| Subject: | FWC: DEFLATION DYNAMICS by David Rosenberg |
|---|---|
| Date: | Fri, 18 Jun 2010 09:09:03 -0700 |
| From: | Jas Jain |
David Rosenberg; 06/18/10:
"DEFLATION DYNAMICS: It truly amazes us how so few people in the business get it. Everyone has inflation on the brain because everyone has spent his or her entire professional lives living with it. Or maybe because the double digit inflation rates of the 1970s and the 1980s are seared in everyone's memory. Go back and read the Homer and Sylla classic on the History of Interest Rates. Outside of wars, deflation is the norm, not the exception. The exception has been the experience of the post-WWII era."
My own conclusion about the inflationary wave of 1970s in the US is that it was a once-in-centuries event caused by people living longer, increase in independent households due to increased divorce rates as well as unwed single mothers, and global demand due to tremendous economic growth in Germany, Japan, etc. Under these conditions it takes time to catch up with demand. Deflation is the normal outcome in a capitalistic economy driven by technology. The increase in the govt debt is deflationary in the future! Please don't buy into "Printing Money" idiocy in connection with countries like Germany, the UK and the US. People don't yet get the deflationary wave that lies ahead for the aging Western economies.
"The U.S. inflation rate peaked in 1980 at nearly 15%. By the summer of 2007, it was down to 3%. It had gone from 15% to 3% even though the baby boomer balance sheet exploded. The aggregate nonfinancial debt-to-GDP ratio surged from 135% to 220% over this timeframe, and yet the inflation rate collapsed by 12 percentage points. The reason was due to classic supply-related shocks — globalization, capital deepening, massive gains in technology, productivity, freer trade, lower marginal tax rates, which spurred the trend towards secular disinflation.
"However, in mid-2007, the secular credit contraction came to a thundering halt. Deleveraging is the new secular trend, and since we entered the other side of the credit mountain, the inflation rate is down to 2% and the core rate of inflation is 90 basis points south of zero. Imagine that when the oil price was at $10 a barrel back in 1998, the core inflation rate was 2.5% and today, at $75 a barrel, the rate is below 1%. Now that is a deflationary stylized fact, if there was one.
"The situation now is one of debt destruction, not debt expansion, and it is only a matter of time before we see prices in the aggregate start to deflate. We are not talking about 10% or 20% price declines — more like 2% to 3%. Enough to jeopardize the lofty earnings estimates embedded in equity market valuation, enough to thwart the progress needed to resolve our intractable deficit and debt problem and enough to take bond yields back down to their 2008 microscopic lows."
Highest CD Rates Survey as of June 14, 2010
| Term | Highest Rate (APY) | Where? (Click link for Full Rate Sheets) |
| Vanguard Daily | 0.06% | Vanguard Prime Money Market Fund |
| Vanguard Tax Exempt | 0.14% | Vanguard Tax Exempt Money Market Fund |
| FDIC Daily Savings | 1.40% | Best Savings Account Rate Survey |
| 6 Month CD | 1.25% | Aurora Bank |
| 1 Year CD | 1.55% | Sallie Mae Bank & 1.51% Aurora Bank |
| 1 Yr US Treasury | 0.28% | US Treasury Rate Quote |
| 18 - Month CD | 1.75% | NOVA Bank |
| 2 Year CD | 2.00% | Bank of Internet USA |
| 3 Year CD | 2.50% | PenFed CU |
| 4 Year CD | 2.92% | Bank of Internet USA |
| 5 Year CD | 3.06% | EverBank |
| 5 Yr US Treasury | 2.07% | US Treasury Rate Quote |
| 7 Year CD | 3.51% | Pentagon Federal CU aka PenFed |
| 10 Year CD | 3.50% | Discover Bank |
| 10 Yr US Treasury | 3.29% | US Treasury Rate Quote |
- Easy to Read Best CD Rate Survey
Posts
No comments:
Post a Comment