John wrote:Deflationary spiral continues as home values fall
2010 has been a big year for mortgage defaults and foreclosures, and Zillow Inc. has determined that U.S. home values have fallen by a total of $1.7 trillion dollars this year, according to Bloomberg.
vincecate wrote:In the 1970s the Fed was making new money, and inflation was going up. As it went up bond prices went down. If you count bonds as part of the money supply, then you could have said there was deflation in the 1970s, which is just silly. And then as prices got more steady in the 1980s and bond prices went up you would have said inflation was worse than before. Again, silly.
A similar thing can happen now.
Higgenbotham wrote:In the 1970s wages and house prices went higher with the rest of the inflation.
Higgenbotham wrote:If the rising bond yields don't push the overall system into deflation, then nothing will. That's been my thesis for a year - when we start to see the bond yields spike, the speculative bubble in everything is over. Of course, I think the best bet is stocks should get hammered because that should happen independently of whether there is inflation or deflation.
vincecate wrote:To me a "short the market" and "long precious metals" sort of hedge each other. And moving a bit of money back and forth gives some trading fun.
Higgenbotham wrote:Yes, getting out of short positions in a timely manner is going to be critical. I don't want to wait for the bottom because either market closure or bankruptcy could evaporate all the gains.
vincecate wrote:I had been thinking flash crash and then market closure. But flash crash and market bankruptcy is a very real possibility. If the market drops a factor of 2 or more in a very short period then all kinds of margin calls would never be paid. Again, I worry that it might not be possible to get out in a timely manner.
Higgenbotham wrote:I hadn't read this before writing about the Dow/Gold ratio in the other thread. But from a practical standpoint, the Dow/Gold ratio is the real play that someone can make to be safe or safer.
vincecate wrote:That graph looks really different in the "pre-Fed" and "post-Fed" time periods. If you use the trend from pre-Fed it looks like gold may be on the pricey side relative to the Dow. But if you just look at the post-Fed period you could expect gold to go much higher relative to the Dow. Or you could decide that 1980 was just some fluke. I am not sure that from this graph alone I could decide what to do. But it is interesting.
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