Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Social Mood Will Define The Economic Future

Politics / US Economy Jan 15, 2009 - 01:12 PM GMT

By: Mike_Shedlock

Politics Best Financial Markets Analysis ArticleBoomers have known only inflationary or reflationary conditions for most, if not all of their conscious lives. Here is the pattern: Want, work, borrow, spend, enjoy, and worry about the bills tomorrow, as if tomorrow would never come.

Now tomorrow is dawning, the bills are due, and boomers are now entering end of life with a need to consume what they perceived would be a treasure chest of accumulated wealth that would allow them to sustain their inflationary lifestyles to life's end.


However, that wealth has now vanished in a giant deflationary two-step of collapsing home prices and a collapsing stock market. Note that those are symptoms of deflation not proof of it.

However, 15 out of 15 things one might expect to see happen during deflation are happening now, as detailed in Humpty Dumpty on Inflation .

Material living standards and associated expectations among even the lower working class and poor in the western nations have been raised to levels that will not likely be maintained during a secular deflationary crisis, let alone permit the lifestyles of the upper working class, professional middle class, and wealthy to remain intact.

Is Deflation A Government Choice?

Most still believe in the Fed's ability to inflate another bubble. They are mistaken. Instead I offer a Crash Course For Bernanke .

Greenspan had the wind of consumers' willingness and ability to go deeper in debt at his back. Bernanke has the wind of boomers fearing retirement in the midst of falling home prices and impaired bank balance sheets blowing stiffly in his face. There is no cure for what ails us other than time and price. And with the aforementioned attitude changes, the biggest, most reckless, global credit expansion experiment the world has ever seen is coming to an end. Central banks are powerless to do anything about it.

I know that in theory a determined government can always produce hyperinflation if it wants, I have heard that story 1000 times. If it was so simple in practice, however, yields would not be at 0%. Right now, the important thing to note is that even with massive "stimulus", thus far it's dwarfed by the implosion of credit and the trillions of dollars worth of writedowns and bankruptcies that are coming. Japan tried for years to combat deflation and failed.

Government Bonds A Good Bet

In contrast to the Bottom Callers In Junk , Hugh Hendry from Eclectica told CNBC, Government Bonds Still Best Bet .

The video is quite interesting and I recommend listening to it in entirety. With everyone up in arms over the so-called "bond bubble", Hendry has a much more pragmatic view, quite similar to mine. Here is a partial transcript of points Hendry made.

  • When it comes to treasuries I don't care about the next 30 years, I care about the next 30 months.
  • The Euro is a flawed mechanism and that spells trouble.
  • There is no money on the sidelines. We have had one of the most profound periods of wealth destruction in the last 12 month. Billionaires are throwing themselves in front of trains. Sideline cash is a myth.
  • Debt of all forms went from a generational low of 110% of GDP in 1974 to 360% of GDP recently. We have supersized everything. In 25 years it will be back at 110% of GDP. That has profound implications on valuations and asset classes. It puts a downward damper on everything.

I agree with Hendry's line of thinking, and even more so with all the bottom callers everywhere else. Would I want to buy treasuries for 30 years? Of course not. But that does not make them a good short either, not right now, and certainly not at 5% when many started. Ten year treasury yields are likely to stay under 5% for a long time to come.

Whether or not one considers treasuries to be in a bubble, should depend on a frame of reference. I would rather worry about the next two years than the 28 years that follow. Given that a deflationary environment that might last longer than most think, I see no reason to be shorting treasuries here except for a technical scalp. One could just as easily go long, given the wind is still at the back.

Multi-Generational Pendulum Shift In Attitudes


Most simply do not grasp the once in a multi-generational pendulum shift from risk taking to risk aversion. The credit bubble has burst and we are on the back side of Peak Credit .

As determined as Bernanke is, the best he will be able to do is drag things out for years, making zomibified banks in the process. Those who suggest The US Government Will Not Choose Deflation , simply have it wrong. Attitudes are the key and a secular change in attitudes from consumption to savings is now underway. And that attitude is what is going to define the deflationary years that follow, regardless of what government wants.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Rashmi
28 Jan 09, 04:43
The Economic Future

The Economic Future

nice article..............

regards

rashmi L R

India


Post Comment

Only logged in users are allowed to post comments. Register/ Log in