So where is the much-touted inflation?

[Riggerjack]

"We are on different sides of the QE argument, as we both know "

Yup. And so far, you've been right. If, in 5 years, you are still right, so much the better!

[Chad]

I appreciate the shout-out. The economy needs to really kick it into gear for me to continue to continue to be right with these valuations. It is trying, but hasn't quite gotten there yet. We could use a few years at 3% inflation to help tackle the debt (private and public) that remains, while not killing the growth. We shall see. Lots of other big events (Putin, Iran vs. Saudi Arabia, a great President - one can hope, etc.) that can derail this.

[sterlingarcher]

Yup -- you would have lost a lot of money listening to that guy in the past few years. Fortunately, its much easier to examine track records with the internet than it used to be.

In my opinion you would have lost a lot more if you didn't listen to him. In 2007 there was euforia in the markets and Schiffs predictions came true with the markets plummeting.

I started following him in 2009 and everything he says makes perfect sense to me. He seems to have a great understanding of how macro economics work. He has been all "doom & gloom" for the past couple years now and if someone listened to him 2 years ago thinking its best to just sell off and buy gold they would have lost money. You are right. But I still believe his predictions about the US dollar will come true, its just a matter of time. I also think that the uprise in stock markets is a consequence of the money printing, and when it stops the logical assumption would be for the markets to go down. If the money printing continues, the dollar will go down. I don't use his advice when it comes to buying/selling stocks and assets. But he explains in a very simple way whats wrong with the economy today, and what will be the consequence tomorrow if A or B happens.

Instead of saying the usual line: "someone who always predicts downfall will be right form time to time" I would like to hear some opinions on wether Peter Schiff makes sense to you all. Has anyone read one of his books? Is anyone following his podcasts? If you disagree with his views, where does his logic fail?

[Dragline]

On Schiff, allow me to repeat myself:

"The essential problem with analyses that only look at government debt is that they only look at government debt, which will always give you an analysis that is incomplete at best and completely misleading at worst. You have to analyze the expansion or contraction of debt in the entire economy, which includes both public and private. Minsky/Kindleberger is one of the better approaches."

Schiff's analyses fall into this category. I've never seen him attempt to analyze the impact of private debt expansion and contraction -- in effect he only looks at part of the picture. Essentially, his political views/philosophy are more important to him and drive his financial analysis.

Show me an analysis by Schiff of the impact of private debt expansion and contraction and I might become interested again. I also like to see any analysis by him regarding the fact that the dollar is the world's reserve currency and what impact that has on market players. But I just haven't seen anything like that from him.


I'll stop there, but you can find many other criticisms by simply googling "Peter Schiff wrong". Here is a typical critique from a few years back (http://seekingalpha.com/article/1722762 ... ter?page=2):

"This brings me to Peter Schiff, CEO and chief global strategist for Euro Pacific Capital. Mr. Schiff gained his notoriety in 2007 by correctly predicting a crash in real estate prices. Here is one of his quotes predicting economic turmoil in 2008. ""I think it's going to be pretty bad, and whether it starts in '07 or '08 I think is immaterial, and I also think it's going to last, not just for quarters but for years." Mr. Schiff also predicted a credit crunch and a rise in the price of gold, on both counts, he was generally right.

However, since that time, many of Mr. Schiff's calls have been wrong. In 2008 Mr. Schiff predicted gold would hit $2,000 by 2009 and $5,000 by 2013. Unless gold quadruples in price in the next three months, he will be wrong. In 2009 Mr. Schiff also stated "Oil prices had a pretty big run and might not make more headway by the end of the year. But we could see $150 to $200 next year. Oil never came close to $150.00 to $200.00 a barrel, in fact, in 2010 oil fell in price with an average price in the mid-$70's.

Think those predictions from 2009 were off, how about these from a July 2011, interview. Here are his thoughts on the dollar, "As soon as the world starts to focus on the dollar, we're going to be hitting new lows. By the fall I think the dollar will be hitting record lows against the Euro." On gold, Schiff had this to say, "Well I'm surprised gold is as cheap as it is given all of the money we've already printed and the money we're threatening to print. Over $10,000 GOLD could happen, there's no floor on the dollar, so there's no ceiling to gold".

