Inflation Heading Toward A 40 Year Low

[Realistbear]

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0wFVcQrvCHk&pos=2

Strippers Declare Inflation Dead in Zero-Coupon Bonds (Update1)

By Susanne "Susie" Walker

May 24 (Bloomberg) -- The 18-month slump in Treasury zero- coupon bonds is giving way to rising demand

as the rate of inflation falls to a 40-year low

, turning so-called Strips into the best performers in the U.S. government debt market.

Investment banks increased the securities -- created by separating the interest and principal payments of a bond and selling them at a discount -- by 4.4 percent to $179.4 billion from December through April, according to Treasury Department data. It’s the first time that the market expanded for five straight months since 2006.

Deep down we all know it makes sense. If the bubbles are popping everywhere, as Buffett warned 3 years or so ago, prices will fall.

"It is an economic tautology that prices will fall when the asset class in question is losing value. This, in a nutshell, is classic deflation."

[soldintime]

I agree with you RB. Deflation is what is coming now. It will drive all asset classes down including one of this forums favourite Gold.

Here is a good article about 5 hidden signs of deflation.

Delation

[Pick It Down]

I agree with you RB. Deflation is what is coming now. It will drive all asset classes down including one of this forums favourite Gold.

Here is a good article about 5 hidden signs of deflation.

Delation

Deflation will lead to printing money will lead to inflation. They won't let deflation kick in. The next question is how the QE is dished out - when will be the first party to request it isn't used to finance or monetise government debt, but instead handed out as a citizen's wage?

[The Eagle]

Deflation will lead to printing money will lead to inflation. They won't let deflation kick in. The next question is how the QE is dished out - when will be the first party to request it isn't used to finance or monetise government debt, but instead handed out as a citizen's wage?

You nailed it, RB has been proven wrong since he started posting on here, the problem is he doesn't think beyond what the article litterally tells him, I consider his posts very good contrarian indicators these days.

[Realistbear]

Deflation will lead to printing money will lead to inflation. They won't let deflation kick in. The next question is how the QE is dished out - when will be the first party to request it isn't used to finance or monetise government debt, but instead handed out as a citizen's wage?

Our model is Japan where the property bubble burst leading to decades on deflation. Printing can only cause loss of confidence in the bond market and FX which will in turn cancel inflationay tendencies. It would simply exacerbate the imbalances and deepen recession causing less growth and less inflation. At least that is what Japan found to be true and we are in the same position they were in with the exception that they had the means, industrially, to bail themselves out.

[Harry Sacks]

http://www.bloomberg.com/apps/news?pid=20601087&sid=a0wFVcQrvCHk&pos=2

Strippers Declare Inflation Dead in Zero-Coupon Bonds (Update1)

By Susanne "Susie" Walker

May 24 (Bloomberg) -- The 18-month slump in Treasury zero- coupon bonds is giving way to rising demand

as the rate of inflation falls to a 40-year low

, turning so-called Strips into the best performers in the U.S. government debt market.

Investment banks increased the securities -- created by separating the interest and principal payments of a bond and selling them at a discount -- by 4.4 percent to $179.4 billion from December through April, according to Treasury Department data. It’s the first time that the market expanded for five straight months since 2006.

Deep down we all know it makes sense. If the bubbles are popping everywhere, as Buffett warned 3 years or so ago, prices will fall.

"It is an economic tautology that prices will fall when the asset class in question is losing value. This, in a nutshell, is classic deflation."

Ha Ha Ha.

Zero-coupon bonds always go up. It's different this time. Buy now before you're priced out.

Articles like this are sell signals RB.

[Realistbear]

You nailed it, RB has been proven wrong since he started posting on here, the problem is he doesn't think beyond what the article litterally tells him, I consider his posts very good contrarian indicators these days.

Are you a gold bug by chance? A HPC fan would welcome deflation Japanese style.

I liked the article as the bond market tends to be quite a nice bellwether.

Did you invest in Euros this year as my siggy should have been your contrarian indicator.

[ken_ichikawa]

Yeah right deflation, the money printers will just be turned on to combat this, what is more powerful the ability of people to destroy money by paying back loans or the printers which can stick us 1000trn a second?

Deflation simply will not be allowed, and it will just be an excuse used to turn the printers up a notch.

I bet we will see a £5 loaf of bread before a 50p loaf of bread (and I mean standard warburtons loaf not the uber cheap supermarkt stuff)

[ken_ichikawa]

Our model is Japan where the property bubble burst leading to decades on deflation. Printing can only cause loss of confidence in the bond market and FX which will in turn cancel inflationay tendencies. It would simply exacerbate the imbalances and deepen recession causing less growth and less inflation. At least that is what Japan found to be true and we are in the same position they were in with the exception that they had the means, industrially, to bail themselves out.

The UK is nothing like Japan, they had carry trade and they have trade surprlusses of 7bn a month, the UK OTOH has trade deficits of 11bn a month. They have people who will work hard save incredible amounts of money and uber exports.

