Posts with tag deflation

Deflation Ahead?

Bob Rinear, April 13 2022

Hey all, we're mid week in a Holiday shortened market week. On Friday, the US markets are closed for Good Friday, and I'm happy about that. If we can close for significant people, we can certainly close for God and son.

Now I'm sure you looked at the headline of the article and figure that I lost my last marble. Deflation? Isn't that where prices of things come down? Indeed it is. And like the housing bubble of 2005 - 2007, this time will probably be no different. ( pay attention to that word probably, I'll come back to it later in this piece)

The biggest cure for high prices, is indeed high prices. When prices of things get too far out of whack, markets have an interesting way of putting them back in whack.

Naturally there's multiple mechanisms at work, but the bottom line is that there always comes a point, where "things" are just too expensive to be purchased. Then, things sit on shelves and ultimately have to be "marked down." This is going to happen again. But, and this is the big elephant... we probably have to endure something akin to a hyper inflation, before we get the big bust and everything falls down.

Right now, we've still got supply chain issues, manufacturing issues, etc. to deal with. Take China and their lockdown of tens of millions of people. NONE of those people are producing products that will end up on Wal-Mart's shelf. So, the products that are there or are in transit, will demand higher prices. No doubt.

But trees don't grow to the moon, and everything eventually reverts to the mean. Always and forever. The twist this time, is that the reasons for the hyper inflation, aren't rooted in the public doing incredibly stupid things. Think back to the "Tulip mania" of the 1600's. I don't know what kind of mushrooms they were snorting during that period, but people were giving up family farms for one tulip bulb. Peak insanity.

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