I mention Peter Schiff because he was recently on CNBC making more predictions. One prediction was, in my opinion, so off-base I feel compelled to mention it. Mr. Schiff predicted the Federal Reserve will increase the quantitative easing program, not taper or end it. "They're going to have to do 100, 115, 125 (billion dollars a month). When the market comes to terms with that it's going to be a whole different ballgame," he said. "Right now, the Fed has to maintain the illusion that there's a method to their madness."

His reasoning for the increase in quantitative easing is that the economy is being propped up by the Federal Reserve's easy money policy. To keep the economy going the Fed will have to accelerate their buying, not decrease it.

I think he is right that the economy has benefited from the easy money policy of the Fed, but, this is nothing new. The Fed has moved rates up and down based on the health of the economy for decades. The recent zero interest policy and the bond buying is unprecedented, but the economic downturn, with exception of the Depression, was also unprecedented.

I do not think anyone can argue, the economy is in better shape today than it was 2009, 2010, 2011 or 2012. Home values are up, car sales are sizzling, unemployment is down, and industrial production has been steadily rising. Is the economy running full speed ahead? No. But, it is getting healthier and the Fed will soon begin to reduce its bond buying. In July, Fed Chairman Ben Bernanke stated that the Fed anticipates it will be appropriate to begin to moderate the pace of the $85 billion asset-purchase plan "later this year" and end them "around midyear" in 2014, if the economy evolves as forecast. The Federal Open Market Committee minutes from the July meeting showed broad support for a reduction in the bond purchases with a few members suggesting it should be sooner than later.

For seven years now Mr. Schiff has been proclaiming the American economy was on the verge of collapse, the dollar was going to have a massive decline, and that gold and other commodities were going to skyrocket. For most of those seven years he has been wrong. Gold has been down huge the last two years, the dollar has not lost value and the American economy is stronger, not weaker. Like others before him, Mr. Schiff keeps repeating the same talking points, in hopes that at some point he will be right.

No One is Smarter Than Mr. Market

I have been investing for almost 40-years and I have seen fear mongers come and go. In the early 1980's it was Howard Ruff, who saw coming hyperinflation. He advised people to invest in precious metals, collectible art and avoid stocks and bonds. He also proclaimed that people should start stock piling food. He was wrong. Mr. Schiff, to his credit, was right about the housing crisis, but like all other market forecasters, his accuracy declined as his notoriety rose. Let me be clear about one thing, no one can consistently predict the market.

Some of the smartest people around have tried to outsmart the market and have failed. Long Term Capital Partners was formed by some of the smartest people on Wall Street and included two Nobel winning economist. They had devised a computer trading program which, they claimed, reduced trading risk to zero while benefiting from certain arbitrage situations. Unfortunately they did not see a Russian financial crisis coming. Their trades went from bad to worse and they eventually had to be bailed out.

To believe you can predict the market is foolhardy and to think some self proclaimed market forecaster can predict the market is just as foolish."

[Chad]

The one simple piece about Schiff that immediately turns me off is that he has always been a bear. In almost 10 years I have never heard him utter a positive about the stock market or even a sector within the stock market. It's always "MASSIVE INFLATION", "THE FED IS DESTROYING US", "A CRASH IS IMMINET ", etc. Not ever having a positive prediction is absurd, even in our current shaky times. I'm not suggesting everything is rosy, but anyone who is always bear or always bull has no idea what they are doing.

As Dragline noted, his other big problem is:

Schiff's analyses fall into this category. I've never seen him attempt to analyze the impact of private debt expansion and contraction -- in effect he only looks at part of the picture. Essentially, his political views/philosophy are more important to him and drive his financial analysis.

A lot of his ideological blinders are demonstrated in the criticism at the link below:

http://www.nakedcapitalism.com/2014/02/ ... thing.html

I want to note, his blinders are not because libertarian ideas are worthless. They are not. His blinders exist because he has an extremely rigid unchanging world/economic view for something that acts more like an ocean than a continent.

[workathome]

Schiff is such a genius, he had clients 100% in juniors before gold collapsed (according to my ex-broker who works for him). He was encouraging people on his radio show to mortgage their homes up and go long miners.

