Deepcaster: Profiting from the Inflation/Deflation Puzzle

Investors are getting mixed Messages about whether we are facing an Inflationary or Deflationary Future.
Answering that question correctly is important both to profitability and protecting wealth.

Major Bankers and some Government Officials Claim they are worried about Deflation.
But rising costs for Health Care, Food and, until recently, Energy, indicate we face an inflationary, and perhaps even a hyperinflationary, future.
Which is it? Inflation or Deflation?

Submitted by Deepcaster: 


Some sectors have clearly been Deflating in Price in recent months.

— Crude Oil

— Copper


But other Sectors have been Inflating in Price:

— U.S. Equities

— Beef Cattle

— Corn

— Soybeans

— Healthcare


Still, the U.S. Bureau of Labor Statistics claimed that October 2014 U.S. Inflation (CPI-U) is tame at an annual pace of 1.66%.


But, pegs Actual U.S. Consumer Price Inflation at an annual 9.38% for the same period.


— And the Biggest Inflation Category of them all — Central Bank Monetary Inflation in all its forms — is roaring ahead. Consider that Japan, China, and the Eurozone are all in the process of devaluing their currencies one way or another


— the ongoing Currency Wars about which we have been writing.


What gives?  How can we reconcile Shadowstats U.S. Consumer Price Inflation of 9.38% (clearly correct in our view) with the Clear Price Deflation in other Sectors and Central Bankers complaining they are concerned about Deflation?


Understanding how they are to be properly considered and reconciled provides Great Opportunities for Profit and Wealth Protection going forward.


Failing to Understand and “Reconcile” this Inflation/Deflation Conundrum will create substantial Risk of Loss.


So how are Inflation and Deflation to be Understood and “reconciled”?  Nearly two years ago The Bond King, Bill Gross opined


“The future price tag of printing six trillion dollars’ worth of checks comes in the form of inflation and devaluation of currencies either relative to each other, or to commodities in less limitless supply such as oil or gold.


Zero-bound interest rates, QE maneuvering, and ‘essentially costless’ check writing destroy business models and stunt investment decisions which offer increasingly lower ROIs and ROEs.”


Bill Gross, Founder & formerly Co-CIO, PIMCO, 1/3/2013


Indeed, for several years, Notable Independent Commentators, including Deepcaster, have warned that the Elite Central Banks’ Orgy of Fiat Currency Printing, a la QE etc., would eventually result in Price Inflation.  And we reiterate that Warning here.


So it was no surprise to us that The Bond King, Bill Gross formerly of PIMCO, with about $2 Trillion under Management, would finally warn, in his January, 2013 letter to Investors, of Impending Price Inflation in Key Asset Classes.  And that Price Inflation is now underway in some Asset Classes but not in others.


Clearly, the Central Banks Hypermonetary Inflation has maintained the Profitability of their Primary Clients (in The Fed’s case, owners) the Mega Banks and elevated Equities Prices.


Case in point — the Uptrending U.S. Equities Chart of S&P Price Inflation since 2009 has almost exactly Tracked the Uptrending Balance Sheet of The Fed.


(Thanks to McClellan of McClellan Oscillator Fame for permission to reprint.)


And now that The Fed is “Merely” Repurchasing the same Amount of Treasuries as those which mature, the Equities Markets are Topping! Fancy that!


The Hypermonetary Inflation has created and Sustained the Price Inflation (in U.S. in particular) in Equities.


And Note that the Price Inflation in certain Food Commodities has arguably been more influenced by Traditional Supply and Demand (80 Million more people in the World each Year and many with more disposable Income).


In short, Food Commodities Prices are less susceptible to (but not immune from) the Price Suppression which Major Central Banks have been employing to Suppress Gold and Silver Prices.


