Deflation is everywhere. Get used to it.

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fredflinstone
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Deflation is everywhere. Get used to it.

Post by fredflinstone »

I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
HEDGEFUNDIE
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Re: Deflation is everywhere. Get used to it.

Post by HEDGEFUNDIE »

I have three words for you, my animal fur-clad friend.

Long. Term. Treasuries.
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fredflinstone
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Re: Deflation is everywhere. Get used to it.

Post by fredflinstone »

HEDGEFUNDIE wrote: Mon Apr 20, 2020 7:34 am I have three words for you, my animal fur-clad friend.

Long. Term. Treasuries.
It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
ScubaHogg
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Re: Deflation is everywhere. Get used to it.

Post by ScubaHogg »

fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
FWIW, several years ago Seattle started seeing allowing a lot more residential construction. As inventory has increased rents began falling, which predates COVID. For Seattle at least I think of it more as a reduction from an artificially high point than deflation per se.
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HEDGEFUNDIE
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Re: Deflation is everywhere. Get used to it.

Post by HEDGEFUNDIE »

fredflinstone wrote: Mon Apr 20, 2020 7:38 am
HEDGEFUNDIE wrote: Mon Apr 20, 2020 7:34 am I have three words for you, my animal fur-clad friend.

Long. Term. Treasuries.
It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
Three more words:

Adjustable. Rate. Mortgage.
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StevieG72
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Re: Deflation is everywhere. Get used to it.

Post by StevieG72 »

Three more words...

Stay the course!
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beth65
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Re: Deflation is everywhere. Get used to it.

Post by beth65 »

Deflation is not quite everywhere - food costs have definitely not decreased recently. Even despite less dining out, my grocery bill is up substantially from two months ago. I went to the grocery store yesterday, and they were advertising prices as sales that were the regular price on the exact same items before the outbreak. If you can get eggs or chicken, the prices are definitely higher. Prices on PPE and hand sanitizer, and even ordinary cleaning supplies have also been inflated.

Doesn't a deflationary environment typically revert to an inflationary one after a short amount of time (a year or less)?
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fredflinstone
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Re: Deflation is everywhere. Get used to it.

Post by fredflinstone »

beth65 wrote: Mon Apr 20, 2020 7:58 am Deflation is not quite everywhere - food costs have definitely not decreased recently. Even despite less dining out, my grocery bill is up substantially from two months ago. I went to the grocery store yesterday, and they were advertising prices as sales that were the regular price on the exact same items before the outbreak. If you can get eggs or chicken, the prices are definitely higher. Prices on PPE and hand sanitizer, and even ordinary cleaning supplies have also been inflated.

Doesn't a deflationary environment typically revert to an inflationary one after a short amount of time (a year or less)?
Japan has had deflation for most of the last 30 years.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
Grt2bOutdoors
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Re: Deflation is everywhere. Get used to it.

Post by Grt2bOutdoors »

fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
Oil is trading at 25.80 for a barrel of WTI and Brent is close to 27.00. Where are you seeing it trade for $11 a barrel?

The other thing that is not declining is real estate taxes.
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jebmke
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Re: Deflation is everywhere. Get used to it.

Post by jebmke »

Grt2bOutdoors wrote: Mon Apr 20, 2020 8:01 am The other thing that is not declining is real estate taxes.
Mine went down for four years after the last recession. Valuations dropped but rates went up. But my county has a revenue cap and any expansion of the tax base reduces the tax paid by everyone else. As businesses and other residents came into the county, they had no choice but to cut our property tax.

It is still early in the cycle but I am expecting that we will see something similar to what we saw in 2009-10. Contractors that do home building and home improvement are going to see business dry up so will price aggressively on projects. I would not be surprised if there will be good deals on home improvement for those who have the cash.
Last edited by jebmke on Mon Apr 20, 2020 8:15 am, edited 1 time in total.
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alfaspider
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Re: Deflation is everywhere. Get used to it.

