Deflation In An Age of Fiat Currency: US Equities Will Have To Fall By More Than 60%. Now Is The Time To Own Cash. Everyone Will Worry About “Default”, Unfunded Liabilities, Tax Hikes and Austerity, Currency Wars in 2013.

Wednesday, December 5, 2012
By Paul Martin

Investmentwatchblog.com
December 5th, 2012

from Russell Napier:

Napier’s presentation, “Deflation in an Age of Fiat Currency,” is thought-provoking, and the precise polar opposite of investing as usual. A wry and picaresque speaker, he starts with some conclusions. Among them:

- To reach record lows [akin to those on offer in 1921, 1932, 1949 and 1982], US equities will have to fall by more than 60%.

- Central banks are straining to produce inflation, and developments in emerging markets (i.e. China) suggest a deflation shock is now likely.

- The capital exodus from China is disrupting the creation of inflation.

- In the search for yield, cash is trash ‚ so now is the time to own cash. (This is an example of his dry contrarianism.)

- US Treasuries could repeat their 83% price decline of 1946-1981.

US stock markets aren’t cheap, not by a long chalk. Napier, like us, favors the 10-year cyclically adjusted price / earnings ratio, or CAPE, as the best metric to assess the affordability of the market. Unlike the traditional P/E ratio, CAPE smooths the near-term volatility by taking a 10-year average.

The Rest…HERE

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