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New Martenson Report Ready

Friday, October 3, 2008, 10:32 PM

Everything I have been writing, lecturing and making Crash Course
videos about is now upon us.  It is here, and it is now.  Here I stack
up the evidence that, so far, deflation is winning, which portends a
very different outcome from the inflationary event I have been largely
anticipating.

It's here and it's now 

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18 Comments

capesurvivor's picture
capesurvivor
Status: Platinum Member (Offline)
Joined: Sep 12 2008
Posts: 963
deflation

I'[ve only been reading this site for a few weeks and then took the Crash Course. I have to say that I'm shocked at an interpretation of events that seems, to me, to be 180 degrees from before. Preparation for a deflationary depression is, I think, quite different from that for an inflationary one. Like the above writer, I have been making small moves, based on other information, this site, and my own interpretation of events, for an inflationary future. Many other folks I read also lean pretty strongly towards inflation. 

Perhaps the future will, ultimately, require infinite flexibility and the ability to turn on a dime, not so easy in this era of mortgages, jobs, loans, limited situational mobility, etc. That is considerably more difficult to plan for.

 

SG

robbie's picture
robbie
Status: Silver Member (Offline)
Joined: Jul 16 2008
Posts: 100
Confused...

I think I have a working understanding of the economic principles you describe. I admit I'm no expert, but your opinions appear completely divergent from Warren Buffet's.  Having recently watched his 10/1 interview on Charlie Rose it's clear to me there are some very bright people out there all claiming diametrically opposed future scenarios.  I don't expect reading the tea leaves to be simple, but there's absolutely no consensus of opinion among the smartest investment minds currently commenting. If I leave the stock market, go to cash, and buy gold (essentially unavailable to buy easily right now), I disregard the greatest lesson the market's ever taught: that big gains happen abruptly and you can't afford not to be fully invested when they occur. If Buffet thought crushing deflation was in our future why is he buying up billions of dollars worth of Goldman and GE? Shouldn't he be hoarding cash rather than deploying it?  Is it really different this time? Should one not buy at maximum fear?  If it IS different this time, then wouldn't increased numbers of credible people be sounding the alarm?  

Rob 

http://video.google.com/videoplay?docid=4537231419795681197

An exclusive conversation with Warren Buffett - Charlie Rose

xeroid's picture
xeroid
Status: Member (Offline)
Joined: Sep 1 2008
Posts: 9
it is different this time!
Watch and learn. Warren is currently taking massive advantage of the parts of the economy that are DEFLATING. The Government's inflation figures are an average, but in reality there are always some prices deflating and some inflating.His basic assumption is that this is an extreme version of a normal downturn of the business cycle and that overall growth will eventually return as it always has in HIS experience, in short he thinks that it ISN'T different this time ... at some stage history tells us that Warren will be wrong. However, in order to grow, the economy MUST use more energy, and we know from the price rises of oil over the last 9 years that this IS different this time - oil is massively less affordable now. Watch where Warren is investing - things that are deflating, watch where the Government are investing - things that are insolvent (worthless), there is a difference! At the moment the Government expenditure isn't inflationary because their money is being hoarded, but history tells us that eventually if you buy enough worthless things with ever more borrowed money everybody, even including Governments, will go bankrupt and default on their debt. History tells us that the final part of the default mode is hyperinflation - first, wealth is destroyed by deflation then what little value is left is destroyed by inflation. Eventually you have to swap a deflated house for the next inflated meal, if you don't have a house or any other wealth left you starve. There is no such thing as a free lunch!
Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Got gold and silver?
I agree with xeroid's scenerio. The winds of deflation are the dominating force right now. That explains falling assets and a rising dollar despite the Fed's massive dumping money in the market. But as history and Austrian Theory teach, ALL inflated currencies end when the said currency is worthless. That argues for the winds of inflation to take over as deflationary forces lose their energy. It's anybody's guess when we reach that turning point. My guess is about two years. I don't think the American and European economies can withstand a Weimer like hyperinflation before the dollar and euro are completely worthless. So the question remains at what point will central banks be forced to abandon fiat money, and when? To borrow a line from Jesus about the few being unable to to get throught the eye of the needle. The eye of the needle this time is gold and silver. Those markets are small and the amount of money looking for a safe haven is homungous. If you don't own physical gold and silver yet, get it if you can while it is affordable. You can't eat it, but it will sure buy a lot of food.
switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
There's no consensus

xeroid's argument makes sense to me.  Chris's post took me completely off-guard, so for the past 12 hours I've been researching deflation intensively.  As another poster mentioned, the only thing that's clear is that there are strongly divergent opinions about where we're headed right now and what the significance of that direction is.  They can be summed up as follows:

 