Post by alfaspider »

Grt2bOutdoors wrote: Mon Apr 20, 2020 8:01 am
fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
Oil is trading at 25.80 for a barrel of WTI and Brent is close to 27.00. Where are you seeing it trade for $11 a barrel?

The other thing that is not declining is real estate taxes.
The WTI and Brent grades are the "benchmark" grades, but there are other grades that trade at different prices. Also, oil is worth less at the wellhead than at a terminal. There are certainly plenty of places where $11 is in the ballpark. When storage fills, things will get really wonky. Some grades and/or some locations may actually go negative (producers have to pay to have it taken off their hands) because there's simply nowhere to store the production in that area.

EDIT: just checked and WTI prices have plummeted overnight. WTI is now at 11 as of this morning :shock:

Adjusted for inflation, oil prices have never been this low .
Last edited by alfaspider on Mon Apr 20, 2020 8:25 am, edited 1 time in total.
jebmke
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Re: Deflation is everywhere. Get used to it.

Post by jebmke »

Just looking at WSJ - WTI futures at $11.16
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Lithuanian
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Re: Deflation is everywhere. Get used to it.

Post by Lithuanian »

Nobody knows nothing

Yes, deflation (or rather low inflation) is the most (?) likely outcome for the foreseeable future. However, you could easily construct a scenario where inflation is coming (supply disruption, helicopter money, lower authorities' aversion to inflation, etc.) - best to be prepared for all scenarios.
mptfan
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Re: Deflation is everywhere. Get used to it.

Post by mptfan »

fredflinstone wrote: Mon Apr 20, 2020 7:38 am It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
You can observe the future?
:shock:
international001
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Re: Deflation is everywhere. Get used to it.

Post by international001 »

fredflinstone wrote: Mon Apr 20, 2020 7:32 am

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?
I'm also betting on interest rates going down
But this has nothing to do with oil prices. There are reasons why decrease of energy are not considered as an indication of deflation by macroeconomists. You have to look at other types products

https://fred.stlouisfed.org/series/CPILFESL
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jeffyscott
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Re: Deflation is everywhere. Get used to it.

Post by jeffyscott »

mptfan wrote: Mon Apr 20, 2020 8:19 am
fredflinstone wrote: Mon Apr 20, 2020 7:38 am It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
You can observe the future?
:shock:
I believe that Mr. Flintstone is only stating that it would not shock him if that were to happen. What he is predicting/observing is only his lack of shock. Predicting that there will be a lack of shock and observing his current opinion that there will be a lack of shock. :D

I also would not be shocked, surprised but not shocked.
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Grt2bOutdoors
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Re: Deflation is everywhere. Get used to it.

Post by Grt2bOutdoors »

HEDGEFUNDIE wrote: Mon Apr 20, 2020 7:52 am
fredflinstone wrote: Mon Apr 20, 2020 7:38 am
HEDGEFUNDIE wrote: Mon Apr 20, 2020 7:34 am I have three words for you, my animal fur-clad friend.

Long. Term. Treasuries.
It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
Three more words:

Adjustable. Rate. Mortgage.
That’s if you can get a mortgage!!!
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Grt2bOutdoors
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Re: Deflation is everywhere. Get used to it.

Post by Grt2bOutdoors »

jebmke wrote: Mon Apr 20, 2020 8:16 am Just looking at WSJ - WTI futures at $11.16
That’s for delivery next month. Looking 6 months out futures are much higher than that. Most e&p’ not selling crude on a month to month basis. There is some level of hedging and an integrated company will see the lower cost input and convert it to a higher margin end product. While total revenues may decline, profitability can still be somewhat maintained. Those which are highly levered will be pushed out.
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BogleMelon
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Re: Deflation is everywhere. Get used to it.

Post by BogleMelon »

In NJ rent and housing are so stubborn and refuse to go down.
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striker79
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Re: Deflation is everywhere. Get used to it.

Post by striker79 »

We need more stimulus!...So big companies can use that money to buyback shares, instead of actually circulating it into the economy. Then we can all watch our retirement accounts grow and pat ourselves on the back for staying the course and adhering to boglehead principles.
ARoseByAnyOtherName
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Re: Deflation is everywhere. Get used to it.

