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JakilaTheHun (99.94)

The Hyperinflations Were Partially Correct --- They Simply Chose the Wrong Country

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March 11, 2010 – Comments (58)

The Hyperinflationist Brigade has been out in full force for at least a year now.  Big names such as Jim Rogers, Mark Faber, Peter Schiff, and about 95% of the world's supply of goldbugs have all jumped aboard the train.  The basic theme that has been echoed over-and-over again is as follows:

(1) The U.S. is headed towards hyperinflation

(2) The Federal Reserve is response for creating such hyperinflation

(3) Invest in China --- that's the future!

Well, not so much.  The hyperinflations were correct that there is potential for hyperinflation ... they simply chose the wrong country.  

China's Bubbly Problem

The most recent figures from China show M2 money supply growth of 25.2%!!!  That's right ...

25.2%!!!!

That is a scary figure! Throwing around the "H"-bomb might even be totally appropriate here.  

The goes back to China's currency manipulation, combined with its massive stimulus packages that make the US stimulus look puny in comparison.  China's currency manipulation is designed to increase exports at all costs, while the government has focused on maintaining and even increasing productive capacity.  This has come in spite of the fact that China's most important trading partner (i.e. the US), does not seem to be buying as much.  In fact, Americans are saving more and being more cautious with their money.

When you ramp up capacity, but you're selling less, what does that leave you with?  Well ... excess supply.  But that doesn't explain the inflation; just the economy inefficiency being created.  The inflation is explained because the Chinese government has essentially put their economy on steriods in order to maintain their 8% growth targets.  They are throwing money around to increase production, when none is needed.  

The Chinese policy actions have been so extreme that China now faces the opposite situation as the US.  Instead of underemployment, they can't find enough workers.  Wages are starting to shoot up.  Real estate prices have been shooting upwards everywhere, as well.  The Chinese government has unleashed a beast they may struggle with for quite a while.

Markets may not be perfect and I'm no market fundamentalist; but allowing the markets to manage themselves is still the best way to produce an efficient resource distribution.   And the Chinese government has moved away from that principle.  Ironically, so have the so-called "Libertarians" like Jim Rogers that seem to be pouring money over there.

Deflation, Again?

Meanwhile, in the United States, where prices are skyrocketing at rates of 400% per day due to the evil manipulation of the Federal Reserve ... oh wait ...

Actually, the most recent M2 money supply figures show the annualized growth of the past three months to be ... get ready ...

0.5%.

And it's trending down. 

Didn't all that massive government spending cause inflation?  What about all that "printing" we've heard about Bernanke engaging in?   Haven't we seen this before?   Oh, yeah, that's right ... Japan in the 1990s. 

You see, Japan went on a massive spending spree after their crash in the 1990s, as well.  And yet, all that spending couldn't even cause much of a dent in inflation.  In fact, Japan dipped back into deflationary territory a few times in that decade. 

But central banks are responsible for monetary policy, not fiscal policy.  And just like the US, the Japanese central bank's main goal --- price stability. The thing about central banks --- since they aren't voted into office, the people at them tend to be fairly focused on achieving this goal. 

Meanwhile, fiscal policy in the developed world is largely handled by elected legislators, who are constantly under pressure to increase spending and lower taxes. Politicians can spend all they like, though; we're not living in the 19th Century any more.  In the olden days, if the Legislature spend too much, they simply created more money.  This created inflation and sometimes, hyperinflation. 

In the developed world today, hwoever, things are more complicated.  The US is more like Japan than Zimbabwe and Congress and the Fed will continue to be at odds with one another.  Congress wants to spend, spend, spend.  The Fed wants price stability. The end result: 

Crushing Debt.

That's precisely what the combination produced in Japan.  But don't get me started on that.  I hope we're not going there, but I'm not terribly optimistic.  Right now, I see a Congress that likes to spend and likes to cut taxes at the same time.  I see a President who does the same.  Both parties seem to be exactly alike.  Maybe that should be my next post --- my plan to dramatically scale back US spending (and even lower taxes in the long term). 

In the meantime, I'd keep away from China.  I've been bearish on China for a few months, but these money supply figures are a real alarm bell to me.  I'd also keep away from most commodities, because they could get pounded when China's imaginary growth pyramid finally starts to collapse.  

58 Comments – Post Your Own

#1) On March 11, 2010 at 7:15 PM, JakilaTheHun (99.94) wrote:

Not sure why my links keep disappearing, but here were the main two links:

 

Fed Money Supply Figures:

http://www.federalreserve.gov/releases/h6/Current/

 

China Money Supply Growth:

http://www.businessinsider.com/you-wont-believe-how-much-china-needs-to-tighten-to-stem-inflation-2010-3 Report this comment
#2) On March 11, 2010 at 7:19 PM, whereaminow (26.32) wrote:

When did Japan ever suffer deflation?  What was the largest single year drop in the consumer price level in Japan from 1992 - 2007?

David in Qatar

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#3) On March 11, 2010 at 7:35 PM, ChrisGraley (29.83) wrote:

Oh I have to add something to this!

 

I'll be back when I have more time.

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#4) On March 11, 2010 at 7:39 PM, whereaminow (26.32) wrote:

Another difference betwen Japan and the U.S. (besides the drastic difference in the savings rate) is the adjusted monetary base. 

In Japan, the adjusted monetary base increased from 1990-2004 and then decreased. It ranged from 10-30% annual increase for that time.  Then it was decreased.

http://research.stlouisfed.org/publications/iet/japan/page4.pdf

In the U.S., the monetary base was increased at lower levels 1990 - 2007, ranging from 0-10%.

http://research.stlouisfed.org/publications/iet/us/page6.pdf

Then in 2008 it was increased by a little over 100%! Japan never did that.  In 2009, it increased by another 40%.

Deflation can only come if the Fed refuses to bail out the big banks when they go bust.

And yes, I agree that China is headed for mass inflation (10-20% per annum) 

David in Qatar

 

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#5) On March 11, 2010 at 7:56 PM, JakilaTheHun (99.94) wrote:

whereaminow,

Your first link does not show anything about the monetary base.  It merely shows labor growth, inflation, earnings/output, and government debt in Japan.

