Post by jeffolie on Jul 9, 2008 18:31:05 GMT -6
Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Doomed to Inflastagdeflation
When you wake up on the floor to the sound of some kind of horrible shrieking noise, curled in the fetal position, clutching a golf club and wearing a horsehair barrister's wig, the easiest conclusion to reach is that you are doomed and probably going to jail.
It is difficult to know the proper course of action under such circumstances, but your base instincts will tell you to first FIND THE SOURCE of that awful shrieking sound... and stop it... immediately! Like me, you might discover how to accomplish that by accidentally stepping on the TV remote, inadvertently muting the sound on something called, "After the Attack," a program on the Animal Planet network that apparently reconstructs vicious wild animal attacks on human beings.
The new, raw edge of silence brings everything flooding back and the reconstruction begins; books upon books and page after page of economists babbling about inflation, stagflation, deflation, hyperinflation. There was coffee involved. And bourbon whiskey. And half-buried under copious amounts of illegibly scrawled notes on the economy, a scorecard from some kind of game called "Rumpole of the Bailey's Irish Cream Toast Macro Golf": Kevin 23, Bernanke 7. Unclear whether the object is to score high or low, but my checkbook is missing.
If you spend any time reading up on today's economic views, you will find that there is nothing weird about an eight iron, the most useful club in the bag, but a horsehair wig is way too hot to parade around in during the summer. Also, you will learn that there are basically three prevailing idées fixe about the economy. Here they are, in order of dominance:
A: Inflation is understated. General price level measurements are being manipulated, or are failing, or are simply false; we're facing a dramatic buildup in inflationary pressures. Look at what you are spending each month on food and gas prices - the argument goes, both of these are showing increases with secular tailwinds, so focusing on "core" inflation that excludes food and energy is neglecting the most important inflation story of the past 30 years.
B: Inflation is yesterday's story. What we are experiencing now is stagflation. Wage growth and incomes are stagnant, housing is slowing, the consumer is on the brink, which is why we continue to see deflation in things we want (cf. Best Buy (BBY)" liiy7="0" xnczk="0">BBY), Circuit City (CC)" liiy7="0" xnczk="0">CC)) even as things we need (cf. food, energy, education) show inflation, and growth is slowing by virtue of the fact that producers have no pricing power in a credit-fueled (as opposed to organic) growth environment.
C: Inflation? What inflation? Housing prices continue deflating. Consumers are cutting back on virtually all discretionary items. Producers of anything that cannot be immediately eaten have no pricing power. This morning Goldman Sachs downgraded a host of software companies, among them Intuit (INTU) and Digital River (DRIV), due to a difficult macro environment that will necessitate more price discounting. Even Apple (AAPL) is discounting products that once had firm pricing, cutting the price of the MacBook Air by $500. Sure, while gas prices and food costs are up, those are basically consumer taxes that drain spending on discretionary items, ultimately leading to more deflation.
2. So, are we experiencing inflation, stagflation or deflation?
The truest answer is, "Yes, we are."
It'd be nice to paint a black and white scenario the way economic textbooks do with, say, the 1970s period in America.
Looking back, it all seems so simple now, doesn't it?
Paul Volcker assumed Fed Chairmanship in 1979, limited growth of money supply, and reduced inflation from a peak of 13-some-odd-percent to below three-and-a-half percent in a matter of a little less than two years.
Of course, if you actually experienced that time, the story isn't quite as simple as the textbooks make it appear.
Remember the tractor-blockade of the Eccles Building?
Remember deregulation of federally chartered Savings and Loans?
And hey, what about those high interest rates of the early 80s as part of the Volcker inflation-fighting regime, and the increased loan growth and lending to real estate speculators despite it all?
3. Complications From Inflastagdeflation
Well, things are always more complicated than what we'd like. So, where that leaves us today is smack in the middle of inflastagdeflation... with only the last remaining vestiges of this credit cycle allowing us to cling, somewhat desperately, precariously, to the "inflastag" part of the story.
Why is the "inflastag" part of the story so important?
Well, we know that deflation incentivizes savings and postpones spending since prices will be lower and purchasing power greater in the future. This depressed spending and increased savings weakens the economy further, especially an economy three-quarters supported by consumption.
Most importantly, we will one day find, is that deflation worsens our debt-servicing burden because our debts remain fixed in dollar terms, even as our wages and incomes fall, and the future value of those repaid dollars increase.
We have a tendency to underestimate the unfolding of long-term events since we can only grasp them in terms of historical recounts that reveal them in neat bullet points; quickly summarized and digestible tidbits.
Meanwhile, next time you come across an economic viewpoint that decries the failure of policy makers to account for headline inflation, or one that blasts the lack of economic growth apart from credit demand and availability, or one that looks at producer price cuts and wonders how in the world someone can claim we are living in an inflationary time, you can quickly agree... with all of them.
www.minyanville.com/articles/intu-DRIV-AAPL-Intuit-T-Boone/index/a/17939
What the hell is Inflastagdeflation?
