Absolute Zero
September 26, 2011
It was Gary Shilling – way back in the last
century – who first woke me up to the real whys and wherefores of
deflation, with his 1998 best-seller, Deflation:
Why it's coming, whether it's good or bad, and how it will affect your
investments, business, and personal affairs. I had read various works on
deflation, but nowhere was it put together as well as Gary did it. He followed
it up the next year with Deflation: How
to survive and thrive in the coming wave of deflation, and in that one he strongly
urged his readers out of the stock market – just ahead of the 2000
dot-com bubble burst. But Gary has been so
right over the past three decades. (He recently updated Deflation with The Age of Deleveraging: Investment Strategies for a Decade of Slow
Growth and Deflation. It’s on Amazon at http://www.amazon.com/Age-
Today’s Outside the Box is a condensed version of Gary’s monthly INSIGHT newsletter, and in this one he tackles the lack of effectiveness of the Fed’s QE1 and QE2 and delves into the “strange things [that] happen in security, currency and commodity markets that don’t fit normal rules” when the Fed and other central banks take interest rates down close to zero. He notes that at the same time QE2 was fomenting a global commodity bubble and stock-market advances through 2010 and into early 2011, it was also punishing lower-income households with higher food and energy costs, and saddling them with falling home prices “that are likely to drop another 20%.” Crucially, the Fed is “pushing on a string” that, with “the depth and breadth of the financial crisis, the collapse in housing, the ongoing sovereign debt crisis in Europe, Japan’s continuing two-decade-old deflationary depression, the impending hard landing in China, etc. make the monetary policy string much more limp than usual.”
Picking up a theme from his most recent book, The Age of Deleveraging, Gary also examines the question of whether the US is headed for a deflationary depression like the one that has beset Japan for more than two decades. I won’t spill the beans on his conclusion here, but let’s just say that we have our work cut out for us.
If you appreciate Gary’s lucid analysis and want to subscribe to INSIGHT, be sure to mention Outside the Box, and you’ll get 13 issues for the price of 12, PLUS their January 2011 report in which Gary lays out his investment strategies for the year. The price via email is $275, and the address is insight@agaryshilling.com, or you can call them at 1-888-346-7444.
Your loving London but lusting for Ireland analyst,
John Mauldin, Editor
Outside the Box
subscribers@mauldineconomics.com
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Absolute Zero
(excerpted from the September 2011 edition of A. Gary Shilling's INSIGHT)
In its written release after its August 9 Federal Open Market Committee policy meeting, the Fed included a statement that was highly unusual because of its specificity. “The Committee currently anticipates that economic conditions—including low rates of resource utilization and a subdued outlook for inflation over the medium run—are likely to warrant exceptionally low levels for the federal funds rate at least…