Your refer to "Adjusted Monetary Base" in your second link.  The definition of which is ...

"The total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank's reserves. This measure of the money supply typically only includes the most liquid currencies."

In other words, that figure seems to refer to M1 supply growth; not M2.  M1 mostly includes cash/physical currency.  M2 is broader and includes CD, savings, time deposits, etc.  M2 is a total money supply measure, while M1 is not.

Assuch, M1 is a terrible proxy for inflation.  M2's not perfect, but it's much better.  M1 can actually do the exact oppositee of total M2 money supply.  In the 1970s, M1 declined even when inflation was nearing the the double-digits.  This was largely due to the emergence of credit cards, which reduced cash holdings for the broader American populace. 

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#6) On March 11, 2010 at 8:01 PM, JakilaTheHun (99.94) wrote:

Or in other words, growth in M1 seems to reinforce in the obvious ---

As a result of the financial crisis, people were becoming more liquid and holding more cash.  It's a useful stat in that it shows how the financial crisis changed people's behavior when it came to their own cash holdings.  It's not a useful stat in order to gauge inflation.  

 

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#7) On March 11, 2010 at 8:14 PM, kdakota630 (29.73) wrote:

One small correction regarding Peter Schiff's prediction of hyperinflation in the U.S., he never said that it was going to happen like Marc Faber has (who claims it's inevitable), but did say that it is possible only in a worst-case scenario.

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#8) On March 11, 2010 at 8:30 PM, tkell31 (26.85) wrote:

China increased it's inflation forecast from 3 to 3.5%...now I'm not sure if that is going to hold true, but certainly no where near hyper inflation.  Just another hyper inflated story to grab some headlines until the next economic "crisis" comes along.

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#9) On March 11, 2010 at 8:37 PM, JakilaTheHun (99.94) wrote:

kdakota,

http://www.videonewslive.com/view/288549/peter_schiff_on_20092010_usa_hyperinflation

 

"This is hyperinflation.  This is Zimbabwe ... we're going to have the same result."

- Peter Schiff

Peter Schiff misses the entire point on deflation.  Decreasing prices due to technological advances is good.  That is not "deflation" in any meaningful sense, however. Macroeconomic deflation is a much more widespread phenomenon that normally results from credit contraction.  

The problem with deflation isn't that people "won't buy stuff."  Absolutely ... people will buy stuff under deflation because prices are getting lower. Lower prices are great!

Rather, the problem is that no one is willing to invest in productive business pursuits because they can earn a greater return by holding onto cash.  So what incentive do you have to start a business, invest all your capital into it, and create new innovative products when you could simply leave your money tucked under a mattress and earn a greater return?

 

Currency is simply meant to represent tangible items.  It's a medium of exchange.  Once it becomes a "store of value", investment stops, and the productive capacity of nation begins to fall.

Whether deflation corrects itself or not, however, is a debatable issue.  We've had numerous deflationary incidents in the US and we seem to pull out eventually.  The Great Depression was bigger than almost all the others and had complicating factors such as protectionism (Smoot-Hawley) and international instability (Imperial Japan and the rise of Fascism in Europe).

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#10) On March 11, 2010 at 8:42 PM, whereaminow (26.32) wrote:

Actually, most libertarians have predicted Stagflation, most notably me :)

Same goes for the Mises Institute. Robert Murphy and David Gordon and Gary North have all written lengthy articles explaining why they think stagflation is here... or coming here soon. 

I think it's already here if you go by classical CPI calculation and unemployment.

Asset depreciation is not deflation and it has little effect on consumer prices. 

Schiff is in the minority in predicting hyperinflation.  Then again, down the road, he may be proven right.

David in Qatar

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#11) On March 11, 2010 at 8:45 PM, 100ozRound (29.39) wrote:

Decreasing prices due to technological advances is good.  That is not "deflation" in any meaningful sense, however.

Can't this be considered hedonics, which is included in the CPI?

Flat panel TV's are getting cheaper therefore we are experiencing deflation - something along those lines? 

Not arguing; just asking -  as I am not an economist

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#12) On March 11, 2010 at 8:50 PM, whereaminow (26.32) wrote:

Jakila,

As a result of the financial crisis, people were becoming more liquid and holding more cash.

That's true.  I don't know of any inflationist that says "people will stop holding cash in 3 months, 6 months, or 6 years, and thus, that is when inflation will come."  Why make a prediction that has a 99.999999% chance of being wrong?  Mainstream economic modeling already has a monopoly on that service.

I do know that inflationists have been right every time since central banks have been around, and deflationists have been wrong every time. 

David in Qatar

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#13) On March 11, 2010 at 8:50 PM, JakilaTheHun (99.94) wrote:

I've been in the stagflation camp.  But I think we can drift back into deflation and I'm starting to think we're going back in that direction. 

I don't forsee hyperinflation and I'd even question the possibility of high inflation right now.   I'm even thinking that '70s-style inflation is unlikely; mostly because I think that China is in trouble right now and that will slow commodity prices; it could even cause them to crash again, which will fuel deflation again.  

Long-term, however, commodity shortages (and American addiction to oil) could fuel stagflation.  I'm just starting to think that will get pushed off for awhile. 

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#14) On March 11, 2010 at 8:53 PM, whereaminow (26.32) wrote:

Jakila,

In the end it all comes down to whether you believe the CPI numbers or not. 

David in Qatar

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#15) On March 11, 2010 at 8:56 PM, kdakota630 (29.73) wrote:

JakilaTheHun

Thanks for the link.  He's contradicted himself then because I've heard him say the opposite, actually while on the same episode of Glenn Beck (I think someone was sitting in for Beck) as Marc Faber where he said he didn't believe hyperinflation was a foregone conclusion.

Oh well.

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#16) On March 11, 2010 at 9:06 PM, JakilaTheHun (99.94) wrote:

There's really no reason not to believe the CPI numbers.  The question is whether or not they are the appropriate proxy for inflation.  I've seen it argued both ways. 