On the same principle, the recently Deflating Price of Crude Oil is commonly viewed mainly as a function of a recent (albeit temporary) above ground oversupply, plus reduced Market Expectations of supplies being diminished by War or other Disasters, plus the Saudis desire to maintain Market Share.  But, perhaps above all, recently lower Crude Prices are a Result of an Increasingly Strong $US, and related covert efforts by the U.S. et al to punish Russia.  Eighty percent of the time, oil prices fall when the $US strengthens and vice versa. (cf.


But consider that Prices for Essential Good and Services — Food, Health Care, Utilities, Housing and, until just recently, Energy — have all been dramatically inflating in price in recent years.


Thus we can see why’s calculation of Consumer Price Inflation 9.38% is accurate.


So consider the following which explains why the official U.S. annual inflation rate of 1.66% is well below what most people are experiencing in their current day-to-day living.


Since 1980, the government made numerous changes to the methodology used in calculating CPI inflation, with the effect of significantly reducing reported inflation from what it would have been otherwise.  The ShadowStats estimate adds back into current official reporting the inflation that was removed by the government’s changes.


This reduction in official CPI inflation reporting of recent decades was a deliberate and successful effort by the U.S. government to cut expenses, by creating artificially low cost-of-living adjustments for programs such as Social Security; and to increase tax revenues, with artificially accelerating upside income-tax-bracket shifts.


As a result, today’s official CPI no longer measures Consumer Inflation in a manner that is useful or meaningful to individuals as a guide for setting minimum targets for annual income adjustment or for annual investment returns.  Generally not understood by the public, current CPI reporting no longer measures the cost-of-living of maintaining a constant-standard-of-living, and it no longer reflects inflation consistent with out-of-pocket expenses.  The specifics of the various CPI understatement issues and ShadowStats alternate-inflation estimates are found in Public Commentary on Inflation Measurement. See also Note 1 below for Real U.S. Economic Statistics per Shadowstats.


— But then why are many Central Bankers and Economists expressing concern about Deflation?


Let’s first differentiate clearly between several uses of the “Inflation” and “Deflation” terms, concepts that not always are set forth explicitly when a Market Pundit, Economist or Central Banker expresses concern about Inflation or Deflation.  These concepts also may appear, at times, to be contradictory.  Generally, Inflation may refer to rising consumer or asset prices, or to increasing money supply growth (other measures have been developed specifically for wholesale pricing measures, economic measures, etc.), while Deflation may refer to falling consumer or asset prices, or to declining money supply growth, etc.


—  Consumer Inflation reflects changes in the costs of consumer goods and services.  Most popularly, it is measured in the United States by a version of the official Consumer Price Index (CPI).  ShadowStats offers an alternate consumer inflation measure.


—  Asset Inflation reflects that general appreciation or depreciation of a specific class of assets, such as stocks, bonds, commodities, housing, etc.  As an example of potential inconsistencies, an asset deflation, such as a collapsing stock market, is not necessarily inconsistent with rising prices for consumer goods and services or consumer inflation.


—  Monetary Inflation reflects annual change in the various measures of the money supply, or money in the economy and financial system.  Rapidly rising monetary inflation commonly is a direct causal factor in asset inflation, specifically equity markets.  The relationship of money growth with consumer inflation is positive, but it is not always as obvious as it should be, due to significant differences in the definitions and estimations of consumer inflation, inflation for Gross Domestic Product (GDP), GDP and the various measures of money supply.


— But, again, why are many Central Bankers and Economists expressing concern about Deflation?


— The big Deflation concern leading into the crisis of 2008 was in terms of a possible failure in the banking system, with a crash in the money supply as well as in consumer and asset prices, effectively a 1930s-style depression and deflation.  A large number of banks failed in the early-1930s, depositors lost their assets, the money supply crashed, consumer and prices collapsed along with the economy.  In 2008, all deposits were guaranteed and extraordinary efforts were undertaken to prop both the U.S. and global banking systems.


