August 15, 2008

HousingPANIC Stupid Question of the Day

After the Fed-caused short-term raging inflation, is the Big Deflation now here?


Anonymous said...

So after months and years of predicting $2000 gold, $200 oil, etc, now all of a sudden it's deflation time.

Nice flip flop.

Dan said...

Not Yet.

Not Yet for Some Time.

The FED has no other coarse than to keep interest rates low.

They are trying to "Inflate" their way out of the Housing Bubble.

What else would you expect from them, raise the interest rate, officially suggest a tightening of monetary policy and cause panic in the markets?

This is the time for all folks to reduce debt, save some cash, and just "Bucckle Down".

We are still in an inflationary mode and have to be.


keith said...

Go read the HP archives. Many HP'ers predicted inflation followed by deflation.

The surprise would be that the turn came so quick. If it's indeed here.

Meanwhile, get your rally caps on. Cheap oil changes a lot of thinking if it lasts.

Paul E. Math said...

I don't buy the deflation thesis yet. With low interest rates and the fed opening it's discount window to a broader set of instituions and granting money for a broader set of collateral I still see them creating more money relative to actual value created by the economy.

It is this creation of money relative to actual value being created by the economy that forces me to conclude that individual dollars are worth less and less and inflation (as defined by consumer price increases) will continue.

I'll put my rally cap on but it has a 'C' on it for Commodities.

Dan said...


I hear you,

Again, not yet. What we are seeing in the markets is a "Suckers Rally". The FED must keep the course of Inflation. Be sure, the're printing Dollars. They will keep it up for some time. They must. My guess, is 2 Yrs until things collapse unless there's a Big bank failure or other schism (which in these precarious times) could happen "any time".

Oil and Gold will keep going down.


sundry vermin said...

If I'm correct, this deflation thing will affect housing prices, which we should rejoice over.

After all that's the main injustice, unaffordable housing and wildly overused housing ATMs fueling rampant consumption to keep up with the p-dittys.

Er... nevermind.

DRE said...

In fact,

What I'm seeing is a "Pop" of some Commodity Markets.

There's powers out there changing course and trying to influence things.

Inflationary pressures will continue for some time before this will have effect.


Blame a Realtor said...

Cheap Oil Keef? I think your memory is too short if you think oil at $115 or $3.50/Gal is Cheap to the avg citizen. I think falling oil will help the markets short term but it will never be under $90/$2.50 again and likely will be $150/$4.50 sooner than later.
The pressure $100+ oil puts on the American wallet will continue to keep the stock market bears in control.

shultzie said...

CHEAP oil was under $40 a barrel which we will never see again - we will only see "not as expensive" oil.

The Keating-Mcain Five not a rock group said...

For the Answer, speak to John McCain. He is a financial genius.

Just ask him.

After all, he has lots of experience from the Savings & Loan Scandal...

-Remember the 'Keating Five"?

Smart people do.

PS: Obama: here's unlimited ammunition for a dirty negative ad. You're Welcome.

Stuck in So Pa said...

" keith said...

.....Meanwhile, get your rally caps on. Cheap oil changes a lot of thinking if it lasts."
Gas has dropped 50 cents a gallon here in the last damn month! Idiot neighbor just bought a new truck that he really didn't need. I wouldn't be surprised to see PU and SUV sales soar now that gas is "cheap" again!

Sheeple NEVER learn!

I'm really starting to lean favorably towards "Enjoy the Dieoff"

Anonymous said...

I've predicted here years ago, and I repeat: As the time approaches for the two oilmen you voted into the WH to get the f-out, the price of oil sinks. Don't be surprised to see $80 oil in 2009.

Batman said...

Cheap oil? Like a hundred bucks a barrel? WTF? That would have been unthinkably high in 2007.

There are some serious whipsaw markets right now driven by the ADHD generation on meth here.

On the deflation front, there is no reason to be surprised considering the credit market is only a fraction of the way toward lifting the petticoat from over all the non-performing assets.

BK said...

No way.

Small priced things will go up, hyperinflating.

Large priced items (which require loans) will drop like a rock.

Congratulations, screwed both ways!

Devestment said...

1 to 2 years. The next administration is screwed.

Devestment said...

So after months and years of predicting $2000 gold, $200 oil, etc, now all of a sudden it's deflation time.

