A Warning to Deflation’s Skeptics

A recent Morning Line drew flak from one Rantly McTirade, a lurker who posts occasionally at Rick’s Picks under that pseudonym.  ‘Rantly’, while evidently impressed by the accuracy of my technical forecasts, took me to task for ‘mouth-farting’ and ‘pontificating’ about some of the big themes, most particularly a deflationary bust that I have long viewed as inevitable. I responded that if my 0.6% forecast for the long bond, for one, proves correct, he’ll be eating a ladleful of crap somewhere down the road. I got argumentative support from ‘Farmer,’ whose interesting posts in the  Comments section of Rick’s Picks have gained him a devoted following in that forum. Read his response to Rantly and you’ll understand why:

Your comment might be amusing McTirade if what was coming were not so damned alarming. You did however hit the key words “deflation and housing” and that’s where the most pain will be felt when asset prices begin to fall back to Earth once more. Sorry, but we are not at a permanently high plateau nor will prices just keep rising indefinitely. And yes, things are going to be just as bad as the deflation theorists have argued all along (if not a whole worse). This can be demonstrated with a number of charts but the one I will link is perhaps most appropriate for today.

Home-Price Index Nightmare

The Case-Shiller home price index going all the way back to 1890 is tracing out the worst possible pattern for homeowners that anyone might have imagined. After peaking in 2006 and crashing for several years it has bounced off its bottom seen in 2011 (just as gold peaked) and is making a run for what will undoubtedly be an ugly double top within the next two years. Time of arrival can be comfortably measured by the angle of attack on the chart and the number of years for each period of the rise and fall. Click here to view the chart.

We are not there yet of course, but the set-up is damning and does warn that every bubble eventually has its day. What is harder to guess at is how far down we will fall once the final top has arrived or how many years it might take for the housing assets to fully deflate. Suffice to say that many millions of Americans (and Europeans, Canadians and Japanese too) are going to have a lot less of a retirement fund to work with than they might currently imagine. To make matters even more painful we will be seeing commodity inflation on the rise just as homes, stocks and bonds are on the wane.

A Perfect Storm

I predict a nasty long-term deflation in asset prices intermingled with flat wages due to automation. This will happen during a period of low growth caused by millions of retirements and as that happens we will see rising inflation in all the wrong areas (food, fuel and medical services) as commodities reassert themselves. What we have coming might just be the worst combination of circumstances lining up to create a multi-decade stagflation that simultaneously eats away at both our retirement wealth and our discretionary pension income.

Best to start preparing now, McTirade. What goes up eventually comes back down and what is priced for the trash bin always catches a bid when there is nothing else to buy with upside potential. What I am saying is that sometime in the next 25 months, gold will have finally hit its cyclical 8 year bottom while stocks and homes will have finally hit their tops and if you still have that smug attitude of yours and not rotated out to greener pastures you will be one of the bag holders when the next “Great Deflation” gets under way.

 

  • Fran October 24, 2017, 4:24 pm

    Thank you!

  • Buster October 24, 2017, 2:52 pm

    Whatever the outcome, deflationary collapse or hyperinflationary disintegration, what is most important to understand is who is responsible for this mess at a fundamental level…….the debt wielding central Bankster cabal, the parasitic Statists, …….& any of us who might have voted for a free lunch rather than taking responsibility for ourselves & care for eachother.
    The rest is probably just arguing semantics.

    I hope & pray some of Rick’s readers who don’t need to suffer this lesson may ‘escape all these things’.

  • none October 24, 2017, 10:58 am

    http://stockcharts.com/freecharts/yieldcurve.php
    Inserted is the animated yield curve.

    I am projecting a bench mark ‘prime rate’ (best customer rate) towards 1% and lower. The Prime Rate is key, as it is ‘best customer’ rate.

    Taking note that the last 2 flatting and then inverted curves were at the 5.7 to then later at the 4.5% levels. Today this is taking place in the 2’s.

    This allows a lot of room for increase volatility from the equity market from an inverted curve. In fact I sense that this downward move will have that process while the equity sector is moving downward not just in the topping phase, a delay reaction of sorts because of the very low volatility.

    This took place a bit in the 2000 Bear market 1st 15% downward move, then also starting the 1st leg in the commodity boom. A 20-30 percent correction in place with an ongoing inverted yield ‘not’ turning back to a rising curve is key to observe, and in fact it could stay ‘inverted’ most of the way downward.

    Talk about a bear phase or bear market, its cold ice running down the back of the spine.

    Have a great day Rick.