The idea was to imagine how smart you'd be when you're driving your neighbors Mercedes and paying off your home with inflated dollars. Don't be a sucker! Buy exploration companies with no profit, Gold will hit 10k+ once the magical 1:1 DOW parity is reached.

[George the original one]

Imagine a near-term future where Russians are selling gold to prop up their economy because oil has tanked.

[workathome]

Twitter was abuzz with rumors about Russia dumping gold, but it looks like they have a lot of foreign currencies they could sell off first. Good luck guessing what their internal priorities are though, but the currency stuff with China looks pretty interesting.

http://blogs.wsj.com/moneybeat/2014/10/ ... swap-deal/

[44deagle]

Quantity of money is only one part of inflation, you also have to take into account velocity of money and quantity of goods or services.

[REIguy]

Deflation has been the name of the game, even with the Fed's manipulation. Who knows what the deflation would like without their manipulation.

Google's CEO, Larry Page, believes that technology that Google is creating will lead to massive deflation and $50k homes in Silicon Valley.

http://www.ft.com/intl/cms/s/2/3173f19e ... z3Hl2GQibp

I agree with others that we are a little more than halfway through Japan's "lost decade" which is actually two decades long for them, so far.

[Ydobon]

Official inflation figures are falling quickly in the UK, consensus estimates for December are something like 05.-0.6%.

That said, our official measure of inflation is calculated in a manner that makes no sense to me, as it excludes housing costs.

[Riggerjack]

Well, it's a measurement of inflation, not cost of living. Housing costs move independently of inflation, often in differing directions in different locations.

Adding this data would throw off your results based on things as arbitrary as planning council decisions.

Inflation is a monetary measurement. Cost of living is entirely local. One has little to do with the other.

[SilverElephant]

Thanks everyone for the replies, didn't think it would spark such a thread.

I read up a bit on money supply and the velocity of money, and more and more I get the feeling that the concept of a "loan" is central to everything. Wonder what everything'd look like if interest were illegal (as it is, I believe, in some parts of the world.)

[Generation-X]

Don't know much about economics but I tell you what I do know - It's been getting harder and harder to meet everyday needs.

Food's getting expensive and I'm having to look for sales, coupons and bargain outlets whereas before, I just shopped without giving a second thought.

Medical premium seems to go up every year, including cost for co-pay and it's not like they're giving me a better coverage for it.

If I had to goto college now, I wouldn't be able to afford it because even state universities now cost $15,000 per year.

Average new car price now is at around $22,000, no matter what the car is - and their build quality is horrible.

Average cost for rent has risen from $600/mo. to $800/mo. and good luck trying to find a place for $500/mo. because you'll need to wear a bulletproof vest to live there.

Typical fast food now costs $9 - $10 per meal. Gone are the days of $1.75 Happy Meal with a Big Mac, regular drink and regular fries.

It's getting difficult to go to the restroom nowadays because a bundle of toilet paper costs near $20. Want the scented ones?

Where is the inflation you ask? It's in the everyday necessities. No worries though, it won't show up in the CPI calculation for inflation. Fed's magic tricks, you see.

I seem to recall that just at the point of collapse for the dictator government of Libya and Syria in recent years, that people were spending close to 80% of their annual income on food.

We are seeing similar things happening here in the United States with desperate people acting desperately, some with acts of violence in self mutilation or to others, while others roam the highways, railroads, and urban streets in broken down cars or with tents and backpacks.

One can see deflation in the price of used goods up for sale on free posting boards, while postings for offers of solicitation is always full.

Many young adults, with or without college degrees, are out of work.

Many residential property up for sale and are purchased in cash by investors, who in turn, convert them to essentially, rental units.

There is a strong disassociation between the Wall Street and the main street.

And Wall Street will not be able to survive for long, catering to 1% and neglecting the 99%.

And if Libya and Syria is of any indication, neither will the government.

[George the original one]

@Generation-X - LOL, in my 52 years, I've seen people write those same phrases only with different dollar amounts. On the other hand, homes are 10%-20% cheaper than 8 years ago and that's the single biggest expense for non-renters... I honestly can't remember a time when that was ever true before.