Read my archive, I sold all the way up after paying $255 oz. when everyone was in love with tech stocks.

Anonymous said...

Go read the HP archives. Many HP'ers predicted inflation followed by deflation.
Deflation is finally here. The wonder is that it took soooooo long to arrive.

When will it switch over to inflation mode again? I have no idea. But I would suggest the dear readers of this board ponder the words of the much maligned economic genius John Keynes: "The market can remain irrational longer than you can remain solvent."

Lost Cause said...

Inflation, follwed by recession and deflation.

Actually, right now there is both inflation and deflation at the same time.

The Fed is inflating away the huge national debt. But in the process, people are going to have to dump goods in order to pay bills.

And $80 oil is not cheap oil.

keith said...

side note - my internet is still down in england (british telecom should be shut down too)

it'll be slow for a bit...


meanwhile, I'm buying consumer discretionaries at the internet cafe, anyone joining me?

bearmaster said...

You all might want to check out this interview on Bloomberg with a hedge fund manager. Trapped hedge funds are dumping assets, even good ones.

Asteri's Goldman Says Credit Crisis `Only Now Beginning'
Hedge Fund Manager Interview

Anonymous said...

Prices go down in a global recession, like the one were currently in. The BIG inflation, you know the one where the FED has no other choice but to monetize the trillions in national debt and unfunded pension liabilities, still lies ahead.
Think long term if you are young, who cares about a year or two of deflation when decades of hard core inflation lie ahead.

Lady Di said...

Deflation - stocks down, house values down, businesses going BK, people going BK, credit is contracting, money is tight - what more do you need to see that we are in deflation mode...

Anonymous said...

I'm not buying any stocks. These are scarry times and the tide floats (sinks) all boats. Even good stocks will get sold off in the panic days.

Is that the under-inflated tire Obama has been talking about?

GT Charlie

-FutureShock- said...

First off, I can not predict the future. I am not telling anyone what to do with their money.

Those of you that think this surge in the dollar and the dip in the commodities is something that is long term… well I think that this is the calm before the storm.

The first surge in energy cost are just starting to seep in.

Now we have the olympics, Russia’s war games and the election to help distract the sheep.

We have the “October Surprise” coming up and then who knows what after the election (if there is an election).

So we will see. I would suggest that people don’t get too exuberantly optimistic about things. I think buying physical commodities is the only way to go right now. Everything else is just vapor.

anon916 said...

Credit contraction is deflationary. People are spending more of their money on gas, food, paying down existing debt and are spending less on discretionary items and entertainment. The credit expansion (loose lending) and wage inflation has ended, probably last year.

The Fed can print all the money they want but if you can't get it in to people's bank accounts (via lending/wage increase) so they can spend it on consumer items (otherwise known as 'stuff'), we cannot have inflation.

Just because energy and food have gone up in price doesn't mean we have inflation. Most people are just spending less money elsewhere.

Mark in San Diego said...

Gold collapse seems to be telling us deflation is here - let's put it this way - Chinese stock market is still crashing during the Olympics, and auto sales there are down according to this mornings Financial Times. . .this can't look good for growth. . .if US, Japan, Euro Zone, USA, etc. are all in slow growth/recession, then prices will head down. . .simple as that - dollar looking good again, because US always can do massive layoffs, and slim down faster than Euro or Japan. . .creative destruction works best here - not good for unemployed, but good for the economy. Try doing a massive layoff in France or Germany or Japan. . .

Mark in San Diego said...

BEARMASTER - I did see that Bloomberg interview, and it tells me that deflation is really here - if the real credit crunch is beginning (no HELOCS, No credit cards, no commercial loans, etc.) then cash is king - few have it, and prices of everything will fall. . .no credit - no buyers - big problem.

The Housing Bubble Ate My Balls. said...

Housing will deflate, for a long while yet.

There is some deflation currently in commodities because the hedge funds and banks are getting hammered and need raise cash anyway they can.

We currently have both technically....

The Fed is trying to Inflate, meanwhile commodities are tanking because of fire sales. The Fed doesn't appear to be able to print fast enough.

Read these and put 2 & 2 together and you can see the bigger picture.

