Jeffrey A. Miller

Deflation Risk Dipping As Stagflation Risk Rises

Credit contraction is creating in asset devaluation. This combination in turn results in a contraction in net demand and employment not deflation. I don't buy the deflation scenario. Deflation, like its sibling inflation, is a monetary phenomenon. Technically we can't have inflation and deflation at the same time. What we might actually have at the moment is more consistent with a stable price system than either of the "...flation" siblings. That is, in a stable pricing environment some prices may rise but others will fall.

I also don't buy into gold as a useful investment but if the crowd wants gold (or tulips or oil or houses) the price will rise. Just please go to goldprice.org and check the 30 year history of gold prices. It will streak higher in financial panices (early 80's and today) but otherwise is in a trading range. And if the world's central banks decided to unload their hoards? What then?

I am concerned at the future prospect for inflation as the Fed monetizes the bailout(s). But since the Obama administration, like the last days of the Bush administraion, is following the Japanese economic program we can expect multiple failed bailouts and a long, long time before inflation rears its very ugly head. I'll be watching the markets, considering TBT at some point, and who knows, maybe a bit o' the gold. (Actually diamonds are better. Smaller, lighter, easier to carry and also valuable. Plus the diamond hoards are held by private companies.)

Deflation Risk Dipping As Stagflation Risk Rises

I agree with jkca1. Our markets in NC are quite full thanks. Prices aren't rising nor falling much but there are more sales (2 for 1 for instance).


On Jan 26 05:43 PM jkca1 wrote:

> I don't know where CAFK lives but our supermarkets in CA are well
> stocked and full. You name it, it's available and plentiful.

How Investors Can Profit from the Coming Bear Market in Bonds

Thanks to all for the intelligent discussion; especially Doubelguns who asked my exact question and Simit for his answer. I have been struggling to understand how to connect asset deflation with trillion dollar bailouts that should be highly inflationary.

Clearly a short term deflation is ongoing and while problematic it is necessary in order to complete the deleveraging of financial and hard assets. And it is that same deleveraging process that is the link between current deflation and future inflation.

Once the deleveraging is complete and asset valuations are trusted then lending will gradually resume and inflation will rear its ugly head.

Simit: It may be too early to take the TBT trade. IF the current deflationary, deleveraging is derived from the housing bubble then perhaps the bottoming of the housing market (e.g., builders) is the fundamental indicator to establish a time to initiate inflationary trades.