The best argument in favor of CPI I've seen lately:

http://seekingalpha.com/article/188887-ebullient-markets-housing-starts-and-anticipating-friday-s-cpi-announcement

... or more accurately, it's the best argument I've seen discrediting shadowstats:

 

"The choice of 1980 is very adept, since it was in 1982 that the BLS changed the method of computing the cost of housing to remove investment-value-of-the-home considerations (such as the mortgage rate) and focus on the consumption-value-of-the-home (which is best represented by what it would cost to rent). This was done after much research, many public papers and debate, and is absolutely the right way to measure inflation in the cost of housing consumption as distinct from changes in the value of the home as an asset. There are lots of other improvements that have been made to CPI, and they really are improvements. Not everything from 1980 is better than the 2010 version. Computers, cars, medicine. I’ll concede music.

But we can rely on a very simple argument to prove that true inflation cannot be at 9% (but it involves math). I presume that most readers can recall what they were paid ten years ago, or at least can very easily figure out what their income was back then. Government statistics say that the average increase in wages and salaries (in the Employment Cost Index) has been about 36% over 1998-2008 (for some reason I am having trouble finding 2009 data, perhaps because it is subject to revision). I assume that we don’t think the government is exaggerating that number on the low side for some sinister reason. Now, if inflation is really running at the 9% or so that Shadow Government Statistics says it has for the last decade, then while your wages have grown 36%, cost of living has risen 136% (the government says inflation has been more like 29%).

More concretely: suppose you made $60,000 in 1998, took home $40,000 after taxes and were just breaking even with your cost of living at $40,000. According to the government, you ought to be making about $81,500, and if taxes were the same your take home pay of $54,333 would leave you with about $3,000 better with your cost of living about $51,500. If, however, inflation was really at 9%, then your cost of living is now $94,700, and you declared bankruptcy several years ago. You don’t have to be able to track your receipts to see that 9% is not the right rate of inflation – you just need to look at the compounded outcome.

Consider a longer period of time for a more-poignant comparison. The person making $30,000 and taking home $20,000 in 1980 is now making $89,000 and the $59,300 take-home pay (2/3, assuming improbably that taxes were unchanged) has improved your standard of living somewhat as the old standard of living now costs $52,800 using CPI. Using a 7% higher rate of inflation, the same standard of living you enjoyed in 1980 for $20,000 now costs $353,000.

That is nonsense. And by the way, it also means that housing over the last decade not only wasn’t in a bubble, it didn’t even come close to keeping up with inflation, and neither did any other asset in the world. That’s worse than nonsense; it is an offensive ignorance of mathematics.

CPI is not a perfect number, and moreover it may not be a perfect number for what you want it to do. But it does what it is supposed to do, and it does it very well. I am certainly no apologist for the government and the way it is run, but on the occasions that the bureaucrats get something basically right, I think it’s okay to say so."

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#17) On March 11, 2010 at 10:31 PM, XMFSinchiruna (27.56) wrote:

Constructs of inflation are rather like those of God or politics ... they are rather pointless to debate.

I will remain in my stagflation camp, Keynesians will go on believing reflation is/was the right course of action and systemic risk is no more, and those swallowing the fantastical fairy tale of domestic recovery will shudder in fear of runaway velocity-driven inflation. 

Unlike with God and politics, however, time will provide the final referee.

Those who misunderstand the capacity for currency devaluation to drive stagflation even in midst of prolonged economic contraction may just be in for the rudest awakening of all. Welcome, fellow Fools, to the earliest days of a post-Keynesian world.

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#18) On March 11, 2010 at 10:43 PM, XMFSinchiruna (27.56) wrote:

JakilaTheHun

"There's really no reason not to believe the CPI numbers."

Two pesky words form the crux of that statement's inadequacy:

cui bono?

It is very much in the interest of fiat monetary regimes to understate the deterioration of purchasing power over time. If people had no such statistical side show to distract them from the inability of their national currency to maintain purchasing power over the course of their lives, they might actually begin to discover that fiat currencies are nothing but a massive ponzi scheme. 

Consider the warning from Thomas Jefferson; as true today as it was those many years ago:

http://www.fool.com/investing/international/2009/04/01/an-open-letter-to-our-founding-fathers.aspx

"It is from Great Britain we copy the idea of giving paper in exchange for discounted bills: and while we have derived from that country some good principles of government and legislation, we unfortunately run into the most servile imitation of all her practices, ruinous as they prove to her, and with the gulph yawning before us into which those very practices are precipitating her. The unlimited emission of bank-paper has banished all her specie, and is now, by a depreciation acknowledged by her own statesmen, carrying her rapidly to bankruptcy, as it did France, as it did us, and will do us again, and every country permitting paper to be circulated, other than that by public authority, rigorously limited to the just measure for circulation."

Sinch

 

 

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#19) On March 11, 2010 at 11:01 PM, ChrisGraley (29.83) wrote:

(1) The U.S. is headed towards hyperinflation

Eventually yes, but right now the US is in stagflation. It will have a quick deflationary spike down and then it's going into hyperinflation.

The first thing I'd like to say about just about every government statistic out there is that it is a lie. It's been a lie for many, many years. If you believe the M2 number or the unemployment number or just about any other number out there is anywhere close to being accurate, I can't help you. I would suggest that you check out www.shadowstats.com

I just bought the second edition of Robert R Prechter's book, "Conquer the Crash"  If you are a deflationist, I recommend the book highly. It is well written, and he explains things well. He is very into technical analysis and I'm not much of a chartist, but I had no problem grasping his concepts and charts. He is one of the few deflationists thats gets huge kudos from me for correctly recommending holding some gold and silver in deflationary times.

One of his biggest arguments was that credit inflation is not the same as monetary inflation because credit can disappear. You know what, he is absolutely right! But that is the main reason that the US will not suffer deflation. I know that sounds counter-intuitive, but I'll explain more later.

(2) The Federal Reserve is [responsible]sic for creating such hyperinflation

They are responsible to a point, in that they print the money, but government spending and fiscal policy are the real culprits.

(3) Invest in China --- that's the future!

I don't know too many inflationists that believe this one. I'm thinking this is a shot a Jim Rogers and I'm not even sure why he's included in the inflationist group other than the fact that he has a following with the gold bugs. Rogers subscribes to scarcity more than inflation. 

