Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Deflation Possible, This isn’t 2008!

Commodities / Deflation Apr 25, 2012 - 10:53 AM GMT

By: UnpuncturedCycle

Commodities

Best Financial Markets Analysis ArticleThere has been so much talk lately about the coming high inflation due to excessive printing of fiat currency, that I think it’s necessary to explore the topic. There is no doubt that the US, Europe, Japan and now China are all creating fiat currency at a rate never before in modern history. We also have had the lessons of excessive printing during Germany’s Weimar Republic drilled into our heads since the crib. Therefore we naturally assume that excessive printing in today’s world will produce the same result. When it comes to the US it is worth remembering that there are significant differences. In the first place the US dollar has been the world’s reserve currency for seven decades, and in the second place the excessive printing is nothing new in the United States.


As you can see in the previous chart, the Fed has expanded the money supply ten fold over the last three decades! This increase gained speed around 1998 as the stock market topped and the Fed created the housing/credit bubble as a replacement. Money supply began to really spike after 2000 and that led to some serious increases in the prices of commodities. Take a look at this chart of the CRB Index that goes back to 2002:

Here you can see close to a 300% increase in prices over a period that ran from 2002 to early 2008. In 2007 alone you can see an 80% increase in prices do to a combination of excessive printing and easy credit. That combination came as a result of the stock market top in 1999 and produced the housing bubble that went bust in late 2007. In short the US did experience a period of hyperinflation from early 2005 to late 2007, but since it never made the newspapers you missed it. Instead we chose to believe the numbers reported to us by the government claiming 3% inflation a year. Any person with an average IQ and a checkbook could have told you that prices were skyrocketing during that period.

When the housing bubble burst in late 2007, and stocks, commodities, and credit fell like a rock in 2008, the Fed came up with a plan to save the economy using what became known as quantitative easing. In simple terms it was a way to inject trillions of dollars into our bankrupt financial system. QE1 was announced in March 2009 and the effect was to push stocks, bonds and commodities higher, and with respect to the CRB Index, it recovered slightly more than half the decline before stalling out. More importantly, so did the Dow. Enter QE2 in August 2010 and the CRB Index moved to a higher high, but the Dow didn’t. Never fear! The Fed decided that a tweak was in order so they proposed Operation Twist (QE 2.5) in July 2011 and this was followed by a US $1 trillion QE in Europe. Surprisingly enough commodities have been drifting lower since QE 2.5 and the Dow is still no where near its October 2007 all-time high.

Depending on who you ask the world’s central banks have created anywhere from US $7 trillion to US $21 trillion and yet the Dow can’t make a new high, commodities prices have been declining for at least eight months on average and the housing sector is no where near a recovery. History will show that there is a big difference between printing money and creating credit. Growth and inflation can only come about when both are present. Increasing the money supply without giving people access to that money through easy credit will not produce inflation, and in today’s world of draconian EU policies, will produce significant deflation. We are seeing that now as commodities prices fall:

COMMODITY              2111              2012       % INCREASE

Oil                                   114.83          103.96                 -9.5%

Copper                                 4.64              3.64               -21.5%

Corn                                    7.80              6.14               -21.2%

Soybeans                           14.40            14.40                     0%         

Gasoline                              3.41              3.11                 -8.8%

Sugar                                33.10            21.97                -33.6%

Lumber                           319.00          271.00                -15.1%

I didn’t just choose these commodities either; I could have easily listed coffee, OJ, wheat or a handful of other items that we use everyday. Meanwhile the US dollar was almost unchanged during this period, moving from 78.98 in mid-February 2011 to 79.26 on Friday, so the decline has nothing to do with a “stronger dollar”.

In particular if you believe all the projections for renewed growth in the US and Asia then it’s very difficult to understand why oil refuses to move higher:

Throw in political uncertainties in Iran, Iraq, Egypt and Syria and you would think that the price of oil would be flying, but it’s not. It can’t seem to pull away from good resistance at 103.80. Also, the same holds true for copper:

“Dr. Copper” is used in just about everything and is a good indicator of future growth. Right now it’s telling us that things aren’t so great as it is very close to breaking below another fan line.

Finally, what seems to be aggravating the situation even more is Europe’s abysmal management of their economic problems combined with the Fed’s unwillingness to come out and say that QE3 is necessary. It appears that they want things in Europe to unravel so they can blame the EU for QE3, saying that things would have been just fine if Europe hadn’t ruined the party. Nothing could be further from the truth but it sounds good in the papers. For my part I am short oil, copper, wheat, corn, sugar, coffee, OJ and on occasion silver. I am also short the Dow but that is a recent move and it is a small position. My only long position is gold as it remains range bound (1,620 to 1,690), and I will not change unless that range is violated. We have the Fed meeting this week and I don’t expect anything new so that can only benefit my position. Sooner or later the Fed will have to ease, but I think that’s 30 to 90 days away so there is time to let the positions work.

The hyperinflation in the Weimar Republic was a three-year period of hyperinflation in Germany between June 1921 and January 1924.

These prices are all from mid-February/mid-March 2011

Giuseppe L. Borrelli
www.unpuncturedcycle.com
theunpuncturedcycle@gmail.com

Copyright © 2012 Giuseppe L. Borrelli

- 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.


© 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