Good morning slopers. Gary from Biiwii here again.
There is nothing like the inflation/deflation debate and the misperceptions therein to get as many people off-sides as possible at the exact wrong times. Case in point: It was time to be bullish in March because the media were working full Armageddon into the public consciousness and markets were sold out. We all knew that deflation ruled the day.
But a funny thing happened on the way to depression; panicked inflationary policy, working 24/7 for months on end, took hold and combined with an extremely bullish sentiment backdrop as Armageddon '08 morphed into Hope '09, which of course became the current late stage phenomenon, Full Tout '09.
Below is an excerpt from this weekend's newsletter. I personally interpret Nouriel Roubini and what he represents as a signpost I will need in the future when the time comes to position for change once again in the inflation/deflation game of cat and mouse:
don’t believe in gold. Gold can go up for only two reasons. [One is]
inflation, and we are in a world where there are massive amounts of deflation
because of a glut of capacity, and demand is weak, and there’s slack in the
labor markets with unemployment peeking above 10 percent in all the advanced
economies. So there’s no inflation, and there’s not going to be for the time
The only other case in which gold can go
higher with deflation is if you have Armageddon, if you have another depression.
But we’ve avoided that tail risk as well. So all the gold bugs who say gold is
going to go to $1,500, $2,000, they’re just speaking nonsense. Without
inflation, or without a depression, there’s nowhere for gold to go. Yeah, it
can go above $1,000, but it can’t move up 20-30 percent unless we end up in a
world of inflation or another depression. I don’t see either of those being
likely for the time being. Maybe three or four years from now, yes. But not
I found the above quote in
an interview titled Big Crash Coming with professor Nouriel
Roubini here http://tinyurl.com/nftrh56a
at something called Index Universe. The
link is to page 2, where the gold segment is, but I recommend reading the entire
interview. It is fairly brief.
On gold specifically I have
to disagree with the good professor, just as I do with Prechter and I don’t
know how many other deflationists out there.
That is of course because Roubini comes at the subject from the
standpoint of ‘price’ as opposed to value.
In my opinion, there is too much focus on the prices of assets,
what gluts of capacity and slack demand will do to prices and hence, price
inflation or the lack thereof in Roubini’s view.
“So there’s no
There is inflation. Over the
last year plus there has been a ton of it and it has been aimed at keeping prices
up. And it has succeeded thus far
in its task. But inflation is not
rising prices. Inflation is what is
promoted in the face of declining asset prices.
I will stick by my stance
that holds the deflationary pressure Roubini sees is the lever by which future
inflationary policy will be pulled into existence.
Okay, I have been polite thus far. What
I actually think is that analysis like Roubini’s above, ends up being a tool
for policy makers. Whether
knowingly or unwittingly, prominent economic talking heads (and the media that
dote on every word) are important to the cause for business as usual by policy
From last week’s NFTRH55: “If the current system is to survive, these guys [policy
makers] need an event and they need is soon.
That is what I thought I saw on the faces and heard in the voices of Tim
[Geithner] and Larry [Summers] last week.”
Roubini’s oncoming crash
would be the event. The
event’s fallout would be the lever.
The lever would be pulled and a new round of inflationary policy is all
but a given since the public, hysterical and frightened by the event, will
support it wholeheartedly. In other
words, confidence, induced by fear though it is (again), would remain intact in
our leaders’ ability and willingness to come to the rescue with more
We here at NFTRH will wish
to take risk management steps leading up to the event, and then capitalize on
the inflationary results. Simple,
isn’t it? Well yes, simple in a twisted kind of way.
This is how people are systematically disenfranchised, over cycles and
over decades, through misperceptions about inflation and deflation.
Meanwhile, per NFTRH55 last
week, money supply graphs from the Fed show money supply having leveled off. This is the first step to what may one day evolve into
deflationist hubris, again. That
will be about the time gold has once again separated itself from the asset pack
as a unique holder of liquidity and long-term value. It will rise relative to everything even if it
declines temporarily in nominal US dollar terms.
That would be yet another buying opportunity that the deflationists will
miss the boat on.
we get ahead of ourselves, as this is all just theory for the future.
At the moment we have the inflationists, commodity bulls, peak oil
believers, stock touts and their respective hubris to deal with.