 

OK, now let's talk about China's bubbly problem. I've been an inflationist for a long while and I've pointed out the same problem more than a few times. I totally agree that this is a result of China's currency manipulation and a policy of growth at all costs. (Notice that I didn't say exports at all costs like you did.) China spent a huge amount of money recently to try to increase domestic growth enough to replace the losses in their exports. This was the next step in their overall plan, but they wanted to do this after their initial growth phase had reached maturity. It was only when they were faced with a huge decline in US demand that they decided that the best alternative was to jump into phase 2. If they didn't, the population would overthrow the government. Keep in mind that as in control as this government seems to be over it's people, it understands that negative growth will result in a civil revolt.

So what signals have we seen from China to predict it's next direction? Well, out of nowhere they announce that they have a huge holding in gold and nobody knows where it came from. (I do! It came from all the computers that we threw away. There is more gold in a ton of computers than a ton of gold ore.) They decided that they were going to buy much more IMF gold and they are encouraging their own citizens to buy gold. Then they tell the rest of the world that gold isn't a great investment.

Now all signs point to a path of China inflating themselves out of the problem. Why would they do this when they are coupled to the dollar and they risk a decline in lifestyle and a revolt from their own people? They expect the dollar to inflate at an equal or faster pace. Why? Well the number one reason is that for all the money that we've spent so far is that we didn't really fix the problem. We spent all our money to shore up the banks that are hoarding the money because they know that the worst is yet to come. We also have a democratic majority intent on spending huge amounts of money for their programs while they have power. We still haven't created any jobs and we have a mid-term election coming up with a restless population. We are gonna print a lot more money and China knows it.

 

Ok, now the final straw. The final straw is Europe. Europe as a whole is much more over-extended than the US is right now and the European union will collapse. The Euro will quickly cease to exist and European countries will scramble to the safety of the US dollar to prop up their own currency. The dollar will depreciate quickly, but given that, our own propped up economy will stay relatively stagnant. China on the other hand, will see it's next biggest customer stop demand and will increase domestic stimulus yet again. It now has to consider the cost of staying coupled to the dollar. The more money that it spends to keep it's currency artificially low,  the less money it has to expand domestically. If the country doesn't grow, the government will be overthrown.

Last, we should look at the US. When the sky starts falling, everyone else in the world is going to buy dollars as a safe haven. As soon as this happens US will announce a huge jobs program. They will issue a huge amount of t-bills and the rest of the world will buy them up, because it's better than what they have at home. The deflated dollar will spur US exports and the jobs bill will really spur the economy. Eventually the US will look around and see that everyone else is dependent on it. The US will renounce it's debt! 

God help us all. 

 

 

 

 

 

 

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#20) On March 12, 2010 at 9:06 AM, JakilaTheHun (99.94) wrote:

The first thing I'd like to say about just about every government statistic out there is that it is a lie. It's been a lie for many, many years. If you believe the M2 number or the unemployment number or just about any other number out there is anywhere close to being accurate, I can't help you. I would suggest that you check out www.shadowstats.com

Shadowstats is a nice website for conspiracy theorists, but the argument that their statistics are accurate is full of as many holes as a cardboard box sprayed by 2,000 machine gun bullets.

See comment #16 above, which utterly destroyed any credibility behind Shadowstats with a small bit of logic. 

You are also using an extremely illogical line of attack by suggesting that certain statistics are inaccurate, merely because you don't like the people who create them.  You admit there is no scientific basis behind your view; your view is 100% motivated by personal bigotries. 

Specifically, why is CPI in an inaccurate gauge of inflation?  Simply because the 'big, bad government' uses it? 

 

They are responsible to a point, in that they print the money, but government spending and fiscal policy are the real culprits.

We mostly agree here, but my point goes deeper ... it's that central banks in developed countries with more "open societies" have incentives that go against the legislators that make fiscal policy.  Central banks' have the objective of achieving price stability --- legislators don't.  

The end result is not hyperinflation, but rather, crushing debt.  See Greece, Italy, Portugal, Spain, Japan, etc.  

Not only is there little incentive for central banks to create hyperinflation; it's actually just the opposite.  The incentive is to keep inflation absurdly low so that the government can refinance its debts at lower rates.  

If inflation creeps upwards, that's when the US is in real trouble.  Our massive debt load isn't that difficult to sustain when we're paying paltry 2% and 3% interest rates.  Sustaining it with 10% interest rates is a completely different story. 

 

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#21) On March 12, 2010 at 10:04 AM, outoffocus (23.23) wrote:

I thought Peter Schiff was a stagflationist, not a hyperinflationist.

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#22) On March 12, 2010 at 10:21 AM, whereaminow (26.32) wrote:

Did Seeking Alpha really just claim that Shadow Stats' John Williams said inflation was at 9% annually since 1998?  What utter nonsense.  The website clearly says that inflation ran at 9% on an annualized basis last quarter, and only when using pre-1982 CPI numbers.  It ran at 6% last quarter using pre-Clinton. 

David in Qatar

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#23) On March 12, 2010 at 10:42 AM, floridabuilder2 (99.35) wrote:

there is massive deflation in home construction costs from late 2005 to today.  33%-50% drop in labor and commodity cost drops.  it makes me wonder how much lower things can go, because at some point the commodity producers will have to shut down excess capacity to keep pricing power up.  Even at 350,000 units, home construction eats up a ton of base commodities and a wide variety, so I would never buy a commodity stock unless I saw movement in construction costs.

sure there is a weakening dollar making oil higher, but other than that I don't know what other currencies are so directly tied to a weak dollar.

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#24) On March 12, 2010 at 10:45 AM, JakilaTheHun (99.94) wrote:

Did Seeking Alpha really just claim that Shadow Stats' John Williams said inflation was at 9% annually since 1998?

Seeking Alpha didn't "claim" anything.  Seeking Alpha is simply a news aggregator that publishes blogs from a variety of sources. 

Moreover, a cursory glance at the chart from Shadowstats would seem to re-affirm this claim:

http://www.shadowstats.com/alternate_data/inflation-charts

A visual inspection of the chart suggests that from 1998 to 2008, Shadowstats calculated inflation at rates between 7% and 13%.  9% would hardly seem out of line for an average.  

