The Federal Reserve has for several decades been ensuring that there will be definitive magnitudes of inflation. Bernanke has defined his mandate by his words over several years and his actions over recent years. He believes in forcing and mandating inflation that inflation will reign supreme over any deflationary forces. Note particularly his “Helicopter” speech of 2002.
Since the start of the current macroeconomic economic event, the economy has turned down. That means that demand for products and services have decreased. When lowered demand hits an economy, prices will tend to decline.
Declining prices are a measure of deflation.
Bernanke, Yellen, and Fed policy have worked to apply inflationary forces into the US and global economies. They have applied massive forces specifically into the US, EU, Asian economies. Literally trillions of dollars have been used since 2008 to pump inflation worldwide. The banking systems of several nations have done all possible to pump inflation in their domains.
Commodity markets have accepted the notion of inflation hitting commodities. Traders and industries have obliged by buying into this notion and going long all commodities. This provided an overall inflationary view. This notion was made credible by portraying commodities as the grease of the exploding globalization of all economic activities from food production to manufacturing.
The myth of ubiquitous inflation is deflating.
Commodity valuations are deflating. Residential real estate valuations are deflating. Commercial real estate valuations have experienced a rebound that may be due to speculators doing what they do during downturns — speculate until they determine it is early, they lose enough, or cannot make gains.
Deflating asset valuations are everywhere.
The inflation / deflation valuation determination across the entire US economy is seen differently by those who look narrowly at specific asset classes. The net inflation / deflation valuation is only inflationary when reviewing a minority of specific asset classes.
Considering all asset classes including real estate, commodities, financials, electronics, heavy industry, food, energy, and everything else results in the observation that deflation is the net force at hand.
Overall, deflation is of a greater magnitude than is inflation.
This net deflation is net even though nearly every command economic institution in the industrialized world has been applying all its available tools using the largest forces that they can muster.
The net valuation vector is pointing toward deflation. Inflation will occur in specific sectors and with specific assets, but deflation is the operative valuation vector for the mid to long term.
Moreover, the institutions that have promoted inflation have now nearly exhausted their warehouses of tools and tricks. They will attempt to implement tricks using currencies, gold, psychology, fear, immoral suasion, and more, however, the inflation that these institutions induced over nearly 100 years will reverse. It was induced unnaturally. Valuations will revert to natural levels.
How will you place yourself on the profitable side of this macro economic movement?