Honesty - Inflation-Deflation
Google Stock Update
by Tom deSabla. February 19, 2008Print
I'm back, and this time I've got a chart*
Ha, so there.
I refer to my Dec. 24th article, in which I reminded those who were unsure that general stock markets are most certainly in a long term secular bear market since the 2000 peaks, and that valuations were the key to avoiding apples-to-oranges comparisons. Again, Adam Hamilton is an amazing resource on this point, and there is no way to avoid the truth of his conclusion that general stock and commodities markets run opposite to each other in great valuation cycles.
The money question, of course, is where the heck are we right now, and where are we headed? I'm not coy on this point, and neither is Hamilton. We are 8 years or so, roughly, into a secular general stock bear market, which of course means that we are that far into a secular commodities bull market. Now, of course there are other considerations weighing on these secular trends too, sometimes moderating and sometimes exacerbating them - but these primary valuation cycles underpin everything. Why? Because they are the result of cycles of human nature, and thus they cannot change.
Forgive the above digression to briefly review the important background of that Dec 24th article, which also stated that these known valuation patterns could be used to game Google stock. My claim was that Google valuations were headed down over time, and that by the end of this secular cycle, assuming the company still existed, it’s PE would certainly fall to 28, and probably to 21. I think now that 21 is quite reasonable, even conservative. In any case, on Dec. 24th, Google�s PE was 55, and now, less than two months later, it rests uncomfortably at 41, after having lost over $100 of stock price, which, of course, meant that company's market cap lost over $40 Billion in two months. Short side profits? Huge.
And now to Charles Zentay, who reminds us that it’s not enough to be smart � you must also know when you don't know something. In his article �Shedlock vs. Schiff.� Zentay explains the outlines of the inflation-deflation debate, and shock of shocks, admits he isn't sure who is right. As is so often the case, the answer lies in considering all possibilities. First off, it isn't really an either-or issue, because we can have both inflation and deflation at the same time � stagflation - for a while. That's exactly what we have now, and will continue to have. Big-ticket discretionary items like houses, boats, hot tubs, will experience deflation for quite some time, and the necessities of life, food, energy, etc, so long discounted in value, will experience a permanent, ever-worsening inflation.
Eventually, Schiff will win, as the last things to inflate � big-ticket item prices � will eventually reflect monetary reality. This final inflation will last, regardless of what fiat currency is forced on us, be it dollar or Amero, until hard Constitutional money is restored, as Ron Paul has recommended. I myself have cheekily advised Ben Bernanke, via certified letter, to consider the McHugh plan of reflation direct-to-the-people via directly writing checks to us; ending the Fed, and returning to Constitutional sound money. No response as yet.
For those interested, I post a short, blunt weekly audio program called the Oxygen-Rich Review at tomdesabla.com.
© 2008 Tom deSabla