[Dragline]

Hold on, now -- most lentil prices are way up this year, potentially derailing the ERE economy:

Today Week Ago Year Ago
No. 1 Canada $ per cwt
Mustard Brown $25.68 $25.68 $36.42
Yellow $32.47 $32.47 $38.25
Oriental $31.60 $31.60 $28.03
Lentils Large Green $36.31 $36.31 $20.59
Small Green $29.44 $29.44 $17.43
Medium Green $28.28 $28.28 $18.54
French Green $24.60 $24.60 $23.50
Red $28.18 $28.18 $19.54
Chickpeas Desi $15.73 $15.73 $21.63
Kabuli 9mm $26.25 $26.25 $33.52
Canary Seed $23.71 $23.71 $23.25
Field Peas $ per bu
Green $8.66 $8.66 $11.66
Yellow $7.11 $7.11 $6.27
Feed $4.38 $4.38 $5.15

Source: http://www.agriculture.gov.sk.ca/MarketTrends

[George the original one]

Canary Seed?!? There are quotes for canary seed?!!

[Dragline]

Yes, for the financially astute canaries.

We've talked about the velocity of money above. This is tracked here, and is very interesting: http://research.stlouisfed.org/fred2/ca ... lu&od=desc You can sign up for this and they email you your favorites every month. What I've never seen or been able to figure out is how to predict velocity in the future. It's an incredibly neglected topic, especially compared to the quantity of money, which every Tom, Dick and Henrietta babbles about.

[Generation-X]

Well George the original one, I myself grew up in the 70's and can't remember a time that's been as bad.

We live in a state that's the 8th largest world economy, and the way of life today is as I describe them.

I travel often and mingle with the populace throughout because of work, and I see the same worried faces, all talking about the same things.

In the suburbs where I used to live, hell, an atom bomb can go off next door and they would worry about spilling their gourmet latte...

Incidentally, even at the peak, the mortgage crisis never could touch the price we paid for our house in the late 80's... We were still in black by 30%.

But many claimed they'd lost their lifetime savings... go figure.

@Generation-X - LOL, in my 52 years, I've seen people write those same phrases only with different dollar amounts. On the other hand, homes are 10%-20% cheaper than 8 years ago and that's the single biggest expense for non-renters... I honestly can't remember a time when that was ever true before.

[Der Leiermann]

I'll revive this thread since I think we've got some big changes ahead when it comes to inflation.

inflation has been stagnant in 'the West' for a while now, in particular since the GFC. Money is cheap and cheaper than it has been in a long, long while. My understanding is that there seems to be a consensus that interest rates cannot rise in the short- or medium term because it would send too many businesses and households but also governments into bankcuptcy. So here we are, building the next asset bubble and relying on cheap money to keep it and us going. But what would happen if rising inflation forced the hand of Central Banks around the globe? I believe there is a real possibility for the reasons outlined below:

1. The floodgates of monetary supply have been opened much further than before, which will have an effect this time, unlike during the GFC
2. Business bankruptcies due to Coronavirus will lead to a supply-driven shock when restrictions are lifted and pent-up demand is released
3. Debts levels are at record highs and climbing. That goes for corporate/household/public debt. This will have to come down somehow and better to inflation it away because nobody aint paying it back in today's values.
   [*}Edit: Add in the anti-globalist noises that most governments have made to bring back manufacturing of essentials (PPE and such) - unlikely to happen on a large scale given how quiet things have gotten on that front recently

Some supporting data for:
1.
I'll borrow from Chris' post in 2014:

Inflation is not only tied to the supply of money available, but also how quickly that money changes hands. This is called the velocity of money.
[...]
You can see how even when no new money is added to the economy, the participants themselves influence the availability of money.

So is that what has happened? Partly. Compare the money supply with the velocity of money over time (charts are US-centric, but the concept applies elsewhere too).

In other words, what anomie said (-:

Looking at the charts, M2 money supply has increased dramatically in the last 7 months, by approx. 20% or 34% annualised. Compare that to the average increase of 6.3% of the 10 years prior and the Wind of Change is upon us.
Interestingly, the second chart Chris linked shows a dramatic reduction in the velocity of monetary flows, unseen since the 1950's.

What are your thoughts on the matter and what do you see as a valid investment strategy to preserve value in a high-inflation environment?