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#25) On March 12, 2010 at 10:59 AM, JakilaTheHun (99.94) wrote:

Actually, the most ridiculous thing about Shadowstats method of CPI calculation is that they apparently calculcated about 5% - 6% inflation at the height of the credit crash in late '08. 

Are you f@$#ing kidding me?!  Housing prices, commodity prices, food prices, loan prices, etc., etc., etc., were all falling like a rock and Shadowstats somehow pulls out 5% inflation!!!!  That right there alone is enough to completely discredit the site. 

 

There seems to be a basic contradiction here, as well.  If one claims that the markets are the best method of capital allocation and that the markets tend to "get things right", then how do you explain that the markets are pricing inflationary expectations of treasury bonds at dismally low percentages (implying no inflation or even deflation), while Shadowstats is showing near double-digit inflation?  

Could it be that the market has it right and that Shadowstats is a bunch of conspiracy theorists and hacks?  

 

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#26) On March 12, 2010 at 11:08 AM, whereaminow (26.32) wrote:

Jakila,

Actually that sounds about right.  Food, energy, education medical and housing costs did not rise about 100% or so in America from 1998 to 2008.  What number is closer to the truth? 29% or 136%?

David in Qatar

 

 

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#27) On March 12, 2010 at 11:08 AM, ChrisGraley (29.83) wrote:

Are you f@$#ing kidding me?!  Housing prices, commodity prices, food prices, loan prices, etc., etc., etc., were all falling like a rock and Shadowstats somehow pulls out 5% inflation!!!!  That right there alone is enough to completely discredit the site. 

Have you bought groceries lately?

Could it be that the market has it right and that Shadowstats is a bunch of conspiracy theorists and hacks?  

No

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#28) On March 12, 2010 at 11:09 AM, whereaminow (26.32) wrote:

Food prices fell like a rock in 2008?  Really?  Education costs?  Energy costs? 

Or did they drop temporarily and skyrocket right back up?

David in Qatar

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#29) On March 12, 2010 at 11:11 AM, whereaminow (26.32) wrote:

Comment #26 should read

Food, energy, etc. rose over 100% from 1998-2008, not anywhere close to 29%

David in Qatar

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#30) On March 12, 2010 at 11:12 AM, whereaminow (26.32) wrote:

Are you f@$#ing kidding me?!  Housing prices, commodity prices, food prices, loan prices, etc., etc., etc., were all falling like a rock and Shadowstats somehow pulls out 5% inflation!!!!  That right there alone is enough to completely discredit the site. 

This is now officially one of the funnier discussions I've had on this site.  I'm not sure that Jakila does his own shopping.

Do you live with your mom?

David in Qatar

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#31) On March 12, 2010 at 11:18 AM, JakilaTheHun (99.94) wrote:

Food prices fell like a rock in 2008?  Really?  Education costs?  Energy costs? 

Or did they drop temporarily and skyrocket right back up?

You're glossing over the point.

Shadowstats claimed there was over 5% inflation around Q3 - Q4 2008.  Forget about right now; we're talking about right then. How on Earth was there 5%+ inflation at that time period, when grocery prices were dropping, oil prices plummetted, housing prices were dropping like a rock, etc.?  

Whether prices "skyrocketed" back upwards is irrelevant to the point; but they really haven't "skyrocketed" back upwards.  Housing prices are still mostly down.  Oil has gone up, but it's nowhere near the levels it was at during early to mid 2008.  All in all, the cost-of-living has probably increased slightly over the past 12 months; but not dramatically.  

 

Chris,

I buy groceries every week.  Grocery prices were dropping in late '08.  They slowly climbed back up in '09.  They seem to be dropping ever-so-slightly again over the past month.  Wal-Mart's earnings report seems to substantiate this. 

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#32) On March 12, 2010 at 11:21 AM, JakilaTheHun (99.94) wrote:

This is now officially one of the funnier discussions I've had on this site.  I'm not sure that Jakila does his own shopping.

Do you live with your mom?

You're cute when you revert to insults.  It sort of substantiates my belief that you are unable to defend your beliefs. All you can fall back on is silly garbage like that. 

So I take it that have conceded my points, but aren't a big enough of a man to say so, right?  

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#33) On March 12, 2010 at 11:24 AM, JakilaTheHun (99.94) wrote:

In any case, I'm done here with trolls.  

I clearly can't compete with the great intellectual prowess of schoolyard insults.  And I see no reason to.

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#34) On March 12, 2010 at 11:26 AM, whereaminow (26.32) wrote:

Which point am I supposed to concede?  Do you think the government is correct in saying that inflation from 1998-2008 was 29%?

If so, then I concede only that I want what you are smoking.

I can't help that you don't understand the most basic elements of economics, but I will try:

Deflation is persistent falling prices.  A crash in 2008 of asset prices is not deflation.  This is the most basic econ I ca get.  If you can't grasp that you really have no business making economic claims one way or the other.

On top of that, do you have evidence that food prices "crashed" in 2008? 

David in Qatar

 

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#35) On March 12, 2010 at 11:33 AM, whereaminow (26.32) wrote:

I think my favorite Internet tactic has to be the use of perjoratives on the one hand:

gold bug
market fundamentalist
religious obsession
conspiracy theorist
wingnuts
etc.

And then, playing possum after getting insulted by going all born-again and taking the high road. 

Of course, you've played this tactic so many times it's getting pretty old.

David in Qatar

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#36) On March 12, 2010 at 11:43 AM, JakilaTheHun (99.94) wrote:

I can't help that you don't understand the most basic elements of economics, but I will try:

You understand manipulation of statistics a lot better.

 

Your CAPS score is 2,289. 

Your points from red thumbing leveraged short-bias funds is 3,904.

So aside from that, you have a CAPS score of roughly -1,600.

 

Which brings me to the question --- why do you feel the need to manipulate your CAPS story by playing volatility decay to such a great extent? 

And is your terrible investment track record a result of your dogmatic beliefs on economics?  