The UK has neither of these, few people save money, we don't even break even on our biggest exports.

[Realistbear]

QUOTE from the article:

“With the

austerity measures slowing growth and taking pressure off inflation

, we’re seeing a drifting back into Treasuries and into Strips,” said Mark Fovinci, who manages $2.8 billion for Ferguson Wellman in Portland, Oregon. “We are coming out of a recession and into recovery, which has been led by exports. The declining euro will take the edge off growth and pressure off inflation.”

Going Japanese.

Economies are cyclical with both inflation and deflation. Or was Brown right when he said boom only---no more bust?

IMO the article makes some good points by suggesting the bond market is reacting to deflationary trends.

[ken_ichikawa]

Deflation will lead to more printing money will lead to inflation. They won't let deflation kick in. The next question is how the QE is dished out - when will be the first party to request it isn't used to finance or monetise government debt, but instead handed out as a citizen's wage?

Corrected for you

[Realistbear]

Deflation mania spreading to the EZ--it started in America......

http://uk.finance.yahoo.com/news/europe-s-deflation-torture-is-a-gift-to-the-far-left-tele-f15cdf6e8705.html?x=0

Europe's deflation torture is a gift to the Far Left

An inevitability of deflation taking hold as austerity measure er, deflate, the economy.

[Bloo Loo]

You nailed it, RB has been proven wrong since he started posting on here, the problem is he doesn't think beyond what the article litterally tells him, I consider his posts very good contrarian indicators these days.

printing fixes nothing.

deflation has an end.

[ken_ichikawa]

printing fixes nothing.

deflation has an end.

Zimbabwe does not seem to be deflating tbh,

[non frog]

It is a fact that "quantitative easing" is being undertaken to fight deflation. Its a fact that too much of it will cause inflation. Its a fact that the UK now has a new government and possibly a different approach. Its a fact that inflation destroys the wealth of the rich (people like David Cameron, George Osbourne).

Its a fact that most financial commentators of any repute expect deflation followed by inflation in the longer term.

Its a fact most of the nutjobs on here read far too much drivel from the Torygraph lobbyists pretending to be journalists pretending to be economists

[ken_ichikawa]

It is a fact that "quantitative easing" is being undertaken to fight deflation. Its a fact that too much of it will cause inflation. Its a fact that the UK now has a new government and possibly a different approach. Its a fact that inflation destroys the wealth of the rich (people like David Cameron, George Osbourne).

No for the elites they have the ability to dodge the inflation or position themselves in such a manner that their wealth is preserved Bob Mugabe for example has a $5million dollar house in Hong Kong and his horrible wife (who has diplomatic immunity I've seen her walking around HK she is hard to miss due to her body guards) regularly binges US$100K on HK shopping trips.

Bob's daughter also studies at city university HK, the wealthy elites have methods to avoid the negative effects completely, as if bob had his wealth destroyed how would he be able to afford to let his wife go nuts in HK shopping?

And bob is the master hyperinflationista.

[AteMoose]

No for the elites they have the ability to dodge the inflation or position themselves in such a manner that their wealth is preserved Bob Mugabe for example has a $5million dollar house in Hong Kong and his horrible wife (who has diplomatic immunity I've seen her walking around HK she is hard to miss due to her body guards) regularly binges US$100K on HK shopping trips.

Bob's daughter also studies at city university HK, the wealthy elites have methods to avoid the negative effects completely, as if bob had his wealth destroyed how would he be able to afford to let his wife go nuts in HK shopping?

And bob is the master hyperinflationista.

bob has alot of wealth, Africa has alot of natural resources he literally sneers at ex western leaders comparative poverty

[Georgia O'Keeffe]

It is a fact that "quantitative easing" is being undertaken to fight deflation. Its a fact that too much of it will cause inflation. Its a fact that the UK now has a new government and possibly a different approach. Its a fact that inflation destroys the wealth of the rich (people like David Cameron, George Osbourne).

Its a fact that most financial commentators of any repute expect deflation followed by inflation in the longer term.

Its a fact most of the nutjobs on here read far too much drivel from the Torygraph lobbyists pretending to be journalists pretending to be economists

Theres alot of reactionism on here, almost sheeplelike dare i say, go back 18 month and call for a rally and youd have got shouted down that it was impossible because deflationary conditions couldnt change, come back now and call for an end to the rallies and again its impossible because conditions cant change apparently

Que Sera Sera

[Killer Bunny]

US RPI is -ve, thus we will all be in deflation soon. Logically, this should result in gold falling however there are other forces to consider such as trending down Euro.

In any case, defaltion will last a couple of years and then they'll print like Japan. Japan will move relatively soon (couple or few years) to hyper inflation and we will follow suit to super inflation (think 1970s), perhaps by the end of the decade.

[Killer Bunny]

Theres alot of reactionism on here, almost sheeplelike dare i say,

Que Sera Sera

Tell me about it.

