I saw the data this afternoon; the bubbles continue to burst. In “Consumer Price Decline Prompts Fear Of Deflation,” NY Times, we get the sense of this. There will be a great deal made of deflation but the reality is when you permit greed to inflate illusory wealth bubbles, they break–and when they break there is a painful readjustment. That pain is deflation. 

“It’s funny that just a few months ago everyone was wringing their hands over inflation,” said Nariman Behravesh, chief economist at Global Insight. “It’s gone. It’s over.”

AND …

“The risk to the economy from pricing has rapidly moved from that of rapid inflation to the disinflation that is now moving through the system,” Joseph Brusuelas, chief economist of Merk Investments …”

The stock market took another dirt dive today, investors cashing out and running for cover in droves. “Dow Drops Below 8,000 On Latest Economic Data,” 11/19/2008.  

“It’s painful,” said Howard Silverblatt, senior index analyst at Standard & Poor’s. “A lot of people have pulled a lot of cash out. They’re sitting on the side. It’s all I hear all day: ‘Where can I hide?’ ”

The economy built up over the last several decades looks like it is dying. Underneath it is a very sick financial system. I cannot help but wonder if the world is heading towards an entirely new monetary system. It almost sounds impossible. It leaves me almost breathless to contemplate. I need time and staff and powerful econometric models to sort it all out. My pencil is not sharp enough and the reality is nobody’s is sharp enough. 

The Big Three from Detroit are on their way back home, seen as filthy beggars in Lear Jets. No bailout. Go home and drink Ripple, get you some of that Night-Train or Mad Dog 20-20, and then when you wake up, and have soiled yourself, go and file for Chapter 11 bankruptcy. The American automobile industry is going to be a bloodbath–an absolute bloodbath. The union is about to get economically bludgeoned. 

These times are truly incredible. The economy is writhing in its efforts to remain alive. It is dying and does not even know that it is dying. Stag-deflation appears to be arriving on our shores in waves. The critical waves to watch are these three: (1) the slow goods market, (2) the slow labor market, (3) prices–particularly commodity prices. Lastly, we will need to watch the response of the rest of the world to the American economy. It looks like they are running in droves to get out of her. what have we missed? 

Wow. These are really exciting times. Nobody is going to know which way to turn. Hold on to your money. Keep it safe. Get out of the stock market. Get out of the money markets. Get out of any mutual funds. Look closely at your retirement plan. do not look down. If you’re losing, see what you can do about it. Maybe it is better to have it in your mattress. 

More later …

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