Which 'flation' lies ahead?

[Nords]

Quote:

Originally Posted by Chuckanut Hmmm.. Yes, the feds are spending worse than drunken sailors...

Yes, because when I was a drunken sailor I had to stop spending when my money ran out.

[Ed_The_Gypsy]

This little article reflects my thoughts on the matter:
Hayek Is Wrong, And So Is Bernanke: The Coming Recession Will Be Deflationary - Yahoo! News
Even at 0% money, banks are not lending, businesses are not investing, job creation is not happening, people and institutions are paying down debt instead of spending. Deflation and depressions are caused by people not spending. Recessions like this are not the time for government to cut spending. As Al said, we have been seeing deflation right in front of our eyes already.

[Chuckanut]

Quote:

Originally Posted by Nords Yes, because when I was a drunken sailor I had to stop spending when my money ran out.

In reality, I must apologize to drunken sailors. They only spend the money they have until it runs out and they are wasted. The Feds spend the money they have, and the future money of me, my children and my grandchildren!! Drunken sailors are fiscal conservatives by comparison.

[Sandhog]

Quote:

Originally Posted by TromboneAl Can you explain what you mean about "planned" retirees? Thanks.

Quote:

Originally Posted by GregLee Retirees who have planned ahead to meet the possibility of inflation, I think is meant.

Exactly

Much like many if not all the FIRE members of ER. I'm sure they had contingency plans for high inflation years and market down years. You can not prepare for all the possible worst cases but you can prepare for some.

[arebelspy]

Quote:

Originally Posted by Ed_The_Gypsy This little article reflects my thoughts on the matter: Hayek Is Wrong, And So Is Bernanke: The Coming Recession Will Be Deflationary - Yahoo! News Even at 0% money, banks are not lending, businesses are not investing, job creation is not happening, people and institutions are paying down debt instead of spending. Deflation and depressions are caused by people not spending. Recessions like this are not the time for government to cut spending. As Al said, we have been seeing deflation right in front of our eyes already.

So what's your move then? Increase the cash aspect of your AA? Any other assets in particular?

Or stay the course (regardless of any flations)?

[HFWR]

My cash (~10%) and bond (~45%) holdings are mostly dry powder for the upcoming DOW 5000 3000 0...

I think deflation is the bigger risk, with some (or a lot) stagflation in certain commodities...

Just for grins, the USA, according to wikipedia, has about $470B worth of gold at today's prices. So, let's go on the gold standard, and try to use $470B in gold to run a trillion dollar economy... Piece of cake!

[Chuckanut]

I have seen no evidence of deflation. Certainly housing prices are down but they are just one item in the basket.

[MichaelB]

Quote:

Originally Posted by Chuckanut I have seen no evidence of deflation. Certainly housing prices are down but they are just one item in the basket.

Real median household income has declined >5% over ten years. That is deflation.

[Ed_The_Gypsy]

Quote:

Originally Posted by arebelspy So what's your move then? Increase the cash aspect of your AA? Any other assets in particular? Or stay the course (regardless of any flations)?

Good question, reb.

I am still working, in a very nice situation, making about twice what I used to make. I am paid in UK pounds (my choice). I plan to work for several more years. I like what I do.

I am paying off my debts (credit card debt already gone, to be followed by student loans for my kids, then what remains of our second and first mortgages). I do not plan to retire until after the debt is gone.

I am taking distributions from my mutual funds (all in an IRA) into a money market fund and will probably decide what to buy with it towards the end of the year. I will be buying dividend-producing equities. I might decide to divert some of the money going to debt reduction to equities. It depends on how cheap things get.

Basically, no change.

[Chuckanut]

Quote:

Originally Posted by MichaelB Real median household income has declined >5% over ten years. That is deflation.

Hmm.. so a drop in income is also deflation? I am not sure my economics professor would agree with that.

[MichaelB]

Quote:

Originally Posted by Chuckanut Hmm.. so a drop in income is also deflation? I am not sure my economics professor would agree with that.

Very much so. Declining consumer prices is only one part. Sales and production fall and that pulls down wages. Debts do not decline and that makes then relatively more expensive. The DSR increases until they become unserviceable. It is an economic cycle that feeds upon itself and is self-sustaining. When fully underway it needs external shock to disrupt the cycle.

The US economy is not deflating, but the consumer debt overhang is quite serious. Deflation is definitely still possible.

[Lsbcal]

Here's an inflation picture of the past (12 month inflation rate):





FWIW, my bond method is trend flowing. One half moving between cash, 2 year Treasury, and intermediate bonds. Right now it's in intermediate bonds. Also other half of my bonds move between 2yr Treasuries and short term investment grade. The rest is older Ibonds.

BTW, if you tell me when the next war is coming I might be able to work out an inflation forcast

[calmloki]

I'm guessing inflation. Gold went right through the
$1800s and has crested the $1900/oz mark as of today. Awful lot of paper to trade for the same old chunk of gold.

[Gone4Good]

Quote:

Originally Posted by Chuckanut Hmm.. so a drop in income is also deflation? I am not sure my economics professor would agree with that.

He sure would. Wages are a price, just like any other.

Of course it is just one price and deflation isn't defined by just one price - even one as important as wages.

[Lsbcal]

Quote:

Originally Posted by calmloki I'm guessing inflation. Gold went right through the $1800s and has crested the $1900/oz mark as of today. Awful lot of paper to trade for the same old chunk of gold.

Maybe the hockey puck phase? Danger ahead.

[HFWR]

Quote:

Originally Posted by calmloki I'm guessing inflation. Gold went right through the $1800s and has crested the $1900/oz mark as of today. Awful lot of paper to trade for the same old chunk of gold.

My bunion says this is another bubble waiting to pop...

[FinanceDude]

We are in a deflationary period, except for commodity prices which are giving us inflation signals. As soon as the Fed starts putting the brakes on by raising rates a couple years from now, inflation will come quick and hit like a ton of bricks. We are not going to be out of the woods in this cycle for 5-7 years..........

[Lsbcal]

Quote:

Originally Posted by FinanceDude We are in a deflationary period, except for commodity prices which are giving us inflation signals. As soon as the Fed starts putting the brakes on by raising rates a couple years from now, inflation will come quick and hit like a ton of bricks. We are not going to be out of the woods in this cycle for 5-7 years..........

Remember the year 2000? The start of the new century with stocks going crazy on the upside and real bond rates very high on a historical basis.

Well, we seem to have come full circle. People have very low expectations. People are very eager to work and get ahead now. They are not disgruntled because the other guy is rich on his stock options. People are very interested in turning around their personal situations.

It's no prediction ... but a lot of money is made when things turn around.

[Lusitan]

hyper-in______