— Although many of the 2008 concerns, economic and financial instabilities persist, (indeed the Monetary Inflation Bubble now being created by The Fed and other Central Banks is Great Cause for Concern) much of that current Asset Deflation concerns stem from the fact that Major Economies — China, the Eurozone, the U.S. — are slowing, i.e., experiencing Economic Deflation as it were.


For another thing, in the realm of Monetary Inflation, the Velocity of Money (the annual turnover the money supply in the broad economy) is at record lows — indeed, at Pre-Depression levels.


In a related area, the Mega Banks are not lending much to “Main Street” preferring to keep Reserves overnight at The Fed, where they can earn 25 BPS worth of Easy Money for doing Nothing.


But The Main Reason for concern about the Deflation in Economic Activity is that Major Economies, the U.S. included, have never come out of Recession, and indeed are slowing and in some cases contracting.  And this Economic Malaise is Worsening in all Major Economies notwithstanding the Main Stream Media Hype that the U.S. is recovering.  This is the Deflation about which the Central Banks and Economists worry.


— In a word, what we now have is Worsening STAGFLATION.  Stagnant and Worsening (i.e., Deflating) Economies and Inflating Prices of many Essential Goods and Services to the Consumer.  There is little the Central Banks can do to stimulate economy activity, but they can create unhealthy inflation and increasingly unstable financial markets—the worst of all worlds, and that is what they are doing in their attempt to prop up the Banks, above all.


— Where Central Banks talk of creating inflation with their massive easings, it is first, not an consumer inflation created by a sudden new burst of economic activity, which would be a relatively positive development (there is little the Central Banks can do to stimulate economic demand).  Rather it creates a cost-push commodity-based inflation from a weakened domestic currency.  Until recently, a deliberately debased U.S. dollar had triggered higher oil and gasoline prices, spiking domestic consumer prices in energy and other categories. In sum, even official U.S. consumer inflation numbers would begin to soar, if the current $US strength should reverse into a tumble.


Second, continued Central Bank pumping up of money stocks is a very deliberate effort to fuel a continuing rise in the value of equity assets, and support Bank Profits.

— By comparison, consider the coincident and deteriorating Stagflation conditions — look at the U.S., for example, where the recent lousy Consumer Confidence Numbers reflect this Reality on “Main Street.”


Also in the U.S., New Home Sales Figures were revised Lower in the third Quarter, consistent with Historical Recessions and Durable Goods Orders are on track for Flat-to-Down Activity for Fourth Quarter 2014. (cf.


Couple that with the fact that Western Europe and the U.S. are in the process of inundating themselves with Masses of largely Dependent Immigrants; thus the U.S. and Eurozone’s Economic Future is Darkening.


For example, consider the Employment Environment for Millions of Unemployed and underemployed Americans — just since July 2014 foreign-born employment increased by 1,028,000, while native-born employment decreased by 780,000 (Rubenstein,


Harvard Prof. George Borjas estimates that the U.S.A.’s CURRENT high immigration — legal (over One Million per Year) and illegal — results in a $402 Billion Wage Loss for competing American Workers, annually! Mass immigration depresses Wages and Displaces Americans.


And consider that Legal and Illegal Immigrant families account for 42% of the growth in Medicaid Costs since 2011. ( And that is no wonder because recent Migrants are bringing a whole panoply of Disease as Dr. Marc Siegel describes


“… Since illegal immigrants who enter the US are not prescreened in any way, many carry disease… ten to twenty-five percent of the immigrants (in Texas and Arizona) have Scabies, a highly contagious intensely itchy rash…. Already drug-resistant tuberculosis is spreading in Texas…  Dengue Fever… is now spreading from the Illegal Immigrants into Texas and Arizona… Measles and Chickenpox are now emerging among the unvaccinated immigrants… now Swine Flu has appeared….”


Marc Siegel MD, Fox News, June, 2014


And we might add that the Medical Evidence indicates that the Enterovirus which has killed seven and sickened thousands of American children is being brought in by these Immigrants.