[the_duke_of_hazzard]

Theres alot of reactionism on here, almost sheeplelike dare i say, go back 18 month and call for a rally and youd have got shouted down that it was impossible because deflationary conditions couldnt change, come back now and call for an end to the rallies and again its impossible because conditions cant change apparently

Que Sera Sera

I'm pretty sure they would have agreed, or said "unless the government started printed money".

[Georgia O'Keeffe]

I'm pretty sure they would have agreed, or said "unless the government started printed money".

Nope i was browsing this site back then and Bubb was laughed at when he suggested this technically required big correction was coming, and clearly nobody even considered the govt action as possible until it happened and the market was rallying strongly and it was then used as an excuse for not having constant market falls (personally govt action or not i believe the market would still be at its current levels had they not interfered and done QE). Its no different to now, nobody considers the possibility that govt action can or will change through either choice or force, the govt are part of the market like everyone else.

Edited May 24, 2010 by Tamara De Lempicka

[non frog]

No for the elites they have the ability to dodge the inflation or position themselves in such a manner that their wealth is preserved Bob Mugabe for example has a $5million dollar house in Hong Kong and his horrible wife (who has diplomatic immunity I've seen her walking around HK she is hard to miss due to her body guards) regularly binges US$100K on HK shopping trips.

....

Ahh yes. Captain Bob. How we all love him.

I take your point. However, the thing that occurs to me is that things are different this time (oh god did I say that - sorry). Well they are you know. This time its global. Bob's mansion will fall in value if we have global deflation. The Chinese economy is (or at least was) dependent on exports, mainly to the yanks, who have mortgaged themselves into oblivion to live beyond their means. Over capacity in Chinese manufacturing needs to be "soaked up" by domestic demand, but the Chinese people by and large are not wealthy enough to consume their own stuff. If they become wealthy their unit labour costs become uncompetitive and cheap Chinese tat is no longer cheap.

For individual people I think you're right - many can avoid the worst excesses of de/inflation. The problem is the "wealth" - financial wealth that is - held by organisations. For example banks. Let's be honest, banks are calling the shots now. The "elite" - the new elite - are the bankers "masters of the universe" they like to call themselves I believe. Their wealth is fiscal and it is the power that it brings they crave. After a million or two the rest is just for show - you can't actually spend it.

A deflationary spiral is the logical outcome of the current situation. Likewise increasing the money supply (by printing) is the logical antidote. The problem is that money has to go somewhere and its into "assets". That is what is holding up prices of real estate (like Bob's mansion).

The issue to watch (IMHO) is whether the governments of the world are serious about making good the banks' losses - indeed even whether they can - or if default will occur. Your guess is as good as mine. Clearly the intent is t pay up at the minute, but the mountain is too high to climb and the temptation to quit will become ever stronger. The masses have no appetite for austerity. Living beyond our means has become an enshrined basic human right. The total and utter contempt for the next generation is at the core of Western values.

I am sure we are near a crisis point. If you can manage to tune out the vast quantity of drivel and bigotry that is on this forum there is also some good information to be gleaned. House prices are not what matters right now.

[drrayjo]

Torygraph lobbyists pretending to be journalists pretending to be economists

Would that be Liam "Rampant Inflation Will Kill Us All" Halligan or Ambrose "Deflation Torture is Upon Us" Evans Pritchard?

http://www.telegraph.co.uk/finance/comment/liamhalligan/5066497/Its-time-to-admit-inflation-is-going-to-be-a-major-problem.html

Or

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7756879/Europes-deflation-torture-is-a-gift-to-the-Far-Left.html

[non frog]

Nope i was browsing this site back then and Bubb was laughed at when he suggested this technically required big correction was coming, and clearly nobody even considered the govt action as possible until it happened and the market was rallying strongly and it was then used as an excuse for not having constant market falls (personally govt action or not i believe the market would still be at its current levels had they not interfered and done QE). Its no different to now, nobody considers the possibility that govt action can or will change through either choice or force, the govt are part of the market like everyone else.

I'll plead guilty. The ZIRP and speed and volume of intervention shocked me TBH. More so what shocked me was the unanimity of the action, there was little disagreement about what was needed and the world's governments acted more or less in unison.

My feeling (its nothing more than that) is the unison is breaking down and now the disagreement will start. You can kind of see that in the argument between Greece and Germany.

But you are correct - it is important to consider the changes the new UK government might undertake. Since we don't really know what, if anything, they stand for its a hard one to call. Its a leftish-rightish alliance and unlikely to follow the (disastrous) British habit of spending masses of energy and money undoing the previous government's actions and then similar amounts of waste putting in place equally stupid dogma-driven policies that will fail and will be undone by the next bunch who will inevitably win as the Brits only ever vote against the incumbent. For that change I think we should all be grateful, irrespective of all other political issues.

What comes next will not be nice. That is the only certainty I can see right now......