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-- Posted Monday, 3 November 2008 | Digg This Article | Source: GoldSeek.com
Rick’s Picks Monday, November 3, 2008 “Phenomenally accurate forecasts” The New York Times led its front page on Saturday with an article about, of all things, deflation: Fear of Deflation Lurks as Global Demand Drops read the headline. Better late than never, we suppose. For years, Rick’s Picks has been shouting from the rooftops that a catastrophic debt deflation was not merely possible, but inevitable. At times, we even characterized inflationists and those who asserted in print that deflation was unlikely or impossible, as contemptible idiots. Ad hominem attacks aside, we must warn you that these are not the guys you should trust right now, since they still don’t get it, not at all. 
They’ll catch on eventually, we’re sure – after unemployment has pushed above 10 percent, recession has turned into depression, Greenspan’s key role in the destruction of the global financial system has been universally acknowledged, and the Dow Industrials have fallen below 4000. But for the time being, the retrograde theorists of inflation remain totally clueless about its opposite and how to deal with it. Doubtless, some have even been buying stocks in recent weeks, convinced that global asset deflation has run its course and that a resurgence of inflation is about to cause share prices to explode. (For the record, we believe deflation has barely begun and that the stock market will not hit bottom before 2015.) Buffett a Closet Bear? Still, we’d have to concede the numbskulls are in good company, what with Warren Buffett, Bill Gross and Jack Welch ostentatiously professing their bullishness to any reporter who asks. We’re pretty sure these guys are closet bears, and would hasten to add that, by taking a symbolic $5 billion stake in Goldman Sachs, Buffett was not exactly “buying America.” Let him suck up some GM shares if he’s so bullish. As for Gross, he has long been suspected of putting PIMCO’s money where his mouth isn’t. And Jack Welch? Well, as The World’s Greatest CEO, he’s about as likely to utter a discouraging word as Oprah or Tony Robbins. Still, if such Forbes-list stalwarts can find value at these levels, who are we to quibble? However, we do have a request to make of those who cling, with every fiber of ignorance that the evidence will allow, to the notion that inflation or hyperinflation lies ahead: Wake us when the price of a modest suburban home reaches a quadrillion dollars. We’re not saying this can’t happen eventually, since it is beyond dispute that the dollar is already absolutely worthless. We just don’t think hyperinflation will precede deflation – which is to say, in time to save debtors from death by asphyxiation. It just doesn’t work that way. In point of fact, 99% of the bailout money (electronic credits, actually) so far has gone to shore up the reserves of banks, hedge funds and insurance companies rather than to beleaguered homeowners. And if you think, as the inflationists evidently do, that all that bailout money is going to get turned into loans, we’ve got a bridge to sell you. Much as the guvvermint wants the banks to start lending, policymakers seem not to understand that there will be precious few takers. Do you know a single person who is not hell-bent on retiring debt right now? We surely don’t. “What Asset Deflation!?” In any event, we’d suggest that readers imbibe articles about the economy in USA Today, the Times, the Wall Street Journal et al, with a grain of salt. The mainstream media did not see this disaster coming and even now seem incapable of imagining how much worse it could get. Conventional news outlets are barely paying lip service to those whose forecasts have been ahead of the curve for years. The truth is, deflationists were regarded as fringe lunatics until relatively recently. Writing for Barron’s and the San Francisco Examiner, we had the subject all to ourselves until around 1998, when the collapse of the Thai baht and its spillover effect on Asia brought a few more like-minded lunatics out of the woodwork. While it is gratifying to see that America’s newspaper of record has finally begun to catch up with the deflation story, it is not exactly cutting-edge stuff. Saturday’s front-page story was actually pretty tepid, even for the Grey Lady. In demurral of its own thesis, the newspaper noted, for one, that “prices have yet to decline noticeably for more goods and services, with one conspicuous exception – houses.” Perhaps the Times will eventually take notice of the asset deflation that has already caused additional tens of trillions of dollars in wealth – in the form of stocks, bonds, commodities and commercial real estate -- to vanish forever from the financial system? However, if they do fail to notice, it will be no more egregious an oversight than their having failed to notice the cosmic asset bubble that grew while everyone obsessed over the relatively insignificant inflation measured by an egregiously manipulated Consumer Price Index. *** Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Monday, 3 November 2008 | Digg This Article | Source: GoldSeek.com
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