Inflation vs. Deflation

[trendlover]

Here is short term trend for cd. If you are looking for a safe place in the short term.

http://www.bloomberg.com/apps/news?pid=20601213&sid=azSAKAJl1pd0&refer=home

 

[aresky]

Food and fuel will fall, says optimistic Brown
Joe Murphy and Nicholas Cecil, Evening Standard
9 October 2008, 9:47am

Gordon Brown today forecast falling oil, food and electricity prices as he painted an optimistic view of the economy heading for recovery.

The Prime Minister said pressures on family budgets could fall 'in the next few months' with better harvests and global energy supply up.
'The one bright spot on the horizon in what is a very difficult picture around the world is that oil prices are coming down,' he told GMTV.

'That's what has caused the hit on people's standard of living more than anything else. If we can get petrol prices down and gas and electricity bills down in the next few months, and we get food prices down with better harvests-then ... that's something to be hopeful about.'

Mr Brown said he was 'angry' over irresponsible City behaviour that led to the credit crunch.

In some of his most critical comments about the Square Mile, he said some bankers should be 'punished' for their conduct. 'I am angry too,' he declared when told some taxpayers were upset at having to bail out well-heeled bankers. 'I'm angry at irresponsible behaviour-And where there is excessive and irresponsible risk-taking, that is going to be punished.'

He spoke as the £500bn scheme to support the banks was largely well received by commentators. He denied that the Government had dithered and defended the plan, saying: 'If you didn't have a bank to borrow from then everything we depend on would be lost.'

The Prime Minister urged other governments to copy the British model. 'We took bold action yesterday. I hope other countries will follow us. This is an international problem and it needs international action.'

He acknowledged voters were still angry about high prices in the shops, saying: 'We have had bread prices going up very fast, milk and eggs and you know, the petrol pump. You get angry when you go to the petrol pump.'

http://www.thisismoney.co.uk/news/article.html?in_article_id=454623&in_page_id=2&ct=5

 

[pitz]

Food falling??? Why would farmers spend scarce cash to plant crops when they can buy bonds or equities that have imputed returns that are far higher than working the land to produce this 'cheap food' that the Prime Minister speaks of?

Makes no sense to me. Will this nonsense give us a famine when production falls short?

 

[TraderZones]

Quote from pitz:

Food falling??? Why would farmers spend scarce cash to plant crops when they can buy bonds or equities that have imputed returns that are far higher than working the land to produce this 'cheap food' that the Prime Minister speaks of?

Makes no sense to me. Will this nonsense give us a famine when production falls short?

because not planting is even more expensive. If fuel costs are lower, so is fertilizer and energy costs. And the world pop is increasing - more and more food is needed. Wealthy Chinese and Indians are moving up the scale, and meat needs will also drive up grain use.

 

[pitz]

because not planting is even more expensive.

At current prices, farmers aren't pulling any net income. If this deflation continues much longer, the indebted ones will send the keys to the land back to the bank.

In many cases, farmers borrow tens, hundreds of thousands of dollars for the inputs, and they make a spread between the inputs and the outputs. If that spread narrows any more than it has in the past number of years, they simply stop producing. Its as simple as that.

If fuel costs are lower, so is fertilizer and energy costs. And the world pop is increasing - more and more food is needed.

Exactly, which should mean higher food prices. And heaven forbid, if farmers stop using fertilizer, crop yields will fall significantly, and that would be supportive of high food prices.

Wealthy Chinese and Indians are moving up the scale, and meat needs will also drive up grain use.

All (hopefully) inflationary.

 

[Mike805]

Wow. CL broke under 80 and SPY down about 5.5% so far (off the lows still). Dollar index again showing strength at >82.

Are we closing under 8k for the DOW today? Seems ominous to say the least.

Heard a talking head on Bloomberg saying that we've got about 2-3 years of deflation before the inflation kicks in. Cheap energy = lower prices across the board. Cash is still king I guess...

 

[Mike805]

Quote from Pa(b)st Prime:


Housing is a perfect example. P/E's (resale price vs. rent) were ridiculously stretched (still are in some regions). But while the resale price component in the equation has tumbled rents seem to be hanging tight. Granted that ALSO may change but until one sees bona fide drops in earnings or rents then assets have some value but just at reduced multiples.

RE holding its value in the near term seems contradictory to me. I'm not too well educated in RE fundamentals so maybe you can shed some light on the issue:

1. If credit is tight, people have less money to spend therefore who's going to be paying up for rent, or, taking on new mortgages? Not to mention the economic uncertainty for many regarding their jobs. Only those that already own will stay put, I don't think that new buyers will be committing.

2. RE is still at 2004 levels, will it get back to 1999 levels? If the stock market is a leading indicator, aren't we due for another 30% correction in housing prices? - Note, I would love to see 1999 RE prices.

 

[Pa(b)st Prime]

IMO we'll see 1999 in many markets. OTOH: In some places credit concerns aren't an arbiter. Just yesterday the day America died, an elderly relative of mine sold her home in suburban Chicago-a TEARDOWN-for 1.5 million CASH!! Granted she's the luckiest person America. The buyer was her neighbor who's a CME member, lol. Rumor has it he was short CL and long gold....

Quote from Mike805:

RE holding its value in the near term seems contradictory to me. I'm not too well educated in RE fundamentals so maybe you can shed some light on the issue:

1. If credit is tight, people have less money to spend therefore who's going to be paying up for rent, or, taking on new mortgages? Not to mention the economic uncertainty for many regarding their jobs. Only those that already own will stay put, I don't think that new buyers will be committing.

2. RE is still at 2004 levels, will it get back to 1999 levels? If the stock market is a leading indicator, aren't we due for another 30% correction in housing prices? - Note, I would love to see 1999 RE prices.