The real worry is inflation
As investors realize the market's deflation phantoms aren't real, they'll notice a potentially fearful rise in inflation. That will give the bond market jitters.
Earlier this week, outgoing Eurogroup President Jean-Claude Juncker attempted to jawbone the euro lower when he said that, "the euro foreign-exchange rate is dangerously high."
So we now live in a world where not only are central banks intent on producing inflation, but the G-7 industrialized countries also all want their currencies lower. Paradoxically, the conclusion of the bond market is to worry about deflation when the logical result is inflation.
I, for one, think that game has ended. But the bond market certainly has not begun to factor in success of the central banks in debasing their currencies, or making them decline against the value of goods and services, something that has occurred even as the world has yapped about deflation.
Think of it as extra-mild deflation
On that score, an article by Anjli Raval in Wednesday's Financial Times headlined, "Labour shortage holds back builder Lennar" was most instructive. Raval began: "Lennar (LEN) said labour shortages and higher construction material and land costs were challenges for the US homebuilder even as it reported a surge in fourth-quarter earnings."
The writer went on to note, "The scarcity of construction labourers, as well as plumbers, electricians and carpenters among others that are the backbone of the residential construction industry, has resulted in projects facing delays . . . . The company said additional charges and higher prices for construction materials such as lumber, drywall and concrete had increased the average cost of building a new home by $1,600."
With housing at the epicenter of the economic debacle of the last few years, I ask you, is that what one would expect to see a major builder saying if we were experiencing unbridled deflation?
I have made the point many times that we haven't experienced deflation, but we have had a bear market in housing, though in some places and at some price points it has ended (keeping in mind, we could still have another leg down prospectively when interest rates rise).
Regular readers know I have been quite adamant about all roads leading to inflation, which is in part due to the fear of deflation. But how people can continue to beat the drum for the latter, given what is occurring across a broad front, including the housing market, I really don't know.
The 'mental' side of 'fundamentals'
Meanwhile, people need to remember that psychology (i.e., "money of the mind," as Jim Grant of Grant's Interest Rate Observer has named it) plays an important though not analyzable role in how folks perceive inflation, deflation and the purchasing power of their currencies.
They have been willing to overlook all sorts of cumulative inflation and currency abuse over the years as they have piled into bonds at ridiculously low rates. If I am right that the bond bull market has ended (as the deflation fear trade has), the next step would be toward pricing in "no deflation," then, ultimately, inflation.
If that psychology is in the process of changing, it will take some time, but it will be extremely powerful when the masses realize they need to do something and that they have been tricked into owning their third radically mispriced market in the past 15 years (equities, then real estate and now bonds).
Folks are going to lose gigantic amounts of money in bonds, as they did in our two bubbles, and, at some point, that may add a new group of buyers to the precious metals market. Unfortunately, those people who are the last to move into the metals market will find a fourth way to lose money, but that is getting way too far ahead of ourselves.
King World News
In my latest interview with Eric King, I was a bit more animated than usual, if I do say so myself. Interested readers can listen to it here.
At the time of publication, Bill Fleckenstein did not own or control shares of any company mentioned in this column in his personal portfolio.
Ever wonder who these nit-wits are who click thumbs down on the inflation comments? Do they not believe in the inflation taking place as we speak?
Do they not believe the undeniable documented history of every country who tried printing their way to prosperity? Do they just think it quaint that back in 1969 I bought a brand new car for $3100.00 and now thirty-one thousand dollars will buy an average sedan?
Inflation is your enemy. Government is THE cause of inflation. We are in a terrible mess and the next generation are the victims that will suffer most.
Inflation is caused by one of two factors -- high Federal Reserve rates -- which are not going to happen any time soon as they do not want to totally trash the economy. (Sure I know they claim that high rates fight inflation but we all know it fuels inflation as people raise their prices to pay the higher interest rates at the bank and higher costs as everyone else is raising prices for the same reason)
Just look at the mild inflation we have had with zero percent interest from the Federal Reserve if their inflation being inversely tied to the Federal Reserve rate was true we should be seeing 1,000 percent inflation right now but we are not so the idea inflation is tied to lower Federal Reserve rates is totally wrong.
The other factor in inflation and of which we are suffering is the fall of the dollar pushing the prices of foreign goods higher as they try to recover their costs of production.
