Tuesday, October 07, 2008

Another Thinker's Take on the Current Deflation Crisis

What follows is an anstonishingly prescient post, since disappeared from the internet.
Original URL: http://investing.rogerdeng.com/blog/blog1.php/dow-theary-august-18-2008

Roger's Investing Thoughts [I presume this would be Roger Deng - ed]
Investing for the future ....

Dow Theory - August 18, 2008 --
To give you a hint of what I think the combined markets are now telling us -- I believe we are on the eve of world deflation. I pulled out a headline from the August 5 Wall Street Journal headline -- "INFLATION PACE IS FASTEST IN 17 YEARS."

Forget it, this is history -- this is not what's happening in the market. From what I see, the markets are telling us to prepare for hard times, and a global spate of the worst deflation to be seen in generations. This is why gold has been sinking, this is why stocks have been falling -- big money, sophisticated money, is cashing out, raising cash, preparing for world deflation. This is probably why Lowry's Selling Pressure stays at its high, smart money is selling into the stock market, day after day. They're raising cash in preparation for the hard times when deflation is in the saddle. Deflation is ushering in the new strong dollar. Big money sees deflation and the lower rates that go with deflation. Look, if you have five million dollars and you are only receiving 2% in interest on your money, that's only an income of hundred thousand dollars on your five million.

Big money realizes that in a deflation you need a mountain of cash to keep up your lifestyle.
What I see is a coming world deflation, and I believe that's the message the markets are sending.

What's the best stance in a deflationary situation? Lots of cash, and safe, solid, investments. Two areas that fit that requirement -- US dollars and US Treasury paper. What happens to stocks during deflationary times? They're sold to raise cash. What happens to business in deflationary times? It's crushed by ever-lower prices. What happens to the average citizen who's loaded with debt during deflationary times? They're battered unmercifully, as income buys less and less and as debt crushes them. What happens to assets during deflationary times? They're worth less and less and their sale brings in fewer and fewer dollars. Isn't the price of gold and oil already telling us that?

I just finished reading The New York Times, Los Angeles Times and Barron's and there isn't a hint of what I'm writing about above in any of these publications. Unfortunately, these coming deflationary times will come as a complete surprise to most people.

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