Post by ARoseByAnyOtherName »

alfaspider wrote: Mon Apr 20, 2020 8:14 am
Grt2bOutdoors wrote: Mon Apr 20, 2020 8:01 am
fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
Oil is trading at 25.80 for a barrel of WTI and Brent is close to 27.00. Where are you seeing it trade for $11 a barrel?

The other thing that is not declining is real estate taxes.
The WTI and Brent grades are the "benchmark" grades, but there are other grades that trade at different prices. Also, oil is worth less at the wellhead than at a terminal. There are certainly plenty of places where $11 is in the ballpark. When storage fills, things will get really wonky. Some grades and/or some locations may actually go negative (producers have to pay to have it taken off their hands) because there's simply nowhere to store the production in that area.

EDIT: just checked and WTI prices have plummeted overnight. WTI is now at 11 as of this morning :shock:

Adjusted for inflation, oil prices have never been this low .
Well that's no surprise, I mean we're smack in the middle of the most sudden and severe demand shock since who-knows-when. Wouldn't be surprised if they're paying people ot use the stuff at this point. This is expected.

Question is what happens in a year or so. Does demand recover or are some of the sudden changes that led to a drop in demand permanent?
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jeffyscott
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Re: Deflation is everywhere. Get used to it.

Post by jeffyscott »

beth65 wrote: Mon Apr 20, 2020 7:58 am Deflation is not quite everywhere - food costs have definitely not decreased recently. Even despite less dining out, my grocery bill is up substantially from two months ago. I went to the grocery store yesterday, and they were advertising prices as sales that were the regular price on the exact same items before the outbreak. If you can get eggs or chicken, the prices are definitely higher. Prices on PPE and hand sanitizer, and even ordinary cleaning supplies have also been inflated.

Doesn't a deflationary environment typically revert to an inflationary one after a short amount of time (a year or less)?
Yes, I have seen the same with food and BLS agrees: The food index rose in March, increasing 0.3 percent as the food at home index rose 0.5 percent.

Yeah gasoline is cheap, but who needs any? We've not bought a single gallon of gas in about 6 weeks. Airline fares and hotels costs are down too, yippee, two things that I'll likely be buying none of in the next year.
A sharp decline in the gasoline index was a major cause of the monthly decrease in the seasonally adjusted all items index, with decreases in the indexes for airline fares, lodging away from home, and apparel also contributing. The energy index fell 5.8 percent as the gasoline index decreased 10.5 percent.

Also, note that the unadjusted change was 1/2 the headline number: The index decreased 0.2 percent prior to seasonal adjustment.
https://www.bls.gov/news.release/cpi.nr0.htm

I don't know that it matters, but I would think that seasonal effects are likely going to be swamped Covid-19 effects this year. As one example, demand for gasoline will rise as lock-downs are eased, rather than rising based on the summer travel season (they could coincide, though).
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jeffyscott
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Re: Deflation is everywhere. Get used to it.

Post by jeffyscott »

BogleMelon wrote: Mon Apr 20, 2020 8:57 am In NJ rent and housing are so stubborn and refuse to go down.
BLS agrees, but nothing special about NJ, their release states: The index for shelter was unchanged, with increases in the indexes for rent and for owners’ equivalent rent offsetting the aforementioned decline in the index for lodging away from home.
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
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gmaynardkrebs
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Re: Deflation is everywhere. Get used to it.

Post by gmaynardkrebs »

Any competent central bank can stop deflation dead in its tracks if it wants to. Deflation in the 1930s in the USA and in Japan post-bubble were almost entirely the result of CB incompetence. We've learned a lot since then. While we may experience deflation (or inflation) in the months ahead, in all likelihood, the results will be quite transitory.
alfaspider
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Re: Deflation is everywhere. Get used to it.

Post by alfaspider »

ARoseByAnyOtherName wrote: Mon Apr 20, 2020 9:03 am
alfaspider wrote: Mon Apr 20, 2020 8:14 am
Grt2bOutdoors wrote: Mon Apr 20, 2020 8:01 am
fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
Oil is trading at 25.80 for a barrel of WTI and Brent is close to 27.00. Where are you seeing it trade for $11 a barrel?