Given the promise of Free Medical Care and Education and other free (i.e., taxpayer funded) Benefits. It is no wonder that over 36% of all legal (over one Million per year) and illegal immigrants to the U.S. use one or more welfare programs (


And the Complaints from some High-Tech Firms that there are not enough H(1b) Visas available for STEM (Science, Technology, Engineering, Math) Workers rings hollow when High-Tech has(is) laid off tens of thousands of American High-Tech Workers (cf. Microsoft & HP layoffs, e.g.).


And the Complaints from some High-Tech Firms that there are not enough H(1b) Visas available for STEM (Science, Technology, Engineering, Math) Workers rings hollow when High-Tech has(is) laid off tens of thousands of American High-Tech Workers (cf. Microsoft & HP layoffs, e.g.).


Thus it is no surprise that the Basic Reality of the Relationship between Population Growth and GDP is that Population Growth typically increases Aggregate GDP but reduces Per Capita GDP.


Couple the Foregoing with ongoing Central Bank Interventions to artificially boost Equity Prices, Support the Mega-Banks (in The private for-profit Fed’s case, including its own shareholders!) and suppress the Prices of Gold and Silver and you have Dangerous Interventions — the Bubbles that Deepcaster and other independent Analysts have been complaining about for years.  Indeed, more recently, even Main Stream Investment Managers have recognized the Dangers.


“The investment recommendations made by many financial commentators are now dominated by cross-asset class relative valuation rather than the fundamentals of the investment itself….


“This is an understandable approach as unusual central bank activism has artificially elevated certain asset prices. Yet the dominance of this increasingly popular advice comes with potential risks that need to be well understood and well managed. [Note El-Erian’s reference to “certain” asset classes. — Ed.]


Several asset classes now have highly manipulated prices due to experimental central bank activities, both actual and signaled. The more this happens, the more investors come under pressure to migrate to higher risk investments in search of returns….


“Just a few weeks ago the Federal Reserve announced it is targeting a further $1 trillion in asset purchases in 2013, representing a third of its existing balance sheet. Other central banks — particularly the Bank of England, the Bank of Japan, and the European Central Bank — are also expected to expand their balance sheets again in the months ahead….


“There is a limit to how far central banks can divorce prices from fundamentals….at some point, and it is hard to tell when exactly, the private sector will increasingly refuse to engage in situations deemed excessively artificial and overly rigged….


“Have no doubt: Central banks are both referees and players in today’s markets. With 2013 starting with so many liquidity-induced deviations, investors would be well advised to take greater care when pursuing opportunities that rely mainly on the ‘central bank put.’” (emphasis added)


            “Beware the ‘Central Bank Put’,” Mohamed El-Erian, 01/07/13

            Chief Executive and co-Chief Investment Officer of PIMCO


El-Erian is Spot-On correct about the Risks Associated with Investment in “Highly Manipulated Asset Classes, which is why Deepcaster’s portfolio Recommendations aim both to Minimize Risk from and to Profit from, these and others by forecasting Timing and providing Interventional Analyses. (See Notes 2, 3, 4 and 5)


Thus the Interventions make certain Assets Classes even more attractive going forward and others more Treacherous.


Thus, it is no surprise that, the Smart Money is responding accordingly, moving Money into Physical (to avoid the Banking System Bubble) Gold and Silver (and Quality Miners), and certain other commodities.


And Hyperstagflation Resistant Agricultural Land and Essential Food Products Companies are seeing Capital Infusions also.  No surprise there either.


The Bottom Line: When considering the Inflation/Deflation Puzzle it is Essential to Evaluate these on a Sector by Sector Basis, and to accurately forecast changes in Inflation/Deflation (as the case may be) Realities and Prospects in each Sector over time. And thus this is The Main Project in which Deepcaster is engaged in order to facilitate Profiting and Protecting Wealth.


