Inflation Versus Deflation

[getdoon_weebobby]

used to be 3 or 4 of these a day back when TSHTF not seen one for a while

[TwoWolves]

Nobody knows ...yet.

However those who think they know get very angry with people who disagree them. Like Gold bugs.

[okaycuckoo]

where does the debate sit now?

A little bit up, a little bit down.

[VeryMeanReversion]

used to be 3 or 4 of these a day back when TSHTF not seen one for a while

If the politicians can pull off their 25% cuts, we get deflation, otherwise we get a crisis and inflation.

I am rapidly losing faith that there will be anywhere near sufficient cuts.

[_w_]

used to be 3 or 4 of these a day back when TSHTF not seen one for a while

Based on my readings it's still in the balance. Both sides are still composed of very smart people with very good arguments. The inflationists are gaining a bit of momentum at the moment IMO due to negative real interest rates throughout the world, rising commodity prices etc. but the argument is not settled by any means.

[scottbeard]

Based on my readings it's still in the balance. Both sides are still composed of very smart people with very good arguments. The inflationists are gaining a bit of momentum at the moment IMO due to negative real interest rates throughout the world, rising commodity prices etc. but the argument is not settled by any means.

+1

I'm keeping my assets roughly 50% cash 50% real as I have no firm clue which way it's going!

[GloomMonger]

Before a tsunami hits land the sea recedes (deflates) before the devastating wave comes (hyperinflation). This is how I see it. We will have a contraction of the money supply, deflation will kick in, the central banks will print and dream up new ways for us to borrow/spend and then the tipping point will come where they either bring inflation under control or completly lose it. A delicate balance, and with globalisation, a difficult game to master.

[Traktion]

Before a tsunami hits land the sea recedes (deflates) before the devastating wave comes (hyperinflation). This is how I see it. We will have a contraction of the money supply, deflation will kick in, the central banks will print and dream up new ways for us to borrow/spend and then the tipping point will come where they either bring inflation under control or completly lose it. A delicate balance, and with globalisation, a difficult game to master.

I pretty much agree with that.

IMO, demand is low, while people hold cash and wait, which will show as deflation. This won't last forever and when the tide turns, it could turn highly inflationary, very quickly.

Timing is everything, as they say, and I'm playing for the medium/long game, as I don't have the skill/nerve to play the short game.

[profitofdoom]

+1

I'm keeping my assets roughly 50% cash 50% real as I have no firm clue which way it's going!

Interesting,exactly what I have done.

[Mikhail Liebenstein]

Where is it sitting?

The answer is clear.........it's on the fence.

[LJAR]

Well there is no large central bank I know of that has contracted the money supply.

To me that is the only thing which would bring deflation, so the opposite is more likely. We have had inflation of one sort or another since governments decided that they didn't need to keep balanced budgets. Until they go back to that, the chances of any ong term deflation are very slim I think.

That doesn't mean we will get hyperinflation, but I wouldn't be surprised if it went up to 5-6% maybe as high as 8% (I'm sure that will come back to bite me in the ass).

The thing is that any govt can massage the statistics to declare that inflation is whatever it wants it to be TBH.

[Fairies Wear Boots]

What I have noticed is they are having an argument about whether we are having inflation or deflation, when really they should be having an arguement about what inflation is.

Because basically we're having deflation using one definition, and inflation using another.

i.e.

The money supply sloshing around is getting smaller, contraction of credit, deflation.

and prices of goods and services in the basket are going up meaning inflation.

We've got both!

[Game_Over]

STAGFLATION

[northwestsmith2]

House prices will stay flat as will goods and services while income will rise I think.

Until that point in 2011 where goods and services and house prices will fall while income stays flat which could be deflation.

Deflation either way I think.

[Meat Puppet]

With about the highest private sector debt to GDP ratio in the world there is probably a decade of deleveraging ahead of us so inflation looks unlikely. But you can't discount Merv or his successors precipitating a currency crisis so its best to be hedged with PMs or other currencies.

But don't ask me - I've been slowly selling off my gold and silver since 2005.

[hedgefunded]

Inflation in stuff you need

Deflation of stuff you want

[pandora's box]

Inflation in stuff you need

Deflation of stuff you want

Game_Over already called it:

STAGFLATION

coming to a headline near you...

[WiseBear]

where does the debate sit now?

For those that don't understand it's inflation.

For those that are totally clueless it's hyperinflation.

For those that understand it's clearly Deflation.

[pandora's box]

For those that don't understand it's inflation.

For those that are totally clueless it's hyperinflation.

For those that understand it's clearly Deflation.

nonsense

[Meat Puppet]

For those that don't understand it's inflation.

For those that are totally clueless it's hyperinflation.

For those that understand it's clearly Deflation.

I agree to a point. Inflation or hyperinflation may happen, however unlikely. Best to be hedged against all possibilities.

[scottbeard]

I agree to a point. Inflation or hyperinflation may happen, however unlikely. Best to be hedged against all possibilities.

You can't hedge against ALL possibilities, basically by definition. It's like placing a bet on every horse in a race - you're bound to lose money then, because the bookies take a cut.

What you can do is limit the amount of money at risk, eg holding 50% cash and 50% real assets leaves me feeling at least only half my money can be lost either way. That's not a hedge though!

[pandora's box]

Wisebear,

Do you think we are now witnessing deflation on a global scale?

[Meat Puppet]

You can't hedge against ALL possibilities, basically by definition. It's like placing a bet on every horse in a race - you're bound to lose money then, because the bookies take a cut.

What you can do is limit the amount of money at risk, eg holding 50% cash and 50% real assets leaves me feeling at least only half my money can be lost either way. That's not a hedge though!

Ever hear of Harry Browne? He devised a portfolio that couldn't lose which was 25% each in cash, bonds, equities, and gold. Way out of fashion in the go-go 90s this "permanent" portfolio has outperformed almost all managers over the long term.

The trick is to keep the ratio of different assets constant, say once a year. That is a forced way to buy low and sell high. You will make several percent a year just doing this.

[_w_]

Ever hear of Harry Browne? He devised a portfolio that couldn't lose which was 25% each in cash, bonds, equities, and gold. Way out of fashion in the go-go 90s this "permanent" portfolio has outperformed almost all managers over the long term.

The trick is to keep the ratio of different assets constant, say once a year. That is a forced way to buy low and sell high. You will make several percent a year just doing this.

Ben Graham was advising the same, although in a simpler 50% cash 50% equity format. I love the simplicity of this system and the mathematical obligation to buy cheap and sell high. I'd like to model this to understand the deeper mathematical principle someday.

[Meat Puppet]

Ben Graham was advising the same, although in a simpler 50% cash 50% equity format. I love the simplicity of this system and the mathematical obligation to buy cheap and sell high. I'd like to model this to understand the deeper mathematical principle someday.

The basic idea of rebalancing to a fixed asset allocation is mathematically simple but behaviourly near impossible for most people.

I, being somewhat deranged, think I can outdo Harry Browne and predict the likely returns of assets and set my portfolio likewise. So I see cash and bonds at the same rate as inflation (or less) and equities with a dividend yield well above this. Gold and commodities I leave to the gods so that means I am currently overweight stocks. What I have done is limit how much my "guesses" count by specifying a minimum allocation to each asset no matter how ridiculously low the return seems to be.

The idea behind the permanent portfolio was that it protected against deflation with bonds, inflation with gold, goldilocks economy with stocks and tight money (ala Volcker) with cash. I'd love to hear some other scenario to hedge against.