There's really no reason to argue with you.  You have an agenda to push an ideological view on others.  I have an agenda to uncover reality.  I believe in science.  You believe in faith.  I believe in intelligent discourse.  You believe in intimidation and insults. 

I have no desire to discuss anything with you, because your only objective is to find ways to twist everything you read, like some idiot politician.

If you want to compare track records (and your comments suggest that you do), then you lose on every single front. There's no need to even play games with you; you have no incentive to find the truth. 

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#37) On March 12, 2010 at 11:47 AM, JakilaTheHun (99.94) wrote:

And I apologize for that comment.  My goal has always been not to resort to your level, and I'm afraid I have.

Either way, I'm done here. 

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#38) On March 12, 2010 at 11:53 AM, whereaminow (26.32) wrote:

Wow. That was pathetic. If you're going to be a pig, get down in the mud and roll around a little.

David in Qatar

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#39) On March 12, 2010 at 11:56 AM, whereaminow (26.32) wrote:

Did you really just play the "my CAPS score is better than yours" card in an effort to win this argument?

Um, CAPS is a game.

David in Qatar

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#40) On March 12, 2010 at 11:59 AM, whereaminow (26.32) wrote:

I'll check back here every now and then, and on all your future posts, looking for evidence that food prices crashed in 2008.  If you can't provide it, I will have to assume that you were being dishonest.

David in Qatar

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#41) On March 12, 2010 at 12:13 PM, floridabuilder2 (99.35) wrote:

Jakila,

You had asked on my blog about NLY (a green thumb of mine) and I kind of mentioned that it wasn't something I knew that much about.  Which might have led you to ask then why the green thumb?  Mainly I am green thumbing any publicly traded company that is buying assets out of the gov't portfolio of bank closings because 1) they are cherry picking the best assets you don't have to take all the assets of the closed banks 2) the gov't is back stopping losses.

I figured there was a better chance you would see this reply here than my blog

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#42) On March 12, 2010 at 1:03 PM, AbstractMotion (54.34) wrote:

Personally I think we could do a bit better then the current CPI.  The fact that it doesn't include food and fuel is actually quite misleading.  I believe the whole idea behind it's structure is that finished goods will basically reflect increases in what might as well be referred to as raw energy costs.  The main problem I have is that there is a pretty obvious disconnect beginning to show at this point, while the price of finished goods hasn't risen dramatically a lot of that is due more to efficiency improvements when it comes to manufacturing, outsourcing and so forth.  

 

It would also partially help to explain the dramatic inflation we're seeing in China where a lot of raw materials are actually being consumed.  My understanding is that India has been seeing similar trends of higher inflation, notably in food prices as well.  I'd wager CPI has been low precisely because of how the balance of trade and production has been shifting, along with the downward price pressure caused by constrained credit markets.  The big question is what happens when lending starts up in earnest again.  So far the Fed has done pretty well when it comes to winding down some of it's liquidity programs, but a firm stance on interest rates is really going to be what will decides how much inflation we see once the economy actually begins recovering.  

 

There's a lot of other things kicking around that really complicate any long term assessment too, personally I believe we'll see higher taxes going into 2011 (after mid term elections of course!), which has actually led to pretty heavy demand in the municipal bond market.  Meanwhile treasuries and a lot of AAA corporate bonds have remained overvalued.  We have a minimum of 3.1 trillion in Federal debt to roll over this year as well and the Fed has stopped snapping up treasuries and GSE bonds. There's a very good chance the bond market is going to force a lot of interest rates up to at least partially stabilize things.  There's a huge number of external factors too, further sovereign debt scares in Europe and the UK could prompt a flight to safety for foreign investors in the USD.  The China bubble could pop or Japan could have it's own debt crisis, which might have different implications given their dollar reserves, etc.  I'd be highly skeptical of anyone fervently declaring where we'll be in the next 2 years at this point.  Personally I'm just trying not to invest in anything too illiquid right now.

 

 

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#43) On March 12, 2010 at 1:41 PM, whereaminow (26.32) wrote:

I think I'm going to have to take a closer look at prices in 2008.  To me, the idea that the cost of living went down in 2008 is completely ludicrous.  However, I'll entertain it and see what I found out. 

I haven't seen any evidence of this.  I definitely think Shadow Stats estimate of 5% inflation in 2008 is more likely than Jakila's assessment that such a claim is f@K#ing retarded because prices crashed.  They didn't crash.

Certain asset bubbles crashed.  But a simple question clears this confusion right up:

When oil and natural gas prices tumbled, did your electricity bill drop 40%?

Probably not.  Neither did your grocery bill.

David in Qatar

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#44) On March 12, 2010 at 5:43 PM, PeteysTired (< 20) wrote:

Jakila,

The Fed wants price stability.

If the Fed wants price stability, then why does the Snickers candy bar that I bought in the 70's at Tom Thumb (I have no idea if they have these anymore) for $.35 now costs $1.00 at my convenience store?

Do you think the Fed works with other central banks to buy US treasuries?  The reason I ask is that during WWII the US gov't begged people to buy war bonds, but today I don't really see the Gov't begging.  Is there really that much "extra" capital available for buying US treasuries? 

Finally, if the Fed lends a bank at 0% interest and the bank uses the money to buy US Treasuries how does that affect the money supply?

 Thanks for your time.

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#45) On March 12, 2010 at 7:36 PM, PaxtorReborn (29.80) wrote:

+1 rec

And for the record, I still live with my mom!

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#46) On March 12, 2010 at 8:37 PM, ChrisGraley (29.83) wrote:

Jakila don't go away mad.

You brought up a point,but just defend it a little without resulting to "nutjob" and "retarded" type comments. 

Some things that I don't understand...

Jim Rogers is a hyper-inflationist? 

Peter Schiff doesn't believe in stagflation?

Your grocery and energy bills went down in 2008? My gas bill went up even when natural gas was in oversupply.

Do you really think that Ben Bernake is gonna stop printing money?

I don't think I've thrown any insults at you even when you started the post off by calling me a conspiracy theorist, who's only reason for questioning those bogus numbers that the government puts out is because of my hatred of the government.

Do you really believe that only 10% of the people that want work are unable to get it right now?

Honestly?

