Use access key #2 to skip to page content.

starbucks4ever (97.35)

An almost perfect inflationary setup is forming

Recs

21

August 18, 2010 – Comments (15)

-The Fed expanding its balance sheet as much as it wants, and the public doesn't care

-A new consensus emerging among the "scholars" that printing money poses no danger at all

-Financial media is telling the readers to prepare for a decade of zero inflation

-Fixed-income investments are outperforming equities

-European sheeple are lining up to finance Uncle Sam at 3%, 2%, 1%, and 0.5% in what feels like a greater fool contest

-Double-dip talk is intensifying without any justification for it

-Japan analogies are all the rage now

-Media is still talking about lower house prices,even though it has been false since 2009

-Meanwhile, the debt problem is being solved very rapidly, at the expense of those paper investors who listen to the financial media.

-Uncle Sam and homeowners are locking in near-zero interest rates for the next 10, 20, and 30 years, a process that should be complete in the next few months

-Stronger dollar has now been at work for two quarters, reducing the cost of imports, and foreign currencies have only 20-25% downside left 

-Overpriced oil is the last remaining deflationary force. Falling prices at the pump should help Bernanke & Co take some pressure off the CPI. Once it hits $8 a barrel, it will be pure unadulterated inflation for the next decade.

 

 

  

15 Comments – Post Your Own

#1) On August 18, 2010 at 6:20 PM, Diagoras (88.74) wrote:

"Once it hits $8 a barrel, it will be pure unadulterated inflation for the next decade." I think you mean $80 a barrel (right?). 

Report this comment
#2) On August 18, 2010 at 6:56 PM, davejh23 (< 20) wrote:

"-Double-dip talk is intensifying without any justification for it"

No justification?...except for the fact that GDP was already contracting in June, and just about every other indicator is pointing towards recession right now...including those that had been leading the "recovery".

"-Media is still talking about lower house prices,even though it has been false since 2009"

Foreclosure listings in my area are double last years level and home prices never stopped falling.  Home prices in my sister's area in North Las Vegas have fallen about 20% this year and 60%+ overall.

I'm not claiming that you're off on the inflation call...it could play out eventually, but a "double dip" is guaranteed, and home prices continue to fall for now.

Report this comment
#3) On August 18, 2010 at 7:23 PM, QualityPicks (57.90) wrote:

I wish you were right. I would love to see interest rates rise to at least 8-10% on a 30 yr loan :) I will believe it when I see it though.

Report this comment
#4) On August 18, 2010 at 7:54 PM, chk999 (99.97) wrote:

I agree with almost all of your points. 

We really disagree on what the natural price of oil is now. I think the chance we get oil prices under 30 a barrel are remarkably close to zero. I think it unlikely we see prices under 60 a barrel. Where is the supply going to come from to push supply up to where the price falls to 8?

Report this comment
#5) On August 18, 2010 at 8:04 PM, guiron (21.24) wrote:

The current cost of extraction of oil makes deep water drilling and tar sands a loser until about $70-80bbl, which is where OPEC wants it. One reason oil got so cheap in the '80s-'90s was due to Saudi Arabia being able to fill in wherever we had a shortage, and that's not possible anymore. There is no more light sweet crude that's cheap to extract.

Report this comment
#6) On August 18, 2010 at 9:35 PM, ChrisGraley (29.72) wrote:

good blog post.

+1 rec 

Report this comment
#7) On August 18, 2010 at 11:28 PM, RainierMan (76.65) wrote:

Eventually. But hardly a perfect setup right now with credit contraction, high consumer debt, and banks pocketing money rather than lending it like mad. Things like high unemployment as far as the eye can see, global wage arbitrage, and the generally weak consumer spending are not inflationary. Home prices are barely off the 2009 bottom, and that's with incentives. It's not just the press anticipating home price declines, just ask the Fed. Clearly the bond market doesn't see inflation as is clear from the amazingly low interest rates.

Report this comment
#8) On August 19, 2010 at 12:34 AM, starbucks4ever (97.35) wrote:

Diagoras,

I would correct myself if there were a typo.

davejh23,

I don't think your view is unbiased enough to be correct 

 

QualityPicks,

A 10% rate on mortgage loans is my Holy Grail, the object of my dreams, and there is nothing that I would not give away just to see it happen. Meanwhile, we must stand firmly on the ground. We will never see 10%, or 9%,or 8%, or 7%, or 6%, or 5% again. A horrible situation, which stock market investments can only remedy to a limited degree, if at all.

chk999,

There is no shortage of oil.

guiron,

CMX futures will provide more oil than the wells of Saudi Arabia.

