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Old 09-11-2008, 03:49 PM   #81
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I think Japan saw its real estate bubble pop. Remember at the end of the '80s, Japanese banks were big and real estate there had run up.

So the supposition was that it would take a long time to recover from the real estate deflation.
Welll...not so fast...the big problem in Japans RE market was that they bought a whole ton of inflated real estate OUTSIDE of Japan and in a lot of cases had to walk away or wait 10-15 years for the prices to recover.

Further, we dont really have a long time to wait to 'recover' from the market downturn. As I discussed in a recent real estate thread, people who were home owners before 2003 are still sitting on a tidy little profit, unless they got stupid and cashed out their house and bought toys. The house I bought in the San Francisco Bay Area is worth 3x what I paid for it at todays 'deflated' rates. The home I bought in the Sacramento area in 1996 is worth almost twice what I paid.

According to Zillow value charts, many homeowners in the 'bubble' states are still sitting on an 8-10% annualized growth rate on their properties, even after the "withdrawal".

So its sort of tough to 'recover' when you're up

Further, Japanese culture doesnt accept bankruptcy very well. People in debt tend to pay it off, even if it takes forever. Companies with wayward management that should crash and burn are propped up annually by the government. The Japanese government has been happy with artificially low interest rates running almost two decades now. People dont spend, they save. Many businesses pay off debt rather than make capital investments.

I cant see any of that happening in the US for decades and decades. Not even part of it.

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Oh and the oil price recovering around Xmas, a conspiracy theorist might say after the election prices will go right back up.
They'll be back up next year as the speculators drive prices up over $4 again and towards $5, so we get to feel good about it when the prices drop back down closer to $4. We're being tempered.

As far as deflation from the drops in commodities and oil, it looks a little more to me like thats just going to take the peak off the inflation trend, not drop to a deflationary level. We'd need to see $2 gas and food prices drop in half to get into that area. Not going to happen.

Helena said 'hitler', so we may be approaching a Godwin event...
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Old 09-11-2008, 04:17 PM   #82
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Originally Posted by cute fuzzy bunny View Post

Helena said 'hitler', so we may be approaching a Godwin event...

Ohhh... I see... discussion of deflation is "nonsense" and
mentioning Hitler will get one the esteemed Godwin award

It is a fact of history that Germany went from hyperinflation
to deflation to Hitler... in that order.
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Old 09-11-2008, 04:18 PM   #83
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Greenspan, and now Bernanke, recognize the dangers of deflation for an economy, so I'm sure they'd be willing to pump money into the system to prevent it. See this speech by Bernanke himself, in which he references Milton Friedman's last ditch "strategy" to avoid deflation, dropping money from a helicopter.

Reduction in asset prices isn't deflation, and is something that always has a reasonable chance of occurring. I'm confident we won't see deflation in the US in my lifetime.
According to McCully, Bernanke already took the helicopter up and Paulson is right behind him:

PIMCO - Global Central Bank Focus - July 2008 "The Paradox of Deleveraging"
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Old 09-11-2008, 04:38 PM   #84
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Originally Posted by Helena View Post
Ohhh... I see... discussion of deflation is "nonsense" and
mentioning Hitler will get one the esteemed Godwin award

It is a fact of history that Germany went from hyperinflation
to deflation to Hitler... in that order.
You are taking CFB out of context and wearing your feelings on your sleeve. Look up Godwin if you aren't familiar.
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Old 09-11-2008, 05:14 PM   #85
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You are taking CFB out of context and wearing your feelings on your sleeve. Look up Godwin if you aren't familiar.

Lots of assumptions being made...
lots of people will lose lots of money
because some ideas are more equal
than others.

But, don't worry, be happy.
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Old 09-11-2008, 06:01 PM   #86
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Originally Posted by Helena View Post
Lots of assumptions being made...
lots of people will lose lots of money
because some ideas are more equal
than others.

But, don't worry, be happy.
Bye.
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Old 09-11-2008, 06:05 PM   #87
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I thought that loading up on long term treasuries was the best weapon to fight deflation. Am I mistaken?
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Old 09-11-2008, 06:15 PM   #88
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I thought that loading up on long term treasuries was the best weapon to fight deflation. Am I mistaken?
Dang I keep telling ya folks - 1948, RR 9, SW Washington, the Norwegian widow getting her dividend checks from the mail man - rain or shine.

Ya wanna be modern - get some Rosetta Stone tapes and learn to spoke Austrailian, Swiss, English english and get a few other dividends in strange currencies as it were - like Canadian even.

Agile, mobile and hostile. .

heh heh heh - now where's that Curmudgeon certificate? .

Oh and one more thing - if you are lazy:

Pssst - Wellesley!
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Old 09-11-2008, 06:28 PM   #89
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Don't worry Unclemick, the Norwegian widow would be proud of me... Plenty of dividends (US and foreign) coming in. Just noticed that the yield on VDMIX is now 3.45%. Same as Wellington.

Language wise:
Australian: check
Swiss (French and German): check
English: check

Wellesley: check

Overall dividend yield: 3.4% and rising.