The US will suffer through some more deflation before the dollar collapses later this year due to two factors the increase in US debt to all time highs and the rest of the world abandoning the dollars as the world reserve currency. China is making this move and has talked most of the world into trading in yuan and not dollars even Europe and Great Britain are switching over to yuan based trading.
So we are going to have deflation in regards to American produced goods as the dollar will lose value and thus US goods will lose value and we will have hyper inflation in imported goods
Which means get ready for huge oil and food bills as we import 40 percent of the food we eat and the food we grow here is based upon fertilizer made from oil. Pretty much forget about cars and working by the end of the year that will be part of the American dream that dies this year.
I have said this many times and the anti american Obama at any cost progressive socalist just call me raciest ect. Obama said from the very start that he was going to "transform" america the minorities, poor and underinformed middle class thought that ment "getting" the rich. taking them down and taking everything away from the rich and giving it to them. that is what Obama keeps eluding to by the "pay your fair share" retorick.
But alot of us saw what Obama's real goal is and that is to destroy america or at least take us way, way down the path of socalism and mabey even communism. The strong central government that tells people what the can and cannot have or own. Tell you what or if you can drive or tell you where to live.
Even his strongest supporters who would never question anything he does (these are the most uninformed) will eventually wake up but by then it will be to late. If Obama continues down this path of destroying the US dollar and forcing prices on everything higher and higher untill the system collapses. The masses will have no choice but to trurn to the transformed "strong central government".
This is why the republicans want a balanced budget, this is why the tea party was formed and why Obama had to discredit them. Anybody ever hear anything the tea party really did that hurt anybody? No but the Obama bloggers never let up on the "old white raciest" . Obama can not afford to be exposed yet he can still be stopped.
If Obama is allowed to keep printing money at will , open our borders and "start" the process of disarming the country. If he can destroy the constitution one piece at a time then nobody will see this comming.
Big government is what pulled us up in the early 1980's. We tripled the debt and put the money into the economy to jump start it.
Mc Donald/Douglas Boeing Ect.....how quickly we forget.
32 YEARS AGO TODAY, WE STARTED ALONG A PATH THAT RESTORED THE USA. BUT,
AT THE BEGINNING THINGS GOT REALLY NASTY..INFLATION...HIGH INTEREST RATES...GOLD HIT $850 (A LITTLE EARLIER) AND ON AND ON. NOW, WE HAVE COME FULL CIRCLE, EXCEPT THIS "CYCLE" WE ARE A COUNTRY DEEPLY DIVIDED WITH NOT $1.5 DEBT BUT A $16.4 DEBT AND ANNUAL DEFECITS OF THE TOTAL AMOUNT WE OWED BACK THEN. WE WILL "MOVE FORWARD" BUT AT WHAT COST ? THERE WILL BE FINANCIAL "PAIN". I HOPE AND PRAY THAT IT IS ONLY FINANCIAL IN NATURE..........BUT......I FEAR IT WILL BE MUCH WORSE.......MAY GOD CONTINUE TO BLESS THIS COUNTRY AND ITS LEADERS WITH WISDOM. AND REMEMBER THE 32 YEARS AGO THING ?????? IF WE EVER BECOME A NATION NOT UNDER GOD, WE WILL BECOME A NATION GONE UNDER............BIG GOV'T IS NOT THE SOLUTION...... IT IS THE PROBLEM !!!
GET OUT OF THE WAY !!!!!
No argument here! The worse of inflation is yet to come and I suspect it will be just in time so Obama can leave office in discrace. Sometime between now and the end of Obozo the uninformed public will discover inflation and then, hld on to your hat..
I'm into Guns and Gold, but by Gold I mean precious metals, and I think we can't just abandon stocks. I believe we have to research equities and determine what will benefit in the future. Starting with stocks that pay a decent dividend that increases a bit each year and is covered by earnings. Then we have to pick and choose among didfferent industries. I like some tech, but certainly the water industry, companies that will rebuild the infrastructure, railroads, and oil & gas companies, upstream, downstream and companies that serve the oil & gas industry.
And after that it can't hurt to pick another gun and some more ammo!
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
[BRIEFING.COM] The major averages ended the midweek session on a flat note after spending the day inside narrow ranges. The S&P 500 hovered near the 2,000 mark for the majority of the trading day, but slumped to new lows during the last hour of action. The index then returned to its flat line, where it settled for the day. For the third day in a row, participation left a lot to be desired with just 487 million shares changing hands at the NYSE.
Equity indices opened with slim gains, ... More
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As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.
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