Best regards,



December 4, 2014


Note 1: * calculates Key Statistics the way they were calculated in the 1980s and 1990s before Official Data Manipulation began in earnest. Consider


Bogus Official Numbers vs. Real Numbers (per

Annual U.S. Consumer Price Inflation reported November 20, 2014
1.66%     /    9.38%

U.S. Unemployment reported November 7, 2014
5.8%     /     23.0%

U.S. GDP Annual Growth/Decline reported November 25, 2014
2.43%        /     -1.73%

U.S. M3 reported November 15, 2014 (Month of October, Y.O.Y.)
No Official Report     /   4.22% (i.e., total M3 Now at $16.085 Trillion!)


Note 2:Our attention to Key Timing Signals and Interventionals and accurate statistics has facilitated Recommendations which have performed well lately. Consider our profits taken in recent months in our Speculative and Fortress Assets Portfolios*


  • 105% Profit on a leveraged ETN on the Volatility Index on October 15, 2014 after just 36 days (i.e., about 1090% Annualized)
  • 70% Profit on Russell 2000 Small Cap Sector Put on October 10, 2014 after just 2 days (i.e., about 12,275% Annualized)
  • 70% Profit on Russell 2000 Small Cap Sector Put on October 1, 2014 after just 8 days (i.e., about 3215% Annualized)
  • 55% Profit on Double Short Euro Call on August 6, 2014 after just 106 days (i.e., about 200% Annualized)
  • 65% Profit on Energy Storage & Management Company on July7 15, 2014 after just 342 days (i.e., about 70% Annualized)
  • 95% Profit on Crude Oil Call on June 11, 2014 after just 73 days (i.e., about 470% Annualized)
  • 75% Profit on Equity Index Call on May 27, 2014 after 21 days (i.e., about 1305% Annualized.)
  • 30% Profit on Equity Index Call on May 13, 2014 after 34 days (i.e., about 320% Annualized)
  • 75% Profit on Crude Oil Call on April 14, 2014 after 13 days (i.e., about 2000% Annualized)
  • 60% Profit on Water Management Company on March 3, 2014 after 454 days (i.e., about 50% Annualized)


*Past Profitable Performance is no assurance of future Profitable Performance.


Note 3: A launching Mega-Trend began to Reveal itself last week.


Investors who ignore it do so at their Peril.


Those who Ride with it have Tremendous Opportunities for Profit and Wealth Protection.


Consider its Impact on our Forecasts in Deepcaster’s  recent Alert, “Hot Money Opportunities; Forecasts: Equities; U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates; Gold & Silver; Crude Oil & Copper,” posted in ‘Alerts Cache’ on


Note 4:  “Kuroda is a certified madman running the Bank of Japan.” — David Stockman, 11/13/14, former Head US OMB & U.S. Representative


The Accelerator is Running Full Bore and is creating Major Opportunities and Serious Threats.


Though we would not have put it quite that way, Stockman’s comment correctly reflects an underlying Important Reality.


Indeed, the Accelerator is Accelerating.


To consider The Accelerator and the Opportunities and Threats it is generating review our Forecasts in Deepcaster’s  recent Alert, “Accelerator Opportunities & Threats; BUY RECO!; Forecasts: Equities; U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates; Gold & Silver; Crude Oil & Copper,” posted in ‘Alerts Cache’ on


And for an opportunity to Profit and Protect Wealth in light of What is coming, see our Buy Recommendation aimed at profiting from an impending Major Move. And for a recent Buy Recommendation, see Note 3.


Note 5: Fundamentals, Technicals and Interventionals, are all signaling a Mega-Move is impending in a Key Sector.


And our Timing Forecast is that this move is likely soon, very soon.


Of course other Key Sectors will be affected by this Mega-Move as well.


To consider the Fundamentals, Technicals and Interventionals, read Deepcaster’s  Forecasts for Key Sectors in our recent Alert, “Key Sector Mega-Move Impending; BUY RECO!; Forecasts: Equities; U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, & Interest Rates; Gold & Silver; Crude Oil & Copper,” posted in ‘Alerts Cache’ on