I'm not trying to be a troll, I came in for a debate. I dodged a little mud slinging, but I'm still here if you want to support your point.

 

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#47) On March 13, 2010 at 1:46 PM, rofgile (99.32) wrote:

Wow. 

I think Jakila won this argument pretty much hands down.  Great points on ShadowStats record of inflation.  I used to distrust the Govt statistics a lot more before the last two years.  Nowadays, I actually follow what the Atlanta FED reports fairly often.  And its been good for my investing.

I actually think the CPI is fairly low.  Ten years ago, I could buy a laptop for $2000.  Nowadays, I can buy a faster and better laptop for $100 at best buy.  That's crazy.  

Books, movies, and music are feeling deflationary headwinds over the last ten years also with the rise of the net.  Consumer goods prices have remained low from Walmart and cheap Chinese goods.  Wages haven't risen in ten years.  This all feels like a fairly deflationary time period to me.

The only thing that isn't agreeing with this is the price of precious metals.  Guess what, I have it downthumbed across the board.

 -Rof

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#48) On March 13, 2010 at 2:47 PM, Adam1226 (21.55) wrote:

I think that China's inflation is due in large part to the dollar's inflation. The renminbi is pegged to the dollar, so the more dollars we print, the more the Chinese have to print.  Yes, it's good for exports in the short term, but the Chinese will eventually wise up, and that's when the US will see all of the inflation its exported come home back home.   

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#49) On March 14, 2010 at 2:30 PM, checklist34 (99.73) wrote:

red to Jakila for being making a post that takes on the snobbish component of the caps population!  I love it!

David, Japan got close enough to prolonged deflation to accomplish the basic point, now, didn't it?

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#50) On March 14, 2010 at 2:31 PM, checklist34 (99.73) wrote:

i.e.,they failed to force inflation

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#51) On March 14, 2010 at 2:48 PM, checklist34 (99.73) wrote:

this is a website about making money investing.  My god in heaven it does itself and its readers a disservice by not forcing everybody who posts to report their actual real world performance OR by converting CAPs game picks somehow into actual dollar performance.  Ala Wall Street Survivor or osmething.

Then we'd have some kind of realistic metric with which to seperate those whose goal is to post about how right and smart they are (almost always bearish or at least overly cautious) in all of their constantly condescending (no matter how brutally wrong on the market or money making they have been), mutually-congratulating chatter from their capacity to (poorly) influence outside readers and influencable caps game participants.  

Seriously, that is all.

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#52) On March 14, 2010 at 5:13 PM, whereaminow (26.32) wrote:

rofgile,

When are you going to capitulate on your bearish precious metal call? 

checklist34,

Look at how cute you are, finally coming out and saying what you've been thinking all along!  I'm happy for you.  I was getting kind of tired of your one line jabs on all my blogs.  I had a feeling they was something more. Finally, you speak your mind!  And boy what an ass you turn out to be :)   

David, Japan got close enough to prolonged deflation to accomplish the basic point, now, didn't it?

No. Again, what is the definition of deflation?  Persistent falling prices. If you don't want to follow the definition, what new definition do you propose?  Japan had one year where prices fell almost 2%.  A whole 2%.  The price level has been stable otherwise.

So yes, I happily agree with Jakila that Japan has kept a fairly stable price level.  Now the next central bank to do that during a time of prosperity and growth will be the first!

As for comment #51. How many times have you commented on my blogs?  At least two dozen?  And for what purpose?  To constantly chime in about how you feel a central bank is necessary.  Obviously the topic is important enough that you constantly feel the need to make those comments. 

I may be a lot of things but I'm not a snob.  A jerk and a troll, absolutely.   

Finally, if you are still reading, and I couldn't give a crap either way, I find your investing advice worthwhile.

JakilaTheHun,

I'm still waiting for evidence that food prices fell in 2008 and that inflation from 1998-2008 was closer to 29% than 136%. However, I doubt that evidence will ever be forthcoming.  Yet, it should be.  I mean, hey it wasn't me that claimed JW at Shadow was full of crap.  It was you.  So, let's see some evidence backing up your assertion.

David in Qatar

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#53) On March 14, 2010 at 5:36 PM, whereaminow (26.32) wrote:

rofgile

Wages haven't risen in ten years

Wages rose 2.6% in 2008 and 1.5% in 2009, and those were considered to be very weak years, so I feel pretty confident that wages have risen in the last ten years.

http://www.cbsnews.com/stories/2010/01/29/business/main6154070.shtml

David in Qatar

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#54) On March 14, 2010 at 6:02 PM, whereaminow (26.32) wrote:

I am going to write up a full response to the Seeking Alpha article. It is so profoundly confused that it needs its own post.  Rofi and Jakila are free to hop on that blog and continue the debate.  Checklist, well, I don't know if I like him enough :)

Hint: Inflation causes housing bubbles and wage rates don't rise with inflation.  Again, basic econ. No fancy maths required.

David in Qatar

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#55) On March 15, 2010 at 5:02 AM, checklist34 (99.73) wrote:

whereaminow,

     If Japan would have met its goal of forcing price inflation, would that not eventually have led to wage inflation (hence tax receipt inflation), and hence growth in GDP and, hence, a different situation than they have?

      I read your posts whenever they pop up under a thread I've clicked on, take that as a compliment, and odn't take this too harshly, but you ARE  snob, sometimes, when posting.  You tell people, as a point of fact, that they are wrong frequently even if the subject matter is a point of considerable debatability or even contention in academic circles.  You present your view as FACT frequently, and never hesitate to call somebody else wrong.  I'm not 100% sure what the definition of snob should be?  I don't doubt that you're a nice guy...  but on these blogs you frequently take on the role of teacher even if the subject is clearly debatable.  I'm not saying that makes you a bad person, BUT, anybody who would have read my blogs on mark-to-market in march 2009 and followed the advice therein would now be literally 3x or better their money.  And i FREQUENTLY acknowledge myown inability to muck up calls and ideas and just generally make a mess of things.  Few of the inelli-bears on the site really ever do.  And it bothers me.  It bothers me ALOT that this site was discouraging people from buying stocks when the s&p was at 700.  With that re-tard-ded p/e chart as evidence about 1/3 to 1/2 of the time.  You may well not be guilty of such discouragement or p/e chart fear-mongering, ...  SOMEBODY needs to rail against the bearish cabal, and as few step up to do it I just go ahead and occasionally throw some thoughts out there.  They are rarely well recieved by the "catcher" of said thrown thoughts.  lol

       I debate:  long, long ago (like a year) someone posted one of those nauseating "everything is fucked, people can't eat, 57% unemployment, we're all going to die, and soon, and we're all broke, its all over, it sucks, we've been robbed, in 1950 you could buy a house for a days wages, today we're hosed, doomed, death!" posts....