I think the commodities deflation is temporary, they will bubble again for a bit before it's all over when the stocks really start to go bad and traders flee stocks to commodities again. Then after things really go horribly wrong they will deflate again but at even higher percentages. kind of like a rubber band snapping back and finally going limp.

What's up with precious metals?
"Plunging prices and mounting shortages."

You might still see $2000 gold yet, I am not counting on it but, how can supply and markets be so out of whack.

Then there is
"Where's The Kaboom?"

Commodities are getting dumped and shorts are getting squeezed hard.

I still think we aren't done with Oil yet, two reasons....

Demand is down temporarily because:

1) It's summer (No furnaces running), school is out (no school buses). This summer with $4.00+ / gallon gas or increased prices and additional fees for airlines allot of summer vacations got canceled. People simply decided to stay home. That is a choice. Summer is soon coming to an end, kids will go back to school and heating oil tanks will need to be filled. There is no choice when it comes to bussing kids to school and heating homes, it has to be done.

2) China and the Olympics. China has all but shut down for the two months before the Olympics to clear the air, they stock piled fuel before that and haven't been buying much if anything oil, raw materials, etc.

"How Olympics brings down ship freight rates"

"Reading China's oil demand is getting harder"

So even if demand was up before as they stockpiled, it is Nill now and has been. I would think that as soon as the Olympic torch is put out China will crank it up and open up the throttle wide. The stockpiling just moved demand for a bit, it will come back for a bit, then by next year it'll drop again. Oil will see another bounce soon. Demand has only really dropped in the U.S. it is still increasing everywhere else, at least for now.

So, in the end you'll see another flip-flop, might even see record gold and/or oil again briefly in the final troughs and panic but, by early next year it's over and everything stocks, commodities, housing, jobs, number of banks that are open, salaries, etc...

Anonymous said...

What we may be seeing is market manipulation in commodities starting with gold and precious metals. Is the world scrambling for commodities as the financial system implodes?

steely damn said...

Bearmaster is correct -- the recent commodity implosion is largely driven by hedge funds trying to get out of positions that have downside risk from too much leverage. Remember there are over $250 trillion in derivatives with bets both long and short, and it only takes a small shift to change things drastically at the margins where commodity prices are set. The Fed and treasury could care less about the carnage as long as these liquidations result in lower prices for oil, foodstuffs, and gold. It wouldn't surprise me at all if the PPT were involved behind the scenes in pushing these hedge funds over the cliff. Deflationary? -- yes, but only as an offset to the horrible real inflation in the money suppy where M3 is still chugging along at an annual growth rate of 16%. Skyrocketing M3 is something the Mish and Elliot Wave followers can't explain, and it tells me the notion of widespread deflation is not happening.

Now if a money center bank slips into cardiac arrest again, Bernanke and Paulson will trip over themselves to see who can print money the fastest and revive the patient. Many of those hedge funds also hold positions that could conceivably bring down a JPM, Citi, or BoA. They will never let that happen of course and if they need to flood the situation with liquidity or drop interest rates to 0%, they will do it. The result will be a swift reversal of our current "happy days" as commodities take off for the moon.

My guess is Benanke and Paulson will slip up somewhere and the situation will unravel to where they have to start monetizing the debts. We will see a hyperinflationary end game because that is the only way out for them and their friends at the banks.

bobby lee said...

"Meanwhile, get your rally caps on. Cheap oil changes a lot of thinking if it lasts."

just until after the elections.

Anonymous said...

I would just say never underestimate the FED and our congress. Think of your taxpayer dollars underwriting fannie/freddie home loans. This is just the beginning, the FED can underwrite just about ANYTHING if push comes to shove. IMHO anyone betting the FED won't do anything, legal or not, to reverse a serious deflation is a fool. Enjoy the brief deflation as a buying opportunity for hard assets.

Anonymous said...

Cheap Oil Keef? I think your memory is too short if you think oil at $115 or $3.50/Gal is Cheap to the avg citizen


Dude, $3.50 IS cheap. Even $4 is cheap compared to the rest of the world.

The reason everyone had a shit when gas went to $4 was because it happened so quickly. Had it gone up 20-30 cents a year over 10 years it wouldn't be a big deal. But it went up $2 in less than 2 years and all of a sudden you'd think the world was about to end.

Now we're back at $3.50 and it's like oh well, so be it. Where's that SUV dealership.

