Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20
China Recovered in Q2. Will the Red Dragon Sink Gold? - 23rd Jul 20
UK Covid19 MOT 6 Month Extensions Still Working Late July 2020? - 23rd Jul 20
How Did the Takeaway Apps Stocks Perform During the Lockdown? - 23rd Jul 20
US Stock Market Stalls Near A Double Peak - 23rd Jul 20
Parking at Lands End Car Park Cornwall - UK Holidays 2020 - 23rd Jul 20
Translating the Gold Index Signal into Gold Target - 23rd Jul 20
Weakness in commodity prices suggests a slowing economy - 23rd Jul 20
This Stock Market Stinks - But Not Why You May Think - 22nd Jul 20
Protracted G7 Economic Contraction – or Multiyear Global Depression - 22nd Jul 20
Gold and Oil: Be Aware of the "Spike" - 22nd Jul 20
US Online Casino Demographics: Who Plays Online For Money? - 22nd Jul 20
Machine Intelligence Quantum AI Stocks Mega-Trend Forecast 2020 to 2035! - 21st Jul 20
How to benefit from the big US Infrastructure push - 21st Jul 20
Gold and gold mining stocks are entering a strong seasonal phase - 21st Jul 20
Silver Eyes Key Breakout Levels as Inflation Heats Up - 21st Jul 20
Gold During Coronavirus Recession and Beyond - 21st Jul 20
US Election 2020: ‘A Major Bear Market of Political Decency’ - 21st Jul 20
Summertime Sizzle for Gold and Silver - 21st Jul 20
Overclockers UK Custom Built PC Review - Delivery and Unboxing (3) - 21st Jul 20
Will Coronavirus Vaccines Become a Bridge to Nowhere? - 20th Jul 20
Stock Market Time for Caution?  - 20th Jul 20
ClickTrades Review - The Importance of Dynamic Analysis and Educational Tools in Online Trading - 20th Jul 20
US Housing Market Collapse Second Phase Pending - 20th Jul 20
Capitalising on the AI Mega-trend - 20th Jul 20
Getting Started with Machine Learning - 20th Jul 20
Why Moores Law is NOT Dead! - 20th Jul 20
Help the Economy by Going Outside - 19th Jul 20
Stock Market Fantasy Finance: Follow the Money - 19th Jul 20
Did the Stock Market Bubble Just Pop? - 19th Jul 20
Quick Souring of the S&P 500 Stock Market Mood - 19th Jul 20
The Six-Year Jobs Recession - 19th Jul 20
Silver Demand Exploding! - 18th Jul 20
Tesco Scraps Covid Safe One Way Arrow Supermarket Shopping System - 18th Jul 20
The Rise of Online Pawnbroking - 17th Jul 20
Gold Rallies Together With U.S. Covid-19 Cases - 17th Jul 20
Gold & Silver Measured Moves - 17th Jul 20
The Bizarre Mathematics Of How Negative Interest Rates Create Stratospheric Profits - 17th Jul 20
From a Stocks Bull Market Far, Far Away, Virus Doomsday Scenerio! - 16th Jul 20
Fiscal Cliffs and the Self-destructing Treasury - 16th Jul 20
Dow Stock Market Crash Watch - Update - 16th Jul 20
Gold & Silver Gaining on US Dollar Weakness - 16th Jul 20
How to Find the Best Stocks to Invest In - 16th Jul 20
Overclockers UK Custom Build PC Review - 2. System Build Changes Communications - 16th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Death of Deflation

Economics / Deflation Apr 30, 2014 - 10:15 AM GMT

By: Clif_Droke

Economics If investors have learned nothing else from the events of the last five years, they’ve at least learned that fighting the Fed doesn’t pay.

Indeed, the biggest lesson of all since 2009 is that monetary liquidity is the single biggest determinant of future stock prices. Given a loose enough monetary policy, stock prices will always respond by going higher.



The loose monetary environment of the last five years has been facilitated by record low interest rates. Low rates have in fact been indispensible in allowing the Fed to engineer the five-year bull market in equities. Low interest rates have also made possible the relatively strong retail economy of the last couple of years, which in turn has allowed consumers to finance homes and purchase automobiles. Further, it’s indisputable that the low interest rate environment of recent years has been a boon for corporate financing.

Low interest rates are at once a symptom and a contributor to deflation. Low rates contribute to deflation by allowing businesses to continue producing when their more efficient competitors would have buried them under normal circumstances. This translates into increased competition, which means more supply is produced resulting in falling prices for many goods and services.