The other thing that is not declining is real estate taxes.
The WTI and Brent grades are the "benchmark" grades, but there are other grades that trade at different prices. Also, oil is worth less at the wellhead than at a terminal. There are certainly plenty of places where $11 is in the ballpark. When storage fills, things will get really wonky. Some grades and/or some locations may actually go negative (producers have to pay to have it taken off their hands) because there's simply nowhere to store the production in that area.

EDIT: just checked and WTI prices have plummeted overnight. WTI is now at 11 as of this morning :shock:

Adjusted for inflation, oil prices have never been this low .
Well that's no surprise, I mean we're smack in the middle of the most sudden and severe demand shock since who-knows-when. Wouldn't be surprised if they're paying people ot use the stuff at this point. This is expected.

Question is what happens in a year or so. Does demand recover or are some of the sudden changes that led to a drop in demand permanent?
That's what everyone is wondering. Personally, I see no scenario where demand doesn't eventually recover to pre-COVID levels. Alternative fuels are not attractive when fossil fuels are basically free, so there's little impetus to transition away from oil prior to a price recovery. There may be some semi permanent shifts to remote work and reduced work travel, but I think those will eventually be offset by developing economy expansion.
beth65
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Re: Deflation is everywhere. Get used to it.

Post by beth65 »

I'm 40 years old, and I have yet to live during a time where overall inflation did not exist, as real inflation is different from projected and BLS-calculated inflation. My salary has not increased since 2008 (I work in marketing, an area that took a big hit and never fully recovered), and I can look back at my budget and spending from 12 years ago and see that things cost more now than they did then (with the exception of a a few categories like clothing and utilities, which have been mostly stagnant). Healthcare and housing costs are the two biggest increases.

From a macroeconomics standpoint, the market has risen, but much of this was due to the corporate tax cuts and the buybacks, as mentioned above. How much that has actually benefited the average investor, especially those that haven't sold anything, may not see those great gains. Despite all of the platform speeches and talk, the majority of corporations didn't use the tax cuts to increase wages, and a majority of the employment gains were in the gig economy. There is an excellent index that was recently released called the job quality index. It's very insightful to note that the quality of jobs hasn't increased greatly, but the number of jobs has.
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Stef
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Re: Deflation is everywhere. Get used to it.

Post by Stef »

As a Swiss I'm already used to it.

I don't mind. My salary keeps going up and things are getting cheaper or stay the same.
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Re: Deflation is everywhere. Get used to it.

Post by whodidntante »

gmaynardkrebs wrote: Mon Apr 20, 2020 9:06 am Any competent central bank can stop deflation dead in its tracks if it wants to. Deflation in the 1930s in the USA and in Japan post-bubble were almost entirely the result of CB incompetence. We've learned a lot since then. While we may experience deflation (or inflation) in the months ahead, in all likelihood, the results will be quite transitory.
In spite of the "no limits" narrative, the Fed has limits because they operate in a market. They are already in uncharted territory with the decision to buy risk assets. Fed operations have historically been profitable. Going forward, they might take a loss, possibly a big loss. Continued "bold, unprecedented, unlimited" Fed action may lead to a crisis. The USD is not bitcoin. A 5% move has knock-on effects.

The BoJ has been highly accommodative and it's not enough to get the desired effect. It doesn't help that the Japanese like to save. But is that a response to their environment?
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Re: Deflation is everywhere. Get used to it.

Post by SimpleGift »

fredflinstone wrote: Mon Apr 20, 2020 7:32 am Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time.
Not exactly true. The U.S. bond markets are indicating that deflation in the U.S. will be mild and will NOT persist more than a year or two. The chart below shows breakeven inflation rates for U.S. Treasuries (nominal bond yields minus TIPS bond yields) for 21 bonds maturing from January 2021 to February 2050.