I got gas for $3.45 yesterday and I was thinking, shit this is damn cheap. A year ago I would have been cursing up a storm over how expensive it is.

People get aclimated and fast. Used to be $10 for a movie was insane. Now people don't give it a second thought. And soon enough $3 to $4 gas will just become the new reality and nobody will think twice about it.

You are already seeing this with sales of trucks and suvs. Sales are starting to come back big time for both. All thoese suv rip stories flying around 2 months ago were to say the least, premature.

BR said...

As many of us predicted, the rest of the world is not much better off than America. Their bubbles formed later than ours, and are subsequently popping later - that's all.

The dollar was oversold for so long on the idea that the rest of the world would be fine while America suffered. Turns out, that's not the case. Everyone else is F'd, too. Especially Europe. That is good news for the dollar. The "decoupling" theory was a load of BS. Even the great and mighty China is now slowing down.

Anyone pointing to the price of commodities going through the roof as evidence of "inflation" doesn't understand inflation. Inflation, by definition, is an increase in the money supply. An increase in the money supply, over time, will of course cause the general price level to rise. However, it doesn't work in reverse. A bunch of leveraged hedge funds bidding up the cost of a barrel of oil and wheat futures doesn't cause the money supply to increase and doesnt' cause inflation.

Commodities were just the last bubble market to form. Wall Street exhausted everything else, and commodities became the hot new thing to put money into. That is all that was driving this surge in prices - not inflation. And it, like all bubbles, had to pop eventually. Maybe this is it, maybe it isn't. But prices will eventually fall back to fundamental levels - just like houses and tech stocks did. DO NOT confuse the price of commodities for inflation.

Sure, the cost of your tank of gas went up 30 bucks, but guess what - your house went DOWN tens of thousand of dollars. The equity credit line you had on it just decreased tens of thousands of dollars. Money is disappearing from the economy much faster than is can be created. The net effect? Deflation.

We have had deflation for some time now. The commodities bubble disguised that fact. The government will try to monetize and inflate in many cases, but they are limited in what they can do. Just printing money doesn't work - look at Zimbabwe.

Anyone remember Japan? Japan tried everything they could to prop-up their bubble as it deflated(almost exactly as the US gov is doing now). Guess what happened? A whole decade of massive deflation.

It's not the worst thing in the world. Yes the world economy will suck for quite some time. But the world (and especially America) has been living in a bubble for too long. It's time to get back to normal.

Anonymous said...

Hyper inflation in Europe for the foreseeable future.

The new more integrated America will not be so eager to help evil Europe.

Anonymous said...

Come on out guys, it's safe...

dont bring a gun to a knifefight said...

"Just because energy and food have gone up in price doesn't mean we have inflation. Most people are just spending less money elsewhere."

Must be another Texan? Boy are they a dumb lot.

Anonymous said...

BEVERLY HILLS, Calif. — Donald Trump will soon be Ed McMahon's landlord. Trump announced Thursday he would save the television personality's Beverly Hills mansion from foreclosure by buying it for an undisclosed amount and leasing it to McMahon.

The developer told the Los Angeles Times he doesn't know McMahon personally, but acted out of compassion because helping out "would be an honor."

McMahon, 85, who was Johnny Carson's sidekick on the "Tonight" show for three decades, has not worked for about 18 months because of a neck injury. He defaulted on $4.8 million in mortgage loans with Countrywide Financial Corp.

McMahon's spokesman, Howard Bragman, told The Associated Press that paperwork on the sale had not been completed but that McMahon was "very optimistic" the deal would go through

Pompous S Monson said...

"With low interest rates and the fed opening it's discount window to a broader set of instituions and granting money for a broader set of collateral I still see them creating more money relative to actual value created by the economy."

And that money is going towards reserves and not being lent out to consumers and businesses. Because of this, the money supply actually decreases.

Look for another tax rebate stimulus helicopter drop early next year.

Anonymous said...



Anonymous said...

There are two types of things people purchase -
1.Things you need to live
2.Other things

#1 is very expensive - causing #2 not to be bought. This is deflationary.
No matter if #1 comes down in price now - people will not buy #2 for years because of what's happened. It takes a long time to calm down the chickens after a fox has raided the hen house.

