Three Yahoo Tech Tickers: Deflation, Gold, Stock Market

I was on three Tech Ticker segments yesterday with Henry Blodget and Aaron Task.

Tech Ticker – Inflation or Deflation?

Inflation or Deflation? "It’s Definitely Deflation," Mish Says

Ask an economist about their biggest concern about the U.S. economy and you’re likely to get one of two starkly different answers: America is either about to be swamped by a major bout of inflation or decimated by deflation.

Count Mike "Mish" Shedlock of Sitka Pacific Capital among the deflationistas.

While some consumer prices are rising and the Fed is printing money like crazy, Shedlock says deflation is "definitely" a greater threat than inflation.

People looking at prices are completely missing the mark," says Shedlock. "Consumer credit is falling, banks aren’t lending, and we’ve got bank failures at a massive rate. These are the same kind of conditions as in the Great Depression."

Indeed, bank lending has tumbled and the Fed reports consumer credit has shrunk for seven consecutive months and was down 5.8% on an annualized basis in August, the most recent month available.

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Tech Ticker – Ignore The Euphoria

Dow Breaks 10,000: Don’t Get Caught Up in "Euphoria", Mish Warns

The Dow Jones Industrial Average closed above 10,000 today for the first time in a year, and more than a decade after first breaking the mark. Since hitting lows in March, the Dow is up an astounding 50%, while the S&P 500 has gained 60%.

Before you get your broker on the phone or start trading that dormant online brokerage account, take heed of this warning from Mike “Mish” Shedlock, the blogger behind MISH’S Global Economic Trend Analysis: "Five years from now, I think its quite likely the Dow is not going to be much more than 10,000," he says.

Why so negative?

"We’ve still not solved any of those structural problems" in the housing, banking and debt markets, that caused last year’s crisis, he claims.

Shedlock’s advice: ignore the euphoria, and "take some chips off the table. Now’s just not a good time to be invested."

Shedlock, also an investment advisor representative for SitkaPacific Capital Management, thinks investors are better positioned in gold and cash.

Tech Ticker – Thoughts On Gold

Exploding Gold Prices Have Nothing To Do With Inflation

If there are two things that just about everyone agrees on these days it’s that the dollar will continue to plummet and gold will continue to soar.

The dollar will keep plunging, everyone agrees, because the Fed will keep printing so much new money that soaring inflation will eventually turn it into toilet paper. Gold, meanwhile, will go to the moon as investors rush to try to hedge against this impending monetary disaster.

Balderdash, says Mike "Mish" Shedlock, blogger and investment advisor with SitkaPacific Capital Management.

The dollar’s a buy here, in part because everyone is so darn certain that it’s about to collapse.

And gold?

Well, gold is indeed going higher, Shedlock argues, but not for the reason people think. Gold is actually a lousy inflation hedge, as evidenced by the period from the late 1980s to the early 2000s in which there was plenty of inflation but gold prices plummeted from $800 to $250.

But gold IS a good place to preserve value during a credit crunch, Shedlock says. And that’s what we’re still having here. So Shedlock is long gold, too, even though he thinks everyone else is buying it for the wrong reason.

Via email AK asks:

"Hi Mish

Caught the post on the Tech Ticker (Yahoo site) you did about gold today. The article says "Well, gold is indeed going higher, Shedlock argues, but not for the reason people think." I’m intrigued. Can you point me to a blog post where you explain why gold prices ARE going up in more detail?"