  1. We are headed for a long-period of deflation, and commodities and precious metals will suffer.
  2. We are headed for a long-period of deflation, but commodities and precious metals will actually recover and start moving upwards after a short drop because they are real, solid goods and as the economy tanks and people lose trust in banking and fiat money systems, they will seek the "safe haven" of commodities.
  3. We are experiencing a short period of deflation, which will inevitably be followed by a long period of hyperinflation. Therefore, gold and silver are still great investments - especially at their current price
I am not experienced or knowledgeable enough in this area to make a prediction myself.  I will say that I find the arguments for inflation to be more probable and convincing than those for a long period of deflation.  I also see that the physical supply of precious metals is way out of sync with the demand, so unless that fundamental law of supply/demand is broken or I've totally missed something, it's hard to imagine the price of metals continuing to fall.
 
Here's one of the best articles I read on the subject (http://www.marketoracle.co.uk/Article6231.html).  This is what he has to say about the price of gold:
 
It is very difficult to find physical silver right now and gold is very limited.  Gold production was down 5% last year from its peak in 2003 despite steadily rising demand.  Production will likely decline even more this year.  The four largest gold producers are expected to produce 18% less gold this year than in 2006.  These are not the signs of a bubble.  Any further declines in the price of these and other commodities will result in even bigger shortages.  The rapidly growing smaller producers that are helping to offset these declines in the larger producers are being seriously handicapped by the continuous price capping of gold and silver which delays and cuts off badly needed capital to deliver what the world is demanding.  The US Government has stopped selling gold coins also, so how does the price plummet when there is demand yet no supply?  There is overwhelming evidence that the recent declines in gold and silver are a fraud.  Gold expert James Turk noticed that in the Treasury's monthly report that gold held by US Mint facilities has not seen any change in its working stock of gold since April 2006.  No wonder the Mint had to stop producing bullion coins.  They are having trouble procuring gold and silver to make new coins and if they really had an inventory in working stock that is not already loaned out they would not have to stop producing highly demanded bullion coins. 
 
And this is why he thinks anything more than short-term deflation is improbable:
 
Everything we feared could happen in this economy has more or less occurred, or more correctly, has started to occur yet we have not been sheltered by the traditional safe haven status of gold and silver.  This is no accident. It is a planned policy known as “the strong dollar policy” that runs against all the natural forces in the real world, dooming it to failure.  The fiat money system can not possibly survive if money is not continuously created since it is brought into creation as debt and additional money to pay interest must always be created.  With interest payments at such a high proportion of the overall money in creation, any slowing at this point will lead to implosion and any expansion in excess of productivity will also lead to implosion.  This is why the talk of any tightening is a bluff and any drop in rates threatens inciting a dollar crash.  Very few can see this logic but the truth is getting ever more difficult to hide and soon the masses will see things much more clearly. 

 

switters's picture
switters
Status: Platinum Member (Offline)
Joined: Jul 19 2008
Posts: 744
Inflation- AND deflation-proof portfolio?

Chris's recent report jolted me quite a bit.  I've been preparing completely for an inflationary depression.  I'm heavily (>80%) invested in precious metals and bought all of it fairly recently at prices above $900 including the premium.  

Chris's article has me very concerned about deflation now, however, and I'm wondering if it wouldn't be wise to take a loss now on a portion of the metals I bought (i.e. 30%) and do something like 50/50 cash (U.S. dollars) / precious metals (physical gold & silver).  This would seem to be a hedge against both inflation and deflation.  If deflation occurs, the dollar rises and precious metals drop (at least most seem to think that is what will happen).  If inflation occurs, the metals go up and the dollar falls.  Either way half of my portfolio is dropping and half is rising, so it stands to reason that I would have both less to gain and less to lose in this scenario.  If I'm 80% in metals and their price drops for an extended period of time (>10 years) I'd lose my shirt, so to speak.

What do you think? 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Instant-ramen inflation

Many seem to feel that generating inflation is like making instant ramen noodles. Pour in boiling water, and in 3 miraculous minutes the dehydrated mass of noodles doubles in size. With a quick dose of microwaves, you've gone from salivating to slurping in the blink of an eye.

Well, Weimar Ben has put the Fed's balance sheet into the fiat-finance oven and hit "high-power defrost." And OMG, he's blown the sucker up by better than a quarter-trillion in one binge-addled week. $253.635 billion, if you still count millions -- which, like pennies, are barely worth stooping down to pick up anymore.

http://federalreserve.gov/releases/h41/Current/

So, why aren't we all scarfing down a steaming helping of hot-money, stomach-inflating empty income? Patience, my friends! Ben's still got more than $275 billion of Treasury cash, burning a hole in his pocket. Like a modern-day John Paul Jones, Zimbenwe boldly proclaims as the disinflationary shells explode round him, "I have not yet begun to spend!"