Real Estate will continue collapsing until hyperinflation takes over. You will know when hyperinflation is here because the Treasury will issue currency in $500,$1000,& $5000 notes.

somebodyexplodedanHbombtoday, butitwasn'tanyoneiknow said...

Everything is getting sold in the great de-levering. Look for piles of kitchen sinks to show up on the corners of every USA neighborhood - granite, laminate, Corian - all for $0.05 a pop. They'll be nice accessories for the $1.00 houses.

Anonymous said...

Austrian School: Deflation
Credit= money. In our system $1.00 of credit( or equity) is multiplied six to sixty times. Commercial banks are leveraged about 8 to 10 times. Bear Stearns was almost 30 times. Some hedge funds 60 times.

Starting with bad housing loans(but soon expanding to credit cards, commercial RE, Car loans, junk bonds, all types of business loans, auction rate securities, CDO's and on and on) are melting down causing a contraction in equity which causes a contraction in credit at the same six to sixty ratio. Two Trillion in writoffs (Roubini) will cause a $12 to $120 Trillion contraction in credit Therefore causing deflation.

So why did oil, gold and all commodities go up? They were part of the easy money bubble that led to hedge funds, Mutual funds, investment banks speculating. The spigot has been turned off.

Why is M3 expanding, inflation right? No. Big corporations are pulling their revolving credit lines because money(credit) is so tight. Their loans are added to the big banks balance sheets. The funds the corporations obtain are put into essentially Treasuries-M3 expands. But overall credit is contracting( no more off balance sheet financing)= Deflation

The jig is up, welcome to 1929

Those $million dollar houses may be down to $200,000 in a couple years

Gerbil said...

Deflation is better then inflation. Deflation should be the default state of the economy, but organizations like the Fed screw everything up.

Roccman said...

News Flash!!!

2005 - Katrina - 75 oil/3.50 gas

2008 - nothing - 115 oil/3.50 gas


we are buying gas at 75 oil prices.

Keith - you will be proved wrong...and I will help pound the last nail in your coffin.

Oil to $250 by year end.

Anonymous said...

Gerbil, you are dead wrong. There is no downside limit to deflation, and a true deflationary spiral has to be avoided at all costs. Inflation is ugly and horribly inefficient, but in most cases it's self-limiting.

Anonymous said...

In 2007 a new Tahoe went for $35K and it cost $3000 a year to buy gas assuming 15000 miles a year driven at an average of 15MPG which is what the Tahoe gets and $3 gas.

Right now you can but the same Tahoe for $26K with all the incentives. Gas is now $3.50 so the yearly gas cost is $3500.

So I save $9000 in purchase price and spend an extra $500 a year in gas. Pretty damned good deal don't you think?

This is just one example. Have you seen the price of TVs? A 50" LCD that was $2500 a year ago is under $1000 these days. Want a vacation to Mexico or Jamaica or a cruise? They are practically giving the rooms away. Even adding in the higher airfare to get there, it's still way cheaper than a year or two ago.

You morons focus so much on the price of gas you lose focus on everything else happening around you which is falling in price daily.

Obama saved us said...

What about the 90 or so banks that are on the watch list. Did things all of a sudden get better over night? The olympics seem to have made the world a safer place. Happy chinese girls lypsyncing for the world showing how beautiful those people really are. The Russians are making new friends in Georgia. WTF is going on? Are we going to Unite with Russia and China and make all our finincial problems go away?

Did OBama change something?

Anonymous said...

dmx had a new york city condo fall in price/appraisal/value? from 2 million, to a sherifs sale auction price sale of 120,000 a
"first" dent in the declining citys "real estate prices?, or a taste of a non manipulated market? or pricy add on flippers add on broker commissions compounded? the statrt of the nyc market catching up to the rest of the country?

Anonymous said...

Yup. Look for the deflation to last about 6-9 months. Then the printing press will kick into high gear. Tradeable bottoms across the board next summer.

Anonymous said...

Anonymous Anonymous said...
"What we may be seeing is market manipulation in commodities starting with gold and precious metals. Is the world scrambling for commodities as the financial system implodes?"

Heh Heh. Libertarians just can not wrap their minds around the concept of "D-E-F-l-A-T-I-On.

vanilla ice said...

Inflation is still a burning inferno. The Fed is printing money so fast they're breaking their machines. Just look at the money supply chart posted here a couple weeks ago.