Your Inflation Expectations

[Lohengram]

I live in the UK and I was amused to see reports of “shock” in the media today when news came out that both CPI and RPI were higher than expected with CPI actually rising month on month. This was no surprise to me personally nor did the primary cause of this price inflation come as a surprise based as it was primarily in agricultural prices; fuel and energy prices. I’ve been expecting this for some months and I never expected CPI to even hit our government’s target of 2% let alone go negative.

So I was wondering whether people here have bought into the hype from governments and central banks that the greatest peril we face is falling prices (as if that’s actually a problem even if it were to happen). Or whether you expect the central banks inflationary policies and governments deficit spending to lead to sharp price appreciation in non-discretionary consumer goods exactly like food and energy whilst possibly still having falling asset prices and stock prices, as I believe. If neither of those then what are your own expectations for prices generally and for specific sectors.

[Visum]

I believe we have gone through that fall in prices, at least generally speaking, and will now begin to climb out as governments print money. Inflation is just around the corner. Doesn't free money fix everything? Comods, agricultural, and Aussie dollar are my bets.

[RBM]

Lohengram

I'm in the US, ever heard of Shadow Government Statistics ? (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.). I think it's US based. I don't use it directly. but others in the cyber circles I travel in, read it regularly.

[Lohengram]

Yes I have heard of it thanks, it doesn't cover the UK though only the US and I don't pay for their service so I only see what they put into public domain. But as I've mentioned in previous posts I don't trust our government issued statistics and the existence of a business like that adds weight to the idea as people will pay for "real" statistics on the economy because many realise how doctored the government issued statistics are.

[Visum]

Exactly, who trusts the fox to guard the hen house? The gov. numbers are cooked.
I would seriously be concerned with the pounds future ability to retain it's buying power. In some ways your situation is worse than the US, in regards to debt to GDP. Both countries are going to try and print themselves out of the problem, as you noted.
I just put on a position in gold today and it may be the lowest it will be for years. If not, I will buy lower. Time will tell. The FTSE may have found a bottom, but I am not an index buyer yet. I also like silver as it is both a precious metal as well as a consumed resource in industry. In many ways it is more bullish long term than gold, that is until the electronics industry finds a replacement....





Visum added to this post, 3 minutes and 51 seconds later...

If you have heard of Jim Rogers, here is his most recent interview. (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

[Lohengram]

I'm not sure I agree that the pound looks worse than the USD although it certainly looks bad. It depends on what time frame you're looking at but the USD is the global reserve currency and while that brings benefits it also means it is always kept at a higher rate in the currency markets than it otherwise would be. If it (read when) loses that position it will fall not only its own height but the height of the stool its standing on as well. I see much more downward potential in the USD than in Sterling the further into the future I look.

With regards to any bottom in stock markets or elsewhere, I think you really have to keep in mind the difference between a nominal bottom and a inflation adjusted bottom.

Edit: Thanks, although that's not his most recent interview, I actually follow several people including Jim Rogers; Marc Faber and Peter Schiff here
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[IfThenElse]

Financial Sense is my weekly doze of financial reality, a further slide in the stock market is in the works. The deflation period is probably over.

[Visum]

I'm not sure I agree that the pound looks worse than the USD although it certainly looks bad. It depends on what time frame you're looking at but the USD is the global reserve currency and while that brings benefits it also means it is always kept at a higher rate in the currency markets than it otherwise would be. If it (read when) loses that position it will fall not only its own height but the height of the stool its standing on as well. I see much more downward potential in the USD than in Sterling the further into the future I look.

With regards to any bottom in stock markets or elsewhere, I think you really have to keep in mind the difference between a nominal bottom and a inflation adjusted bottom.

Edit: Thanks, although that's not his most recent interview, I actually follow several people including Jim Rogers; Marc Faber and Peter Schiff here
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Thanks for the link, those are great guys. I agree that the pound may not be in as much peril long term for the reasons you presented, but was speaking more in regards to the current situation.
Nominal or inflation, what does it matter if you are holding dollars and sitting on the side line and stocks go up in the DJI? :thinking: I guess if you prefer to be liquid it would.

[Lohengram]

Well that's two issues, 1 Stocks priced in real or nominal terms and 2 alternatives to stocks. If you're in an inflationary environment and stocks go up 5% and you're getting 1% interest in a cash account you're losing a potential of 4% in cash terms. However, the purchasing power of that cash against things like food; clothes; energy prices etc might have fallen 20% say. So your loss in purchasing power terms is great whether you're in cash or stocks but cash is worse. The main point is that you're becoming poorer even though you have more cash or stocks at a higher dollar valuation because the dollar itself is worth less against all "real" things and maybe even other currencies.

[Krazy P]

Deflation is the thing that the authorities are fighting.

One does not take the huge risk of quantitative easing unless one strongly believes that deflation is an issue.

In the US, deflation ran at 12% on average from Oct - Jan.

Imports have fallen off a cliff and if you go to the St Louis Fed and peruse their data you will see some very chilling numbers.

No question about deflation - if we avoid it we WILL get inflation - my guess is around 10%.

If we don't avoid it we get 10-15 years of depression.

Pick your poison.

[Lohengram]

I pick comprehension. There is no deflation, deflation is a contraction of the money supply, it is not falling property and stock prices. Unrealised and unrealisable capital gains are not wealth and their loss does not represent a deflationary risk. It merely shows people that they've based their financial plans on unrealistic asset prices and that they've probably become over indebted by their confusion of wealth and unrealised capital gains. You're missing a benefit to inflation though, namely that inflation is good for debtors and who is the largest debtor in the world? The US government is hardly an unbiased referee in this affair.

