Un article bien etayé de Mish Shedlock de Sitka Pacific CM, sur inflation et déflation. 

""There was an interesting post on iTulip over the weekend about the Bubble Economy Endgame. The post was written by Eric Janszen, and called Door Number Two. Here are some highlights:

Today one of our best and brightest iTulip members posted an excerpt and a link to yesterday's comments by Stephanie Pomboy: Economic Fear Taking Hold. In it she says a US deflationary spiral is a mere 3% away. Our long standing position is that the ongoing asset price deflation, debt deflation, now with rising unemployment, falling demand and recession will lead to further erosion in the purchasing power of the dollar and thus to more inflation.

Pomboy's suggestion sounds like a variation on ideas that Mish and many of the good folks over at Minyanville believe. We call the group Deflationistas. Deflationistas have repeatedly called for a deflation spiral and all-goods prices declines for the past several years, since at least 2005.

Actually we need to stop right there for a moment because Deflationistas, at least this one, have not repeatedly called for "all-goods prices declines for the past several years, since at least 2005". While I cannot speak for others, I am not aware of any Deflationistas on Minyanville making that specific claim either.

The general Minyanville Deflationistas' Viewpoint (if indeed there is such a thing) seems to be along the lines of necessities (oil and food) are likely to be somewhat price sticky, while prices of manufactured goods and assets are likely to collapse. I would be in that general group.

Furthermore, the price of oil is irrelevant as to the inflation/deflation argument, at least as far as this deflationista is concerned.

What Definitions Are We Using?

Before one can make a claim as to whether it's inflation, deflation, or hyperinflation lurking behind door number two, we have to agree as to what inflation, deflation, and hyperinflation mean. There can be no debate without agreement to definitions.I have consistently used an Austrian definition of inflation based on money and credit.

• Inflation is a net expansion of money and credit.
• Deflation is a net contraction of money and credit.
• Hyperinflation is extreme expansion of money and credit leading to complete collapse of faith in the currency.

Prices actually do not enter into the equation. Nor should prices enter into the equation. I have stated the reasons for this many times, but Inflation: What the heck is it? sums things up nicely. Now if someone chooses to define inflation as rising prices, then we need to start all over. Because of peak oil, I expect the price of oil to go up over the long haul, and I also think the prices of minerals and raw materials will go up over the long haul.

Over the short to mid haul, I do expect oil will drop to $65 or lower and prices of things like copper are likely to collapse. This expectation is based on beliefs the recession we are now in is going to be severe. Should oil sink to $65, it will not be proof of deflation any more than oil rising to $200 if Bush attacked Iran would be proof of inflation. Prices in isolation are meaningless.

Can Deflation Happen In A Fiat Regime?

Some claim deflation in the US cannot happen because we are no longer on the gold standard. I disagree, and Japan is proof. Of course others claim Japan never went into deflation at all. Let's pick this line of thinking up with Not Your Father's Deflation: Rebuttal.

Some argue that Japan never went through deflation. One basis for that argument is that "money supply" as measured by M1 never contracted over a sustained period. The other argument is that prices as measured by the CPI never fell much. Once again we have a flawed argument about consumer prices and a flawed argument that only looks at money and not credit.

Although Japan was rapidly printing money, a destruction of credit was happening at a far greater pace. There was an overall contraction of credit in Japan for close to 5 consecutive years. Property values plunged for 18 consecutive years. The stock market plunged from 40,000 to 7,000. Cash was hoarded and the velocity of money collapsed. Those are classic symptoms of deflation that a proper definition incorporating both money supply and credit would readily catch. Those looking at consumer prices or monetary injections by the bank of Japan were far off the mark.

In the end, one factor alone is going to seal the fate. That factor is called the psychology of deflation. Simply put, the Fed cannot force consumers or businesses to borrow or banks to lend.

Paul Kasriel On The Possibility Of Deflation.

Here are some excerpts from an Interview With Kasriel to consider.

U.S. banks currently hold record amounts of mortgage-related assets on their books. If the housing market were to go into a deep recession resulting in massive mortgage defaults, the U.S. banking system could sustain huge losses similar to what the Japanese banks experienced in the 1990s. If this were to occur, the Fed could cut interest rates to zero but it would have little positive effect on economic activity or inflation.