The bond market expects -2.0% deflation into 2020, then -0.4% deflation in 2021, and then positive inflation thereafter.
All indications are that deflation will be a transitory experience in the U.S. — and it will not persist like Japan or Europe.
Last edited by SimpleGift on Mon Apr 20, 2020 10:04 am, edited 4 times in total.
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bt365
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Re: Deflation is everywhere. Get used to it.

Post by bt365 »

"From a macroeconomics standpoint, the market has risen, but much of this was due to the corporate tax cuts and the buybacks, as mentioned above. How much that has actually benefited the average investor, especially those that haven't sold anything, may not see those great gains. Despite all of the platform speeches and talk, the majority of corporations didn't use the tax cuts to increase wages, and a majority of the employment gains were in the gig economy. There is an excellent index that was recently released called the job quality index. It's very insightful to note that the quality of jobs hasn't increased greatly, but the number of jobs has."

Agree with this.
MadHungarian
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Re: Deflation is everywhere. Get used to it.

Post by MadHungarian »

ScubaHogg wrote: Mon Apr 20, 2020 7:51 am
. . .

FWIW, several years ago Seattle started seeing allowing a lot more residential construction. As inventory has increased rents began falling, which predates COVID. For Seattle at least I think of it more as a reduction from an artificially high point than deflation per se.
I bet you my local Seattle-area taxes continue on their current hyper-inflation trajectory.
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Watty
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Re: Deflation is everywhere. Get used to it.

Post by Watty »

When looking at inflation or deflation it is important to realize that there are different types of inflation.

Typically the public means price inflation when they are talking about inflation because they see raising prices. That can be measured but the consumer price index. It is not clear to me which way this is going now since I have not been buying much other than food and utilities.

When economist talk about inflation they may be talking about the monetary inflation which is measured by the money supply which is the total of all the money in the system like checking accounts, savings accounts, paper cash, etc. There are different way of tracking this that are called M1, M2, ect which include different things. With all the stimulus money this has gone up sharply so it is clear that there has been monetary inflation, not monetary deflation.

https://fred.stlouisfed.org/series/M1

Image

Image



It is possible that different types of inflation can be going in different directions like the infamous stagflation of the 1970s when there was high price inflation but the economy was stagnant.

Price inflation can also be separated as supply or demand inflation. For example the price of cars may go up because lots of people want to buy one in a booming economy, or the can go up in a bad economy because not enough cars are being made. There was a prior thread where someone was asking about why there are not better deals on cars yet, that was because most car factories are closed now.
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Re: Deflation is everywhere. Get used to it.

Post by AlohaJoe »

fredflinstone wrote: Mon Apr 20, 2020 8:00 am Japan has had deflation for most of the last 30 years.
No they haven't. They've had deflation in 12 of the last 30 years; that's not most. And the only time they had sustained deflation was from 1998-2003 (well after the crash of 1990). Since then it has basically only been a single year at a time, as in 2012 when deflation was -0.004% or 2015 when it was -0.002%. Only 6 times was Japanese deflation more than -0.5%.

Taken as a whole, Japan has experienced inflation over the past 30 years, albeit not much. In January 1990 the Japanese CPI stood at 89.7. By February 2020 it was at 102.

Japan hasn't really had a deflation problem so much as a "not inflation" problem. Somewhat unsurprisingly, you don't see a lot of hard money gold bugs moving to Japan to live in the promised land of no price inflation and its amazing economic performance.

Japanese CPI data can be looked up on the OECD's website:
https://www.oecd-ilibrary.org/economics ... a-00052-en
effigy98
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Re: Deflation is everywhere. Get used to it.

Post by effigy98 »

I love long term treasuries but I do not trust the dollar here. I am looking forward to buying cheap real assets if deflation really does happen in a significant way, but I have not seen that yet as prices seem to even be going up in my market for Real Estate, Land, etc. The stock market looks like inflation to me... not deflation.
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Re: Deflation is everywhere. Get used to it.

Post by fredflinstone »

Grt2bOutdoors wrote: Mon Apr 20, 2020 8:01 am
fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.

