IMPLICATIONS OF AN ECONOMIC DOWNTURN
John Hussman appears to be in the deflation, followed by inflation camp. In his latest weekly missive Mr. Hussman describes the likely performance of various asset classes given his macro outlook of near-term deflation and long-term inflation:
“Over the short and intermediate-term, credit crises are invariably deflationary, because they prompt a frantic demand for default-free government paper, which raises its value relative to goods and services (another phrase for deflation). So despite the huge increase in government obligations during these periods, you generally don’t see inflationary pressures in the early years because that supply is eagerly absorbed. Short-term interest rates are pressed near zero, and monetary velocity tends to collapse. Commodities are usually hard hit as well, so investors who are concerned about inflation risk or are chasing gold here may have the long-term story right, but they probably have it too early to weather the interim volatility comfortably.
Over the long-term, massive increases in government liabilities do have inflationary impact. This imposes a real burden, not simply a paper one. If the holder of government currency can command a certain stock of real goods and services, and then the government debases that currency so that it can command a lesser stock of real output, then it is undeniable that the difference in real value has been implicitly transferred to the government to finance its spending. While I do expect that TIPS, commodity exposure and precious metals will be important inflation hedges in the years ahead, investors chasing these assets here may have a difficult road. It is best to accumulate such assets when they are in liquidation, not when they are being chased on the basis of overly simplistic theories of inflation.”
Read the full piece here.
TPC, exactly. That’s why I am loving the rare earth space and accumulating more.
They are in liquidation since late April and early May and are completely undervalued. Uranium stocks also looking good here.
That’s where I’m looking…
Oil under $70 is a frigging steal.
No, if the world is REALLY going to break down then we’ll see oil at $ 35 again in the, say next 6 to 18 months (again) and that would provide a whole set of problems of its own, going forward.
Inflation somewhere down the road and how much ? Depends on how nutty the behaviour of central banks will become. We could see price inflation but that wouldn’t necessarily mean monetary inflation.
how can all this not ultimately end in inflation?………no,not tomorrow or the next day, but….
unless someone where to think its almost already overwith…….huh?…..seriously?
like my otherwise rational buddy that is 100% conservatively equity diversified ’cause all will be fine ’cause his boy is in the whitehouse(the dad he worshiped was a demacrat)????……snap out of it……
For now we are living in the mild deflation/inflation camp, depending on your metric….