Short of the Fed depositing newly-created money directly into private sector accounts, I suspect that a deflation would occur under these circumstances. Again, crippled banking systems tend to bring on deflations. And crippled banking systems seem to result from the bursting of asset bubbles because of the sharp decline in the value of the collateral backing bank loans.

Paul L. Kasriel
Sr. V.P. and Director of Economic Research
The Northern Trust Company

The above are excerpts from an Email exchange. In a followup phone interview I asked about the endgame:

Mish: How does inflation start and end?

Kasriel: Inflation starts with expansion of money and credit. Inflation ends when the central bank is no longer able or willing to extend credit and/or when consumers and businesses are no longer willing to borrow because further expansion and /or speculation no longer makes any economic sense.

 

More From Door Number

Eric Janszen continues with a discussion of a May 2005 article I wrote called Deflation is in the Cards. The correct/incorrect determinations of my scenario were made by Janszen (In Red).

• Wages continue to fall due to outsourcing, mergers, and global wage arbitrage (no, they are starting to rise due to inflation)
• Home prices level off then fall sharply (correct)
• Home equity loans stagnate as result of stagnating home prices (correct)
• Home building stalls because affordability finally starts to matter (correct)
• Trade jobs fall with falling home starts (correct)
• Expansion of Walmarts, Home Depots, etc. stops with the slowdown of new home subdivisions (correct)
• Retail expansion peaks and stalls (correct)
• Consumer sales slow with the slowing economy (correct)
• Bankruptcies increase (correct)
• Consumer lending based on rising home prices falls flat (correct)
• Credit growth declines (correct)
• The US goes into a recession (correct)
• Layoffs in the financial sector increase (correct)
• Layoffs in the real estate sector increase (correct)
• Credit is destroyed in more bankruptcies (correct)
• Deflation is finally recognized in hindsight (No. The dollar weakens further as these events occur, leading to further inflation.)
• Hyper-inflationists throw in the towel (No, this is a straw man argument. The choice is not between a US 1930s style deflation spiral and a hyperinflationary spiral that ends with a complete repudation of the currency. The rate of decline of the dollar is buffered by foreign central bank holdings.)

Actually, that looks like a pretty good success rate. I might also point out that with the sole exception of home prices, prices were not mentioned.

What About Wages and Towel Throwing?

One reason wages have recently risen because of new minimum wage increases. That is not inflation, that is misguided government policy that will put more people out of work. In addition, what real wage growth we have seen has primarily been at the top end of the salary scale.With the increased outsourcing or manufacturing and now white collar jobs, we have been removing high paying jobs (for the masses), and replacing them with minimum wage jobs with no benefits at Wal-Mart.

And speaking of benefits, companies in general have been cutting back. Benefits need to be factored into the "wages are increasing" fallacy. As for the "Deflation is finally recognized in hindsight", I maintain the door number two has not been opened yet. It is premature to place a [no] on that line item. The same applies to my statement that "Hyper-inflationists throw in the towel". That statement never limited the debate between hyperinflation and deflation. I merely stated that hyperinflationists would throw in the towel. Those looking for a strawman can find it in the rebuttal to that simple sentence.

Janszen Continues...

Clearly we are seeing price deflation in asset prices–stocks, housing and soon commercial real estate–and marked-down consumer goods as the Monthly Payment Consumer buckles under the combined pressures of rising inflation and unemployment. Platinum and other industrial metals are starting to fall in price as markets anticipate falling demand. Gold is rising in anticipation of what the government must continue to do to keep real interest rates negative: inflate, inflate, inflate.

Not exactly. The consumer buckles under a massive heap of debt because rising asset prices no longer bail him out. That is deflationary. Industrial metals will drop under decreasing demand. And gold is rising for two reasons: Gold is the safest money in times of economic stress. The Fed is "trying" to inflate, and that is a good environment for gold.

Janszen Continues...

The critical flaw in the US deflation spiral analysis is that the Deflationistas forgot to ask: In what currency is a US treasury bond denominated? Of course the dollar is deflating with respect to itself! But imports determine a nation's inflation rate. As the dollar deflates that can only mean one thing: rising imports prices and all-goods price inflation.