In a few more weeks, Ben's balance sheet may crack the two trillion mark. By then, I expect that we deranged metals fiends can slither out from under our rocks, stand tall, and holler:

Cool DEATH TO THE FREAKING DOLLAR!!! Cool

Paul O's picture
Paul O
Status: Member (Offline)
Joined: Oct 3 2008
Posts: 2
As I recall, there was

As I recall, there was considerable talk of deflation in the period following 9/11.  So, it seems to me that while we may currently be seeing deflation, the inflationary effect of all the gov't stimulus and intervention should not be overlooked.  We just haven't seen it yet because there is a lag.  Panic could overwhelm gov't efforts, but we haven't yet seen coordinated gov't intervention on a global scale.  The status quo will be maintained at all cost.

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
warren
warren has bought into his friends hank's company knowing it will be the first to belly up to the bar. he has now bought into ge knowing that tho they make a few toasters they are mainly a financial services company. both of these companies will sell us their toxic debt and warren will be left with a pretty good portfolio. he didnt get all that bread by being slow in the head
miranda's picture
miranda
Status: Bronze Member (Offline)
Joined: Apr 29 2008
Posts: 28
Ka-Poom?

Might this be Eric Janszen's Ka-Poom Theory in action?

"The "Ka" in Ka-Poom refers to a period of disinflation while the "Poom" refers to a period of rapid inflation."

mea culpa: I read it but don't fully understand it: http://www.itulip.com/forums/showthread.php?p=49922#post49922

http://www.itulip.com/forums/showthread.php?t=428

Gwentan's picture
Gwentan
Status: Member (Offline)
Joined: Sep 25 2008
Posts: 8
Boston Matrix supports your view on deflation Chris

An additional way of looking at current economic conditions could be through the Boston matrix, with attitude to savings and debt on the Y axis and income reliability on the x axis.  

 

Tendency not to save and to take on debt where possible.

A. Sort of person who spends what they earn. Will probably get worried and try to save even though their income is pretty safe. Fear is contagious. B. They are either financially incompetent in which case saving will be hard. Or they can handle money in which case they will seek to cut spending and save money if that is possible, which is unlikely as there is non spare.
Tendency to save and avoid debt where possible C. Sort of person who is careful with their money. Not much change to their lifestyle other than to save even more. Possible opportunities to invest and see great returns in the longer term D. Sort of person who is careful with their money. They will seek to save even more.
 

Continued confidence in the reliability of their income

Diminished confidence in the reliability of their income

  

Every cell shows that demand is and will continue to be taken out of the market.

 

So probably deflation, but the currency markets and the printing presses could turn that on it s head. Look at Zimbabwe, no demand/supply but incredible inflation.

 

 

 

muratd's picture
muratd
Status: Member (Offline)
Joined: Sep 25 2008
Posts: 1
Magneto

I, too am surprised at Chris' 180 degree off "Deflation is coming" take.

 My belief is deflation is by definition impossible as we print trllions of $ to fund the wars and the bail-out.

 What we are seeing is an artifact of the USD being the reserve currency of the world - the one everyone tries to stuff their mattresses with when they want to feel safe. As troubled as USD is - what is a better alternative - Euro? Yen? Yuan?  - you see my point.  The "appearance" of deflation is transient. Buffet knows it, too...

bluebird's picture
bluebird
Status: Bronze Member (Offline)
Joined: Sep 4 2008
Posts: 75
Inflation is now, deflation is coming

Because the FED is throwing out lots of money to get the banks to lend to each other, I perceive this to be inflationary. It is not working, no matter how much money/credit is out there. Too much in toxic investments around the world, and everyone is fearful.

At the point when the bubble bursts, I think the FED will stop throwing out any more money, and credit stops. Not many people will have cash, and no one will accept credit. That is deflation.

But I am not an economist, nor investor. I just read and try to connect the dots.

 

Ray Hewitt's picture
Ray Hewitt
Status: Gold Member (Offline)
Joined: Apr 5 2008
Posts: 458
Both Inflation and Deflation?
[quote=muratd]

I, too am surprised at Chris' 180 degree off "Deflation is coming" take.

My belief is deflation is by definition impossible as we print trllions of $ to fund the wars and the bail-out.

What we are seeing is an artifact of the USD being the reserve currency of the world - the one everyone tries to stuff their mattresses with when they want to feel safe. As troubled as USD is - what is a better alternative - Euro? Yen? Yuan?  - you see my point.  The "appearance" of deflation is transient. Buffet knows it, too...

[/quote]

Common thinking has it that inflation and deflation are measured by the rise or fall in prices. I follow Austrian Theory that maintains that the measure of inflation or deflation is determined by the quantity of money in circulation; prices rise and fall in different sectors within the existing quantity of money. Even by that definition there is disagreement among Austrian theorists about whether the economy is inflating or deflating or both inflating and deflating. I guess it depends on where you look.

