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Mish Shedlock, and the Great Inflation vs. Deflation Debate

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So, I heard Frizzers is planning a new CW Radio programme with Mish Shedlock - who is he?

 

mishimage1525yv8.png..Mish.jpg..

 

YOU TUBE - back in late 2006

Mish Shedlock 1/12 :

http://www.youtube.com/watch?v=Vk5FvQxmWQk

Michael "Mish" Shedlock discusses America's troubled economy ... mish shedlock economy real estate ...

 

Here's a LINK to his well-known Blog:

http://globaleconomicanalysis.blogspot.com/

 

He's a regular on Howe Street:

Latest - Frugality is the new reality *AUDIO*

http://www.howestreet.com/audiovideo/index...mediaplayer/937

Mike has noticed that consumer sentiment has changed, seemingly overnight

- and days of red hot by the consumer are over.

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MISH IS A TRUTH-TELLER /

Here's how he dismisses a story about GM & Ford seeking a subsidy:

 

The U.S. automakers and the suppliers want Congress to appropriate $3.75 billion needed to back $25 billion in U.S. loans approved in last year's energy bill and add $25 billion in new loans over subsequent years, according to people familiar with the strategy. The industry is also seeking fewer restrictions on how the funding is used, the people said today.

 

Presidential candidate and presumptive Republican nominee Sen. John McCain today gave his support to the proposal.

 

"Our auto companies are rising to the challenge building the next generation of American cars, but are doing so in times when credit conditions cripple the funding for the facilities and technologies to take the steps to the future," he said in an e- mailed statement.

 

"We should fund it and take action that will assist Detroit and its suppliers in making it through this difficult time of transition," he said in the statement.

= =

 

Mish's Comment: McCain is a fool and if Obama supports this mess he is too.

GM and Ford are perpetually in a state of "transition", losing money on every car produced all along the way. There is no evidence that GM or Ford is rising to any challenge. Both overly relied on trucks, SUVs, and ridiculous concepts like the Hummer. Market share of both is collapsing, and rightfully so.

 

Besides, GM is not really a manufacturing company at all, but rather a subprime lender that sells cars. The market for subprime has dried up so GM needs another "transition". GM had a miracle opportunity to dump GMAC and Rescap at absurd prices and failed to do so. GM executives are clearly incompetent.

 

Yes, GM has some battery technology, but had GM focused on that instead of SUVs and subprime financing, it would be better positioned now. But the key issue is the marketplace and market competition is what should be leading the way, not taxpayer sponsored bailouts.

 

## http://globaleconomicanalysis.blogspot.com/

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Mish's blog has become essential daily reading for me. He is a convinced deflationist* and has put up some good arguments to support his position. I'd quite like to get another dedicated thread going on this subject if we can, with respect, avoid it turning into a philosophical willy-waggling contest like last time (and I have a Philosophy degree).

 

*He believes that real money or what he calls M' is contracting right now. It's also worth saying that he doesn't discount the possibility of huge monetary inflation at some point and he believes that gold will do well in both deflation and high inflation scenarios.

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WE DID THE INTERVIEW yesterday, and I think it is one of the best yet !

 

Jim Turk and Mish Shedlock are on different sides of the debate, and they argued their points well.

Truly, the conversation clarifed some important points for me - DEFINITIONS ARE CRITICAL !

 

They agreed on quite a number of points, and even Mish thinks we will see high inflation, and a

weaker dollar - eventually. He gave some good reasons during and after the interview why we may

see lower CPI, and lower interest rate IN THE SHORT RUN.

 

This is a critical debate, and it will be interesting to bring it to GEI.

 

I will look forward to reading Mish's columns on this and other subjects.

I have been a huge fan of his for years.

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Hi DrB, wondering where this interview will be posted/podcasted?

 

On CW Radio. I believe that Dominic is doing the editing now.

Watch for it here: http://commoditywatch.podbean.com/

 

BTW, the recent Property Podcast, is now by far the most popular yet: Hits (6768)

 

Will the Inflation / Deflation debate beat it ???