One of the most important aspects of the 60-year cycle of inflation/deflation is that it governs the direction of interest rates. The cycle can be divided into half, with the first 30 years witnessing an overall rising trend inflation, while the second half is marked by falling interest rates, hence disinflation or deflation. The 60-year long-term deflationary cycle will bottom around October of this year, at which time a new long-term inflationary cycle will begin.

The following graph, created by Barry Ritholtz (http://www.ritholtz.com), shows long-term interest rates going back to the year 1790. Of special significance, notice how the 60-year Kress cycle of inflation/deflation can be tracked beginning around the mid 1890s (when the current 120-year Super Cycle began) before peaking approximately on schedule in the 1920s. This was followed by a 30-year cycle into the early 1950s, followed by another 30-year advance into the early 1980s – just as the Kress cycle predicted. The last 30 or so years, of course, have been marked by dramatically falling interest rates in reflection of the deflationary phase of the 120-year cycle.



The major financial crisis which always accompanies the final deflationary leg of the long-term cycle occurred in 2008-09. A crisis of similar magnitude is unlikely for quite some time. While a milder economic slowdown or global financial panic can still occur while the long-term cycle is bottoming and shifting its phase, central banks have seen to it that any such crisis will be of relatively short duration and of lesser magnitude than the 2008 crisis. Moreover, any such crisis will not ultimately threaten the survival of the global economy.

The next major crisis will likely not involve a deflationary collapse, but rather an inflationary spiral. When the long-term Kress cycle bottoms later this year, the new long-term cycle of inflation which follows may well cause a major shift in the American standard of living. The Fed’s zero interest rate policy (ZIRP) will end as the natural rate of interest begins rising. The velocity of money (the rate at which money changes hands) will reverse its long-term downward trend and will commence a new uptrend as money finally comes out of the sidelines. Corporate and consumer borrowing will both also steadily increase.


At first this will be highly stimulating for the economy. According to classical K-Wave theory, the early years of the long-term inflation phase are typically benign and are likened to the mild spring season which follows winter (deflation). This time around, though, will probably be different. Considering the tremendous amount of money sitting idle along with several years’ worth of pent-up demand, the money that will inevitably be unleashed upon the economy in the years following 2014 will quickly increase inflationary pressure. Prices for both raw commodities and finished goods will rise and wages, which have been stagnant for years, will finally do the same. Combined with rising interest rates, the post-2014 economic climate will be fundamentally different from that of the last 15 years.

In a normal inflation/deflation cycle, the transition from deflation to inflation would ordinarily be a gradual progression over a 10-15 year period. In the U.S., however, years of artificially high retail food and fuel prices will short-circuit this process. Since retail food and fuel prices were never allowed to decline in the last five years, the increase in the cost of living could be dramatic in the years immediately following the 2014 cycle bottom.

With crisis comes opportunity, however. While retail prices and interest rates will increase after the birth of the new inflation cycle, equity prices will also likely see increases. The year 2015 should be an especially propitious time to own stocks, especially if the market’s internal imbalances are reduced this year. As more and more sidelined money enters the economy in 2015 and beyond, the labor market will also show substantial improvement. Accordingly, workers should see their bargaining power increased.

The years immediately following 2014 will be filled with both challenges and opportunities. The most pressing concern for investors will be that of rising interest rates and inflation protection. For consumers the biggest challenge will be increased living costs due to the effects of the new long-term inflationary cycle. The ones who survive and prosper will be those who understand the new world created by the long-term Kress cycle.

Kress Cycles

Cycle analysis is essential to successful long-term financial planning. While stock selection begins with fundamental analysis and technical analysis is crucial for short-term market timing, cycles provide the context for the market’s intermediate- and longer-term trends.

While cycles are important, having the right set of cycles is absolutely critical to an investor’s success. They can make all the difference between a winning year and a losing one. One of the best cycle methods for capturing stock market turning points is the set of weekly and yearly rhythms known as the Kress cycles. This series of weekly cycles has been used with excellent long-term results for over 20 years after having been perfected by the late Samuel J. Kress.

In my latest book “Kress Cycles,” the third and final installment in the series, I explain the weekly cycles which are paramount to understanding Kress cycle methodology. Never before have the weekly cycles been revealed which Mr. Kress himself used to great effect in trading the SPX and OEX. If you have ever wanted to learn the Kress cycles in their entirety, now is your chance. The book is now available for sale at:

http://www.clifdroke.com/books/kresscycles.html

Order today to receive your autographed copy along with a free booklet on the best strategies for momentum trading. Also receive a FREE 1-month trial subscription to the Momentum Strategies Report newsletter.

By Clif Droke

www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules