patrick.net

So do you recommend one to position themselves?

FortWayne says

So do you recommend one to position themselves?

I don't give advice. I have said before that in a deflationary collapse the safest place to be is cash in the mattress. Needless to say, that is not a practical solution for most people.

There may be no way to protect ones self from what's coming, but obviously, getting as close to cash as possible would be more prudent than holding onto leveraged assets of any kind.

Well, Yellen is talking about rising rates from around June 2015. So rates will rise-unless something horrible happens in between. But we are doing far better than Europe and with mild slowdowns in china and India, we might actually not be that bad.

darlag says

Treasury prices are on the verge of collapse - Yields getting ready to skyrocket

Correct because you're seeing a lot of investors shorting treasuries that pushes yields down...

Just as you see how rates incrementally fell since 1980, you'll also see rates incrementaly rise and as it rises, it'll keep corporations from refinancing that powers their stock buy backs due to cheap no interest loans and will force management to actually invest.

When management is forced to investment, you'll see how they don't have any ideas. Amazon is a good example when it bought twitch.tv for a billion dollars. Twitch is only a website that let's users to video game players see their game play via webcam. Management at amazon don't know how to grow and both twitch at bubble prices.

My point is that when rates rise, you'll see more buyouts from big corps on gimmicks rather than real goods and services.

This is the essence of the command economy. It isn't driven by business sense but rather how the Fed Reserve steers their funny money....

APOCALYPSEFUCKisShostikovitch says

Teach spouse and kids to kill with their bare hands.

That is just barbaric! At least give them shivs and nunchucks.

darlag says

Treasury yields are about to rise to completely unexpected levels

An inflationist thread from the local deflationist?

What would push yields up? Growth? Inflation?

Heraclitusstudent says

An inflationist thread from the local deflationist?

What would push yields up? Growth? Inflation?

All market moves are endogenous, i.e., subconscious, responses to social mood. Market prices are simply a reflection, in fairly real time, to that mood. As mood sours, prices fall and yields rise. Rising yields are not inflationary. Yields and prices move in opposite directions. Falling prices are deflationary... hence rising yields are deflationary.

darlag says

There may be no way to protect ones self from what's coming

That's the sagest advice yet.

darlag says

Falling prices are deflationary... hence rising yields are deflationary.

So far, when feeling unsafe, everyone rushes to the security of treasury bonds. This is the safest alternative: safer than cash in a bank, or the money market or cash in a mattress. It's safe by definition because the government is armed with a printing press.

And also if the government were to default, then everyone else would default. Therefore there is no reason to sell treasuries - except in case of growth (better returns elsewhere) or inflation (commodities are a better deal).

http://www.marketwatch.com/investing/bond/10_YEAR/charts?ma=1&maval=50&uf=7168&lf=1&lf2=4&lf3=0&type=2&size=3&state=8&sid=0&style=1013&time=18&freq=9&startdate=1%2F4%2F1999&enddate=5%2F30%2F2014&height=665&widht=720&random=2125122954&arrowdates=0

But it is different this time.....

Does that means a recession is next? Explain the Baltic?

Heraclitusstudent says

So far, when feeling unsafe, everyone rushes to the security of treasury bonds. This is the safest alternative: safer than cash in a bank, or the money market or cash in a mattress

I understand why you would think that. We've all been indoctrinated to think that way. If you turn on CNBC all the talking heads will espouse the same thing. Which is why it doesn't work that way... the herd thinks that way.

Deflation is an animal with which no one alive today has any experience. My 90 year old mother was a 5 year old child when the stock market crashed in 1929. She has memories of her family moving to a tenant farm when her dad lost his job. But she remembers nothing of the socioeconomics of the day, nothing of the politics. Only in retrospect does she know how poor they must have been.

Deflation has no masters. When the deflationary price spiral starts downward the price of EVERYTHING collapses. It is such an unusual phenomenon. Bonds don't rise because people shift from equities, gold doesn't surge because people don't trust the currency. None of the commonly held observations of market behavior apply during a truly deflationary episode. Everything collapses in price -- TOGETHER. That is why it is considered such a hideous monster. There are no safe havens from deflation.

There are no tools, no secret weapons, for fighting deflation because it is a wholly and totally psychological phenomenon. The mood of the masses create it and the mood of the masses cure it. No interest rate, no money pumping, no social programs, no economic stimulus, no nothing, can affect it. Until the damaged mass psychology has healed enough from the trauma, people will continue to huddle and hoard and shun participation.

