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You can forget deflation

By iwog   2010 Oct 11, 5:56pm   1,759 views   10 comments   watch (0)   quote      

Inflation is coming fast and hard. A friend of mine called me up today and said "how about those futures prices?" I've been so focused on gold lately that I haven't been keeping up with the action on everything else. Here's a brief rundown of wholesale prices coming to a grocery store near you that I stole off a gold bug article:

Year over year agricultural Raw Materials are up 24%, The Mineral Index is up 25%, The Metals Price Index is up 26%, Coffee is up 45%, Barley is up 32%, Oranges are up 35%, Beef is up 23%, Pork is up 68%, Salmon is up 30%, Sugar is up 24%, Wool is up 30%, Cotton is up 40%, Palm oil is up 26%, Hides is up 25%, Rubber is up 62%, Iron Ore up 103%

Corn is flying:
Wheat is flying: http://futures.tradingcharts.com/chart/CW/W

Pretty much everything on the entire commodities board has soared recently. Either the recovery is in full swing, or something else nasty is coming up. It's almost Halloween so doomsters are welcome to post!

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1   globe33     2010 Oct 11, 11:30pm  ↑ like   ↓ dislike (1)   quote    

That's what caught my eye in an article Patrick linked to: http://www.zerohedge.com/article/three-horrifying-facts-about-us-debt-%E2%80%9Csituation%E2%80%9D?source=patrick.net#inner-content

… either that or experience hyperinflation. There is simply no other option. We can NEVER pay off our debts. To do so would require every US family to pay $31,000 a year for 75 years.

RE @ 4.5% is looking good right now. It is an asset that will grow inflation-indexed.

2   Patrick   1849/1849 = 100% civil   2010 Oct 12, 1:20am  ↑ like (1)   ↓ dislike   quote    

I think the "something else nasty" explanation is correct, because salaries are not rising.

3   mthom     2010 Oct 12, 1:34am  ↑ like   ↓ dislike (1)   quote    

Iwog, you posted something similar back in 2007/2008 saying raw materials are up. I think the Dow was around 12k at the time. Since then, the Dow went down to ~6600 and has come back a bit. Based on recent history, these raw materials prices are not a good indicator of much.

4   EBGuy     2010 Oct 12, 3:25am  ↑ like   ↓ dislike   quote    

Deflation Nation:
The government is expected to announce this week that more than 58 million Social Security recipients will go through a second straight year without an increase in monthly benefits. This year was the first without an increase since automatic adjustments for inflation started in 1975.

5   RayAmerica     2010 Oct 12, 3:35am  ↑ like   ↓ dislike   quote    

"something nasty" translates to me as stagflation. Google is planning on releasing another index that is more in line with inflation statistics. That should be interesting being that, IMO, statistics provided by the government are almost always tainted.

6   Ptipking222     2010 Oct 12, 3:35am  ↑ like (1)   ↓ dislike (1)   quote    

7   Patrick   1849/1849 = 100% civil   2010 Oct 12, 3:59am  ↑ like   ↓ dislike   quote    

Yes, that Wikipedia description of "biflation" seems to apply to the current situation.

8   iwog   1537/1538 = 99% civil   2010 Oct 12, 4:10am  ↑ like   ↓ dislike (1)   quote    

mthom says

Iwog, you posted something similar back in 2007/2008 saying raw materials are up. I think the Dow was around 12k at the time. Since then, the Dow went down to ~6600 and has come back a bit. Based on recent history, these raw materials prices are not a good indicator of much.

More than a bit I think.

2008 saw the peak of the oil bubble and a spike in corn prices due to a stupid energy bill. Therefore most of the high commodities prices were either tied to high oil or ethanol. Furthermore prices spiked early in 2008 and crashed along with the start of the Great Recession and the collapse of oil prices.

This time it is a much more broad based increase affecting nearly every commodity and doesn't seem to be tied to oil or legislation. It's either tied to a recovery, or something else like inflation fears.

9   Kevin     2010 Oct 12, 7:02am  ↑ like (1)   ↓ dislike (1)   quote    

Wage inflation is inevitable. It won't track price inflation, but it'll be there. Just wait.

10   schmitz_kris     2010 Oct 13, 6:00am  ↑ like   ↓ dislike   quote    

It isn't tied to any "recovery." That's nonsense. A clear look at the graphs indicates this most recent meteoric rise began in August/September after the Fed had indicated that a second round of quantitative easing may be required to prop up the impotent "recovery." That moved speculators into hard assets, ag commodities, gold and silver, copper, etc. It's just inflationary positioning - perfectly logical.

Price increases at the gas station and grocery store will just weaken the economy that much further. This is DEFLATIONARY for housing, especially in suburban areas where the cost of oil has a significant impact on family budgets.

Since we've been talking about Argentina lately, let's examine what happened to their real estate market upon devaluation of the peso argentino.

IT COLLAPSED. All bank lending completely seized (nobody is going to loan money that, once paid back in the future, is worth significantly less).

Real estate prices in Argentina (as well as Iceland where another devaluation just happened a couple of years ago during the bust) are still FAR BELOW their pre-devaluation levels.

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