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Rosenberg:getting A Grip On Reality - Reflation Dead In The Water

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Mish has been a deflationist the whole way. We see nations just don't have it in them to print and spend on the level neccessary to reflate. The only western industrial nation I've seen who went big enough that it threatened inflation was the UK. But we are moving to austerity now.

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Guest sillybear2

"Yet, equities are priced not only for reflation, but for a strong reflation at that. Either stocks or the yield curve is wrong. I suggest you pay attention to the yield curve."

Just like at the end of 2007, the equities market was sky high and the bond market was crashing, we all know which one turned out to be right.

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Mish has been a deflationist the whole way. We see nations just don't have it in them to print and spend on the level neccessary to reflate. The only western industrial nation I've seen who went big enough that it threatened inflation was the UK. But we are moving to austerity now.

We just pissed more money up the wall.

Not only is the debt overhang larger than many other countries the refusal to allow any rebalanacing of the economy means that the costs involved with life/business in the UK are even more artificially elevated against the competition.

Due to that many more jobs will be lost, the impetus to offshore will cotinue and even widen and go deeper/broader across more sectors. The jobs will not go in one rout or government announced expenditure freeze they will go daily, weekly, year on year just as they have been for the last decade, most of them never to be replaced by equivalent paying or productive activity. Once the rump of any industry is gone critical mass is reached (to the downside) and that is it - you are effectively finished in that activity onthe world stage.

Moreover, supporting zombie companies does not help the competition is provides unnnatural competition whic hinders the investment/growth potential of the good ones and blocks out the generation of new ones that might fill the niches.

Edited by OnlyMe

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US 2 year notes hit an all time low yesterday. Short term bonds are the most accurate gauge of deflation/inflation. This may no longer be a theoretical argument as the bond market is screaming deflation. Good news for HPCers. Not so good for certain other investors in inflation hedges.

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http://uk.finance.yahoo.com/news/fed-set-to-hold-low-rates-as-us-economy-struggles-afp-7dd5b51a7873.html?x=0

"The nearly double-digit unemployment rate and
vanishing core inflation strongly
suggest the Fed will not begin to normalize interest rates until the second quarter of 2011, or later," he said.

Looks like we are headed straight toward a deflationary phase as a result of the big bubbles DE-flating.

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There may be deflation but you won't see it in your pocket.

http://www.telegraph.co.uk/finance/financetopics/budget/7847883/Budget-VAT-increase-retailers-warn-of-effect-of-20pc-rise.html

Richard Hyman, strategic retail adviser to Deloitte, said the tax rise was just the latest challenge for the sector. "Non-food retailers face increased costs as they import goods from the rapidly growing emerging economies.

"They may need to increase the price of goods by as much as 8pc but face a consumer that is not able or willing to accept increased prices."

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There may be deflation but you won't see it in your pocket.

http://www.telegraph.co.uk/finance/financetopics/budget/7847883/Budget-VAT-increase-retailers-warn-of-effect-of-20pc-rise.html

Richard Hyman, strategic retail adviser to Deloitte, said the tax rise was just the latest challenge for the sector. "Non-food retailers face increased costs as they import goods from the rapidly growing emerging economies.

"They may need to increase the price of goods by as much as 8pc but face a consumer that is not able or willing to accept increased prices."

Inability to pay = austerity.

No more mangoes and tomatoes (tomatos, or just plain old toms?) year round or a selection from over 78 cheeses and 673 wines etc.

We have been living far beyond our production levels and its catching up with us. This is why our grossly inflated housing market will collapse in the same dust as everything else. It will just make more noise when it goes down.

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I've been looking at the yield curve and have thought that it is highly, highly accommodative.

Is he suggesting we keep an eye on it in case it changes? Or am I missing something.

This is a good interactive chart of the yield curve versus stocks:

Click the 'Animate' button and watch the red line on the chart on the rhs.

http://stockcharts.c...YieldCurve.html

It looks like all the prior buying 'dips' to me so far. i.e. tendency to flatten from the long end. Course if we do get another scare the long end will flatten further, but there's no evidence of it tripping over into that just yet.

Yield support lows are (just) holding for the moment.

Obviously if they give way then it would look like the equity run is over and we'll be looking at more bailouts/stimulus, in spite of what the G20 says.

But all these scare stories of imminent double digit rates are still a load of old c0ck.

Edited by Red Karma

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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