I keep saying that the Fed has only one real weapon, the ability to persuade the masses that it is in control and everything will be all right. That's all they have. After 80 years of indoctrination, a great many people believe that. I think you do. But I believe the reality is that they are just the Wizard of Oz, a lot of bells and whistles and charts and graphs that have no meaning in a time of massive credit bubbles, declining asset prices and deteriorating social mood. The combination will eventually overwhelm them.

To the degree the Fed can continue to convince the herd that it is safe and sound, they will appear to be successfully holding up the economy. But as the St Louis Fed president remarked the other day, the herd is "hoarding" cash. Do you understand how funny and ridiculous that statement is? People are SAVING money and the Fed considers that a detriment to the economy. That is how far out of control the massive credit bubble has gotten.

But he is right in one regard, SAVING is the first psychological cause of a deflationary spiral. People refuse to spend money to buy products that are rapidly declining in price because they think it might be cheaper tomorrow. Tomorrow they don't buy it because it might be cheaper the next day. And the spiral continues until one day a few brave souls gamble that the time is right. But the bottom of the spiral is historically a long way down, as anyone who has studied the Great Depression can attest.

The Fed is trying desperately to hold on to the hearts and minds of the public. That is where economic salvation will come from, if it is possible to be saved. All the other stuff they purport to be doing, the twists and easings, are just fluff for the gullible herd. If they can't convince the majority of people and businesses to continue to borrow and spend, to stop saving and waiting for prices to stabilize, they will fail.

My Austrian bent is telling me they will fail. My Elliott Wave experience is concurring.

darlag says

ut he is right in one regard, SAVING is the first psychological cause of a deflationary spiral. People refuse to spend money to buy products that are rapidly declining in price because they think it might be cheaper tomorrow.

The reality is that this would have passed quickly if we did not have FDR putting his boot on the collective throat. People underestimate how crazy and arrogant he was.

indigenous says

The reality is that this would have passed quickly if we did not have FDR putting his boot on the collective throat. People underestimate how crazy and arrogant he was.

While I believe you are right to some degree, it is human nature to do so and "blaming" FDR is probably disingenuous. They tried to hold prices up because they believed it was the right thing to do. It wasn't a nefarious act, it was an ignorant act.

At the time, just like today, no one living actually had experience with deflation. The last occurrence had taken place in the 1830s. So protecting business by mandating price fixing is understandable for that time period. Now we have history to look back on but the Fed is still price fixing because we wrote it into their mandate in 1913. More stupidity that has to be remedied before this mess gets cleared up.

Santayana knew precisely whereof he spoke.

darlag says

"blaming" FDR is probably disingenuous

I don't think so

darlag says

At the time, just like today, no one living actually had experience with deflation

There is deflation now by virtue of the money velocity being at record lows? Of course not at the higher income levels.

darlag says

People refuse to spend money to buy products that are rapidly declining in price because they think it might be cheaper tomorrow.

Everything people need is rising in price and will continue to do so. What you are saying doesn't pan out with reality.

Authorities have demonstrated their absolute determination to do whatever it takes to prevent deflation and they will. They will guaranty every financial instrument on the planet, and distribute money to everyone that can fog a mirror if this is what's needed.

And this is popular. Everyone like free money. The poor think it will trickle down. The unemployed think it will give them a job. The disabled like the gov check. The rich like the high assets prices. The companies like more business. The politicians like being popular and the fed like being the hero of the day.

You need to describe for us an exact scenario that would lead the US gov to default. I can't think of any.

Heraclitusstudent says

Everything people need is rising in price and will continue to do so. What you are saying doesn't pan out with reality.

You must look at the aggregate. Charts of commodities, housing, commercial property, etc., big ticket items, are all down from their 2006-2008 highs. You can't single out groceries and say prices are inflating. You can buy a lot of groceries with the money people have lost on their homes in the last 6-7 years. There is no inflation and hasn't been for years.

Heraclitusstudent says

You need to describe for us an exact scenario that would lead the US gov to default. I can't think of any.

I've never said the government would default. But the government is not your friend nor should it be. Our founding fathers understood that very well. We seem to not understand that at all today.

Heraclitusstudent says

Authorities have demonstrated their absolute determination to do whatever it takes to prevent deflation and they will.

