Should You Look for a Bottom?

Mish's Recent Deflation Comments

If you care about your financial future and are not yet following Mike Shedlock's excellent Economic Analysis blog, I suggest you do.

From September 5, 2008:
"Deflation is Not Coming, Deflation is Here."

• "Credit is contracting by any reasonable measure. It would be contracting at a stunning rate if marked to market. And from a practical standpoint marked to market is how it must be considered, even if there is no direct measure (which I might add is on purpose). Instead it is still hidden in marked to fantasy level 3 assets and in SIVs and other off balance sheet vehicles. See Not Practical To Tell The Truth for this line of reasoning. M3 is simply not a reasonable measure of credit, nor is MZM. Inquiring minds will want read Bank Credit Is Contracting for more details.
  
• Trillions of dollars of housing wealth has been wiped out, yet laughably some still talk of hyperinflation. There has never been a hyperinflation in history where land prices have fallen like they are now. In fact, there has never been hyperinflation where land prices have declined at all, barring some obscure war zone perhaps.
  
• Bank writeoffs have hit $500 billion and $2 Trillion is coming. "Yes, That's $2 Trillion of Debt-Related Losses", says Nouriel Roubini."

The only question now is how long deflation lasts, not whether it gets here. For more on deflation, please see Deflation In A Fiat Regime?"

From October 10, 2008:
"Given that deflation is here right now, I concur that deflation is the bigger threat, except that "threat" is the wrong word. Necessity is more like it, because the malinvestments and excesses of the previous cycle must be purged and the pool of real savings replenished before there can be a sustainable recovery."


Nicholas Von Hoffman reports on NY Metro:

"This is one of those weeks your financial adviser never told you about. The Dow Jones Industrial Average drops below 10,000, taking with it the savings of millions. How the money runs out and goes who knows where!"

"Below 10,000 is below a magic line, the line the hard-times barbarians were not supposed to breach. Since the Dow ascended the heights above the line in 2004, it has been an article of faith that it would not go below 10,000 again in our lifetimes."

"The price of stocks is not the only thing that is going down. The price of everything is heading south. Corn is down 46 percent. Oil is down 39 percent, which means you will see the price at the pump continue to slide. But take no solace from that; there will be less money with which to buy gasoline."

"This is deflation, a word with which we may become as familiar as we are with inflation. Deflation usually comes as a result of the bursting of very large inflationary bubbles, with resulting strings of bankruptcies, foreclosures and failures. The last major deflation in the United States occurred during the Depression, when prices dropped much as they have begun to do now."

"Deflation is a dragon, a wealth-destroyer, a fire-breathing eater of money. As it drives down prices, wealth simply vanishes as an estimated $3 trillion of people’s investments have already disappeared over this period of decline and fall."

"Thankfully we have a few brakes — such as bank account deposit insurance. We have an unemployment compensation system up and running and other such assists for people injured by deflation. But we have not found the tools to stop the downward fall itself."

"Faced with a similar crisis in the early 1930s, President Franklin Roosevelt took the country off the gold standard and even devalued the dollar by 40 percent. Dramatic though these steps were, they did not seem to have had much of an effect on prices."

"But all bad things must end. Sometime in the coming days or weeks or months — let’s hope not years — a point of financial and emotional exhaustion will be reached, a price floor will then be established and we can begin to climb back out of the hole."