Here is an excerpt from NFTRH89 centering on inflation/deflation
dynamics currently in play. You know, humans being intelligent but
herding animals, tend to flock toward one easily understood or
rationalized pole or the other when it comes to the inflation/deflation
debate. But folks, unfortunately this is not a one size fits all
situation. There is inflation by policy and there is deflation by
nature, and there are assets to own and others to avoid.
More
and more I find that my newsletter is a specialty thing and that I do
not speak to anything even resembling a majority of investors. While I
am loath to tout NFTRH with a typical 'try our monthly subscription for
more insightful blah blah blah…' I will say that if you are looking
for something different with a track record of remaining on the right
side of events, check
it out. Some might consider it a good thing that the letter does
not speak to the majority. We are setting up for a great opportunity in
the gold stock sector after all, and for that opportunity to play out, a
counter party must exist.
Inflation
Impulse?
You may have seen my 2005 conversation
about deflation with Rick Ackerman noted on
the blog recently. That was
probably about the time I came up with the term “deflation
impulse”.
It was a way of illustrating the view that systematic and ongoing
inflationary
policies are periodically interrupted by the need of the
economy, markets and financial
system to purge themselves of the
toxins routinely injected by policy makers on a
Keynesian
business-as-usual continuum of diminishing returns.
The
diminishing returns are of course measured in our gold ratios like
Dow-Gold, for
example, in which the Dow has endured a sustained bear
market in ‘real’ terms. Since
the inflationary saturation point in
2000, the anchor to real money – gold – has acted as a
light of truth
shone upon the people who control ‘official’ money and thereby attempt
to
control asset markets. I think I once wrote an article comparing
gold to the kid in 5th
grade who used to sit in the front row, hand
up and ready to give every answer – not to
mention tattle on other
kids for a few more brownie points. That is gold’s role in the
sordid
world of modern money.
Not that it matters much to our analysis,
but when reviewing the long-term monthly chart
of the yield on the
30-year bond, it occurs to me that it is probably more appropriate to view
our often-watched exponential moving average 100 as the deflationary
‘backbone’ that has firmed up Greenspan, Bernanke, Summers and
Geithner over decades of inflationary monetary policy ON demand.
Each time long-term interest rates have risen toward the EMA 100 –
attended by bouts of
rising inflation fears – they have been repelled
(red arrows), as economies and/or markets
have weakened and talk of
deflation once again hits the media. This is the ‘Prechter
fright
mask’ theme I sometimes have fun with on the blog. This dynamic is
critical to
policy makers’ ability to keep the game going. No stable
T-bond, no ability to monetize
confidence in the bond.
We are
on a deflationary continuum against which monetary policy is eased in
various
ways and with varying degrees of intensity backed by the
confidence implied by the
EMA 100 backbone; there is implied
confidence in the Treasury because each time there
is a bout of
deflationary activity, ‘investors’ run en masse to US Treasuries. Early
subscribers
may remember the ‘Lyin’ Larry’ theme that NFTRH came up with at the end
of
2008 when Mr. Summers very publicly cajoled the fearful masses to buy
the safety of
US Treasury bonds, right into the teeth of an oncoming
inflationary impulse that brought
the yield on the long bond all the
way back to the EMA 100. The fearful lemmings were
summarily blown up
as inflation players once again went full tout.
So is this it,
the final deflation? If so, a world of assets is going to decline hard
and
opportunity is going to present for the ‘D Boys’ to finally buy
all those assets from all
those frightened and naive inflation
believers.
Or are policy heroes preparing a mother of an
inflation yet to come, with the recent
decline in yield from the EMA
100 and the confidence (and mandate to inflate) that
would come with a
continued decline? The chart tunes out the inflation/deflation debate
and
simply states that for now at least, it is business as usual.
Nothing
has changed over decades – although the impulsiveness of the 2008
decline can
be read as a warning that things may have become more
unruly in the macro markets.
But even here, this begs the question of
whether that was an initial downward thrust
toward deflationary
resolution or a harbinger of an equal and opposite inflationary
reaction?
As
has been the case since the ‘Hope 09’ rebound got strongly underway, I
am not going
to read too much into either potentiality. Rates have
neither strongly declined nor busted
our EMA 100 ‘back bone’ or
‘inflationary line in the sand’. Until one or the other
presents, we
remain on the business as usual continuum where implied confidence
remains
with our policy makers and they can be expected to do as they have done
throughout
the continuum; they will sell treasury bonds and monetize the debt in
an
attempt to keep business-as-usual intact.
Smart investors
stopped listening to Lyin’ Larry long ago and got off the modern
financial
Ponzi grid. It is really so simple… pay off debt, own insurance in the
form of
gold, have ample cash as long as confidence remains in fiat
currency (don’t fool
yourselves, this confidence remains embedded),
become involved in productive endeavor
whenever possible, and with an
inner smile that comes from knowing you’ve done your
best to get
your house in order, go forth and speculate if you so choose.
To
summarize the NFTRH stance, I would say that the structure of the macro
situation is
that of a deflationary continuum against which free
license is given to policy makers to
continue their regime of
inflation on demand. Every time there is stress in the system
(US
credit contraction in 2008, European one in 2010 for example) inflation –
in the form
of debt-based money supply ramp up – is brought forth.
This cannot continue forever but
it takes a greater thinker than
myself to be able to call it a wrap right here and right now.
Eliminate
debt, own value and pursue productive endeavor.
