In the fwiw department, it seems highly unlikely that in a country with its own central bank adhering to modern economic practice and its own fiat currency, and also with large private and government debt that there will be overall price deflation to any significant extent. In the U.S. it seems we can forget about this as a realistic possibility.
All trading is about trading reality in the face of fantasy (fair value). Monetary deflation is reality and the power of the FED and the government to ultimately conquer it is the fantasy in this particular situation in my own view. Another take is that it is about the fringes (the improbable) becoming obvious to everyone (most likely). Change mostly comes from the edges to the middle. Issues move the opposite direction. One question is how long any movement takes. Who knows? Could I be wrong? Of course I can. That is where risk management comes in. PS: Seeing the truth doesn't always make me happy, but it can make help me be at peace.
I posted a while back. Expect deflation then a sudden bout of hyperinflation once all that cash sitting on those reserves get pushed out on the open markets.
Simple way of thinking about it: when you buy a house, you're shorting the USD (or the GBP or EUR; whatever). You're borrowing the currency, buying the house, then paying back the currency loan over a period of time, and making the bet the currency you use to pay it back will be inflated currency; i.e., you're betting it will be worth less when you pay it back. Thus, you are shorting. So now, all over the world, those shorts are being covered, and in many cases the people who did the shorting are suffering the equivalent of margin calls. So, what happens in a short covering rally? Expect currency to increase in value, and the things it can buy therefore to decrease in value, until the short covering ratio for currency relative to houses comes back into line.
piezoe, there are those rare times when central banks decide to inflate thee way "out" ... out of the jam that they and the politicians have put society in and discover they cannot do it without passing go and collecting $200. In this case "go" is going from the deep recession to intolerable inflation. The micromanaging an fail and anything can happen. While I often disagree with him this time I think this poster has it right; KINGOFSHORTS Registered: Sep 2007 Posts: 3455 06-15-12 11:32 AM I posted a while back. Expect deflation then a sudden bout of hyperinflation once all that cash sitting on those reserves get pushed out on the open markets.
perhaps I am wrong. I liked Trefoils nice example, however, so far at least deflation in one sector, real estate, has been balanced out, or even exceeded, by inflation in other sectors. The inflation I understand, but I'm having trouble seeing where deflation in the overall economy is going to come from, other than very small amounts for very brief periods, with a Fed that can create money out of thin air and a government that can spend it almost as fast as it's created. Perhaps there is an external restriction that i'm not taking into account.
You are not going to get market correction while they QE prices will not go to the real value until that stops. The people who receive the money will get rich. Everyone else will get poor. This is the worst aspect of QE.
If Europe falls apart (which is possible) the world economy slows enough to reveal the cracks everywhere in the worldwide leveraged financial system produced since WWII. We live with leverage everywhere and leverage = risk of deflation.
Are you talking about deflation as a reduction in money supply or an decrease in prices. There is a difference. A reduction in money suppy can increase prices and thus make inflation. Which are you claiming?
Swan, That's starting to make some sense to me. Also, Morganist, can you restate that first sentence. I'm having a little trouble understanding it. Something about prices not reaching equilibrium fast enough during QE?? edit: Morganist, I did not understand decrease in money supply causing prices to inflate. I thought a decrease in money supply generally made money more valuable so wouldn't that, all other things being equal, in general have the effect of lowering prices? Or doesn't it work that way?