Thursday, March 12, 2009

..it never went away you fools,,,

The return of inflation

''Rising inflation expectations, rather than deflation, is the new fear. Warren Buffett – the man who said the US economy had “fallen off a cliff” – believes inflation could return to 1970s levels. Jim Rogers – the man who said the UK was “finished” – expects much the same. Pimco, the bond fund, sees similar risks.''

Posted by hpwatcher @ 06:48 AM (1410 views)
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14 thoughts on “..it never went away you fools,,,

  • hpwatcher – have you seen a chart of berkshire hathaway lately? I think you will find that both the sage of onion and buck the trend Rogers are both talking their own books…..

    having said that the inflation THOUGHT is itself a bubble…. I will leave others to interpret that. The key – imo- is crude. A Very interesting formation, either a basing pattern or a bull trap. Market action decides – at the moment even i wouldnt stick my neck out, although i probably will soon if the basing pattern is correct.

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  • techieman: my thoughts exactly. Buffet’s entire career has been spent in a boom with very few interruptions. He has balls and he has luck but his strategy relies on markets always zooming back from dips. For 40 years this has worked fantastically but in a long lasting crash he becomes an idiot and his strategies become foolish.

    I have noticed a crude but coordinated effort too talk up the economy. Geitner, King and Bernake have suddenly announced that their current policies will definitely work. A few of the usual suspects have suddenly announced the arrival of green shoots. It is blatant attempt at raising inflation expectations. It is as if sixth form children are in charge of the economy. The textbook says that deflationary expectations are bad, so they set about changing our expectations. It is amazing that these arrogant people still think they can alter the course of the economy with a bit of economic spin. It is a hangover from the Greenspan years when the market hung on his every word. I interpret it as utter desperation, which makes me more convinced of the deflation outcome

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  • having said that the inflation THOUGHT is itself a bubble
    Hello Mr Techieman, yeah I know…but I think BOE etc have been talking up deflation far more, in order to legitimate the QE approach…but, unfortunately I am still seeing the most horiffic inflation in some things i.e. food inflation must be about 10%.

    Geitner, King and Bernake have suddenly announced that their current policies will definitely work….It is blatant attempt at raising inflation expectations
    They know that they are in real trouble, as they know sentiment is firmily against them. I have yet to see widespread deflation, house sellers are still very very reluctant to offer any significant reduction in the prices they will accept.

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  • sold 2 rent 1 says:

    IMHO the Armstrong high on 19 April 2009 is the turning point from deflation to inflation
    Are 10 year T-bills about to take one final plunge to complete a 28 year falling trend.

    Silver is setting itself up to be the best buy EVER with a projected increase of between 15 to 40 fold in 12 months

    Remember when the monetary system broke in 1348 silver rose to $1400 in inflation adjusted terms.
    Today it is around $12

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  • Buffett in fainess made his best deals in the 1970’s which were pretty dire for stocks generally.

    I accept that if we end up with the entire implosion of credit as some predict then he is going to be talking sh!t, but I wonder if that idea is sound and to what extent it has credence because it is extreme and because the extreme has been on the money recently. Question whether this we there may be a conditioning to expect the extreme which will miss the recovery.

    I’ve been wondering about the US in particular, it is 3 years into its housing bust and there will surely be a floor soon. Also I wonder if US banks (not UK banks) might be a decent punt at current prices. The Government is commited to giving them all money they need to rebuild capital and also the destruction of capital may be overplayed – not all the debt will go bad and the market is valuing bank assets almost on that basis.

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  • sold 2 rent 1 says:

    techieman,

    As for oil, we could see one final plunge before the brand new AND LAST EVER Elliott wave oil series kicks off.

    I already have an approximate date for the oil peak – 16 April 2010
    This corresponds to the “high + PI” (2007.15 + 3.141) outlined by Armstrong in this graph

    It also resonates with Calleman’s model to February 1981 which maps exactly TO THE DAY the last oil peak bubble.

    I will be buying commodities from early April.

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  • With the deterioration of GB economy and the GB Pound, wonder if now would be good time to invest in EURO’s or some other foreign currencies, as such other currencies and economies i feel may not deteriorate as much asd GB economy and Pound. so, possibly they will become stronger in relation to GBP????

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  • sold 2 rent 1 says:

    Whilst I am on an Armstrong roll, here is one more observation.

