Chris thinks that today is a red letter day in the markets.
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STAGFLATION…..THE BANE OF THE BANKSTERS, and CENTRAL PLANNERS…EVERYWHERE…YIKES!!!
Of course, stagflation as I recall was also accompanied by high unemployment. It was the worst of times to try to find work. You lived in dread of becoming unemployed. That was the 70’s. Not sure if that is the same stagflation Chis refers too. I mean where income was suffering flat growth and labour was in huge surplus. Unions got screwed to the wall in those days. It was a time when the business cycle was concluding and as a result a great many jobs started migrating to Asia. We felt so betrayed! A lot of time has passed between then and now though……water over the damn I suppose. Now those same jobs are popping up over here where I live in Africa. How weird is that? I could probably go out and get my old job back threading pipes and fabbing steel for foreigners but now my salary would be about four dollars a day. Cripes. Maybe the tools are still the same ones I used back then! That German engineering lasts forever.
I agree with that assessment. When I listened to Gary and Rick’s debate on inflation/deflation, I felt both could be correct. Ultimately debt will give you the low growth environment while money printing and a weak dollar could give you the inflation issue.
I think that’s it Richard. The last time this happened (you and I will know it well) the outcome was that most middle class families could not survive and get ahead anymore unless households had two incomes.
My own Mother went to work in those days to prop up the home and the budget. It was supposed to just be a temporary arrangement but it became permanent and ended in the divorce of my parents some years later. Just the bloody stress of it all that nobody was ready for.
Families everywhere were in the same pickle. Those days planted the seeds of our current social ills.
So I guess my question is this….what will be sacrificed this next time around since we already sent most of our women into the workforce during the Seventies? As if two income families that cannot make ends meet anymore is not enough. Will children be sent to servitude now too?
Joking aside, it strikes me as obvious that the pain will come out in housing in one form or another. A lot more downsizing. Home prices falling again as supply exceeds demand. Exhaustion perhaps. A rejection of past ideals that maybe makes the Sixties look tame and a return to saving and thrift?
These are going to be interesting times. especially as the pension bubble finally bursts.
I think we’ve had stagflation for some time in the US. A scenario very much like the one you are describing — prices of many things increasing but with a soft job market and anemic wage growth for those who are employed.
Some people have described this as a situation in which you have price increases in the things you’ve got to have and price decreases in the things you don’t need.
I have said in the past that the only reason we’ve got positive GDP figures is due to all the artificial supports — QE, ZIRP and the hundreds of billions in deficit spending. Remove those and you’re already in recession.
Even with those supports, basis the most recent report, we are now at stall speed (albeit there are those who will argue it is weather related). We shall see, as we get data on the current quarter.
In any event, during the next recession — if we are experiencing stagflation — I think people will be amazed by much corporate earnings collapse. Go through a list of stocks and ask yourself whether that company provides a service or good that you must have, or which is discretionary.
In performing this exercise, you will see how many public companies fall into the discretionary category. As consumers look to cut expenses, the earnings of the S&P 500 for example could plummet. Put a recessionary multiple on THOSE earnings and then figure out what kind of limb the current market has climbed onto.
Those are all excellent points Eric. What is interesting to me is that we are indeed closing in on the wrap of the business cycle but that it has been prolonged by interventions. Maybe we get another year or 18 months, I sure wish I knew. But the recession that must inevitable arrive will likely coincide with a few other major conditions. Namely, that China’s credit bubble will be in full deflation mode and its real estate markets will be coming under tremendous stress. So yes, corporate profits will be under pressure in more than one jurisdiction and the stock markets will respond as they usually do. I wonder how much is already priced into Chinese stocks though. That market is already pretty far off its highs and looks increasingly tempting to me. More so than US markets right now.
Pretium PVG triangle breakout today. $10, then $14
from your lips to God’s ear.
they raised capital at the right moment in February/March, during the run up. Everything looks dandy — now if we can get the precious metals to cooperate, you could really have a ‘blow the doors off’ move to the upside in many of the well positioned juniors.
interesting to note that gold rallied to its high BEFORE the ppi was announced… hmmm
Great points Chris…..Norcini this am continues/ agrees with your thoughts
http://www.traderdannorcini.blogspot.ca/2014/05/ten-year-treasury-yield-plunges.html
Norcini’s cynicism is refreshing. He goes a little overboard sometime though.
I don’t trust the price of Treasuries being an indication of ANYTHING. The Federal Reserve is clearly manipulating Treasuries.
http://www.youtube.com/watch?v=m1vndEG1Za4
I am pleased gold is rising and don’t believe it can go down significantly.
I am very worried about the lies and deception the US is using in Ukraine.
All my life I have believe the US is trustworthy; one of the good guys. The action over Ukraine is disgraceful and makes me want to dissociate with my country.
I have never previously witnessed such behavior and consider the US leadership scum; worse than scum as they destabilize a country and people die for potential strategic gains for the US. This is evil.
BO POLNY says gold going to $2000 by year end.http://www.kitco.com/news/video/show/Metals–Minerals-2014/666/2014-05-14/Gold-Forecaster-Says-$2000-in-2014
Bo Polny also says in the interview that we are in a 21 year bull market in gold which is nonsense. The bull market in gold clearly started around 1999 or 2000.
Bo Polny about a year stated that the low was in for gold when it was at $1321. Of course he was wrong as gold fell over 10 percent a few months after that call.
JMiller…………Question, Does Bo P….say what the entire length of a “cycle” is for the gold , I have heard it is 28 years ,,,,top to bottom…………thanks………….j
That was great Chris. I appreciated the summary. So when somebody asks “will we get deflation or inflation”…. we can answer them without a moments hesitation….you will get BOTH!!!
I recall stagflation well. The younger people here will no doubt only know it from textbooks. We ought to cover it for everyone though since it is the most misery-inducing of economic situations.
Just can’t win for trying in such times unless you understand what is really happening.