American Dream to American Nightmare

The Most Persistently Overvalued Stock Market In U.S. History
Once again, commodity prices are dead-cat bouncing which has produced a bagload of hand wringing over inflation. Let's make this debate as straightforward as possible:

Anyone who believes that the status quo and its attendant ludicrous borrowing is indefinitely sustainable, ad infinitum, is an "inflationist". Anyone who believes that the age of inflated debt, inflated bullshit, and inflated dumbfucks is long overdue to collapse in a way that makes 2008 seem like a fond memory, is a deflationist. 

Central Banks merely gave everyone five more years of cheap money to borrow themselves ALL IN on the American Nightmare...

The New "Permanent Plateau" 100 Years+ In the Making

Way back in 1929, economist Irving Fisher predicted that the Dow had reached a new "permanent plateau". He top ticked the market within weeks by giving one of the worst predictions in economic history. Meanwhile, Prechter just showed in this week's Elliot Wave Theorist, that the peak in this current asset bubble has been the most persistent in duration in 100 years, by a matter of months. We are in totally uncharted territory. Placed in the context of a Dow that has gone nowhere for 3.5 months, the plateau analogy can't be overlooked. Five years of zero percent interest rates have generated history's largest credit bubble, without any comparison. 

The Most Persistently Overvalued Market In U.S. History By a Wide Margin:
Via Hussman Funds: (following the link below, the second chart is the one referenced by Prechter)
"It is the series of extreme instances over the past year that give investors the hope and delusion that historically reckless market conditions will lead only to further gains and greater highs. This is a mistake born of complacency in the face of a nearly uninterrupted, Fed-enabled 5-year market advance..." 

Everything We Are Told About Deflation is a Lie

I wholeheartedly agree, especially the lies embedded in the linked article telling me yet again to ignore deflation. In that article, the author tells me to consider two periods of 50% benign deflation, and then ignore 1929 and its resulting deflationary depression. Really? I was thinking of doing the opposite, because had we not just borrowed our way into the greatest credit bubble in human history, then perhaps I shouldn't exclude the one historical data point that most closely resembles this current era, albeit on a much smaller scale. Unbelievable. The Lost Boys still think that deflation means cheaper computers at Best Buy.

Debt Pulls Forward Consumption and Ultimately Creates Latent Deflation

The entire premise of the linked article is that (price) deflation is the enemy of the borrower and ally of the saver, because it means that future purchasing power is increasing, making debts harder to service. So far, so good. However, now we must consider the reality of 0% interest rates, which followed almost a decade of 1% interest rates. At this late juncture, it's not just "parasitic governments and banks" who are over-leveraged borrowers, it's every business and consumer this side of blogger-land who are overleveraged. As I showed recently, a mere 3% decline in GDP in 2008 caused a fucking ludicrous 50% drop in corporate profits. That is 17:1 leverage. Or, just imagine what happens when 99% of junk in the shopping mall stays on the shelf, because consumption has been pulled forward by several years if not decades. THAT is deflation.

Meanwhile, to say that deflation is the enemy of the banks and not the savers has to be the most asinine statement I've read in weeks. Where the fuck do these savers keep their money, in the mattress? Literally every saving instrument short of physical dollars in the wallet or buried in the backyard, involves counter-party risk. It's debt. Therefore, if the borrower can't pay it back, it's what is known as lost savings. Meanwhile, the FDIC has less than a 1% reserve ratio on total U.S. deposits. I'm sure that will prevent a major bank run.

Of course, there is always gold; however, I have nothing new to say about gold except that I personally won't be loading up on it until every over-leveraged hedge fund has puked its gold back onto the market to meet redemptions to cover losses from all of the other collapsed assets they own, which will likely occur during the first phase of the deflationary collapse. In the meantime, I will camp out uneasily in the "safest" short-term sovereign debt (aka. Treasuries), understanding that the term "safe" is now relative.

Not to be a hypocrite, I wanted to address this inflation argument at its thorniest points: food, energy, tuition and healthcare. These are the areas that have shown persistent inclination to buck the deflationary trend, unlike wages, which hopefully everyone agrees are heading in the wrong direction.

Gasoline:

The definition of a downtrend is lower highs...

Agricultural Products aka. "Food"

It's impossible for me to show tuition and healthcare downtrending, because they are not. I can only show that they are rising as a % of GDP whereas wages are falling as % of GDP. Again, the implicit assumption is that these trends can continue without something breaking.

Healthcare as % of GDP (U.S. historical)

Healthcare compared to other countries
"I'll have a Big Mac, large Coke and disastrously unaffordable heart attack, to go"...

Higher Education "Death Spiral"

Tuition costs are so ludicrous that it's now anticipated that half of all U.S. Universities will fail within 15 years. The primary metric that they use to calculate this rate is deteriorating credit ratings of Universities. If they calculated it using the plunging credit ratings of students and parents, the projected failure rate would be much higher and the timeframe much sooner.

As a % of GDP, tuition costs have risen 500% since 1950:

Importing Poverty from the Third World One Container at a Time
Thanks Bernankenstein: Five more years to go "All In" on the American Nightmare
Wages % of GDP

The Only Inflation Is In Greedy Morons
Anyone who honestly believes that Walmart et. al could come into local markets, destroy local jobs and businesses, send the jobs to China, suck the massively unprecedented profits into offshore bank accounts, all without collapsing the local economies, is a total dumbfuck who deserves their certain fate.