Inflation, deflation, gold and currencies

[vincecate]

So, would you sell in the High after the war? Or when the outcome of the war looks to be decided, the crisis Climax? It seems to me that the countries who prevail in such a war will be the only game in town and their's will be the new reserve currency. What then will be the value of metals then?

We don't need to decide when to sell now. If we make it through the war we will have much better information then to be able to make the decision about when to sell. And if we need to sell some earlier to survive then we do so.

I think there is a real chance that all the fiat reserve currencies go into hyperinflation and become worthless. If this happens, there may never be another fiat currency used as a reserve currency.

[vincecate]

This real time BPP price index seems to lead the CPI, see graph at URL below. This makes sense as it is real time. It has shot up the last 2 months, so it seems we should expect the CPI to also shoot up soon.

http://bpp.mit.edu/daily-price-indexes/?country=USA

[vincecate]

This graph lets you see how the recent deflation compares to the 1920 and early 30s deflations. The recent deflation is the most since going off gold for locals in 1933.

fredgraph.png (17.94 KiB) Viewed 4657 times

This next one shows the S&P and PPI. When PPI is going up in 70s stocks don't do so well, when it is relatively flat in 50s and 60s or 80s and 90s stocks do well. The last 10 years prices were not as stable as those other flat periods, and stocks have stalled. In the off chance there is someone that does not already know, my prediction is prices going up faster from here.

fredgraph2.png (20.2 KiB) Viewed 4655 times

This next one shows corporate profits compared to PPI. When PPI was going up fast in the 70s the corporate profits were not going up any faster than in the 60s or 80s. So it seems inflation was not increasing profits.

fredgraph3.png (20.47 KiB) Viewed 4652 times

[Lily]

That's pretty useful information; thanks for posting that.

[Higgenbotham]

This next one shows corporate profits compared to PPI. When PPI was going up fast in the 70s the corporate profits were not going up any faster than in the 60s or 80s. So it seems inflation was not increasing profits.

Vince, I read just in the past couple days that the daily treasury statements are showing reductions in tax collections compared to last year. The analyst was of the opinion that corporate profits are already getting hurt from inflation.

A comment/question having to do with the 38 year cycle. I see that 2011 may look a lot like 1973 on your graph above. What do you think is the chance that the January 1973 high in stocks is similar to our high early this year and that stocks will hold aproximately steady this year like they did in 1973 and then crash toward 2012, as they did in 1974? Also, would that imply a temporary high in commodities in 2012 as in 1974?

[John]

Dear Higgie,

> Vince, I read just in the past couple days that the daily treasury
> statements are showing reductions in tax collections compared to
> last year. The analyst was of the opinion that corporate profits
> are already getting hurt from inflation.

Do you have a link for this?

A fall in tax revenues would be highly significant. As I've written
in the past, the increase in the federal deficit up to 2009 was
not due to wars or tax cuts; it's been due entirely to decreases
in tax collections following the Nasdaq crash.

** US tax revenues fall sharply, the most since 1932
** http://www.generationaldynamics.com/cgi ... 04#e090804

If tax collections are falling again, then it's highly significant
in terms of the federal deficit.

I tried "tax collections" in google news, but all that came up
are state tax collections, mostly down. I didn't see anything on
federal tax collections.

John

[vincecate]

A comment/question having to do with the 38 year cycle. I see that 2011 may look a lot like 1973 on your graph above. What do you think is the chance that the January 1973 high in stocks is similar to our high early this year and that stocks will hold aproximately steady this year like they did in 1973 and then crash toward 2012, as they did in 1974? Also, would that imply a temporary high in commodities in 2012 as in 1974?

I am sure I should give up on any exact timing predictions. I just think you can not have such high debt and deficits, and print money for so much of the deficit, without getting hyperinflation (historically it always happens). I think the end is near when people stop buying new treasury debt. Since the Fed is already covering most of the increase in treasury debt, I think we have started the end game. When the net foreign holdings of treasuries starts to go down, I expect the panic to really get going. As the panic starts interest rates will go up and stocks will crash. It is a human understanding/fear thing, that could really get started anytime this year or next. It may be that the CPI follows the BPI up and everyone panics after seeing that the inflation rate is much higher than the interest rates. Hard for me to imagine having more time than 2 years, but I have been wrong before.

[Higgenbotham]

Dear Higgie,

> Vince, I read just in the past couple days that the daily treasury
> statements are showing reductions in tax collections compared to
> last year. The analyst was of the opinion that corporate profits
> are already getting hurt from inflation.

Do you have a link for this?
John

Another proxy to gauge how U.S. corporations are doing in general: corporate taxes received by the U.S. Treasury (reported here at the daily Treasury Statement). The quarter through March 23 is a complete fizzle, a dud, at $35.7 billion, versus $51.4 billion during the same period last year. The remaining week of the quarter shows light collection, with the next large collection occurring in mid April. Evidence of an inflationary impacted Q1 2011 corporate-profit squeeze and disappointment looks quite convincing.

http://seekingalpha.com/article/260106- ... s-baked-in

[Higgenbotham]

I just went over the monthly treasury statements from January and February 2010 and 2011, and the daily treasury statements from March 31 2010 and 2011.

It's not clear to me the author has his numbers right. The Treasury makes collections and issues refunds. From what I can tell there were fewer collections in March 2011 compared to March 2010. But it also appears there were a lot less refunds in March 2011 compared to March 2010. I wasn't able to completely reconcile the daily statement with the monthly statement.

[Higgenbotham]

I am sure I should give up on any exact timing predictions. I just think you can not have such high debt and deficits, and print money for so much of the deficit, without getting hyperinflation (historically it always happens). I think the end is near when people stop buying new treasury debt. Since the Fed is already covering most of the increase in treasury debt, I think we have started the end game. When the net foreign holdings of treasuries starts to go down, I expect the panic to really get going. As the panic starts interest rates will go up and stocks will crash. It is a human understanding/fear thing, that could really get started anytime this year or next. It may be that the CPI follows the BPI up and everyone panics after seeing that the inflation rate is much higher than the interest rates. Hard for me to imagine having more time than 2 years, but I have been wrong before.

I know how you feel about that. If the inflation gets even stronger than it already is, for awhile more people may actually want to get out of cash and buy some oil stocks or something like that. I can remember being a kid in the 1970s and watching Superior Oil go up and up. Probably the best thing we can do is continue to watch things develop. It's also hard for me to see this lasting more than another 2 years.