       And I dug up some data (10 minute google search data) on the cost of bread, a house, a new ford, a gallon of milk, a pair of jeans and whatever else I could come up with...

      The bottom line was we can buy mroe milk on the median (mean?  i can't recall) salary today, i believe roughly as many fords (but cars today are sooooo much more than they were in yesteryear.  safer, airbags, blah), houses were CHEAPER, we can buy more bread, more milk.  WE ARE BETTER OFF.  

       I take you to the example of my sons mother and her husband, who works for eli lilly in a far above median income job.  They have a house, she's a stay at home mom (used to have a management job at LTD)...  you deflate the economy they go broke, as wages WILL eventually follow prices.  The argument that inflation is "better", presented as "fact" frequently by yourself and others is folly, I argue.  And a very simple argument is mine, with a very simple example.  

       But take that example again.  They have debt/income of about 2.5.  Thats a new house and a new crossover for her (he has company car).  Yet they save money and probably invest it poorly, they are far from being unable to make their debt paymetns and the debt that they have is not a burden but a tool.  That mortgage is GOOD.  It provides the ability to save more money over, say, 20 years than would a zero debt situation where, presumably, they'd have to rent.  The average employed tax paying hosue buying american is sunk in an era of "persistent falling prices". 

        Its not them that benefits, its me.  I benefit because I'm reaosnably smart and an active investor and an UHNWI.  Ditto, perhaps, runaway inflation.  But FOR THEM, inflation beats deflation.  So they pay more for a snickers bar?  Doesn't remotely offset the increase in wages relative to their fixed mortgage payment.

       None of this seems that complicated.  Japan acheived price stability, fine, and with it financial ruin?  how is that an achievement?  

      WRT comment #51, I have never mentioned a central bank in my entire time of blogging.  I have simply opined that inflation is preferable to deflation.  and remember, when looking at historical US data you must consider population changes and IN ADDITION TO THAT CONSIDER WHAT KIND OF POPULATION WAS BEING ADDED, all citizens are not created equally.  

       And last, I WAS cute, 12 years ago.  Hell I may have been teh cutest kid in town.  But now I'm getting old and my hair is trimmed short instead of long and floppy and frankly i think i'm forgettable in teh looks department.  ;)

       

     

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#56) On March 15, 2010 at 5:59 AM, ozzfan1317 (82.45) wrote:

All i'm gonna say is food prices did go down in 2008 and even a little more in early 2009 so did the price of gas. The place where I rent includes utilities so no idea about that part though.

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#57) On March 15, 2010 at 6:20 AM, checklist34 (99.73) wrote:

ozzfan...

I was ass broke 5 years ago, and food prices mattered.  I'm not broke now and they don't.  I also rent as I sort of ... shy from, or fear, or abhor (pick one) the responsibilities of ownership.

But a gallon of milk is about the same as its ever been.  Loaf of bread still between $1 and $2 depending on brand (more if you go higher end).  Big lump of cheese good for toasted cheese sandwiches still around the same.  Apples and oranges adn pomegranates still ballpark.

Rumors of dramatic food inflation are grossly exxagerated in my opinion and (limited to one geographic area) observation.  Gas prices down.  My utilities aren't much at all.  Honestly about 10-15% of my rent a month so who cares?  Its the rent thats the driver of cost there.

The cars I want to buy are deflating DRAMATICALLY.  

Insurance premiums aren't up.

The cost of beer doens't seem to be up, i don't know?  Is it?  I don't drink as much as I let on.

The cost of a house seems to be down nationwide.

We have experienced deflation of sorts (1-2 years) we have experienced dramatic inflation (10 years).  That has happened before - commodity inflation cycles happen - they are usually followed by price inflation and wage inflation and a long bull market in stocks.  The biggest quesiton to investors is... "is this cycle over?"

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#58) On March 15, 2010 at 10:18 AM, whereaminow (26.32) wrote:

checklist34,

You seem to have the lost the ability to separate different bloggers' views from each others.  It's not that hard if you take the time, and then you won't mistakenly lump me in with guys like alstry, goodvibe and gmx that made horrible market calls over the alst year.

If you want to know what the difference is, alstry and gmx are deflationists (i don't know gv's outlook).  They felt that a further contraction in the banking sector would strengthen the dollar (or vice versa) causing prolonged Depression.

My view was completely different.  I was relatively bullish on the market in comparison to them.  I say relatively because I didn't feel the fundamentals were all that great (though I never made a single post about P/E levels.) I was aware that if the Federal Reserve creates $2-$9T in new money (I've seen both extremems reported by Bloomberg, but I'm sure it's in between) and then you give that money to investment bankers and foreign creditors, it will push the market higher with banks leading the way.

So between you and I, the difference is that you think Mark To Market is responsible for the rally and I think both Mark2Market and trillions in new money are repsonsible, with an emphasis on the latter.

I do try to educate people on my blogs, because that is what my readers have asked me to do. I tell them about ideas that were not discussed in high school or college, and it's a shame that they weren't.  I present one point of view because the other point's of view have been covered extensively.  Anyway, they seem to like it.

To sum up, I actually do think we'd get along great outside of this forum  You got caught up here in something that has been going on for a while.  I don't like Jakila.  I have no problem saying that here or anywhere.  If you ridicule ideas and beliefs that have never investigated and degrade people you don't understand, I am going to call you out on it.  That's been Jakila's m.o. towards libertarians since I've been on this board.  He deserves every ridicule I send his way.  And I while never feel bad about it.  Screw him! :)

David in Qatar

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