The sky is falling! (maybe)

[okie]

First of all, I don't want to alarm anyone, but just share some food for thought with those are just now waking up and maybe haven't been paying much attention to the news lately.

For the last several weeks, I've been noticing signs of impending deflation, to the point where I actually started making a list. My family and I started withdrawing cash from the banks several days ago, just in case. I won't bore you with the details, and many of you probably already know about jobs, Buffett indicators, Q1 velocity data, etc. But this could be the big one. Not saying it is, just that it could be. A correction started several days ago as tech stocks, which were largely responsible for the recovery, have been bleeding for weeks, and now what's happening in the Middle East could very well throw us off the tracks completely.

Futures and foreign markets are all red right now, along with gold, crypto, and other assets. Even silver. And the dollar is up, and beginning to form a golden cross, signaling a possible bull run.

The point that I'm coming around to is that if the market goes, the dollar will have its last day in the sun, and anyone who has dollars will be king for the day. The problem is that if the market does go, and to the extent that it would trigger the kind of falling asset prices I'm talking about, bail ins are likely to certain. In the absence of actual economic activity, banks have turned from lending to speculating in derivatives. If the market goes, the banks will likely lose it all.

The IMF, Fed, etc. have all published papers to the effect that there will not be bailouts, but rather bail ins, not if, but when the banks get in trouble again. What that means to you is that if you have cash in a bank, or potentially in any interest bearing account with any financial institution, they are legally allowed to without notice convert your deposits into bank stock.

The long term implications of this are unclear, but the immediate implication is that whoever gets bailed in won't have access to their capital to enjoy the shopping spree that will be falling asset prices.

So the point of all this is to say you might want to hoard some cash if you can. If you have cash in a bank, take it out. Burry it the backyard, put it in the safe, whatever makes you feel safe. I would also extend that to any crypto you have on exchanges. Get that into a hardware wallet ASAP. If you don't have one, you can generate a paper wallet as a temporary measure. I'm leaving some in Binance to trade the dips, but the bulk of it is going into cold storage this morning. And if you do hold crypto (hopefully you already took some profits), and it crashes, hang onto those private keys, even if the media declares it dead. A major deflation will likely trigger rapid inflation, which could very well raise crypto from the dead in that scenario. I know a lot of people lost their keys in the early days, and I think a lot of people will again. Either that, or they will sell for pennies because they see no more future for it. So hodl and protect those keys!

[FromMyColdDeadHand]

deflation.

I know, I know- velocity. The problem is that the MASS of money out there is unprecedented- and it is closer to the consumer. I think that the velocity is picking up- and with the mass--- sweet Jesus.

I do think that the long term trend because of demographics is deflationary, but the next 5-10 years the threat is inflationary.

Not really disagreeing with your overall picture, just the mechanics and timing. I do think hard assets in the short term is better than accounts and even hard cash.

[AndyLate]

deflation.

I know, I know- velocity. The problem is that the MASS of money out there is unprecedented- and it is closer to the consumer. I think that the velocity is picking up- and with the mass--- sweet Jesus.

I do think that the long term trend because of demographics is deflationary, but the next 5-10 years the threat is inflationary.

Not really disagreeing with your overall picture, just the mechanics and timing. I do think hard assets in the short term is better than accounts and even hard cash.

We have some thousands in cash at the house, but my concern is uncontrollable inflation. When the monthly grocery bill becomes $2000+, that cash won't last.

Andy

[FromMyColdDeadHand]

I saw 2008 coming, at least the raw pressure for it and couldn't figure out how to make money on it. We are like a fighter jet in a dog fight that has used up all its energy jinking and turning and is on the deck with no options to maneuver....

On the taking of people's money versus COVID, Niccolo put it best,
“Men sooner forget the death of their father than the loss of their patrimony”

[mRad]

We aren’t going to be seeing deflation. We are going to see stagflation. Whether you believe the Fed was duped with unprecedented spending or not, what we do see is a 25% increase in the money supply…and people are holding onto their dollars, largely not due to uncertainty, but because there is nothing to buy due to supply chain issues. The 4.2% inflation number for April is an absolute joke. Inflation must be dealt with as economic activity remains stagnant.

And it seems those that we buying want homes…creating another bubble bound to burst.

When we do look at banking, we see banks holding the people’s hoarded free money. Yes, holding it. And you’re right, traditional bank activity is shifting.

I don’t think the problem of investors believing in a deflationary period is the problem. It’s investors worrying about the labor market, supply chain disruptions, terrorism, warfare, AND inflation.

I believe the ultimate “solution” is dissolution of the USD for a digitally traded dollar as a replacement. And exchange will be subjective.


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[okie]

deflation.

I know, I know- velocity. The problem is that the MASS of money out there is unprecedented- and it is closer to the consumer. I think that the velocity is picking up- and with the mass--- sweet Jesus.

I do think that the long term trend because of demographics is deflationary, but the next 5-10 years the threat is inflationary.

Not really disagreeing with your overall picture, just the mechanics and timing. I do think hard assets in the short term is better than accounts and even hard cash.