At the time of this writing, oil is trading at $11 per barrel. Who could have imagined this 5 or 10 years ago?

Consumer prices in the US dropped 0.4 percent in March.

Dairy prices are falling:
https://www.spglobal.com/marketintellig ... t-57961571

Rents are falling in Seattle and elsewhere:
https://www.housingwire.com/articles/re ... ronavirus/

Real estate prices in Dallas are falling:
https://www.dallasnews.com/business/rea ... aded-down/

Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time. Switzerland's 50-year bond has a yield of -0.296%. No that is not a typo. Negative .296 percent.
Oil is trading at 25.80 for a barrel of WTI and Brent is close to 27.00. Where are you seeing it trade for $11 a barrel?

The other thing that is not declining is real estate taxes.
https://finance.yahoo.com/quote/CL=F?p=CL=F

$10.67 at the moment.
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Re: Deflation is everywhere. Get used to it.

Post by fredflinstone »

AlohaJoe wrote: Mon Apr 20, 2020 10:03 am
fredflinstone wrote: Mon Apr 20, 2020 8:00 am Japan has had deflation for most of the last 30 years.
No they haven't. They've had deflation in 12 of the last 30 years; that's not most. And the only time they had sustained deflation was from 1998-2003 (well after the crash of 1990). Since then it has basically only been a single year at a time, as in 2012 when deflation was -0.004% or 2015 when it was -0.002%. Only 6 times was Japanese deflation more than -0.5%.

Taken as a whole, Japan has experienced inflation over the past 30 years, albeit not much. In January 1990 the Japanese CPI stood at 89.7. By February 2020 it was at 102.

Japan hasn't really had a deflation problem so much as a "not inflation" problem. Somewhat unsurprisingly, you don't see a lot of hard money gold bugs moving to Japan to live in the promised land of no price inflation and its amazing economic performance.

Japanese CPI data can be looked up on the OECD's website:
https://www.oecd-ilibrary.org/economics ... a-00052-en
Thanks for the correction. For the record, I would love to move to Japan.
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Re: Deflation is everywhere. Get used to it.

Post by fredflinstone »

jeffyscott wrote: Mon Apr 20, 2020 8:41 am
mptfan wrote: Mon Apr 20, 2020 8:19 am
fredflinstone wrote: Mon Apr 20, 2020 7:38 am It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
You can observe the future?
:shock:
I believe that Mr. Flintstone is only stating that it would not shock him if that were to happen. What he is predicting/observing is only his lack of shock. Predicting that there will be a lack of shock and observing his current opinion that there will be a lack of shock. :D

I also would not be shocked, surprised but not shocked.
Well put.
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Re: Deflation is everywhere. Get used to it.

Post by Tigermoose »

Watty wrote: Mon Apr 20, 2020 9:56 am When looking at inflation or deflation it is important to realize that there are different types of inflation.

Typically the public means price inflation when they are talking about inflation because they see raising prices. That can be measured but the consumer price index. It is not clear to me which way this is going now since I have not been buying much other than food and utilities.

When economist talk about inflation they may be talking about the monetary inflation which is measured by the money supply which is the total of all the money in the system like checking accounts, savings accounts, paper cash, etc. There are different way of tracking this that are called M1, M2, ect which include different things. With all the stimulus money this has gone up sharply so it is clear that there has been monetary inflation, not monetary deflation.

https://fred.stlouisfed.org/series/M1

Image

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It is possible that different types of inflation can be going in different directions like the infamous stagflation of the 1970s when there was high price inflation but the economy was stagnant.

Price inflation can also be separated as supply or demand inflation. For example the price of cars may go up because lots of people want to buy one in a booming economy, or the can go up in a bad economy because not enough cars are being made. There was a prior thread where someone was asking about why there are not better deals on cars yet, that was because most car factories are closed now.
I thought that inflation was a result of money supply AND velocity? So while the money supply has gone up, I imagine the velocity of money has plummeted.
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Re: Deflation is everywhere. Get used to it.