Heh heh heh (sorry for the plagiarism...)
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Old 09-11-2008, 06:31 PM   #90
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Quote:
Originally Posted by Helena View Post
Lots of assumptions being made...
lots of people will lose lots of money
because some ideas are more equal
than others.

But, don't worry, be happy.
Lots of people will lose lots of money because some ideas are more equal than others?

What in the world does that mean?
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Old 09-11-2008, 06:59 PM   #91
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I thought that loading up on long term treasuries was the best weapon to fight deflation. Am I mistaken?
Deflation, as incredibly unlikely as it may be, and as virtually impossible to happen in the US in large amounts over a lengthy time period...is not a problem for most asset classes. About the only thing off the top of my head that would stink would be TIPS.

The thing is, most people associate deflation with an economic depression because sometimes one can trigger the other. But most historic instances of deflation have not been associated with a depression.

In short, deflation without depression would probably be a most excellent time to own stocks and bonds. Basically you could plausibly count on the same rates of return, only with deflation making your investing dollars more valuable as opposed to inflation making them worth less. Pretty much a bonanza.

As for a rise and commensurate drop in real estate, a little bear market and a handful of financial companies run by idiots somehow turning us into Nazi Germany. Wow. Thats an interesting theory.
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Old 09-11-2008, 07:03 PM   #92
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More than a handful of companies. Just a handful which has had to be bailed out or is teetering on the brink.

It's more like a handful which aren't in as bad a shape as the rest of the industry.

No economic distress won't make us desperate enough to put fascist govt. in power. I'd be more worried about the scope of that distress than whatever govt. takes power.
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Old 09-11-2008, 07:10 PM   #93
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Last time I checked, the vast majority of the S&P500 were profitable and meeting or exceeding their estimated numbers.

Five bucks says that if you folks stopped listening to CNN, Bloomberg and the other morons who want to make everything sound like its on fire...you'd be a lot happier in just a few weeks.
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Old 09-11-2008, 07:20 PM   #94
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Just to point out that I don't subscribe to Helena's deflationary scenario. I was just curious, on a theoretical level, about how one would position one's portfolio to fight deflationary pressures. I remembered reading about long term bonds (in the context of the great depression I believe), so I was just throwing it out there...
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Old 09-11-2008, 07:37 PM   #95
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And those S&P companies are laying off people and wages have been stagnant and home values have fallen.

This isn't just a mental recession people are anticipating.
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Old 09-11-2008, 07:58 PM   #96
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Unless I'm mistaken wage growth has continued unabated and until early this year was well in excess of inflation. I'm unfamiliar with any reports showing massive layoffs. Home values have 'fallen' to where they were in 2003.

You could scream 'recession!' or you could follow what the data seems to be telling us and say that the economy has slowed and a few bad things have happened, and as usual we really dont have a very good crystal ball to tell us what is going to be going on a year from now.

The only thing I can do is make sure my plans are good for most seasons, and then I can choose to worry myself to death over it or not.

I like my plan. And i'm going with 'not'.
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Old 09-11-2008, 09:19 PM   #97
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Originally Posted by retire@40 View Post

Lots of people will lose lots of money because some ideas are more equal than others?

What in the world does that mean?

Move along... nothing to see here...

Don't worry, be happy.

No such thing as deflation.

Just like real estate.... the stock market always goes up...

goes up... goes up

buy and hold

buy and hold

buy and hold


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Old 09-11-2008, 09:40 PM   #98
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From the book "Deflation" by Chris Farrell:
Attached Images
File Type: jpg deflation.JPG (75.3 KB, 7 views)
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Old 09-11-2008, 09:46 PM   #99
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I'm not sure what the next few (or 10) years will bring, but one thing that history teaches is that whatever people are predicting right now will largely be dead wrong.

So in good times when there are predictions of nothing but good to come (sounds like the late '90s, eh?), you better beware. And when all is doom and gloom, then take comfort in that something unexpected will probably develop to make that wrong as well.

I'm hoping that an energy revolution is what will bring about the next great period of prosperity and a positive new trend for the U.S. and the world. Who knows?

Unfortunately I also think that protecting us from the downside, as is currently being attempted with all the bail outs, etc., mitigates the motivation and impetus to create the next new upswing.

Time will tell, but I take my comfort from that. And I will try to remember that the next time things look as rosy as can be that I should take cover!

Some of those older than me are probably nodding their heads and saying, "no kidding." We seem to have to live through some of it ourselves before it sinks in.
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Old 09-11-2008, 09:59 PM   #100
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I divested myself of all stocks/mutual funds before I retired
from my corporate job at age 55... and I'm not waiting for
a bottom to reinvest... I am out for good.
Helena, this was one of your posts in an earlier thread ("These are the times that try men's souls")

Did your corporate job's 401k or whatever not offer you a NON-equity investment option while you were still employed, or did you choose to be in equities then?

I ask because DH and I now have limited equity exposure now that we are ER'd (which led us to shift our AA to preserve mode rather than accumulate mode); but if we were not ER'd or still in the accumulate phase, we most certainly would still be at least 65% in equity funds.
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