There are only two ways though that the reserves can move into circulation. Either through normal inflation as a result of fractional reserve banking, or through government spending. The first way requires economic growth and lending. The second way requires lots of taxes to pay the interest on the debt.

I would say the first way, the normal way, is functionally impossible at this point. There's apparently not enough money or credit left to create velocity on its own. The principle that hyperinflation is self fulfilling should be pushing velocity into the stratosphere, but it's not, which says to me that we've entered into the point where there's not enough liquidity in the system for that to be in play, leaving only the government spending option.

For its part, the government has been extremely careful not to push velocity. It's pretty obvious they don't want hyperinflation. All they care about is keeping the market on life support as long as possible so their friends on Wall Street can make a few more bucks for the road.

We're in this weird twilight zone episode though where the banks are into stocks because they can't lend, and the stocks are into crypto because they can't sell their goods and services. So the entire system is now 100% predicated on the growth of speculative assets, vs. providing goods and services. It's this bizarre feedback loop, but obviously it has to end because its perpetuation requires ever greater supplies of fresh capital to keep it propped up. It's going to be truly epic when it finally goes.

[okie]

We have some thousands in cash at the house, but my concern is uncontrollable inflation. When the monthly grocery bill becomes $2000+, that cash won't last.

Andy

There's some serious tom****ery going on with the supply chain to give the illusion of inflation, as well as increased demand. They're trying to paint this picture that all these people have all this money that they're itching to spend, and that that's causing shortages.

Not really. Zero Hedge did an article the other day about the price fixing in the lumber market, and the huge surplus building up in the distribution yards.

Then there are the container ships drifting off the coast waiting to unload.

And I wouldn't discount the effect of actual shortages either. Covid messed up the supply chain big time, but more than anything it's undercapitalization. And velocity data screams it. People aren't buying, and it's sucking the life's blood from the supply chain, so they can't buy stock, manufacture, or mine because they don't have the money. That causes shortages, which causes prices to go up, which aggravates the original problem of people not having the money. So it becomes this vicious cycle that gets worse each time.

[mRad]

There's some serious tom****ery going on with the supply chain to give the illusion of inflation, as well as increased demand. They're trying to paint this picture that all these people have all this money that they're itching to spend, and that that's causing shortages.

Not really. Zero Hedge did an article the other day about the price fixing in the lumber market, and the huge surplus building up in the distribution yards.

Then there are the container ships drifting off the coast waiting to unload.

And I wouldn't discount the effect of actual shortages either. Covid messed up the supply chain big time, but more than anything it's undercapitalization. And velocity data screams it. People aren't buying, and it's sucking the life's blood from the supply chain, so they can't buy stock, manufacture, or mine because they don't have the money. That causes shortages, which causes prices to go up, which aggravates the original problem of people not having the money. So it becomes this vicious cycle that gets worse each time.

Is it “price fixing” or speculation? One thing is for certain, logging crews are working to capacity and not earning more. Landowners have been very open to timber harvesting because they are struggling, but they aren’t earning more. Saw mills are running 24/7 and aren’t earning anymore. The retailer is charging their normal retail markup, so their margins aren’t higher and they are moving less because of price.

That leaves commodity markets and the big four or five sawmills that don’t have a middleman. One thing is for certain, other than those that have to buy lumber, or isn’t moving at this price. When warehouses get full and there are no room in their yards, they will either lower price or quit buying from up the chain; bad news for smaller mills and the timber crews.


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[okie]

We aren’t going to be seeing deflation. We are going to see stagflation. Whether you believe the Fed was duped with unprecedented spending or not, what we do see is a 25% increase in the money supply…and people are holding onto their dollars, largely not due to uncertainty, but because there is nothing to buy due to supply chain issues. The 4.2% inflation number for April is an absolute joke. Inflation must be dealt with as economic activity remains stagnant.

And it seems those that we buying want homes…creating another bubble bound to burst.

When we do look at banking, we see banks holding the people’s hoarded free money. Yes, holding it. And you’re right, traditional bank activity is shifting.

I don’t think the problem of investors believing in a deflationary period is the problem. It’s investors worrying about the labor market, supply chain disruptions, terrorism, warfare, AND inflation.

I believe the ultimate “solution” is dissolution of the USD for a digitally traded dollar as a replacement. And exchange will be subjective.


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The further along you are in the fiat cycle, the more paradoxical inflation becomes. They have to maintain a certain level to keep the economy going, but that requires ever greater credit, requiring ever greater open market operations from the central bank. That means the risk of hyperinflation becomes greater in the end, meaning they can't let inflation get out of control like they did back in the 70s. To do so would be to unleash hyperinflation, which would be a debt jubilee in this current environment. I don't believe stagflation is possible in this environment, but that's speculation on my part.

ETA: Speaking of the digital dollar, the implication of that should raise HUGE questions. What most people aren't talking about is that the digital dollar will bypass the Treasury and the commercial banks entirely. That means they're looking at a future when the current financial system simply does not exist. It presupposes the fed as the sole player in the financial system.

[Business_Casual]

Inflation is here.

https://www.breitbart.com/economy/20...ost-on-record/