grip then it also means that the risk in lending will increase and the same goes for unemployment. Banks realise that they are under threat of losing their position by lending risk and the guarantee from the government on deposits and loans is not necessarily written in stone........the trust between banks and government is gone.
15. amjidk said...
i think we will probably have around 18 months of defaltion, before inflation returns...
16. amjidk said...
i think we will probably have around 18 months of deflation, before inflation returns...
17. titaniccaptain said...
But if your right S2R1 then buying a house could be a very very good idea. It would be payed off within a year providing that wages are linked to the hyper inflation and interest rates do not go shooting up otherwise property will be worth next to nothing infact it will be impossible to pay any kind of mortgae that is not fixed to pre hyperinflation levels.
18. Justanotherftb said...
"But if your right S2R1 then buying a house could be a very very good idea. It would be payed off within a year providing that wages are linked to the hyper inflation and interest rates do not go shooting up otherwise property will be worth next to nothing infact it will be impossible to pay any kind of mortgae that is not fixed to pre hyperinflation levels."
Exactly - if we get inflation, houses will not go up - they will most likely go down massively because most people are leveraged to the hilt in order to buy them.
If we get 10% CPI inflation where do you think mortgage rates will be?
It's extremely unlikely that wage increases will keep up, or perhaps we will not see wage increases so we will all get steadily poorer. That appears to be the government plan at the moment as far as I can tell (increase international competitiveness by destroying our currency, cause inflation to reduce uncompetitive high wages).
We are stuffed IMO. If you do buy, be sure to get a long fixed rate!
19. str 2007 said...
Perhaps to add to TC's comments
Would it tie up less capital to take a long position in the various metals/oils you talk about S2R1 using spread betting and use your capital (while it still has value) to purchase a property. Which you will need.
Property is fairly illiquid but because it is, alot less volatile than metals and oils etc.
One way or another you have a monthly housing cost whether renting from a private landlord (expensive) or renting from the bank using an interest only mortgage (Cheap cheap cheap).
I've only been in this new rented house 4 weeks and already a letter has arrived from the letting agent to let us know of our 1st inspection date in 4 weeks time.
The humiliation - being inspected by a letting agent to see if you a suitable enough human being to pay anothers mortgage for him.
I must visit a BMW garage soon and say I have an £850 per month budget for a vehicle - just to have a reality check that £850 per month is alot and some companies even treat people with that kind of money like customers.
20. sold 2 rent 1 said...
titaniccaptain,
IMHO hyperinflation is not coming, but a massive amount of inflation is....then there will be the deflationary collapse (after April 2010)
A huge commodity spike going into April 2010 will produce more deflationary pressures after it bursts.
The period between 16 April 2010 and 22 September 2010 is where the people finally have to win their freedom back from corrupt banks/corporations/governments.
Unfortunately freedom from banks/corporations/governments probably means a deflationary collapse as we move to a value-based monetary system (not debt-based)
21. sold 2 rent 1 said...
debtfree,
"Too much knowledge and you will lose your wisdom."
Agreed. It is a fine line I tread.
22. titaniccaptain said...
Thanks you S2R1
23. happy mondays said...
@ debtfree
Knowledge is knowing that a tomato is a fruit & wisdom is, understanding not to put it in your fruit salad...
24. denzil said...
S2R1 said:
"Correct. That is why I am fully loaded into precious metals and energy stocks (next winter could be another cold one)"
As always, thanks for your reply. If you believe that inflation will be triple digit and you are 100% committed to precious metals and energy stocks I fear you will not do too well but you will do a lot better than a standard savings account.. Bricks and mortar is far safer bit for a period of hyperinflation. Buy as big a place as you can possibly afford soon and let the debt inflate away.
Anyway, isn't investing in energy stocks a risk when free "dark energy" is around the corner. BTW I'm not being facetious with that comment.
25. 51ck-6-51x said...
happy mondays
- Nice!
Although I would have gone for "Knowledge is the state of awareness that a tomato..."
...Even that is not really epistemologically accurate, and it is hard to say what would be really - can you work out what knowledge actually is? The traditional approach was that one must first have a belief, and when that belief is proven or passes some threshold of confirmation it becomes knowledge, however the circular nature of this is obvious and results in no such thing as knowledge. If you really want to get deep into the subject I recommend "Knowledge and its Limits" by Timothy Williamson (although it's tough going).
26. devo said...
You really do need to get out more, 51ck-6-51x!
A brain the size of a planet and you choose to frequent the HPC blog, when you could be quanting or suchlike.
27. 51ck-6-51x said...
S2R1:
My 2 Fens:
If one really believes there will be inflation I think one should invest in food as that is the most certain necessary commodity (but diversify due to weather risks etc...) - air and water would also be good, but are not so easy to take advantage of; energy would come next along with 'almost necessary' services (such as waste management) and physical assets which people will actually need. Who really has a need for precious metals? Their only value is as a store of wealth, not as an inflationary hedge. The misconception is probably so rife because precious metals are such a good hedge against market fear - when people think the world will end they buy into precious metals (regardless of inflationary pressures), but if and when inflation comes at a rapid pace they have already done this transaction and there is less upward price pressure.
So if one believes there will be another bout of fear followed by inflation, then wait for the rumblings of said fear (if you can) then buy into precious metals, then when the fear has risen to it's peak get out of the metals and into necessary commodities.
If one believes there will be deflation followed by increasing inflation without a panic then one should restructure pay down debts and save in cash (or near cash) awaiting for movement into necessary commodities.
28. general congreve said...
666 @ 25 - 'If one believes there will be deflation followed by increasing inflation without a panic then one should restructure pay down debts and save in cash (or near cash) awaiting for movement into necessary commodities.'