Post by fredflinstone »

SimpleGift wrote: Mon Apr 20, 2020 9:37 am
fredflinstone wrote: Mon Apr 20, 2020 7:32 am Of course some of this is due to coronavirus, but investors are betting that deflation will persist for a long time.
Not exactly true. The U.S. bond markets are indicating that deflation in the U.S. will be mild and will NOT persist more than a year or two. The chart below shows breakeven inflation rates for U.S. Treasuries (nominal bond yields minus TIPS bond yields) for 21 bonds maturing from January 2021 to February 2050.

The bond market expects -2.0% deflation into 2020, then -0.4% deflation in 2021, and then positive inflation thereafter.
All indications are that deflation will be a transitory experience in the U.S. — and it will not persist like Japan or Europe.
It's a little more complicated than that (see https://www.frbsf.org/economic-research ... 8-34bk.pdf) but this is a fair point.
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Re: Deflation is everywhere. Get used to it.

Post by BeneIRA »

beth65 wrote: Mon Apr 20, 2020 7:58 am Deflation is not quite everywhere - food costs have definitely not decreased recently. Even despite less dining out, my grocery bill is up substantially from two months ago. I went to the grocery store yesterday, and they were advertising prices as sales that were the regular price on the exact same items before the outbreak. If you can get eggs or chicken, the prices are definitely higher. Prices on PPE and hand sanitizer, and even ordinary cleaning supplies have also been inflated.

Doesn't a deflationary environment typically revert to an inflationary one after a short amount of time (a year or less)?
+1! The costs on the items I buy, about 25% by my calculation, have gone up. Almost all of the sale stickers I used to see are gone. Everyone is paying regular price on all items at the lowest. One example is in my area the store was clearancing out MayoChup for $1.74. Now it is not on clearance and it is back up to $3.49. The grocery store used to offer a "family pack" of meat and now that's gone and it is all individual and those prices are higher than they used to be. Costco used to have sales on items I buy and they just sent out a letter that the latest sales are online. I checked and virtually none of the items are products people would want right now. Everyone is buying groceries, so those costs are going up.
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Re: Deflation is everywhere. Get used to it.

Post by Watty »

Tigermoose wrote: Mon Apr 20, 2020 10:12 am I thought that inflation was a result of money supply AND velocity? So while the money supply has gone up, I imagine the velocity of money has plummeted.
I am not sure just how that works, the few times I have tried to read anything technical about economics I quickly got pretty lost.
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Re: Deflation is everywhere. Get used to it.

Post by SimpleGift »

gmaynardkrebs wrote: Mon Apr 20, 2020 9:06 am Any competent central bank can stop deflation dead in its tracks if it wants to. Deflation in the 1930s in the USA and in Japan post-bubble were almost entirely the result of CB incompetence. We've learned a lot since then. While we may experience deflation (or inflation) in the months ahead, in all likelihood, the results will be quite transitory.
+1. Deflation is the Fed's absolute greatest fear, I believe, and the reason they've rapidly unleashed such vast amounts of new monetary stimulus. After the Fed has cut interest rates to zero and pushed new money into the system, they don't have a lot of conventional tools to fight deep, persistent deflation. I recall Chairman Bernanke once writing about deflation risk, saying that "the best way to get out of trouble is not to get into it in the first place!"

I expect we'll see mild, short-term deflation in 2020-21 (like in the Fall of 2008), but it is not likely to deepen and persist.
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Re: Deflation is everywhere. Get used to it.

Post by jeffyscott »

BeneIRA wrote: Mon Apr 20, 2020 10:20 amCostco used to have sales on items I buy and they just sent out a letter that the latest sales are online. I checked and virtually none of the items are products people would want right now. Everyone is buying groceries, so those costs are going up.
Yeah, I noticed there were no food items in the new "coupon book", coffee and vitamins were about the closest to actual food as I recall. Also no cleaning products. I think some of the discounted items may also be in the warehouses, it's just that they did not mail out a coupon book. From the notice that was mailed it was implied that they made last-minute changes to what they were going to have deals on.

