The Cycle of Deflation

verfasst von Cosa, 11.07.2002, 13:30

Hi,

die Jungs von comstock.com haben gestern wieder einen lesenswerten Tageskommentar abgegeben.....

<font size="4">The Cycle of Deflation</font>

We have been on the Deflation theme since these daily comments began in February of 2000,
and even before. To see the other comments, use the search engine and type in Deflation to
get the various dates. The investments for a deflationary bear market would consist of
securities that benefit from a stock market decline, Treasury Bills, Notes, and Bonds as interest
rates continue to decline on the highest quality debt. The Euro Currency should also appreciate
since the foreign holdings of US stocks are huge relative to our holdings in financial assets of
other countries. The U.S. will need a weaker dollar in order to compete in world markets. And as
foreigners watch the dollar decline as well as their financial assets we would expect the
liquidation of their financial holdings in this country. This should exacerbate the decline in US
stocks and the US dollar. All of these investments are held in the two mutual funds we manage.

The Cycle of Deflation diagram is attached below, and it would be helpful to print out as you
read this. The movement around the cycle seems to be following the path outlined pretty
closely. The ending of the mania coincided with the over-investment & excess debt along with
excess capacity. We have been experiencing weakness in pricing power over the past 2 years
and now the early stages of the cycle are giving way to currency devaluations. Competitive
devaluations will be next, followed by protectionism and tariffs. We are fast approaching the
protectionism and tariffs part of the cycle. Anything that restricts the free flow of global trade
falls into this category. Historically, this phase has been marked by tariffs on goods. Today,
however, the capital and currency controls and market manipulations being undertaken by
countries around the world constitute the subtle variation of the protectionism and tariffs phase
of the cycle. There was a start to the protectionism and tariffs by President Bush in an attempt
to protect our steel industry and that has recently generated retaliation from our trading
partners. A successful engineering of coordinated global interest rate cuts among industrialized
countries should trigger a round of competitive devaluations and then full-fledged protectionism
and tariffs. This will be followed by an attempt to dump goods at reduced cost to our trading
partners (beggar-thy-neighbor) and following that is the treacherous debt defaults,
bankruptcies and credit liquidation. Attachments of Debt Charts are shown below.

This deflationary cycle we keep writing about is much more powerful than any synchronized
reduction of interest rates. The combination of over-investments leading to worldwide
overcapacity, and unserviceable debt, followed by rampant speculation and outrageous
valuations in financial markets creates an untenable situation, and its conclusion is SET IN
STONE. Coordinated interest rate cuts may mitigate or simply delay the inevitable implosion,
however, they will not solve the problem. And the same is true if the IMF, World Bank, G-7 or
any other entity extends additional loans or credit to debt-laden countries. Debt problems are
not remedied by taking on additional debt, particularly when accompanied by stringent austerity
measures. Rather, they are remedied by writing down the debt and clearing out the economic
deadwood by closing money-losing entities, which will be very negative for worldwide equity
markets.

We have already exited the best environment for common stocks (disinflation) and have now
entered the worst environment (deflation). The entirety of the stock market?s gains over the
past 200 years can be attributed to the three periods of disinflation: 1920-29, 1949-66 and
1982 through 1999. The deflationary era that follows should be to common stocks what Monica
was to Bill and what greed was to Bernie, Mr. Lay, and Martha.


Cycle of Deflation

[img][/img]


Total Non Financial Debt/GDP - Bild als pdf Datei


Total Debt/GDP - Bild als pdf Datei

Household Debt/GDP - Bild ebenfalls als pdf Datei

Quelle


Gruss
Cosa


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gesamter Thread:

• The Cycle of Deflation - Cosa, 11.07.2002, 13:30
  • Re: The Cycle of Deflation / Danke, Cosa, aber......... - JÃœKÃœ, 11.07.2002, 14:21
    • Re: The Cycle of Deflation / - Cosa, 11.07.2002, 14:33
      • Re: The Cycle of Deflation / - JÃœKÃœ, 11.07.2002, 14:40
        • Re: NOCH MEHR RICHTIG! Was scheren die Deflation 'Interessen'? (owT) - dottore, 12.07.2002, 00:02
    • Vorsicht! - Taktiker, 11.07.2002, 14:52
      • Re: Vorsicht! - Euklid, 11.07.2002, 15:01
  • Re: The Cycle of Deflation - Emerald, 11.07.2002, 14:36
    • Re: The Cycle of Deflation - Euklid, 11.07.2002, 14:54