According to Gary Shilling, inflation is not what we should worry about. Deflation is. Mr. Shilling makes some good points and strong arguments. However, his conclusions and data is based on almost worse-case scenarios.
Down in his article he discusses Assets being lower than in 2007. Well, yes if you were invested ONLY in an stock index, mutual funds, or bond funds. Unfortunately, these MIGHT be what the retired do, or should I be more specific, that Trusts do when they unload Annuities and other guaranteed returns for the elderly. I consider this type of investing a ripoff! Very much like our government's investment strategy for the Social Security fund which they then rape by spending the funds because they can borrow at a low rate. What a deal. Set a low rate to grow the fund at, then offer a few pennies more to borrow against it. Taking from Peter to pay Paul, except Paul is Peter. Gary is correct that the indexes and other investment he mentioned are down from 2007. But, if you had invested intelligently (thank you Sam for your red rubber prediction toy), you would be up. Sam & I were not investment wizards and we grew our assets more at the expected stock growth rates of 7% per year.
However, Gary does bring up a point he didn't mention when he discussed future spending and cost savings: the increasing boomer retirements! We are becoming an old age country. Much like Japan is and China is approaching. Old people have a different spending mentality -- buy ONLY at the BEST price. I take exception with Gary that people are continually waiting [implied for a long time] before purchasing something. I fo shop for the BEST price, NOT the cheapest product though. In other words, I research the various products, looking at reviews and recommendations, and choose a product I desire. THEN I look for the best (lowest) price. Isn't the Internet wonderful for this? How about buying a product off the Internet -- no tax usually? Yet, with more and more of the population becoming old, retailers will have to price more towards their buying strategy. In other words, price competition is becoming cats and dogs. This inevitably DOES signal a more deflationary rather than inflationary future. Maybe salaries are lower than in 2007 as Gary says. Then maybe the job mix these last 5-6 years has also gone screwy and with many layoffs we see people working anywhere (those who do find work) at lower incomes; hence, the average WILL be lower as he states. But, will this be the trend? NO. Once we get OBlunder out of the white house and actually create private sector jobs demanding higher paying salaries, the average will rise. So, I take exception for Gary's narrow, well-selected time frame of his data to base his arguments. A job crisis is not the typical working environment or economical environment to base some of his conclusions.
Gary's comments re COMMODITIES falling is also contorted. Commodities and the strength of the currency used for commodity trading/buying/selling are related. Have you watched the price of oil, denominated in U.S. dollars compared to the strength of the dollar? Seems that the only way for the Oil "Price Fixers" to get a staple profit is to raise the price of oil when the strength of the dollar retreats. Then to make people feel more comfortable, they will lower it when the dollar is stronger. This way they get a pretty constant profit that they can report without too much distraction and scrutiny. Same goes for other commodities. But, did Gary mention that Europe is in a crisis and, thus, the U.S. dollar has been strengthened because world investors are looking for safer investments than the Euro? Strong dollar=lower commodities. One can always make a case for their argument -- just not consider ALL the facts and select just those data points that make the argument reasonable
Now, read his article again considering this time the crises going on in the world today and the booming retirees in America. Do you think it is right to base future projections on Gary's premises or one that considers all the facts? Projecting from a bad-egg scenario can only fill your basket with bad eggs. Now, consider America whipping the job crisis by lowering business taxes and allowing We the People to save are money TAX FREE. This is what the Republican offer. America WILL grow again! Jobless rates WILL shrink. Salaries WILL increase! Spending volume WILL increase! But the old people WILL become the market to keep prices in check.
I want to state that I found Mr. Shilling's article quite informational. He presents some good arguments re housing market. However, one must seek ALL the causes of a problem, not just SYMPTOMS.
Need an additional assignment, see #100 (Harry Den't book and his comments in 2009 and how they came true) or #86.
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