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On CW Radio. I believe that Dominic is doing the editing now.

Watch for it here: http://commoditywatch.podbean.com/

 

BTW, the recent Property Podcast, is now by far the most popular yet: Hits (6768)

 

Will the Inflation / Deflation debate beat it ???

 

Personally, I can not imagine either of them winning the debate.... I suspect that both of these heavyweights will be right in their own way, each focusing on a different part of the puzzle.. if that makes any sense. But I do think this podcast will beat the previous record as this topic is bewildering many at the moment.

 

I always enjoy Dominic's podcasts. It's a shame he can not manage to do more.

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...I do think this podcast will beat the previous record as this topic is bewildering many at the moment.

I always enjoy Dominic's podcasts. It's a shame he can not manage to do more.

 

I'm not so sure, but it will be interesting to see how much interest there is.

 

The "natural" audience in the UK is smaller than for Property-related programmes,

but I understand Mish will have a link back from his own hugely-popular website,

so it may bring in a new audience, especially if he mentions it on his blog.

 

I wish that Dominic had been able to record the conversation after the main interview,

it was a show in itself - about US property, and then a bit about Gold.

 

Mish sees the US real estate slowdown dragging on to 2012 maybe, and then struggling to recover.

He also thinks that RENTS in the US are beginning to fall, as people downsize, and many even

move back home, or inm with friends, decreasing the total number of households in the US.

 

He is long Gold (since last week, or so?) but is concerned that a rally may fizzle out by late

September or so. If that happens it could be headed for a lower low than the recent $790.

 

Mish has promised to do another interview soon, maybe on bonds - I will look forward to it,

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Mish sees the US real estate dragging on to 2012 maybe, and then struggling to recover.

He also thinks that RENTS in the US are beginning to fall, as people downsize, and many even

move back home, or inm with friends, decreasing the total number of households in the US.

 

So Mish agrees with you on falling rents. That will be one for the people. As for gold, I think it will continue to mystify everyone.

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So Mish agrees with you on falling rents. That will be one for the people. As for gold, I think it will continue to mystify everyone.

 

Rents IMO are hard to predict - will probably follow the general economy.

 

Inflation/deflation, in a fiat currency I just cannot conceive that deflation will get much of a hold before goverment will suss it can spend a bit more or if possible a great deal more zero cost money to buy votes for nothing.

 

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Excellent show, thanks.

 

Interesting to hear that Mish thinks gold is good long term whether there is deflation or inflation. In fact all 3 interviewees favoured gold at the end.

 

I look forward to part 2.

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Great.

Dominic, you say you "changed your mind" - From what to what?

And why, exactly?

 

The Key point here, seems to be M3 Growth: (Mish's points):

+ The Commercial paper market has shrunk, so

+ Corporations are borrowing from banks, and parking their money in cash

(so they have a cushion, to protection them from further disruptions)

+ Borrowing to hold cash is not inflationary

+ Debt write-offs, falling home prices, and shrinking consumption is deflationary

 

How "crazy will congress get?" seems to be the main question.

And Congress, and not the Fed, may be the real villains in driving the US towards

higher inflation, and maybe hyper-inflation.

 

Following that link to i-Tulip, I found this excerpt:

 

"Originally Posted by Eric Janzen

 

Conclusion

To me, this all adds up to a hold. Ka-Poom is a hypothesis that a long term trend is in place that supports holding inflation hedges long term. I'm no better at timing trades using rear view mirrors (charts) than anyone else. However, I remain confident that the antecedents lead inexorably to the medium and long term trends of a period of deflation followed by a period of chaotic pricing of securities and currencies, followed by a declining dollar and rising US inflation in assets that are not purchased on credit."

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Excellent :D :D

 

Two things popped out at me:

 

1. Mish's comment about leverage in gold & silver, resulting maybe in the current drop. To me when talking about the ETFs, that rings true.

 

2. You all agreed long-term on gold & silver. Since they offer the best safety, and it's only the long-term I'm interested in, I'm happy.