As I've tried to explain, there is nothing they can do to stop it, no matter how hard they try. There are NO deflationary tools. Keeping your hopes alive is all they have. When they lose your confidence, and they will, the spiraling will begin in earnest.

indigenous says

There is deflation now by virtue of the money velocity being at record lows? Of course not at the higher income levels.

Even at the higher income levels... remember the billionaire's row problem in Hong Kong.

http://patrick.net/?p=1248682

darlag says

I've never said the government would default.

No but you said treasury prices would collapse, not because of inflation or growth but just because they are unsafe.

Explain how treasuries could ever be unsafe, in a deflation scenario, if the government is not going to default.

darlag says

You must look at the aggregate. Charts of commodities, housing, commercial property, etc., big ticket items, are all down from their 2006-2008 highs. You can't single out groceries and say prices are inflating. You can buy a lot of groceries with the money people have lost on their homes in the last 6-7 years. There is no inflation and hasn't been for years.

Correction there is inflation in aggregate, though it is low.
There is no price deflation.

Heraclitusstudent says

Explain how treasuries could ever be unsafe, in a deflation scenario, if the government is not going to default.

I'll quote Robert Prechter from his book Conquer The Crash available on the EWI website:

"...If the dollar ever re-enters its long term bear market, and particularly if it goes into free-fall, then even soaring short-term Treasury yields might not be able to overcome investors' imperative to get out. Each uptick in yield would be a yet greater burden on the government in the form of debt service, a fact that might frighten T-bill investors as much as entice them.[...] the government might resort to a desperate action such as declaring that Treasury bills are now long-term bonds, to be paid off in ten years instead of ten weeks."

They could also do the same with any other length of Treasury bond. Two's could become Tens, Ten's could become Thirties, Thirtie's Fiftys, etc. Technically, its a default. But you will never hear the Treasury use that word regardless of what method of debauchery they use to get out of paying in full.

darlag says

"...If the dollar ever re-enters its long term bear market, and particularly if it goes into free-fall, then even soaring short-term Treasury yields might not be able to overcome investors' imperative to get out. Each uptick in yield would be a yet greater burden on the government in the form of debt service, a fact that might frighten T-bill investors as much as entice them.[...] the government might resort to a desperate action such as declaring that Treasury bills are now long-term bonds, to be paid off in ten years instead of ten weeks."

This is not a deflationary scenario. A currency becoming worthless means there is high inflation. Do you see this happening?

Lengthening the duration of bond is de facto a default. Why would the government do that when they can print money? In a deflationary situation, they are not constrained by inflation, they can always print money to pay back debt.

People who talk of the dollar collapse are not looking closely at the other currencies: the euro, the yen, the yuan, the pound... they're all far bigger jokes than the USD. Against what would the USD go in a bear market?

I hope yields increase. Would give me a fighting chance to test out a Barbell investment strategy.

Heraclitusstudent says

This is not a deflationary scenario.

That's correct. This would be a scenario that would only occur post-deflation. If you read my posts you know I am predicting a rise in the value of the dollar, not its collapse, during the deflationary depression, but what happens after that is anyone's guess. It could certainly be hyper-inflation, but it doesn't have to be. My response was in answer to your request to explain how Treasuries could ever be unsafe. So I did.

Heraclitusstudent says

Why would the government do that when they can print money?

The Fed does not literally print money, nor do they have the Treasury do it. Fed money printing is a euphemism for credit expansion. But if nobody wants anymore credit, as we are seeing these days, then the only alternative is debt default and destruction.

Perhaps you didn't read this post

http://www.globaldeflationnews.com/bulls-bears-and-jaguars-a-deflationary-tale/

sbh says

Small business wants to expand, but banks don't necessarily want to play nice.

Absolutely true, it goes both ways. Those that want credit can't qualify. Those that can qualify don't want it.

darlag says

That's correct. This would be a scenario that would only occur post-deflation. If you read my posts you know I am predicting a rise in the value of the dollar, not its collapse, during the deflationary depression, but what happens after that is anyone's guess. It could certainly be hyper-inflation, but it doesn't have to be. My response was in answer to your request to explain how Treasuries could ever be unsafe. So I did.

Your entire thread is titled "Treasury prices are on the verge of collapse".

You think there will be deflation.
You think the dollar is about to rise.
You agree that treasuries are perfectly safe even in case of deflation.

