Loading ...Deflationary discussion
I posted this earlier attached to a post that is now buried. I would like some feedback from the crowd:
So I read Rambus last night and there was lots of talk about deflationary spirals and being able to be quick to new move etc. What I didn’t come away with was how our beloved Au and Ag would do in this environment? I did see that GLD wasn’t looking strong but wasn’t able to ascertain much more than that. In an uncertain world full of viruses, debt and war are you telling me that gold and silver tank while cryptos go to the moon?! Somebody drive by my house while I am mowing and swerve to hit me. I don’t want to be part of this asylum of a world anymore ? Let’s discuss this!
Not to be cliché… but the chart will tell you the story… and for a plus.. a probability discounted story… If you are worrieds about how gold of silver will react to deflation.. don’t worry… if you pay close attention.. the PMs will have done the hoework for you. Ex… close below a 30 week moving average for gold in a bull era is not a good sign… exit! Don’t over think it, (I surely do sometimes.. cough cough). I find there is often a super important piece of the puzzle I only understand AFTER it has become apparent in the chart. Ex.. I might think deflation will cause a fall in commodity prices.. but what I might not of reasoned out was the over-riding properties of precious metals to discount expected imbalances in the monetary universe. Such could be caused, but not limited too, easing.. neg rates.. QE. SO why stress it out? Great for table top discussions… but a theory is only good if the chart continues to agree with it, then dies when the chart disagress with it. ALso.. sometimes we thik a theroy “fits” with the current price action… but with an eventual hindsight or reflexion.. was pure coincidence. It might give you false comfort.. or false fear… both useless to have a emotionless trading experience. Sometimes ignorance is bliss.. as long as you don’T ignore the chart.
Why can’t I see my edit button… so many typos… ahh forgive my French!
Thanks Patrick! I agree with all of the above. Odd things can happen. Look at this virus for example. World manufacturing and trade could collapse. That could be a case for Silver to crater. We live in interesting times and every day is more interesting than the last. It seems the black swans on the horizon were also laden with disease 🙂
Patrick … this site doesn’t permit edits to Replies.
Deflation is not One Thing. It can take various forms. Moreover, in many/most cases “deflation” as a term is being misused, and tossed around when Contraction in some form of economic activity is meant. We can have an Inflationary Contraction (Weimar). Or we can have Deflationary Expansion (post 1870s US, and much of that century). And please don’t toss out the rubbish .. “inflation in what we need, deflation in discretionary.” More BS.
So … which kind of Deflation are we expecting? There is no ongoing deflation in CRB. Deflation is not a sectoral thing. There is Contraction in CRB. Total money in the system, which is growing, is leaving that sector. We are in a Contractionary CRB cycle, in the broader context of near HYPERINFLATIONARY global currency expansion. Just pull up any chart of The Total Central Bank Balance Sheet, for starters. And total Bank or Shadow Bank Lending (or, more easily, Total Global Non Financial Debt .. $250 Tr). Inflation ALWAYS refers to the number of currency units in the system. PERIOD. FULL STOP. Discussing it any other way, means you are purposely creating confusion and misunderstanding, or betraying your ignorance.
So back to Deflation … QT was dollar deflation. Offset by ongoing yuan, euro and yen inflation. Inflation of currency (monetary inflation — the only kind) continues. Its almost stupid to segregate. Capital is mostly mobile. (Yuan credit is subject to capital controls. Some yen deposits are too, if locked in their Postal Savings).
So … deflation, will it be POLICY DEFLATION?? … tried and reversed? Or a DEBT DELEVERAGING CYCLE (with potential for a debt default cascade) that central banks respond to with MOAR INFLATION? Yeah, probably that one. Not here yet.
I agree Pedro.. we own it to ourselves as good traders or market participants to use (or really try) proper lexicon and definitions (understand EXACTLY what is meant) as synonyms in the economic world mean totally different things. Crash… melt-up.. depression… recession … decline.. contraction … distribution… a whole bunch of words.. some sharing similar intent (ie a decline of some sort) but if you forget to a sentence or two to contextualize your comment.. then someone might run away with your argument… but in the wrong direction (like the expected amplitude of the decline)… and like you said.. adds massive confusion… and over time.. if not corrected.. can be hard to overcome. Leading to endless debates where both are arguing over something which the original premise was misunderstood. Soo.. yeah.. I’m self taught and still teaching myself… there is no PH.d in trading/economie.. so there is no ‘bar’ exam… where we all were taught the same definitions… (maybe Chartered Market Techniciens? combined with an Economist PH.D … individually, both can have different interpretations of similar ideas?).. Another analogy from my workspace… In the IT world.. there are ALOT of acronyms and initials… and depending in with department you are.. the sam acronyme can be used.. but with totally different meaning. So to end my rant.. RULE #1.. listen to the chart only. Rule #2.. if you don’t undertsand a premise.. and you think it will emotionally affect your trading.. then ask questions.. read.. and understand what you really think you were understanding.. remove doubt, as doubt becomes fear, and that VERY emotional!
Pedro… to add.. precious metals AND sugar charts agree inflation is picking up.. https://goldtadise.com/?p=456322
My 2 cents
Commodities are deflating.
I call that deflation ( my stupidity is showing)| 🙂
World trade is decreasing
Less demand. Prices drop
US Stock market is inflating relentlessly
Gold ?
I don’t know in the short term but longer term…UP !
Pedro is right Fully. We shouldn’t be afraid to challenge and ask what people mean when they say “deflation”. If the premise is misunderstood, then the implications and emotional levels attached to it vary greatly. Ex. From a Stage analysis perspective.. I’ll just say base metals are in a stage 4 decline. Thats it. almost no emotion. Almost no implications to other assets. A precise sentence removes ambiguity and reduces chances of “stretching” the comment from over extending to other assets/ (ie gold or palladium).. as their charts show a different story.
Economists ..who are maybe .0000001% of the general population have their own definition of Inflation and deflation
I guess it is basically as simple as the money supply increasing or decreasing .
BUT in the rest of the world… inflation means rising prices and deflation means falling prices.
Thats the general understanding and use of these terms….whether “correct” or not.
So a chart showing a rapid uncontrolled drop in the price of commodities to me says deflation.
Again….you can argue that this terminology is technically wrong…BUT it is generally understood and accepted
by most Non economists.
Sloppy lingo gets you sloppy analysis.
AND … that’s the way THEY want it, so that they can deceive the public.
Which they’ve done masterfully.
Almost no one understands WHY we’ve saen what we have, and how its been possible.
And to Aurum … “Makes you wonder if a true case of deflation like the 20’s and 30’s is possible today with all the debt.” LOL. As I said, explicitly … smart folks know where the fire escapes are … not everyone will get out … then contagion rules … but yes, in the end … they will print more; but in doing that something will break. Probably the $, the Fed, and USA. Ca. 2032.
Pedro, Based on your analysis, how are you positioned now?
A non-playing critic?
That’s easy; anybody can do it.
Governments will always choose inflation over deflation. Deflation is the decrease in value and goods which can result in an increase in the value of currency. So money is hoarded and awaits lower prices which then feeds on itself and deflation increases. Makes you wonder if a true case of deflation like the 20’s and 30’s is possible today with all the debt. People and businesses can’t exactly hoard money they already owe, perplexing. And money is so bastardized today why wouldn’t real money like G&S be the light at the end of the tunnel? We will all find out together soon enough.