 

I'm looking forward to part 2.

 

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THE MAINSTREAM Press is catching on. (Finally!)

 

This from the Times:

 

"Robson traces the credit crunch to the failure of the West to adapt to intensifying competition from China and other emerging nations. “Stoking up the economy on debt was a way for the West to sustain an unsustainable standard of living,” he said. “In this sense the financial system wasn’t the cause of the problems. It was the messenger.”

 

(DB: But a slow, long-delayed messenger, after trillions had been badly invested.)

 

Where, asked Smith, are politicians telling it like it is?

“Living standards are going to fall,” he said. “House prices should fall. They are too high.”

 

Robson wonders how America and China will stabilise their unhealthily symbiotic economic relationship. America relies on Chinese savings to fund its deficits, he said, and the Chinese rely on the American export market to sustain their high growth rate.

 

(The Chinese can use their dollar reserves to "vendor finance" someone else.

Don't forget, Americans werent spending their own money, they were spending borrowed money,

mostly what had been borrowed against "fictitious" home valuations, now sliding.)

 

“The yuan is too low against the dollar,” said Robson. “If the Chinese won’t revalue it, the US needs to talk about import tariffs.” In hock to the Chinese, however, America is in a weak position to get tough."

 

/more: http://business.timesonline.co.uk/tol/busi...icle4596656.ece

 

WHY can the mainstream media not bring themselves to talk about

MAL-INVESTMENT ?

=========================================================

 

The media helped to encourage it, and stood by as it was happening with little or no comment.

Thus, they are 'accessories', I suppose, and don't want to admit their blindness and involvement.

 

More:

"The Corrigan group and other policymakers in tandem with the private sector are labouring to bring the boom-bust cycle back under control. The International Monetary Fund (IMF) estimates that banks will write off $1 trillion as a result of the credit crunch. In the first half of the year Barclays offloaded £6.3 billion of impaired loans and securities. “Assets are moving,” said Diamond. “There are new buyers, new structures, new prices.”

 

At the same time, Barclays and its rivals have begun to recapitalise themselves. While others have tapped the sovereign wealth funds of China and Singapore, Barclays went to the Qatar Investment Authority, where Barclays Capital does extensive business."

 

(Those mal-investments need to be written off and restructured before, and cycle of confident

lending can begin. I find it sad that Sovereign Wealth Funds can find nothing better to do than

to make equity investments in the very banks that engineered so many poor investments,

profiting -temporarily- while they did so. Aren't there better stewarts for their wealth around? )

 

= =

 

It's so easy being ahead of these myopic editors. Why are they so slow to catch on to problems?

And so useless at warning their readers while there is still time to do something?

 

RIP, Mainstream. Long-live the internet leaders !

 

This part, I agree with:

"The main factor determining where the credit crunch goes from here is the competence of the American government, he said. Not wanting to interfere, he hesitated, but then blurted it out: “The US election is the most important thing happening this autumn. A Barack Obama victory would signal a new beginning to the world.”

 

So who, then, is right? City bulls who say the situation is bad but manageable and will be back to normal by 2010? Or City bears who say the situation is very bad, out of control and set to drag on indefinitely?

 

In a way, the former wealth-fund manager said, both are right. “The West — especially America with the entrepreneurial energies of its new immigrants — will come back,” he said. But as the boom lasted a generation, it may take a generation to get over the bust."

 

After a "strong whiff of deflation", which may be experienced as dis-inflation, It seems likely that the next administration will try to do something, and that may well touch off the next inflation.

 

How soon? Time will tell, and I cannot.

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As a little guy Mish's comments are quite reassuring, now just to guess where gold's going to bounce from and when.

 

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Great podcast! Looking forward to the second part later in the week.

