Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Deleveraging in Motion - Believe It or Not, Our Money Velocity Sucks!

Economics / Deflation Jul 19, 2016 - 07:02 PM GMT

By: Harry_Dent

Economics Dr. Lacy Hunt has been featured more than any outside speaker at our IES conferences. Why? Because he’s the only classical economist I fully admire and he is a successful bond investment manager in the real world that understands the trend towards deflation, despite unprecedented money-printing.

I love the gold bugs for being realistic and honest about the debt and financial asset bubble we’re in, especially when most mainstream economists and analysts are blind to it.


What kills me about the gold bug types is that they always see hyperinflation from unprecedented money-printing, and they don’t go back and analyze what actually happens when debt bubbles finally burst and deleverage…

DEFLATION!

There is no other cure for excessive use of financial drugs, and that is what excessive use of debt is – plain and simple. Debt is a financially-enhanced drug that has major costs down the road.

It’s like detox for heroin addicts.

It is ugly, but it purges the system of the drug and allows it to be healthy and grow again. There is no easy way around that once you are highly addicted and toxic from it. And we are witnessing the greatest debt and financial asset bubble since the early 1970s, more so than 2000!

Lacy is a classical, Austrian economist that totally gets how debt and financial bubbles build and how they deleverage and burst. Only Steve Keen in Australia (now London) garners a similar respect from me for such research.

Lacy has the “voice of God,” as Rodney calls it, and always has interesting charts and research. His bond fund at Hoisington Investment Management has continued to be a long-term winner betting on deflation, not inflation, showing he puts his money where his mouth is.

But my favorite of all of his charts – and the most unique – is his chart on money velocity, going back to 1900.

This chart clearly shows a major cycle in rising and falling money velocity. And money velocity has everything to do with the expansion of our money supply from leveraged bank lending against 10% deposit and capital reserves.

Money is created like magic. But it also disappears just as fast when things go south… now you see it, now you don’t!

It is Lacy’s explanation of this chart that sets him apart from other clueless economists, and even the best gold bugs.

Note that average trend line across the chart, at a money velocity of about 1.74 times. That is normal. When money velocity is rising faster than that, it is a sign that businesses (and consumers and governments) are making productive investments in new capacity that raise profits, wages and so on.

It’s a win-win for the economy and most everyone.

When money velocity starts falling however, as it did after 1918 and after 1997, it is a sign that investment is going into more speculative pursuits that don’t create productive capacity and returns – like stock buybacks and mergers and acquisitions for businesses, or like flipping tech stocks or condos for households.

That shows you are entering a bubble economy, like the Roaring 20s or the Roaring 2000s (as I termed it in my 1998 book title).

But when you start falling below that long-term average of money velocity you are entering a deflationary or deleveraging stage, which we did from 2008 forward… but such deleveraging and deflation has been simply covered over by endless QE and money-printing.

Despite such “something for nothing” stimulus, money velocity continues to decline. That’s why we aren’t getting inflation, nevertheless hyperinflation, and why we won’t in the future!

Deflation is the only trend for the next several years and no one understands that better than Lacy Hunt. I may have a little debate with him on the rising odds of a near-term spike in Treasury yields before we head towards even lower rates again.

DON’T miss him at our October 20-22 IES conference in Palm Beach!

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2016 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Harry Dent Archive

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


Post Comment

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

6 Critical Money Making Rules