Rising prices of imports? On what other than oil? Prices are not central to my arguments but for those who think price is everything, I would like to point out Wal-Mart Reduces Prices & Offers 0% Interest. There is virtually no pricing power now except on necessities. Once again, general Minyanville Deflationista Viewpoint seems to have gotten this correct.
Janszen Concludes ...

Behind Door Number One are guys who have been wrong for years on end and will stay that way unless the US enacts the kind of austerity measures the IMF once imposed on debtors: raise taxes, cut spending, send 20 million people into the unemployment lines.

Behind Door Number Three are guys who may eventually be right but three new conditions have to be met first: The US must become as politically and economically isolated and unimportant on a global scale as Argentina was in the 1980s, external demand for the dollar has to fall to the level of the Iraqi Dinar, and there have to be tanks rolling down the street. The probability of all three of those occurring? Zero.

Behind Door Number Two are guys who have turned a few million dollars into more than a hundred million after reaching the same conclusion in 2002 that I did in 2001, that the dollar will decline but will not crash, and the decline will exert an inflationary bias on the economy.

Behind Door number one is someone who was correct about 14 out of 17 items with 3 in dispute. In addition, at least one deflationista has been bullish on gold for the last 5 years while also being bullish on treasuries for the same period. That’s two more correct opinions. Debate on the purchasing power of the US dollar overseas is a sideshow.

The price of oil is a sideshow. Those focused on sideshows simply cannot understand treasury yields at 2% because they do not understand what inflation is.There are many deflationistas bullish on gold. There is one prominent one who is not. It is a mistake to lump all deflationistas with one lighting rod. That person has been wrong about gold for seven years and may be wrong for another 15. But inflationistas have been wrong about treasuries for the same period.

Two Viewpoints

• Gold is money.
• Money is going to do well in deflation.

That is my simple Austrian economist-based belief. Having said that, I do expect a significant correction in the price of gold as deflation forces a reduction in leverage of all kinds (including leverage in gold and leverage in the carry trade). I simply do not know if that starts now or at a much higher level.The K-WaveThe Kondratieff Cycle is a long one. Briefly it looks like this.

• Spring - Reflation - Characterized by rising equity prices and rising interest rates
• Summer - Inflation - Characterized by rising commodity prices and falling equity prices
• Autumn - Disinflation - Characterized by rising asset prices and falling interest rates
• Winter - Deflation - Characterized by falling asset prices and falling interest rates

During Autumn, with falling interest rates, everyone loads up on debt and asset prices go to the moon. Eventually a point is reached where consumers are unable or unwilling to take on more debt, and banks are unable or unwilling to extend credit. This attitude shift is happening now.

See Changing Social Attitudes About Debt, a Crash Course For Bernanke, and The Business of Walking Away for more about attitudes. Attitudes are crucial to the deflationista debate. Boomers counting on their home as their retirement now have to worry about saving rather than spending. Social attitudes towards consumption are changing slowly but surely. Those changing attitudes are exactly why Things That "Can't" Happen, will happen.

Because each season is long, up to 25 years, by the time Winter is about to hit, it's been 75 years since there has been deflation. That length of times causes people to think deflation will never happen again. The biggest manifestation this time was the widespread belief "Home Prices Always Go Up". That belief has now been shattered. Somehow, people still believe in the Fed.

Faith In The Fed Is The Last Bubble

The last remaining bubble is faith in the Fed's ability to inflate."Door Number Two" was a very well written rebuttal. Unfortunately, the rebuttal was based on a straw man that does not exist. The initial flaw was that no agreement was reached on critical definitions. A major subsequent flaw is the assumption that deflationistas in general have been wrong about gold. Finally, the "Door Number Two" post shows that even after all this time the inflationistas somehow do not understand what the deflationistas have been saying, even when it is spelled out point by point. ""

Avez-vous remarqué ces derniers temps le nombre croissant de NEZ qui s'allongent ?

Pinocchio fait des émules !  by Roque

Évidemment vous le saviez déjà pour ce qui est de nos banquiers centraux et surtout nord-américains. Pour être la tête d'organisations aussi prestigieuses le critère essentiel est ... le NEZ !

