Five Things Podcast, The Transcript: Hyperinflation vs. Deflation-Minyanville

BUSINESS & MARKETS

LIFE & MONEY

VIDEO

COMMUNITY

SUBSCRIPTIONS & PRODUCTS

Five Things Podcast, The Transcript: Hyperinflation vs. Deflation

Kevin Depew Oct 24, 2008 4:10 pm

Five Things Podcast, The Transcript: Hyperinflation vs. Deflation


		It's just like the Five Things You Need to Know Podcast, only quieter.

Cory Bortnicker: Well, is there any -- you know, if there’s confusion among some people about whether or not we’re experiencing hyperinflation or deflation, is there any evidence to suggest that we currently are experiencing hyperinflation?

Kevin Depew: Well, we’re not anywhere close to hyperinflation. But we are, I think, experiencing deflation. We’ve been experiencing deflation for a long time. It’s just been masked by the [cyclical] inflation, which is what the Central Bank operation does. The Federal Reserve is inflation. It inflates the money supply. That’s their mandate. And so that’s been masking this structural deflation that’s been below the surface and only now is coming up.

I mean, look, when you have the case today, for example, in the market; stocks down, interest rates are down, and bond prices are up, that flight-to-safety. The dollar is up significantly. Commodities are down across the board. I mean, this year alone you have a list of commodities, everything from copper down nearly 55%. Wheat, corn, platinum, oil, all down about 60 percent after many of those made new highs earlier this year.

STOCKS
RELATED ARTICLES
ALSO BY...

That’s a deflationary environment. The market is saying we’re in deflation. It doesn’t matter what economists or what I say.

Cory Bortnicker: Right.

Kevin Depew: The market is saying we’re in deflation right now.

Cory Bortnicker: Right. Which kind of leads into our second point today, which is, speaking of deflation, today Wal-Mart (WMT) reported in USA Today as seeing some disturbing trends in the consumer buying habits. For example, according to the article, more consumers are buying baby formula at the start of the month when they’re more likely to have more money. Fewer shoppers are using credit cards. Does this all support the idea that we’re experiencing deflation?

Kevin Depew: Yes. This is the long-term, secular trend that is taking place and it’s showing up in these little nooks and crannies. Wal-Mart, for example, we’re seeing not only the rejection of credit in some cases, where people are just refusing to take on more debt, we’re seeing credit lines cut and we’re seeing people reduce their consumption to those things that they need.

Cory Bortnicker: Okay. So Wal-Mart is, I’m sure, considered sort of a bellwether. It’s sort of representative of the country as a whole. So can we expect to see this sort of trend in consumer habits across the board?

Kevin Depew: It’s been happening for a while. Wal-Mart, also Target (TGT), all of these retailers are reporting the same things. The retailers that have been successful, to an extent, are the ones that have changed their product mix that they’re offering to cater more toward consumer nondurable goods, consumer staples, things such as milk and the grocery items that they’ve added.

CVS (CVS) is an example. Rite-Aid (RAD) is another one. They’ve really been aggressively managing their product mix to remove more discretionary items and include more staples, which has helped them to an extent.

But this is a long-term, structural trend. It’s not something that -- you know, I think that’s really the bad news that people have yet to come to grips with is that this is not a temporary battening down the hatches by the consumer. It starts out as that, but it’s going to morph into something deeper and more protracted, something that is going to last for a very, very long time.

Cory Bortnicker: Okay. Let’s move on to number 3, which is the reemergence of layaway plans at some of these large retailers. Now, I’m probably too young to remember the hey-day of layaway plans, but I do vaguely know what they are and I’ve read that they actually have their roots in the Great Depression. So I assume that the return of layaway plans is not a good sign?

Kevin Depew: No. And this is an article that I picked up in USA Today, I believe, this morning talking about the return of layaway plans. In the article, as you noted, layaway had its origins in the Great Depression. And what’s interesting to me about it is the socioeconomic aspect of it, that layaway is the rejection of credit by both parties. Now, it doesn’t make a lot of sense for a consumer to reject credit in that instance, but a lot of things that we do economically don’t make sense.

Cory Bortnicker: Right. Well, you’re saying that it’s a rejection of credit because, essentially, with layaway you’re going to be paying for the product before you’re actually getting a chance to use the product.

Kevin Depew: Before you’re taking it home, that’s right. And not only that, but you’re, I think in the case of Wal-Mart or T.J. Maxx (TJX), I believe is who it was -- K-Mart, yeah -- they require you to pay $5 just to start the layaway plan, and then you pay on it over an 8-week period, say.

Cory Bortnicker: So what do you think? I mean, do you think that layaway plans, is that going to be a kind of shopping that will continue going forward, or is this going to become sort of commonplace again?

Kevin Depew: Well, I think that what it represents to me is a return to the idea that you don’t buy things if you don’t have the money for it. And if it is something that you want to buy that you don’t have the money for, you then over time either save it yourself or, if you’re not disciplined enough to do that, you would rather -- the people involved in this would rather go to the store and make a payment or do it online over a course of 8 weeks and then get the product, knowing that they’re not taking on more debt longer term to do that.

Cory Bortnicker: So with layaway, what we’re really seeing is a sort of self-imposed discipline, sort of a part of the medicine that we’re all taking to sort of get through the problem with all the debt that we have incurred.

Kevin Depew: Exactly.


Rate this article:			(0 Votes)

more BUSINESS & MARKETS articles »

Daily Article Index �

tags:

Comments (13)

See All Comments »

Dan Keys

View Exchanges


10-25-2008, 10:38 am
With the distinction of savings and investment being blurred ( craziness like FDIC guarantees of MM funds), how do we know if the money we put in the bank isn't being invested- I.e. we are taking the same risk as buying investments like comerc Read More

Jeff Burke

View Exchanges


10-25-2008, 10:18 pm
Take the S&P highs from years when things were 'normal', before inflation and financial shenanigans, 1965 to 1983 and extrapolate them: S&P 576. Read More

Michael C

View Exchanges


10-26-2008, 5:58 am
As I understand it, you can reach a point where the helicopter approach doesn't work because you give people money and they don't spend it, they save it. If you think prices are going to be lower tomorrow you won't spend or invest t Read More

Gerry Turner

View Exchanges


10-26-2008, 11:53 pm
Great educational article! I just got a Credit Union loan for a car. They have strict rules of lending and seem very prudent. Keeping my money with them feels secure vs. under the mattress. I closed the Wells Fargo accounts as the per Read More

William Ramseyer

View Exchanges


10-27-2008, 11:12 am
Kevin shows again that he is one of the finest commentators on the web, with a tremendous knowledge of history, philosophy, economics, and the â��real worldâ�� of today. I have some questions for Kevin and any commentators, and while I h Read More


discuss this article and more on the mv exchange

No positions in stocks mentioned.

Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options. Click here for a free 14 day trial to OptionSmith by Steve Smith.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2009 Minyanville Media, Inc. All Rights Reserved.