Tuesday, February 20, 2018

Prechter Says Deflation Taking Hold. Stay in Cash

March 22, 2010 by  
Filed under Inflation or Deflation

About recent declines in the CPI, Robert Prechter (aka Permabear) says “It’s not good news”. So far the DJI and the S&P haven’t gotten the message.

Prechter says, “A lagging indicator, such as CPI, would eventually catch up to deflation in the areas such as real estate, the stock market, and the bonds, and the commodities, which fell back in 2008. And finally we’re starting to see it.”

He added, “What interesting is, it’s happening the face of this tremendous amount of stimulus, or what’s called stimulus, it’s not really stimulus, from the government, and a real attempt at stimulus from the central bank…and still the slow moving lagging indicator called the CPI, is beginning to show you that deflation is gaining the upper hand you know, very, very slowly, but it’s happening, and if you’re not paying attention, you’re going to be surprised by it.

When questioned what will happen to the value of the dollar as Bernanke continues to “print more money”, Prechter referred to five chapters in his book Conquer the Crash, in which he explains that the Fed “hasn’t been printing money. It has been taking on for example, new mortgages, a trillion dollars worth of new mortgages, but they’re worried about it. They know they have to get these mortgages back into the marketplace; they don’t want to be stuck with them. They can’t have the dollar backed by worthless mortgages. They’re between a rock and a hard place. And the central banks in Europe are already saying, and Japan particularly, are already saying look, there are limits to what we can do. We’ve tried to stave of deflation in Japan, we can’t do it”

Prechter predicts “that realization will come here as well, when the Fed will say we can’t do any more.” He claims that Bernanke’s main job has been to go to the congress and the treasury and say you guys have to guarantee the deficit. We can’t do it. The problem, as Prechter sees it, citing the Tea Baggers, is that the voters will at some point push back against more debt. Rather than having the debt inflated away, Prechter predicts that what calls socio-nomic forces will cause the debt to be deflated away as a result of massive defaults on debt.

So if you think Bob Prechter is right, dump those bonds and hold onto to your cash and cash equivalents.

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