Il faut effectivement avoir du NEZ pour baisser son taux d'escompte immédiatement après une statistique négative et s'apercevoir le mois suivant que celle-ci, ayant été revisée, s'avère au final positive !
Mais il faut avoir une sacrée assurance pour déclarer¹ en août dernier :  "Ce n'est pas de la responsabilité de la réserve Fédérale- ce ne serait d'ailleurs pas approprié- de protéger les prêteurs et les investisseurs des conséquences de leurs décisions financières" « It is not the responsibility of the Federal Reserve--nor would it be appropriate--to protect lenders and investors from the consequences of their financial decisions. » puis de venir, sous le NEZ de milliers de ménages endettés, au secours des institutions financières en participant au montage d'une structure à 100 milliards de dollars pour l'«hébergement» des papiers qui brulent les doigts de ces établissements (dont certains sont «actionnaires » de la FED !) .

Mais les NEZ continuent de s'allonger.

Le Crédit Suisse qui déclarait il y a peu que la crise des subprime ne devrait au mieux que l'effleurer nous annonce² tout de go ... 1,8 milliards de dollars de provisions. Et pour continuer parmi ceux qui étaient peu concernés par la crise selon leurs premières déclarations, la Deutsche Bank a passé 3 milliards de provisions et UBS 4,4 milliards.
Dans un autre registre, le patron de Merrill Lynch, Stan O'Neal, non seulement fait perdre plus de 8 milliards de dollars (le double des prévisions) à son entreprise mais empoche la modique somme de 160 millions de dollar en remerciement de son brillant talent ... la Terre tourne à l'envers.

Alors forcément ça donne des idées et aussitôt Charles Prince, le président de Citigroup qui soumet sa démission ce week-end... des fois qu'on lui fasse une offre encore plus avantageuse ! (normalement, puisque Citigroup n'a perdu QUE 6,5 milliards de dollars, il ne devrait « avoir droit » à plus de 130 millions !).

Pour revenir à Merrill, on parle déjà d'une rallonge sur ses provisions qui pourraient alors atteindre... 10 milliards ! Stan O'Neal recevra-t-il un rappel ? Et le pompon c'est cette rumeur³ (ce n'est qu'une rumeur certes) selon laquelle Merrill aurait sorti de son bilan certains actifs très dépréciés en les « vendant » provisoirement à des fonds spéculatifs.

Parfum d'Enron tout ça... mais rassurez-vous , la SEC enquête. Comme elle a enquêté sur les milliers de dossiers nés de la bulle internet et qui étaient stockés dans le WTC7⁴ ... vous savez l'immeuble du World Trade Center qui s'est effondré sans que personne n'y touche ! ... peufff plus de dossiers .... plus de procès Worldcom, CitiGroup⁵ (encore) aurait déposé tous ses dossiers dans le WTC7 ! Quel deveine ! C'est vraiment un manque de NEZ !

Je suis désolé de le dire, mais véritablement tout celà pu !

Ce monde a été livré pendant plusieurs décennies à la seule emprise de financiers cyniques. Malheureusement je ne suis pas certain que les choses viennent à changer avec les évènements en cours. La fuite en avant pratiquée par les banques centrales montrent à l'évidence que le choix a été fait de continuer avec le mode opératoire hyper-inflationniste mis en oeuvre jusqu'alors.
Contrairement à la bulle internet il n'est pas certain que la bulle financière éclate aujourd'hui, ou du moins à court terme, ce qui rendra encore plus dramatique ses conséquences le jour où, inévitablement, elle devra éclater.

Voilà, je me suis un peu lâché. Ça fait du bien de partager des énormités pareilles. C'est ma psychothérapie !

Et pendant ce temps là, monsieur Dupont, simple particulier, fait son petit trading gentillement avec sa petite analyse technique !

Alors monsieur Dupont, ignorant tout du fait qu'il peut perdre tout son capital et que personne ne viendra lui remettre un pactole pour avoir réussi cette performance, regarde les quelques indices qu'il suit pour essayer de grapiller quelques €uros.

Le Footsie a rendu une deuxième visite aux plus hauts de 2000. Le MACD (en divergence inverse baissière) montre toute l'énergie développée par les cours sans pour autant avoir réussi à franchir cette barrière. Serait-ce un double sommet en construction ?
Fig2.

Idem pour le DAX : divergence inverse baissière. Une baisse sous 7300 points validerait un double sommet avec un objectif situé à 6600 dans ce scenario.
Fig3.

