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Monitoring The Cycle of Deflation

verfasst von Cosa, 18.07.2002, 10:09

Moin,

auf comstock.com erfolgte gestern die Fortsetzung......

Monitoring The Cycle of Deflation


The deflationary process we have been referring to is nothing more than the unwinding of the excess debt that was taken on by individuals and corporations during the 1980's and 1990's. The liquidation of this debt will take place mainly through defaults and will be a very painful process. As we stated in the Cycle of Deflation on 7/10/02 the outcome is SET IN STONE. Many of our readers wonder if the debt problem can be resolved through inflation rather than deflation. We don't think that inflating out of the problem is possible. The pendulum has swung too far during the financial mania of the 1990's, and with the Fed almost out of ammunition, the final outcome is a virtual certainty.

Of course anything is possible and this comment addresses the things to watch in order to see if the deflation is on track. Naturally, the main things to monitor are the ones which are labeled on the Cycle (see attached Cycle of Deflation below). Other important indicators of deflation to keep a vigilant eye on are commodities. For example, we are watching the CRB Index, which peaked at 330 in 1980, declined to about 180 last year, and is just above 210 today. The CRB Raw Materials index, which was one of the best indicators of inflation in the 1970's has been rising over the past year and should start declining soon. The JOC Industrial Price Index, copper, lumber and precious metals are all important to monitor. Most of these commodities should roll over and/or continue declining with the exception of gold and silver. The fact that precious metals acted so poorly during the Middle Eastern flare up and other problems such as the Thai Bhat and Long-Term Capital Management was the first clue that deflation would be the inevitable outcome. Now, it is possible that precious metals will continue to rise in anticipation of government intervention at the trough of the deflation, which could accelerate the decline in the value of the US dollar. So, if gold and silver roll over from current levels, it would be a strong confirmation of deflation and if they continued rising it wouldn't signal an inflationary outcome in our opinion.

It is important to keep a watchful eye on all of the various means of measuring the money supply - two are attached from the St. Louis Fed website. They have been moving up since the terrorist attack, but should start declining soon. You should also monitor the credit spreads to see if they continue widening since that indicates the strain and pain of weaker credits. Presently the BAA bonds relative to 10 year Treasury bonds are the widest ever in a so-called recovery (325 basis points). Watch the trend in loan delinquencies (attached charts below), corporate profits growing, and the various debt charts that were attached to the 7/10/02 comment. Naturally, the PPI and CPI should be watched closely since they have been fairly flat for some time and we would expect them to start turning negative this year. Home prices, which have been the strongest part of the economy, should start rolling over and start declining with the stock market.

There are many other indicators that we are monitoring, but this is a start.


<ul>

~ Cycle of Deflation
[img][/img]

~ CRB

~ Copper

~ Lumber

~ Gold

~ Silver

~ M2 & MZM

~ Adjusted Monetary Base

~ Bankruptcies & Consumer Credit

~ Bankruptcies

~ PPI & CPI
</UL>

Grüsse
Cosa

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gesamter Thread:

Monitoring The Cycle of Deflation - Cosa, 18.07.2002, 10:09
- Re: Goldcharts mit Volumen - Wal Buchenberg, 18.07.2002, 10:46
  - Re: Gegen WAS steigt Gold in so ner Deflation? Warum nicht Gold/CRB-Spread? - dottore, 18.07.2002, 12:52
    - Re: Gegen WAS steigt Gold? - Wal Buchenberg, 18.07.2002, 13:36
      - Re: Marx ohne Phantasie? - dottore, 18.07.2002, 14:25
        Re: Marx ohne Phantasie? Womöglich! - Wal Buchenberg, 18.07.2002, 14:46
        Re: Marx ohne Phantasie? Womöglich! - Wal Buchenberg, 18.07.2002, 15:06
        Re: Der unausrottbare Irrtum mit dem - dottore, 18.07.2002, 20:21
        Re: Der unausrottbare Irrtum mit dem - Euklid, 18.07.2002, 21:24
    - Warum nicht Gold/CRB-Spread? /du Zocker ;-) - Diogenes, 18.07.2002, 14:38