1. Doomed to Inflastagdeflation
When you wake up on the floor to the sound of some kind of horrible shrieking noise, curled in the fetal position, clutching a golf club and wearing a horsehair barrister's wig, the easiest conclusion to reach is that you are doomed and probably going to jail.
It is difficult to know the proper course of action under such circumstances, but your base instincts will tell you to first FIND THE SOURCE of that awful shrieking sound... and stop it... immediately! Like me, you might discover how to accomplish that by accidentally stepping on the TV remote, inadvertently muting the sound on something called, "After the Attack," a program on the Animal Planet network that apparently reconstructs vicious wild animal attacks on human beings.
The new, raw edge of silence brings everything flooding back and the reconstruction begins; books upon books and page after page of economists babbling about inflation, stagflation, deflation, hyperinflation. There was coffee involved. And bourbon whiskey. And half-buried under copious amounts of illegibly scrawled notes on the economy, a scorecard from some kind of game called "Rumpole of the Bailey's Irish Cream Toast Macro Golf": Kevin 23, Bernanke 7. Unclear whether the object is to score high or low, but my checkbook is missing.
If you spend any time reading up on today's economic views, you will find that there is nothing weird about an eight iron, the most useful club in the bag, but a horsehair wig is way too hot to parade around in during the summer. Also, you will learn that there are basically three prevailing idées fixe about the economy. Here they are, in order of dominance:
A: Inflation is understated. General price level measurements are being manipulated, or are failing, or are simply false; we're facing a dramatic buildup in inflationary pressures. Look at what you are spending each month on food and gas prices - the argument goes, both of these are showing increases with secular tailwinds, so focusing on "core" inflation that excludes food and energy is neglecting the most important inflation story of the past 30 years.
B: Inflation is yesterday's story. What we are experiencing now is stagflation. Wage growth and incomes are stagnant, housing is slowing, the consumer is on the brink, which is why we continue to see deflation in things we want (cf. Best Buy (BBY)" liiy7="0" xnczk="0">BBY), Circuit City (CC)" liiy7="0" xnczk="0">CC)) even as things we need (cf. food, energy, education) show inflation, and growth is slowing by virtue of the fact that producers have no pricing power in a credit-fueled (as opposed to organic) growth environment.
C: Inflation? What inflation? Housing prices continue deflating. Consumers are cutting back on virtually all discretionary items. Producers of anything that cannot be immediately eaten have no pricing power. This morning Goldman Sachs downgraded a host of software companies, among them Intuit (INTU) and Digital River (DRIV), due to a difficult macro environment that will necessitate more price discounting. Even Apple (AAPL) is discounting products that once had firm pricing, cutting the price of the MacBook Air by $500. Sure, while gas prices and food costs are up, those are basically consumer taxes that drain spending on discretionary items, ultimately leading to more deflation.
2. So, are we experiencing inflation, stagflation or deflation?
The truest answer is, "Yes, we are."
It'd be nice to paint a black and white scenario the way economic textbooks do with, say, the 1970s period in America.
Looking back, it all seems so simple now, doesn't it?
Paul Volcker assumed Fed Chairmanship in 1979, limited growth of money supply, and reduced inflation from a peak of 13-some-odd-percent to below three-and-a-half percent in a matter of a little less than two years.
Of course, if you actually experienced that time, the story isn't quite as simple as the textbooks make it appear.
Remember the tractor-blockade of the Eccles Building?
Remember deregulation of federally chartered Savings and Loans?
And hey, what about those high interest rates of the early 80s as part of the Volcker inflation-fighting regime, and the increased loan growth and lending to real estate speculators despite it all?
3. Complications From Inflastagdeflation
Well, things are always more complicated than what we'd like. So, where that leaves us today is smack in the middle of inflastagdeflation... with only the last remaining vestiges of this credit cycle allowing us to cling, somewhat desperately, precariously, to the "inflastag" part of the story.
Why is the "inflastag" part of the story so important?
Well, we know that deflation incentivizes savings and postpones spending since prices will be lower and purchasing power greater in the future. This depressed spending and increased savings weakens the economy further, especially an economy three-quarters supported by consumption.
Most importantly, we will one day find, is that deflation worsens our debt-servicing burden because our debts remain fixed in dollar terms, even as our wages and incomes fall, and the future value of those repaid dollars increase.
We have a tendency to underestimate the unfolding of long-term events since we can only grasp them in terms of historical recounts that reveal them in neat bullet points; quickly summarized and digestible tidbits.
Meanwhile, next time you come across an economic viewpoint that decries the failure of policy makers to account for headline inflation, or one that blasts the lack of economic growth apart from credit demand and availability, or one that looks at producer price cuts and wonders how in the world someone can claim we are living in an inflationary time, you can quickly agree... with all of them.
www.minyanville.com/articles/intu-DRIV-AAPL-Intuit-T-Boone/index/a/17939
What the hell is Inflastagdeflation?