 

Le SMI lui a commencé à dessiner les contours de ce qui pourrait devenir une épaule-tête-épaule si les cours passaient sous le niveau des 8500. On n'en est plus très loin.
Dans cette hypothèse il faudrait envisager une descente de 1000 points !
Fig4.

 

Pour le Nikkei 225 la divergence est encore plus marquée que sur les autres indices, avec le confort d'avoir un dénivelé important entre les cours et donc un niveau d'invalidation de la divergence assez éloigné. Avant de casser sa tendance moyen-terme la Nikkei avait construit un superbe biseau ascendant. L'objectif de retracement de ce biseau coïnciderait avec la « balançoire » de la rupture du support en tirets rouge. Rupture qui reste encore hypothétique à ce jour mais qui donnerait le signal si elle intervenait.
Fig5.

 

Le S&P 500 donne lui peu d'indication sinon qu'il a été contenu par la H-MLH comme on le voit ci-dessous. L'évènement pouvait être anticipé compte-tenu du retournement de la STO à cet endroit. Néanmoins la figure ressemble aussi à un double sommet en formation mais la validation se situe assez bas vers1400 points.
Fig6.

 

Enfin monsieur Dupont fait un zoom sur l'indice chéri de Crock, le CAC40.

Là il découvre une situation assez semblable à celle du SMI. Une possible ETE en formation. La divergence baissière inverse apporte quelques arguments de poids à la construction de la fin de l'épaule droite.
Fig7.

 

Mais pour en avoir le coeur net il s'intéresse au graphique journalier.
Celui-ci montre que les cours sont contenus dans 3 fourchettes:

• MT : fourchette bleue dont les cours ont rejoint la médiane un peu avant la fin de la boite temps
• MT : fourchette grise dont les cours ont « refusé » la médiane et dont la boite temps est « épuisé »
• CT : fourchette rose dont les cours ont validé la H-MLH (double sommet) et donc la fourchette elle-même. Les cours sont toujours dans la boite temps pour le moment.

Fig8.

 

À ces observations il ajoute :

• la proximité de la droite de support haussière long-terme (en rouge) et qui a été « travaillé » en août dernier mais qui a tenu à l'époque.
• Le double sommet récent, s'il est validé par un passage des cours sous 5650 (environ), devrait « envoyer » les cours vers 5480 soit sur la médiane rose mais aussi sur le support LT rouge ... mais aussi sur la L-MLH grise.
• La CL (center line) tracée sur la dernière tendance vient d'être cassée (principe d'Anderson), l'objectif des cours sera a minima la ligne dite de réaction (notée R).
• Si cette L-MLH grise devait être cassée les cours (principe du refus de la médiane) devrait a minima rejoindre 5300.

En résumé SI le double top récent est validé, l'objectif serait 5500 puis si les cours passaient sous 5500 l'objectif deviendrait 5300.
En revenant au graphique semaine, ce niveau 5300 correspondrait à la fin de la formation de l'ETE.

Mais une baisse en novembre est-ce bien sérieux ?

Certes il a entendu ou lu que la saisonnalité ne pencherait pas en faveur d'une baisse en novembre. En utilisant le graphique posté en décembre dernier par Roque (Effet janvier) et en portant sur ce graphique les mouvements du SBF250 en 2007 il s'aperçoit que ... cela n'a aucun sens.

En effet l'écart-type est tel que la probabilité d'une baisse reste tout à fait acceptable. D'ailleurs il se souvient qu'effectivement et compte tenu du faible échantillon d'années de bourse observées cette affaire de saisonnalité relève plus de croyance que d'autres choses.
Fig9.

Pour terminer il note un événement sans précédent sur le dollar.

L'indice dollar a fait un plus bas encore jamais atteint jusqu'alors.
Fig10.

Même s'il ne place pas beaucoup d'espoir dans l'avenir de cette monnaie, il note que le sentiment général est devenu beaucoup trop baissier sur le dollar et qu'une hausse correctrice pourrait bien intervenir prochainement.

Il se prépare donc à se renforcer encore une fois sur son investissement préféré qui devrait corriger ses exagérations récentes et le préserver ainsi à long terme de l'incurie du monde financier dont les frasques lui sortent par les trous de NEZ !

Monsieur Dupont vous souhaite à toutes et à tous une bonne semaine