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The Size Of The Financial Avalanche Coming Grows Larger

Inflation vs deflation. The true economic definition of “inflation” is the rate of increase in the money supply in excess of the rate of increase in wealth output. Inflation is monetary in nature. Rising prices are the manifestation of inflation. Someone I follow on Twitter posted an ingenious example from which to conceptualize the true concept of inflation using the game of Monopoly: The players all start out with reasonable amounts of money to speculate on real estate. As the game proceeds, players collect $ 200 by simply passing Go and use this money to speculate on real estate. By […]

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Deflation Basics Series: The Quantity Theory of Money

Here’s our challenge. In order to be aware of the investment pitfalls and opportunities that deflation can bring, we must first understand the basic elements of why it occurs. So our challenge is to try and make monetary economics, a subject that most people would find duller than watching paint dry on a wall, understandable and, dare I say it, fun! It’s a big ask but we like a test, and so here is the first in our Deflation Basics Series — The Quantity Theory of Money. The Quantity Theory of Money (QTM for short) is the very essence of […]

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What Happens When the Fed FINALLY Reduces Its $4.5 Trillion Balance Sheet?

Bloomberg Barclays Global Aggregate Credit index yield spread

So, there we have it. Deflation has started. The Federal Reserve announced last month that they would start to reduce their $4.5 trillion balance sheet in October, thereby starting the process we call Quantitative Tightening (QT). As expected, they are aiming to do it gently and quietly, by not reinvesting bonds as they mature, starting with sums of around $6 billion of Treasuries and $4 billion in Mortgage-Backed Securities (MBS). The scale of non-reinvestment will gradually increase. Once in full swing, the Fed’s balance sheet could reduce by up to $150 billion each quarter. Conventional analysis might conclude that the […]

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Why Oil Prices Can’t Bounce Very High; Expect Deflation Instead

Economists have given us a model of how prices and quantities of goods are supposed to interact. Figure 1. From Wikipedia: The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The diagram shows a positive shift in demand from D1 to D2, resulting in an increase in price (P) and quantity sold (Q) of the product. Unfortunately, this model is woefully inadequate. It sort of works, until it doesn’t. If there is too little a product, higher prices […]

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Inflation Continues to Trend Downward in May

The inflation rate in a core CPI excluding shelter has been -0.2 percent over the last three months. Inflation in both the overall and core Consumer Price Index (CPI) showed evidence of slowing in May. The overall CPI actually fell by 0.1 percent in May, driven by a 2.7 percent drop in energy prices. The overall CPI is now up by 1.9 percent over the last year. The core index rose by 0.1 percent. It has increased by 1.7 percent over the last year. Both indices are showing lower rates of increases in May than they had earlier in the […]

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Deflation: There’s an App for That

Once in a while I see a financial news headline so obviously ridiculous, I feel I should look at the writer with pity in my eyes and pat them on the head, the way you might comfort a child that just dropped his ice cream cone on the floor. “Inflation is Right Around the Corner, Yellen Insists.” Of course it is… In defense of the columnist who wrote the story, these weren’t necessarily his views. He was simply relaying the Fed Chair’s comments from Wednesday. My real pity is reserved for Ms. Yellen herself. If she actually believes that inflation […]

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The Great Deflation, Gold, and the Dollar

The coming GREAT DEFLATION will impact the value of Gold and the Dollar much differently than what most analysts are forecasting. Unfortunately, most analysts do not understand the true underlying value of gold or the U.S. Dollar, because they base their forecasts on information that is inaccurate, flawed or imprecise. This is due to two faulty theories: monetary science supply-demand market forces While some aspects of monetary science and supply and demand forces do impact the prices of goods and services (on a short-term basis), the most important factor, ENERGY, is totally overlooked. You will never hear Peter Schiff include […]

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HARRY DENT: Our Money Velocity Sucks

Harry Dent Dr. Lacy Hunt has been featured more than any outside speaker at our IES conferences. Why? Because he’s the only classical economist I fully admire and he is a successful bond investment manager in the real world that understands the trend towards deflation, despite unprecedented money-printing. I love the gold bugs for being realistic and honest about the debt and financial asset bubble we’re in, especially when most mainstream economists and analysts are blind to it. What kills me about the gold bug types is that they always see hyperinflation from unprecedented money-printing, and they don’t go back […]

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The Standard 60/40 Stock & Bond Portfolio Won’t Survive The Next Decade

Everyone’s familiar with the classic 60/40 investment portfolio. If you’ve ever dealt with financial advisors, this is the standard allocation they’ll recommend. 60% of your money in the stock market, and 40% in bonds. This has no doubt been a great strategy the past few years. Check out the statistics from Jan. 1 2010 to Jan. 1 2016 below: The standard 60/40 portfolio grew an average of 9.88% per year. And not only that, but the Sharpe ratio was at a stellar 1.33! The Sharpe ratio is a standard industry measure for calculating risk-adjusted return. Sharpe ratio = (Mean portfolio […]

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Fiscal and Monetary Madness

Global Currencies Madness: When central banks and politicians “manage” global currencies, we can expect: Exponentially increasing debt and currency devaluations Massive inflations and deflationary crashes. Transfer of wealth from the many to the few. Derivatives exceeding $ 1,000 Trillion and eventually a crash. A mathematically inevitable financial collapse. Monetary and fiscal madness. Booms and busts. Much higher gold and silver prices. It has happened before and it will happen again… Last Century Madness: Weimar inflation in Germany 1921-1923: The exchange rate for Marks changed from 90 Marks to the US dollar in 1921 to over 4 Trillion Marks to the […]

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