 

Thought it was interesting how both Mish and Dr B. stressed the importance of a period of mal-adjustment, the easy credit era, that lead to all our bubble troubles. Mish’s further point that this era of credit was ‘hyperinflationary” is significant as we should keep in mind the Fed is now trying to reflate these bubbles. I think many overestimate the Fed’s power to do this and that it may all end in failure and deflation. Also, a good point was made that even if the CB’s did print like mad, the money may not get to where it is needed but will rather get stuck with the banks. The banks would need to be somehow bypassed. Maybe the “helicopter” phrase is strangely prescient of this and that Bernanke and his men may have to literally throw cash out of helicopters. Then again, we had Dr B’s point that even if the money did manage to reflate assets, it would only succeed in debasing the dollar. So many variables, yet they all seem good for gold the anti-dollar...eventually.

 

I liked Mish’s use of a time line and interestingly he suggested a period of deflation before hyperinflation… I had always conceived it around the other way… inflation followed on by deflation. ... . food for thought.I suspect that both the flations will take turns scaring the markets from time to time. Which means it may be inflation's turn next. Which reminds me of an article posted here earlier by CC stating the "Ka Pow" theory.

 

I thought the article by Eric Janszen was a good read. Here we have an avowed inflationist incorporating deflation into his scheme [though of course he uses the disingenuous word “disinflation’]. I like his playful Ka Pow theory, but wonder if we will have a Ka Pow or a Pow Ka play out in the future. :rolleyes:

http://www.itulip.com/forums/showthread.php?t=417

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Good summary, Roman

 

...Maybe the “helicopter” phrase is strangely prescient of this and that Bernanke and his men may have to literally throw cash out of helicopters. Then again, we had Dr B’s point that even if the money did manage to reflate assets, it would only succeed in debasing the dollar. So many variables, yet they all seem good for gold the anti-dollar...eventually.

 

I liked Mish’s use of a time line and interestingly he suggested a period of deflation before hyperinflation… I had always conceived it around the other way… inflation followed on by deflation. ...

 

I am coming to the point of view that we will get a good whiff of deflation,

before Congress, the Treasury, and the Fed panic, and start behaving even more recklessly.

 

This could be where Turk and Shedlock disagree:

 

+ Jim Turk may feel that the recklessness we have seen already will be followed in a straight line, by more and more reckless actions, leading directly to higher inflation. And that there will be only minor rebounds in the dollar, as confidence in the US currency is progressively eroded. Recent rises in PPI and CPI, have supported this point of view.

 

+ Mish Shedlock sees a significant dip in CPI coming soon, as the sharp drop in oil feeds through into lower inflation. This will allow the dollar to rebound further, and give the economy a breathing space from the stress of higher inflation, and not needing reckless money-printing- at least, not just yet. And as people continue to seek safety, bonds may rise.

 

THE CHARTS suggest Mish may be right- at least in the short run. I think oil will work its way higher in the days to come, but then after a bounce in Oil, it will slide again, falling below the recent $111 low. And prices could fall all the way back to $100, and even possibly $80. (I am on record as saying I expect oil to shoot up after visiting a $80-110 low, and I will stick to that forecast. Howver, I dont think the oil weakness is done yet.) We could even see this second oil price dip (towards $100) before the US election. No doubt there will be some friends of politicians trying to engineer a further drop before the election.

 

All this likely volatility is going to require some close watching. And it is far from clear that oil will make a V bottom and head straight up to $900. I think there's a real spossibility it could follow oil, and have a second bout of weakness. But Gold's chart looks better (more bullish) than oil's does to me just now.

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THE CHARTS suggest Mish may be right- at least in the short run. I think oil will work its way higher in the days to come, but then after a bounce in Oil, it will slide again, falling below the recent $111 low. And prices could fall all the way back to $100, and even possibly $80. (I am on record as saying I expect oil to shoot up after visiting a $80-110 low, and I will stick to that forecast. But I dont think the oil weakness is done yet.) We could even see that second oil price dip before the election. No doubt there will be some friends of politicians trying to engineer a further drop before the election.

 

All this liekly volatility is going to require some close watching. And it is far from clear that oil will make a V bottom and head straight up to $900. I think there's a real spossibility it could follow oil, and have a second bout of weakness. But Gold's chart looks better (more bullish) than oil's does to me just now.