Our other primary grocery store, Meijer, has had a much smaller weekly ad than usual and I think fewer virtual coupons on their website recently. They also had been mailing monthly coupons to us, but that has stopped.
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Re: Deflation is everywhere. Get used to it.

Post by gmaynardkrebs »

SimpleGift wrote: Mon Apr 20, 2020 10:30 amAfter the Fed has cut interest rates to zero and pushed new money into the system, they don't have a lot of conventional tools to fight deep, persistent deflation. I recall Chairman Bernanke once writing about deflation risk, saying that "the best way to get out of trouble is not to get into it in the first place!"
Not sure why you say they lack conventional tools. If deflation does set in, Bernanke's infamous nickname suggests that a Fed chair has exactly the tool he needs, a printing press.
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Re: Deflation is everywhere. Get used to it.

Post by texnic »

While everybody is scared by deflation, it is inflation that is the largest threat to a consumer. If prices go down 1% per year - are we going to buy less food? Drive fewer miles to work? Maybe buy a smaller house? The answer is likely no. It just might be that deflation is an indicator of problems in economy but not the problem on its own.
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Re: Deflation is everywhere. Get used to it.

Post by Forester »

IMHO foolish to get used to, or comfortable with, deflation or inflation. Prepare for both in your written investment plan :beer
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Re: Deflation is everywhere. Get used to it.

Post by 02nz »

fredflinstone wrote: Mon Apr 20, 2020 7:32 am I think we're turning Japanese.
Do we also get a delicious fish-based diet and one of the world's longest life expectancies?

Seriously though, prices fall when the economy tanks. That's not new or surprising. Not sure how you can conclude that we'll get decades-long deflation based on just a month of data.
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Re: Deflation is everywhere. Get used to it.

Post by SimpleGift »

gmaynardkrebs wrote: Mon Apr 20, 2020 11:13 am
SimpleGift wrote: Mon Apr 20, 2020 10:30 amAfter the Fed has cut interest rates to zero and pushed new money into the system, they don't have a lot of conventional tools to fight deep, persistent deflation. I recall Chairman Bernanke once writing about deflation risk, saying that "the best way to get out of trouble is not to get into it in the first place!"
Not sure why you say they lack conventional tools. If deflation does set in, Bernanke's infamous nickname suggests that a Fed chair has exactly the tool he needs, a printing press.
I believe Mr. Bernanke was talking about expectations for deflation taking hold among consumers and the financial markets. Once deflationary expectations get entrenched in an economy, they are hard to reverse.

The Fed's worst fear is of a deflationary spiral, I believe, where falling prices cause further deflationary pressures to cut prices, creating expectations of further price falls, and therefore consumers reduce their spending because they expect goods to become cheaper in the future.

But I can't imagine the Fed's open market committee today ever letting the U.S. economy get into something like this.
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Re: Deflation is everywhere. Get used to it.

Post by Van »

fredflinstone wrote: Mon Apr 20, 2020 7:38 am
HEDGEFUNDIE wrote: Mon Apr 20, 2020 7:34 am I have three words for you, my animal fur-clad friend.

Long. Term. Treasuries.
It wouldn't shock me at all if the 30-yield falls to 0 percent within the next year or two. (That is not a prediction, just an observation.)
If it has not happened, how can it be an ovservation?
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Re: Deflation is everywhere. Get used to it.

Post by Dottie57 »

fredflinstone wrote: Mon Apr 20, 2020 8:00 am
beth65 wrote: Mon Apr 20, 2020 7:58 am Deflation is not quite everywhere - food costs have definitely not decreased recently. Even despite less dining out, my grocery bill is up substantially from two months ago. I went to the grocery store yesterday, and they were advertising prices as sales that were the regular price on the exact same items before the outbreak. If you can get eggs or chicken, the prices are definitely higher. Prices on PPE and hand sanitizer, and even ordinary cleaning supplies have also been inflated.

Doesn't a deflationary environment typically revert to an inflationary one after a short amount of time (a year or less)?
Japan has had deflation for most of the last 30 years.
So are you saying prices for Japanese groceries, clothing, rent are less today than they were 365 days ago?
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