Sunday, May 3, 2009

You Better Duck!

Check This out:

This was some video from a recent Fortis shareholder meeting. This is one of the larger banks in Europe that basically was nationalized when the financial system collapsed last year. The stock price now sits under $2.

The sheeple are getting restless across the pond. I wish we had the same spunk over here. Apparently, most of America would rather watch American Idol while their country collapses right in front of them.

A Must Read

I highly recommend that everyone reads this excellent commentary from hedge fund manager Bill Fleckenstein. Bill is one of the smartest guys on the street and was one of the few that accurately predicted the financial collapse last year.

The two paragraphs below from the piece are what caught my eye:

"Though I hesitate to make too much out of one report on the gross domestic product (or government statistics in general), Wednesday's first-quarter GDP data -- which showed a contraction of 6.1%, versus expectations of 4.7% -- make for a wonderful example of what the future holds: essentially a replay of the 1970s, only far worse.

It's not that I find the results terribly surprising or especially alarming. I do not. What's more interesting is that the GDP price index, which measures the prices of goods and services included in GDP calculations, was expected to be 1.8% but registered 2.9%, and that the and that prices of core personal consumption expenditures (a measure of inflation that master of disaster Alan Greenspan particularly focused on) rose 1.5% quarter to quarter, versus expectations of just 1%."

My Take:

There has been a lot of discussion in the news around deflation and inflation over the past few weeks. I strongly continue to believe that we will see massive asset deflation. However, its extremely disturbing to see such a huge spike in price inflation on goods in the GDP report. These numbers are frightening folks.

My worst case scenario for the economy is a combination of asset deflation and price inflation. Many try to argue that we will see either inflation or deflation. In my view you can have both. It won't take long for the torches and pitchforks to come out if wages continue to stay flat or decline while the cost to live rapidly rises as a result of price inflation.

It would make sense to see inflation in areas of the economy right now as we continue to print trillions of dollars in an attempt to keep the debt bubble inflated. However, this phenomenon does not cross over into housing prices.

The deflation in housing and other assets will continue because people can't borrow as much money as they could in the past due to tighter lending standards. Exacerbating this problem is the fact that people are also losing their jobs at an historic pace. The fear that's created by massive unemployment or the fear of getting laid off also lowers the desire for consumers to lend which of course makes the problem even worse! Death spiral anyone?

My question here is how in the hell is the average person going to survive if the cost to live rises rapidly at a time in which everyone is watching their wages stay flat(that is if they had have a job)? Oh wait a second, I have the answer. They have all of that home equity that they can fall back!(Scarcasm off)

I predict you will see consumer confidence plummet if we continue to see price inflation.

I wish I had the answer as to how do get out of this mess folks. I know one thing: Its going to involve a lot of pain.

Raise cash. You are going to need it when a happy meal at McDonald's costs you $15.

One last question:

Anyone have a shoe I can borrow?


johndaniels said...

great stuff Jeff: keep it up.

yeah its strange that we are the only country where the citizens are armed, yet we here in the US are under the most pronounced control grid imaginable.. between the lagal system, lawyers and our litigous society, and or politicians that appear to be zombies.

China is, in fact FREEer than the United States! They have censorship but the people themselves have much more freedoms in their daily lives that americans do; believe it or not. we americans are under a tight nit control grid of laws, asset protection, and fear submission. china people are really free to move about as they will; specifically in traffic and legal. no guards on every corner, etc... Theres no lawyers, little credit, and few (if any) petty traffic laws.

you'd be amazed; how innacurrate the illusion of freedom is that we have in the states.

Jeff said...



It sounds like you had a blast over in China. I had a friend that traveled there for business and he had a blast.

I am hoping to head abroad over the summer at some point. Not sure where. I am going to see how the economy goes here for a little while before I commit to something.

I think the laws and our rights here are only going to get more tightly regulated.

The fact that the senate is now fillibuster proof with 60 votesafter the Spector defection is frightening!

I don't like to see either party with that much power. Big government is here to stay.

EDC said...


Good post...

Don't fear about inflation. Producers are shooting themselves in a foot as they are trying to drive up prices to make up for lost sales with higher margins. They all have fixed costs and with demand going down they must maintain their "nut".

Now we can expect false dawns of inflation during this massive deflationary asset/credit collapse. Eventually the sheeple will realize slowly that they can't buy junk because other things are going up in price. This will be a up followed by a hard down sequence. this will lead to lack of demand in items that are going up in price, those prices will eventually go to much lower lows.

Corporations won't be able to refinance debt as the long end of the curb get higher and higher, when the event occurs (we don't know that yet) it will wide spreads but borrowing costs will be higher.

allowing basic material prices to rise will be a major mistake, how they are going up is beyond all of us if no one is buying stuff like it was 2006. . .

Jeff said...


Great points.


I am still in the deflationary collapse camp. My concern here is if the dollar weakens as a result of all of this money we have created.

This will eventually cause price inflation in some capacaity on goods regardless of demand. I still see assets like housing getting destroyed from a price perspective.

People simply will then not be able to afford to live if we see inflation in things like food.

Deflation still rules the day but I will have my eye on inflation as the Fed continues to create trillions of dollars.

Way down the road inflation is whats going to trigger a second collapse.

I was just watching Shiller today on Bloomberg discussing the "green shoots" in the housing data today.

He poo poo'ed the whole thing and said the fundementals haven't changed.

Rally on! So ridiculous!