We have been warning our viewers since 1999 about the word
“deflation”, and the negative stock market action when the deflation occurs. In fact, we authored the chart, “Cycle of
Deflation” (first attachment) which shows the flow of the typical
deflation. The deflation starts with excess
debt and over-investment leading to excess capacity and weakness in pricing
power. This leads to the devaluation of
the countries’ currency. When that
starts to affect exports the deflationary country typically gets into a
“currency war” with its’ trading partners.
This competitive devaluation leads to protectionism and tariffs followed
by “beggar-thy-neighbor”, where countries affected by deflation resort to
selling goods and services below cost in order to keep their plants open. As you can see this is a vicious cycle that
eventually leads to plant closings and debt defaults until pricing power
The full effect of this deflation has not
really permeated the USA, but you can see many indicators point to more
deflation. The U.S. [More]
The Fed Continues to Project Weak Growth
Happy Fourth of July
7/02/15 8:30 AM
To say the least, the Fed’s own projections of GDP growth
continue anemic at best. For 2015 the
Fed now projects 1.9% growth in GDP followed by 2.55% in 2016 and 2.3% in
2017. We have stated many times that the
recovery since the bursting of the “Housing Bubble” is the most tepid recovery
since the great depression and as you can see, the Fed is forecasting more of
the same. We have also stated that the
primary reason for this is that debt, i.e., government, corporate, household
and student loans, are eating us alive.
At the same time, the Fed is predicting relatively “full employment”
with an unemployment rate of 5% starting in 2016. It turns out that the only way to get to a 5%
unemployment rate is to eliminate those people that were not able to find work
and have given up from the equation. Our
analogy here is to say the Fed is like the golfer that gives himself every putt
over 20 feet and then tells everyone he’s “scratch”. It is not reality!
From time to time, however, there are bright spots that
seemingly appear. One such spot is
automobile and truck sales that were very strong in June. It turns out that those sales were achieved
through a record percentage of leases and/or record length car loans. Said another way, debt is the reason that
auto sales were good. We therefore do
not believe this is a “turn for the better”.
If we are wrong, the Fed will have to raise interest
rates sooner and faster than the market expects. If we are right, the economy will
continue to grow at somewhere between anemic or even negative rates. Either way, stocks by almost any valuation
measure are expensive and when that is the case the forward rate of return
suffers; it always has throughout history and we expect it will now. This is why we remain so bearish on U.S. [More]
The Great Divide
By Alan Abelson, Barrons
We live in an age of anxiety, and rightly so: Worries about the global economy are most emphatically not just in our imagination. The question is, who's going to bear the blame, come November?
The Age of Anxiety? With all due apologies to the late W.H. [More]
Send in the Magicians - By ALAN ABELSON
The economy desperately needs a shot in the arm, all the more so with the end of quantitative easing.
It's time Stephen Sondheim wrote another carnival song, and, more specifically, a sequel to the hauntingly memorable "Send in the Clowns" from his 1973 musical, A Little Night Music, which has proved so eerily prophetic in describing this year's political scene. As a glance at the crowded roster of Republican wannabe candidates for the presidency in next year's election makes clear, the powers that be in the GOP obviously have taken quite literally Sondheim's injunction that served as the title of the song, while the Democrats already have their very own barker and no shortage of mountebanks ensconced in their big tent. [More]
| Last Major Comstock Report|
FEET DON'T FAIL ME NOW
Dated, but not out of date
The list of negative factors impacting the stock market has now become so numerous that it is highly likely that a severe bear market has already started
The list of negative factors affecting the stock market has now become so numerous that it is highly likely that a severe bear market has already started. We begin with the fact that, as measured by earnings and dividends, this is by far the most overvalued market of the past century. [More]
Chairwoman Yellen has Investors in the Palm of Her Hand
3/25/15 11:00 AM
investment community was waiting on the edge of their seats for Chairwoman
Janet Yellen to make an announcement on March 18th at 2:00 PM in a
news conference. They were all waiting
to see if the word “patience” was removed from the Federal Reserve’s
statement. And not to disappoint the
investors Yellen did announce that the word “patience” was removed from the
statement (meaning that the Fed would not be eager to raise rates, but would be
patient). However, that announcement was
followed by long explanations about the fact that if the Fed did move to raise
rates the rate increases would be very slow.
worldwide investment community was anticipating the removal of the word, the
stock market was down over 100 points on the DJIA at 2 PM as the announcement
was made. Virtually every investor
(large and small) were “chomping at the bit” to sell equities if they detected the
removal of “patience”, since that meant to them the “removal of the punchbowl”
the Fed was supplying to the investment community over the past 6 years. Those were the years the Fed pumped trillions
of dollars into the U.S. [More]
Just had to say to you thank you, thank you for your wonderful financial sanity.
Comment on Cycle of Deflation
2/15/13Hello from Ireland again (i've mailed a few years over the past). I still enjoy checking your excellent site every friday morning. One comment on the cycle of deflation - you have plant closing & debt defaults happening after competitive devaluation however this, to a large degree and in Ireland anyways, seems to have come first. Maybe you could explain this?
Also, I have to say that even though I think you are right and will be proven so soon enough, you tend to underestimate [having read your column for ten years now I think you underestimate by a 2-4 years] the reflationary power of Central Banks and for how long they can keep them up for. [More]
Cycle of Deflation theory
1/18/13I'm sure that other regular readers of your commentary have noticed the term "beggar-thy-neighbor" showing up more and more in the press and online. It seems to validate the "cycle of deflation" theory you have posed for so long. We've been warned. Thanks.
Wonderful analysis that I have been reading for many years
9/03/11I would like your permission to send a copy of your 8/25/11 market commentary to them since I agree that we are in a major credit/debt contraction of hugh scale and a good deal of the asset write-downs are ahead not behind us. irrespective of your answer I want to thank you for wonderful analysis that I have been reading for many years.
Your Message is Loud & Clear
8/25/11Your weekly commentary plus the weekly postings on John Hussman's site should serve as required reading for anybody trying to follow this market.
Your message (much more concise than Dr Hussman's, I have to say)is loud & clear.