I'm just asking a simple question: How is that not contradictory with the belief that treasuries prices are on the on the verge of collapse?

Heraclitusstudent says

Your entire thread is titled "Treasury prices are on the verge of collapse".

You think there will be deflation.

You think the dollar is about to rise.

You agree that treasuries are perfectly safe even in case of deflation.

I'm just asking a simple question: How is that not contradictory with the belief that treasuries prices are on the on the verge of collapse?

I've never said treasuries are perfectly safe. Who knows what the government will do to try to halt deflationary pressures? All I said about that was that your assertion that the scenario I drew concerning the dollar re-entering a long-term bear market was post-deflationary.

Let me re-state what I think:

There will be deflation.
The dollar will rise in price for a considerable time period (years).
Treasury prices will fall.
Thus, Treasury yields will rise.

I see no contradiction in any of those statements.

darlag says

I've never said treasuries are perfectly safe.

You said the gov would not default.
So, again, in case of deflation, what other risk is there?
Clearly not inflation, or the dollar losing value.
What risk do you see?

darlag says

Let me re-state what I think:

There will be deflation.

The dollar will rise in price for a considerable time period (years).

Treasury prices will fall.

Thus, Treasury yields will rise.

I see no contradiction in any of those statements.

You see no contradiction?
Again, explain why would investors sell treasuries if there is deflation going on and every other assets is losing value to cash and cash returns less than treasuries.

sbh says

Yes, please. Treasuries prices will skyrocket as would any (perceived) SAFE instrument that throws off rapidly appreciating cash.

Last time, folks. Historically, in a deflationary depression EVERYTHING declines in price... EVERYTHING. As goes the old cliche, "Maybe this time it will be different"... but I doubt it. I'm not betting against history. Feel free to do so if you want.

You must read up on deflation if you want to understand it. You can not try to use the logic of 90 years of inflationary economics to draw conclusions about how prices act under deflationary pressures.

Murray Rothbard's book, "America's Great Depression", would be a good starting point if you are actually interested in understanding deflation.

darlag says

Last time, folks. Historically, in a deflationary depression EVERYTHING declines in price... EVERYTHING. As goes the old cliche, "Maybe this time it will be different"... but I doubt it. I'm not betting against history.

What you are saying defies logic. Not everything can go down. When you say every asset prices lose value, it means cash value goes up. So no, not everything loses value. And treasuries are like cash in a mattress with a small return.

Plus you have to judge history since there are central banks doing what they are doing. And since that time *every* contraction has led to treasuries appreciating.

Fyi:
Japan 10yrs bonds return 0.53%. Japan is in much worse state than the US with a shrinking and aging population, and a huge government debt.

Spain 10yrs bonds return 2.27%, less than US bonds, and I don't need to compare Spain's economy to the US.

Why do you think the US bonds should return more than that? The only reason they are is because there is more growth and less deflation threat in the US.

Heraclitusstudent says

What you are saying defies logic.

That is precisely why deflation is baffling to people. Deflation defies logic when looking through indoctrinated inflationary eyeglasses. Study the Great Depression for a better understanding. EVERYTHING collapsed in price... logical or not, that's what happened. I already mentioned Murray Rothbard. You can also look at Milton Friedman's stuff. It's more complicated but also more indepth.

There is a reason the Fed never says the word deflation. It goes out of its way not to mention it, substituting phrases like disinflation or economic contraction. The word is anathema in their lexicon. And for good reason. It defies explanation in the terms they are comfortable with and apparently in terms you are comfortable with.

Logical or not, stocks, bonds, treasuries, commodities, futures, precious metals, real estate, EVERYTHING collapses in price during a deflationary depression. EVERYTHING.

lowering the lights to about 4 inches above the buds....

Heraclitusstudent says

darlag says

Treasury yields are about to rise to completely unexpected levels

An inflationist thread from the local deflationist?

What would push yields up? Growth? Inflation?

sbh says

No Austrian catechism you might quote changes that.

Sure it does, that is not even Austrian, that is true for any economic belief.

sbh says

What produces cash rises in price/value in that circumstance.

Value, yes. Price, not necessarily. Which is why treasuries can decline in price and still hold relative value.

As Indigenous explained... that has nothing to do with Austrian economics. It's true across the board.

Treasuries throwing off cash with no default risk will not decline in price in a deflationary environment.

Other bonds, yes.

Risk-free debt instruments? No chance.