[JohnDoe]

I pick comprehension. There is no deflation, deflation is a contraction of the money supply, it is not falling property and stock prices. Unrealised and unrealisable capital gains are not wealth and their loss does not represent a deflationary risk. It merely shows people that they've based their financial plans on unrealistic asset prices and that they've probably become over indebted by their confusion of wealth and unrealised capital gains. You're missing a benefit to inflation though, namely that inflation is good for debtors and who is the largest debtor in the world? The US government is hardly an unbiased referee in this affair.

When you borrow against imaginary gains, you can however create a contraction of the money supply though, if you can no longer borrow/lend as much as the asset prices fall.

[Pandemonium]

Anyone looking forward to a stronger currency, the Amero?

[Solus]

Something tells me that the printing press would not be operated from Frankfurt. ;). If so I wonder how much stronger the Amero would be.

[Lohengram]

When you borrow against imaginary gains, you can however create a contraction of the money supply though, if you can no longer borrow/lend as much as the asset prices fall.

No longer being able to borrow simply stops the money supply from further expansion, it is not contraction. If you pay off your debts or banks write off debt and issue less credit than they remove this would create deflation but central banks have been rapidly inflating since before the crises began, they merely stepped up their inflation as the crises progressed. Whether at an point deflation has been greater than inflation is hard to judge. The point at which the inflated money enters the system and the point at which credit is destroyed is not always the same so again falling prices in specific sectors like property and stock markets don't really tell what many people imagine they do.

Also deflation isn't a bad thing, it's the perfect cure to the disease of pumped up credit expansion that we've had. It encourages people to pay off debt; under consume; save; invest in productive capital assets that expand productive capacity and in short encourages people to do everything you do to cure an economy of a problem of years of overconsumption based on a rapidly expanding debt burden. That's the key issue, if you think the economy was fine for years before now and something weird just happened and we just have to shake things up a bit to go back to how things where then it makes sense to do what governments are doing. If you realise that our economies had the dynamics of a ponzi or pyramid scheme and that it's impossible to have debt grow as a percentage of GDP forever then government actions do not make sense. The USA in particular has debt of 360% of GDP and if you include unfunded future liabilities it's closer to 600%, and those numbers are a few months old who knows how rapidly they're going up at a time they should be falling.

[Visum]

Well that's two issues, 1 Stocks priced in real or nominal terms and 2 alternatives to stocks. If you're in an inflationary environment and stocks go up 5% and you're getting 1% interest in a cash account you're losing a potential of 4% in cash terms. However, the purchasing power of that cash against things like food; clothes; energy prices etc might have fallen 20% say. So your loss in purchasing power terms is great whether you're in cash or stocks but cash is worse. The main point is that you're becoming poorer even though you have more cash or stocks at a higher dollar valuation because the dollar itself is worth less against all "real" things and maybe even other currencies.

That was my point. Inflation has you by the balls.





Visum added to this post, 3 minutes and 12 seconds later...

Anyone looking forward to a stronger currency, the Amero?

The Amero has been debunked, at least as it currently stands. Long term, I believe an equivalent is probable.

UK pound holders, consider this carefully.
UK failed Gilt auction (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)





Visum added to this post, 6 minutes and 19 seconds later...


No question about deflation - if we avoid it we WILL get inflation - my guess is around 10%.

If we don't avoid it we get 10-15 years of depression.

Pick your poison.

Krazy, you really think it will only be around 10%? Maybe by US gov stats....:thinking:

[JohnDoe]

No longer being able to borrow simply stops the money supply from further expansion, it is not contraction. If you pay off your debts or banks write off debt and issue less credit than they remove this would create deflation but central banks have been rapidly inflating since before the crises began, they merely stepped up their inflation as the crises progressed. Whether at an point deflation has been greater than inflation is hard to judge. The point at which the inflated money enters the system and the point at which credit is destroyed is not always the same so again falling prices in specific sectors like property and stock markets don't really tell what many people imagine they do.

Also deflation isn't a bad thing, it's the perfect cure to the disease of pumped up credit expansion that we've had. It encourages people to pay off debt; under consume; save; invest in productive capital assets that expand productive capacity and in short encourages people to do everything you do to cure an economy of a problem of years of overconsumption based on a rapidly expanding debt burden. That's the key issue, if you think the economy was fine for years before now and something weird just happened and we just have to shake things up a bit to go back to how things where then it makes sense to do what governments are doing. If you realise that our economies had the dynamics of a ponzi or pyramid scheme and that it's impossible to have debt grow as a percentage of GDP forever then government actions do not make sense. The USA in particular has debt of 360% of GDP and if you include unfunded future liabilities it's closer to 600%, and those numbers are a few months old who knows how rapidly they're going up at a time they should be falling.

Deflation is pretty horrible . It makes things you've bought in debt worth less, giving the average consumer a net loss. How does this help the problem of overconsumption? Deflationary savings spirals are pretty horrible. There becomes no point in buying anything at all when I can buy it tommorow for cheaper. Deflation kills economies.

And that unfunded future liabilities number is pretty sketchy -- it includes pay as you go systems if I recall correctly.





JohnDoe added to this post, 0 minutes and 36 seconds later...



Krazy, you really think it will only be around 10%? Maybe by US gov stats....:thinking:

Actual inflation will probably be double that....

[IfThenElse]

I expect 60% devaluation in the next 3 years, and it could get even more worse...