 

Yes, and surely what goes for oil goes for gold, that is, until it decouples from commodities to become money in the public's eye. I now realise that I was guilty of chasing gold up, but I am not too worried about that... as the saying goes, the secular bull market always rescues you. I will have further funds to invest later in the year and am hoping this time to take advantage of another possible dip.

 

By taking deflationary forces into account, within the larger context of dollar debasement, we should no longer be surprised by extreme volatility in the markets. Rather, it should serve to confirm that the financial markets are indeed fundamentally unsound.

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Yes, and surely what goes for oil goes for gold, that is, until it decouples from commodities to become money in the public's eye. I now realise that I was guilty of chasing gold up, but I am not too worried about that... as the saying goes, the secular bull market always rescues you.

 

I thought gold was decoupling from Oil on the recent Oil drop (which I predicted), and I was wrong.

But I do now see a difference in their charts. Oil looks like an A-wave down is complete, and the B-wave is underway

 

bigci5.gif

...with a lower C-wave low to come.

 

Gold may have already traced out a A-B-C, or needs a futher part of the C to be completed.

biggi2.gif

 

This difference, does seem to hint at a possible decoupling. And Oil remains expensive when measured in Gold ounces

 

THree years - of Oil-to-Gold

003zb5.png

 

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Dr B, I’ve seen you mention on a couple of threads your prediction for oil to possibly fall below $100 but then to surge well beyond its previous highs. I can think of a number of reasons (e.g. limited supply, limited ability/willingness to curtail demand, inflationary policies of CBs) to support your prediction but have you posted your own reasons on a thread? If so, would you mind directing me to the link as I would be very interested to understand your argument for such a rise. Thank you in advance, Alastair

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Dr B, I’ve seen you mention on a couple of threads your prediction for oil to possibly fall below $100 but then to surge well beyond its previous highs. I can think of a number of reasons (e.g. limited supply, limited ability/willingness to curtail demand, inflationary policies of CBs) to support your prediction but have you posted your own reasons on a thread? If so, would you mind directing me to the link as I would be very interested to understand your argument for such a rise. Thank you in advance, Alastair

 

SURE. there are two threads where I speak about this. One of them is HERE,

and an excerpt follows:

 

Richard Rainwater's Two Billion Dollar Bet -- Unwound

 

Top investor Richard Rainwater made $2 billion betting that oil prices would soar to over $100.

His investments go back to when oil was trading below $20, and he was a heavy buyer of Oil stocks

and oil futures at those lower prices.

 

When oil ouched through $129, he sold everything. One of teh things that drove him to do so was

a poll showing that 75% said they could see oil prices going higher, and they were taking steps to

cutback on oil consumption by: downsizing their cars, buying hybrids, and driving less. He thinks the

resulting demand destruction will bring prices down.

 

When it falls enough, he will be buying again. After a pullback, he expects oil to go much higher.

When it does, he wants to make another $2 billion.

 

 

This fits in with my own view...

 

DrBubb,

Do you see gold being dragged down by any retracements in oil ??

 

Oil could retrace from here.

The news out of China is big: they are raising oil prices, and that will hit demand.

Paradoxically, a fall in oil could mean more money flowing into precious metals.

 

I reckon will could see oil drift down over the coming weeks and months towards

my $100-$110 target

 

Look at this old Oil price chart from an article I wrote back in 1991

 

30yroilpw8.jpg

 

In the mid-1970's there was a big pop up to over $10 (think$140 this time), and then

a sharp drop to under $10 (say $8, and think $80-110 now). After that oil slowly worked

its way back up oevr many months. Then when it broke the old hog, and shot up quickly

to $40 (think $400 this time.)

 

I would not be surprised to see a similar pattern develop in the months to come.

That would mean: A drop to $80-$110, probably coming as an A-B-C drop.

Then, followed by a rise to $400, which I would expect by 2010-2012, in line with

my 30 year cycle for Oil.

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