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April
16
2022

The Next Big Event Will Be Asset DEFLATION!
Bill Holter

Deflation?  Have I lost my mind?  Everyone knows inflation is driving prices higher and harder than anything seen since the 1970’s, how is deflation even a relevant conversation?

We have been on the record for many years, that we would experience inflation AND deflation at the same time.  Two years ago, anyone talking about an inflationary spiral was laughed at and considered out of touch.  Fast forward to today, and it is extremely hard to find anyone who doesn’t believe inflation is now embedded in the system.  We agree, inflation is embedded for the simple reason that money supply and new debt created has already rocketed higher.  “Already” being the operative word, the inflation has already occurred, all we are seeing now are the effects.

Additionally, the globalists supply chains have been strained, and in some instances broken.  Add to that the fact that paper commodity markets had been swarmed with shorts (many, mostly naked?) which suppressed prices for many years.  The bottom line is this, inflation in the “things we need” and use daily has become structural and there is no turning back…

As for deflation, if you look at almost anything considered an “asset”, prices have boomed but the question is why?  This is pretty simple, the availability of cheap credit has allowed real estate and equities to soar, but there is a caveat.  The caveat being “debt” or credit itself, which was the enabling fuel pushing prices higher.  Interest rates have exploded, and if there is one thing the average person doesn’t watch, see, nor really know anything about …it is bond prices.  They have crashed!

The world runs on credit, without credit, nothing works in today’s world.  The real economy would sputter to a standstill without credit as nearly everything you do, see, touch, or use, needs credit to be created or function.  The bond market is already deflating.  Normally (back in the olden days) this would not have been disastrous.  But today, credit has become the “foundation” for the entire system whereas it used to be money itself (gold) that acted as the foundation.  Additionally, debt to equity/income ratios have never been close to where they are now.  When looked back upon, debt has become the problem simply because there is too much to ever be repaid in real terms.

What I am getting at here is pretty simple, debt is being liquidated (impaired) as rates rise.  Ultimately, higher interest rates will kill both stocks and real estate, not to mention the over $1 quadrillion (yes with a q) of financially engineered derivatives.  If you gut the foundation …the house will fall.  Which is exactly where we are now.  The 10 year Treasury has risen from a low of .38 percent to now 2.75%.  More than half of the rise has occurred in the last 6 months, so there is an absolute rout going on in bonds!  The party is ending, and as always throughout history …few see it and the vast majority deny it.

To clarify my thoughts for you, let’s look at both nominal and real terms when talking about asset deflation.  In nominal terms, we very well may see the mother of all crashes but I would not bet on it?  Will we see an 89% drop in stocks as we saw in the 1930’s?  I highly doubt it.  Maybe we only see a garden variety bear market of 30-40% in nominal terms.  In real terms when priced in real money (gold), an 89% bear market massacre is highly likely.

Before you call me crazy, please understand that all fiat monies in the world today are debt based… and debt is the problem!  As debt is liquidated (deflated), fiat currencies will be rounding the home stretch to their intrinsic values …zero.  All you need to do to understand this is to look at equity markets in countries like Zimbabwe or Venezuela.  After an initial drop of 30-50%, they skyrocketed and were THE best global performers (in terms of their own toilet paper currencies).  In terms of gold, their markets actually lost value.

To finish, it is very important to begin now thinking in real terms rather than in dollar terms.  The dollar has had both feet shot off between military incompetence and the disastrous use of SWIFT sanctions.  While US stocks may not look like they are in a horrific bear market when measured by the dollar, they will be evaporating in terms of gold.  Inflation of the things we need and deflation of the things we call assets, and a currency finishing off the last couple of percentage points left since 1913.  On the bright side, there is still gold to be had by exchanging fiat …for the time being.

Standing watch,
Bill Holter
Holter-Sinclair collaboration

Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present. 

 

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