RainierMan,

Bond investors represent the stupid money. They are as wrong now as they were in 1982.

Report this comment
#9) On August 19, 2010 at 1:34 AM, Valyooo (99.41) wrote:

Great blog even better responses to the replys. +1 rec

Report this comment
#10) On August 19, 2010 at 2:23 AM, JaysRage (89.29) wrote:

You've got some strong supporters above, but I disagree with all of the following....

-Double-dip talk is intensifying without any justification for it       There is plenty of justification for it.   High unemployment, low credit, high consumer and government debt.  

-Media is still talking about lower house prices,even though it has been false since 2009

After the government-subsidized boon to prices that bumped up all housing prices essentially as much as the tax credit, since most people factored it into the price of the house, housing prices ARE back on the decline.   In addition, there are still a lot of houses that are in pre-foreclosure and many others that are not being foreclosed on that should be.   There is a steady pipeline of foreclosures that will take many more months (possibly years) to push through before prices rise again in my opinion.     

-Meanwhile, the debt problem is being solved very rapidly, at the expense of those paper investors who listen to the financial media.

I disagree here too.  The debt situation is under-reported in my opinion.  Unlike previous similar situations, banks and credit agencies continue to hide their debt, rather than deal with it.  Balance sheets look better, but assets are not being seized in default situations, and banks continue to find other ways to hide problematic assets off their balance sheets.   Bank closure numbers have proven this out over and over.   Quite a few state governments are insolvent.  Some just stopped paying their workers all together.   California is close to reverting all their workers to minimum wage.   This stuff gets minimal or no coverage and are the real threats to the economy. 

-Overpriced oil is the last remaining deflationary force. Falling prices at the pump should help Bernanke & Co take some pressure off the CPI. Once it hits $8 a barrel, it will be pure unadulterated inflation for the next decade.

Actually, I think I feel the exact opposite about oil.   I think it is the last inflationary force.    If oil hits $8 a barrel, we will be in the greatest depression ever.   If things continue to stagnate, it will trade in a range between 60 and 100, continuing to hurt any recovery that happens with difficult pump prices. 

Report this comment
#11) On August 19, 2010 at 2:58 AM, awallejr (83.86) wrote:

Oh come on, $8 a barrel.  Seriously?

Report this comment
#12) On August 19, 2010 at 4:57 AM, RainierMan (76.65) wrote:

Bond investors represent the stupid money. They are as wrong now as they were in 1982.

Yeah, good point. IF it were 1982.

By all means, short the hell out of bond market. Good luck. 

Report this comment
#13) On August 19, 2010 at 8:01 AM, dwot (50.85) wrote:

$8 a barrel?  I doubt that, as oil is used up it is more and more expensive to get at the remaining oil.  The entire oil industry would go bankrupt well ahead of $8 a barrel.  I'd bet $30/barrel would remove a lot of players these days.

Report this comment
#14) On August 19, 2010 at 8:34 AM, engstocker (< 20) wrote:

These statements are just plain retarded. I've bought 3 houses in the last 6 months and can tell you I haven't gotten anywhere near 0% interest rates.

And oil at $8 a barrell. I'll bet you any amount of money you want this will never happen. Unemployment would have to be at 50%.  Zloj = Alstry? You lose alot of credibility making statements like these.

"Uncle Sam and homeowners are locking in near-zero interest rates for the next 10, 20, and 30 years, a process that should be complete in the next few months"

"Overpriced oil is the last remaining deflationary force. Falling prices at the pump should help Bernanke & Co take some pressure off the CPI. Once it hits $8 a barrel, it will be pure unadulterated inflation for the next decade."

Report this comment
#15) On August 19, 2010 at 2:24 PM, andrewl85 (< 20) wrote:

Good points. Just to add one:

- Ending the wars in Iraq and Afghanistan will bring postwar inflation. This has been a problem for the U.S. in virtually all major wars -- Revolutionary, Civil War, WW1, WW2, Vietnam...

Not to say we are ending the wars any time soon, but if it does happen, expect some postwar inflation into the mix.

Report this comment

Featured Broker Partners


Advertisement