In the days of the printing press it was pretty easy to measure the quantity of money. Today there are so many forms of instruments acting as money that are so complicated, it is impossible to break them down into anything quantifiable. If the deflation-only theory is correct, then that argues for a stronger dollar. Well yes, the dollar is getting stronger, but it is relative to other falling currencies and at present even gold. I think of the world's fiat currencies as a team of skydivers each falling to the ground at varying rates of descent. I'm standing by lessons of 3,000 years of economic history which tells me that the dollar's strength to gold is transitory.The dollar's strength relative to other currencies is an illusion.

Greshem's Law stated: bad money chases out good money. Follow Greshem's Law and use paper money for as long as practically possible. Use gold and silver when paper money is no longer viable.

James Turck has some good charts that show the long term trends of gold and silver. This recent drop in gold and silver is just a blip. http://goldmoney.com/en/commentary.php

jdb123's picture
jdb123 (not verified)
Have you been Blind Sided?
Chris is NOT at a 180 degree turn......If you've followed him for any significant time he has ALWAYS stated that he feels deflation is a REAL possibility...he just had it at an 80/20 inflation/deflation risk give or take......NOW obviously that is ratio has changed....Did you listen to chapter 19....???  "Twists and turns along the way".......No need to feel blind sided here folks---What you are getting is updated analysis from Chris based upon ever changing conditions that he has ALWAYS laid out as possible occurances.........Get with the program!
kcim67's picture
kcim67
Status: Member (Offline)
Joined: Aug 19 2008
Posts: 13
Expect the Unexpected

http://blogs.cfr.org/setser/2008/10/04/the-worse-the-us-does-the-better-the-dollar-does/#more-3837

 The above is a good article which goes a little way to explaining how the dollar could maintain its strength in the face of such conflicting data and it highlights this, these are truly are exceptional times and even the most learned among us are finding it difficult to truly see where this will end. I would like to add this, in the times of greatest diversity I have to believe in the spirit of humanity we must have some honest politicians and this is not only an American crisis. we have to believe that the days of world wars are over and no country can come out of this unscathed. This is the kick up the backside that we have been long overdue and from this day forward we have to demand that our politicians, bankers businessman as well as ourselves pay far more heed to the consequences of our actions than we have done in the past. 

Golden Age's picture
Golden Age
Status: Bronze Member (Offline)
Joined: Aug 2 2008
Posts: 61
Up is down and sense is nonsense

The price of gold and silver have been falling when there is not enough physical metal to satisfy demand. That doesn't compute.  The Mint has had to stop selling twice because they have no physical. 

The powers that be, whoever they are, are doing what is necessary to lower the spot price of PM's to strengthen the dollar.  ETF's are paper gold but they are being used to keep the uninformed from buying physical metals.

Kitco is acknowledging the shortage of physical and is offering a nice premium over spot if you want to sell.  If the experts would like to buy my gold, that is the best reason I know to hold on to what I have. 

john50's picture
john50
Status: Bronze Member (Offline)
Joined: Sep 2 2008
Posts: 74
Deflation investment strategy

While I have called this market as deflationary for some time, personally, I think it is too early to get into Gold in a big way, I am still shorting it this week. During Global deflation periods like 1929, all commodities fell along with the Dow, bottoming in December 1932. Silver is the closest example of what we can expect, I believe, since Gold was pegged at a fixed price. The trouble with buying a lot of gold now, is I expect the correction cycle to continue lower, so you just do not get much value.$600/oz will be about right, $900 is still too high.

The best bets now are to short the stock indexes, like S&P, and short oil and bullion for a short time, perhaps go long USD if you are not an American (Americans already have USD holdings and typically need protection from over exposure). Americans may consider Swiss T-bills in CHF while the dollar is high, and add at times when you get the most bang (CHF) for your buck.

The best ultimate ride out the storm position to get into will be out of USD as much as possible, and hold positions long on Oil, Gas, Gold, Silver, preferably in Swiss Francs, Yen, and CAD dollars. The bottom has not been reached yet, and could be a near bottom soon. The lowest risk way to enter is by dollar cost averaging on a monthly basis as commodities fall. Market timing pros may look for buying significant bottoms with a portion of the portfolio, leaving a lot of powder dry for a big fall. I do not see a runaway upside for some time, so relax.

During deflation periods, cash is one of the best positions, be content with safe and short term Gov't t-bills while the bottom falls out of this market over the next 2 years.I feel bad for people putting everything into gold right now, it would make me uncomfortable to jump in, but perhaps you get lucky. History has not shown that so far.

 

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