    Whilst we have a high on 19 April 2009, this does not necessarily mean a high for stocks.
    Read: http://www.contrahour.com/contrahour/2006/06/martin_armstron.html

    QUOTE
    “The next quarter cycle turning point was arriving 1987.8 and the Crash of 1987 unfolded right on cue. It was at this time that a truly amazing development took place. The target date of 1987.8 was precisely October 19th, 1987 the day of the low.”

    But 1987.8 was a “quarter cycle high” turning point – NOT a low.
    So the high of 19 April 2009 could involve some kind of capitulation in stocks rather than a dead cat bounce – We shall see very soon.

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  • mountain goat says:

    Techieman having said that the inflation THOUGHT is itself a bubble

    But the thought is mainly what money is worth these days since it is by fiat. Deflation is a self fulfilling thought and so too inflation. So we shouldn’t underestimate the power of impressions from the spending public. As you say a bounce and bull trap would happen then, because in the end the level of debt means we have earned our depression. Instinctively I expect a bounce since things never go in straight lines, but all the bad news keeps knocking things down further. Many market bears have now stood up and said “don’t go short we are due a bounce”. Eventually they will be right but I think timing is tricky and with all the bad news may still be months away.

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  • Because CPI only looks at consumer prices it is a useless measure of general price inflation – it is well above target and yet the bank is still QEing. So it seems that the bank has informally ditched CPI for now and must be tracking some broader measure? I presume they choose to track CPI under normal circumstances because it is closely linked to inflation expectations, but they can’t do that anymore because the price deflation is happening elsewhere. Still they must have to keep half an eye on CPI to avoid people getting over excited. Tough job.

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  • S2r1 – First i think you are possibly right about Crude. It looks to me like another low is need rather than the basing argument. Second re Armstrong – your interpretation though means that the previous low (unmarked on your but around novemeber last year ) should not be compared with the November low but with a high?!?! – One of them is wrong re stocks unless i have over-simplified it!

    If you are right about Crude then again you seem to be saying that Silver and Crude would rise in tandem, but after some falls in Silver first too?

    Bellwether i am “extremely” confused by your post!! Im sure you know what you mean! I have nothing against Buffett or Rogers – i just feel that the leveraged heros of the upmove might (and have already to an extent) come unstuck in the downmove.

    MG – was just throwing that out to be a bit provocative (you know me!). Many market bears have said…. yes i heard some bloke on 5 live this morning and he said what i have been saying for a while, you can see the power of a short squeeze when the market was oversold earlier this week. I doubt this was a surprise -strength and speed to many of the boyz..

    Andy Boy – i think there may be some boat missing here mate. I say that having a long cash and trading position on the Euro just below 9000. Alot of people here advocate holding a basket of currencies and thats generally a good idea. Im not sure you want to hold non Sterling denominations too long though. Whats “too long”? Good Question!!

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  • mountain goat says:

    S2R1 some thoughts on deflation and inflation. As I see things at the moment (last few months) gold, silver and dollar move opposite to shares and commodities. So gold is a safe haven trade at the moment. Exploring that we might get a change in sentiment in April what might that be? If oil and shares rally then safe havens will be sold, so gold and dollar will fall. This can only be a temporary rally IMO because the level of debt means we need a long depression to pay off some of the debt. So after the brief rally deflation will continue and safehavens sought.

    So I think it is not possible for inflation as we know it to return; inflation in the sense of increased demand driving up prices. So it has to be inflation in the sense of currency depreciation. The only things that will experience inflation will then be the essentials of life, not price inflation driven by increased demand on luxury items and manufactured goods.

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  • sold 2 rent 1 says:

    techieman,

    The low on the graph marks the 23rd March 2008. Bear Sterns crash etc.
    It was the USD index that was the key turning point here

    The Armstrong model is NOT about stocks but Global Economic Confidence.
    It is more about global turning points of capital flows.

    I am expecting silver to put in a low in early April.

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  • sold 2 rent 1 says:

    MG,

    “So it has to be inflation in the sense of currency depreciation. The only things that will experience inflation will then be the essentials of life, not price inflation driven by increased demand on luxury items and manufactured goods”

    Agreed.

    Conflict in the Middle East should start the first Elliott wave leg of the oil 5 wave series.

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