It's a hard situation to call. Being fully hedged is the best way to be I guess to come out of this ok. I'm lucky in that I own my own property, have 50% of my liquid assets in precious metals and 50% in cash, whatever happens I should come out fairly even I guess. Understandably people like str2007 have more to worry about re: buying a house as an inflation hedge, could go very wrong or very right. Fair enough, interest only is less than rent at the moment, but what about the potential negative equity, ouch. Or losing your STR fund because of massive inflation, arghhhhhhhhh!!!!
All a matter of timing and guess/sleuth work. We'll know within a year I imagine, until then let the HPC debate rage on!
29. growler said...
General @ 26: "Fair enough, interest only is less than rent at the moment"
schurely schome mishtake...
"Rent is less than interest only" is surely what you meant!
30. quiet guy said...
@str 2007
Are you renting from an agency that only does lettings or an estate agency that also does lettings?
In the past, I've rented from private landlords and a letting agency without any problems, although letting agents are stricter about cleaning when the tenancy ends and tend to cost a bit more.
For the first time, I'm renting off an estate agent - the attitude from one of their staff was simply unbelievable. The agent was bordering upon open hostility but still keen on getting my money, of course.
31. general congreve said...
Growler @27 - Just quoting str2007's research from another thread. Says he can save himself on the monthly outgoing by upgrading from 3-bed rental toa 4-bed bought at interest only.
32. str 2007 said...
growler
cg was pointing to a comment I made earlier in the thread. Interest only is significantly cheaper on a bigger house than the rent on a small house but it does involve putting down 40% on the bigger house (which isn't earning much interest and is bordering on becoming a worry if we do see house prices start to rise or inflation kick in).
If there was more choice around I'd be waiting but everything is selling quickly now (if it's the type of house you'd like to buy). I don't know how things are back up their with you but I'm not in Marlow now, I'm South of Winchester now and they're on fire down here.
QG
Renting through a lettings only agent and they're like a bunch of hitlers to the customers and sugar plumb fairies to their cleaners etc.
I find it totally humiliating to be renting quite frankly. It's not a long term solution for anyone in this country IMO.
33. str 2007 said...
cg
Without blowing trumpets it was actually a 5 bed 3 bath from 3 bed semi I was doing the comparison with. Did the sums today.
It's probably about evens if you count the lost interest on the 40% deposit.
The question is then does it continue to fall further ? If it does it's your hard earned vanishing not your mortgage. But there is a price worth paying not to be supporting a BTLer and not having to deal with a letting agent.
34. quiet guy said...
@str 2007
Sorry to hear that you're getting grief. I agree that there are intangible benefits to ownership such as being able to decorate, install shelving or whatever else you feel like, never mind nasty landlords or agents, but there will always be millions who cannot and should not buy.
35. str 2007 said...
qg
Just everyday stuff really, but you can do without it.
Personally I think everyone should own their own house. If they can afford to pay a BTL landlord who's priced them out then they can afford a mortgage if BTLers are taken out of the market place altogether.
With regard to renting for short term work contracts etc. then I feel that those houses in each town that are designated for that purpose should be owned by the local authority and all local people have the right to buy shares in their local rental business.
hat IMO is the fair and correct way to run the situation with renting in this country.
36. crunchy said...
str, If you feel that buying will give you and your family peace of mind you should buy.
That is time you will not be able to buy back. Some things are more important that monetary gain.
Emotional gain is more precious. A bit of both is the ideal! IMHO. Peace and Peice!
37. str 2007 said...
crunchy
I'd love to able to sit off for another couple of years and buy a family house without a mortgage, then I could have some real quality time.
However from what I've seen over the last 6-8 weeks, I'm just not sure it's going to happen.
It enfuriates the hell out of me that people are out there buying like crazy without a thought for tomorrow.
They may be wrong, but equally they make the market, or have done so far.
Are you still seeing this as a very temporary dead cat bounce ?
38. debtfree said...
@ 21. happy mondays
brilliant ! very funny indeed.
@ 19. sold 2 rent 1
good luck. think we will also see high inflation in the not so distant future.
As you like Armstrong, check out Alf Field's predictions.
39. crunchy said...
Yes I am, but that should not be a priority for you, from your above posts. Remember there is more than one way to skin a meerkat.
It is not just about house prices, there are other avenues to explore to recoupe losses for want of a better word. Peace of mind comes first.
We will witness turbulance like never before in the months and years ahead. Get a comfortable seat then buckle up for the ride.
You so need to learn a good system now. Did you check out that link I gave you?
40. crunchy said...
The reason I gave you that link is because this guy has the required experience, has a simple system, seems an easy going guy to work with and has good back up. The rolling fees are also a plus.
41. str 2007 said...
Crunchy
I have the link and all the details, I haven't started yet as I've been getting a few things in place first.
I aim to have most of those loose ends tied up this week, then hopefully I can start focussing on the trading.
I was looking at the Greg Secker Knowledge to Action before you mentioned VS.
You actually know this guy then ?
42. str 2007 said...
Crunchy
Gotta hit the sack, be back in the morning. night all.
43. crunchy said...
39. str 2007 Don't know VS but I have met Greg at an open invitation talk in Birmingham and he is a live wire. Very switched on. He runs a completely comprehensive course. The R-Royce of courses I guess. I dont think you will get better than that if you have the time to take out.
44. str 2007 said...
Crunchy
Thanks for that, I'm aiming to get the decks cleared this week, then I'll get my head into which I'm going to do.
45. crunchy said...
You are welcome!
There will be some real bargains to be bought in the future it's not all negative. The "good" stocks, not the crap that's being injected at the moment.