Deflation and Market Volatility Dead Ahead

News & Current Events Public News & Current Events
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Originally published at: https://peakprosperity.com/deflation-and-market-volatility-dead-ahead/

Executive Summary

In this episode, I had the pleasure of speaking with Ed Dowd about the current state of the housing market, the macroeconomic landscape, and the potential impacts of immigration and AI on the economy. We delved into the complexities of the housing market, the surprising trends in inflation, and the potential for a recession. Ed shared his insights on how these factors could shape the economic future, and we explored the implications for individuals and investors alike.

Housing Market Dynamics

The housing market is experiencing significant shifts, particularly in the South, with a 268% surge in inventory across Florida and Texas. This is largely due to high mortgage rates and a boom in construction, but with declining permits, indicating a potential downturn. The affordability issue is pushing more people to rent rather than buy, which could lead to a decrease in housing prices. Immigration also plays a role, as it affects rental markets and could lead to further pressure on housing prices.

Inflation and Economic Indicators

Ed and I discussed the current narrative of inflation, which has been a major concern. However, with rents coming down, the official inflation measures might soon reflect a decrease. This could lead to a surprising downside in CPI throughout 2025, affecting the Federal Reserveā€™s actions. The broken transmission mechanisms of the Fedā€™s rate changes and the issues with the reverse repo market were also highlighted as factors complicating the economic landscape.

Immigration and Economic Impact

The influx of 10 to 15 million illegal immigrants has been a significant economic variable, contributing to inflationary pressures by increasing demand for goods and services. This has also affected the velocity of money, which had been declining but saw an uptick due to this new spending. With Trumpā€™s policies potentially reversing this trend, we might see a deflationary impact as the flow of immigrants slows.

AI and Market Speculation

We touched on the AI boom, drawing parallels to the dot-com era. The current hype around AI, particularly with companies using Nvidia chips as collateral, could lead to a bubble burst. The emergence of DeepSeek, which offers a more cost-effective AI solution, might accelerate this process. While AI holds promise, the current market dynamics suggest a potential overvaluation that could correct sharply.

Key Data

  • 268% inventory surge in housing across Florida and Texas.
  • 10 to 15 million illegal immigrants entering the U.S. in recent years.
  • 39% of the S&P 500 index concentrated in seven names.

Predictions

  • CPI will surprise to the downside throughout 2025.
  • A recession is likely to be declared starting in the fourth quarter.
  • The AI market could see a significant correction due to overvaluation.

Implications

  • Housing prices may decrease, making buying more affordable in the future.
  • Inflation rates could drop, affecting interest rates and economic policies.
  • AI technology could become more accessible as prices for infrastructure decrease.
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Always great to hear from Ed, thanks for having him on Chris. Was glad to hear him discuss the effects of the 10+ millions of illegals on the economy. Had been waiting for a couple of years to hear someone from the finance world delve into it deeply. The "recession that wasnā€™tā€™ due to the Biden policies of helicopter money for these illegals was a disgrace, but it seems to be over, finally!

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I expect a US economic takeover of US allies by means of a Pfizer-like financial panic that stampedes people into a miracle corporate salvation - a stablecoin/crypto payment app on your phone. Alex Pollard on Substack: "Yes this is the Pfizer model of fascist takeover. Panic the population into a private miracle solution, a mobile phone crypto payment app - withdraw credit, push up interest rates, create total panic, buy up assets for cents in the dollar, replace the domestic currency with a moā€¦"

Australia has no private bond market because offshore lenders get a tax break!

https://x.com/senatorrennick/status/1881189998994583708?s=46
So all private borrowing ultimately comes from offshore! We are ripe for harvesting.

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I was worried about housing and went ahead and listed my house 6 months early this week. Bidding war - 2 days 4 offers. Charlotte area.

Anyone else in the boat to buy or sell- trust your own market too we are obviously a large country and markets donā€™t swing the same everywhere. My realtor tried to tell me this :upside_down_face:

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Selling and relocating in a volatile market often means moving to a new city. Additionally, the cities you prefer might also have challenging conditions, tempting you to ride out the market by living in a van or renting.

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This sounds like version of ā€œeconomic free trade zoneā€ common in south east asiaā€¦ it has same loophole, basicly anything goes. In investing, Japan has had opposite way so despite their finance mistakes in 80s, they have domestic debt, which is ā€œgoodā€, better than dollar or other foreign debt, which could be used as blackmail tool in politics or even economic warfare these days.
But more from principal viewpoint, this stems from weird cloudy liberal thinking but essentially humans still invest, thus where they live has everything to do with ā€œpatriotismā€ā€¦ if I live in US, aussies are other side of world, so I take money off when grandma needs it. On other hand, if Im domestic investor, it is easier to argue to family and coworkers how Im also part owner in brand they know. We have this same issue in europe, thus few companies prosper and many are sold to US and also people have general attitude that anything in US continent is simply betterā€¦ This has gone now early 90s so generations have passed so nobody , not many at least, think about this which is dangerous. All assumptions that are just passed on, are dangerous when great shaking (great taking) disruptions happen and then despite allegedly good education people are suddenly no better than car mechanic doing investment decisions.

Cold war 2 that has begun, is likely done in economic terms. Not easier action movie bullets and WW2 movies style. With digital tools, that is essentially free(psyops, marketin etc), why bother moving physical things to fight.

My argument against taxbreaks is weak hands: what prevents them taking their money and put it to other place that promises even better deal. Also it becomes hostage situation: investors then start to threaten moving away if taxes are hiked, despite it was meant as temporary measure. This creates fragmentation and complexity in already inefficient government systems.

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How bout deflation in assets, but inflation of expenses? The worst of both worlds.

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I keep trying to tell people that we are about to have our dotcom bubble break in Crypto and all the BS will finally go to zero.

The market leaders are very, very narrow this time and broadening out isnā€™t happening like in past alt seasons.

It still looks like we could see a ā€œnarrowā€ top within the next 30-45 days in the Crypto market, where only a few coins hit new all time highs. Most will only reach Fib retracements.

This will probably be marked by bullish news for the coins that will be in the reserve, which ones will be the future of our finance infrastructure, and which ones will be used to ā€œtokenizeā€ the goobermint so that spending is more transparent and efficient.

Thatā€™s when we get the ā€œnew paradigmā€ talk which indicates the top of bubbles and people will scream 4 year cycles are just getting started and to expect a top in November.

Then in May weā€™ll have nicer weather for civil unrest and the remaining cornered lizards will lash out with their false flags.

Whatā€™s a better time to close the Dept of Education than at the end of the school year?

There is too much confluence with everything going on to just be a coincidence.

On a lighter note, hereā€™s an interesting development in Taos that has a good chance to give us Peak Prosperity community members ideas to build our own communities in the future.

I will be following it closely, because I plan to do something similar for at least my extended family if I get the chance.

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Chris,
I think ā€“
(1) Print-baby-print + state planned economy = hyperstagflation.
(2) Hyperstagflation = higher gold/silver prices ā€“ up to a new State sponsored defended price ceiling.
(3) Assuming no crack-up boom bust, or DS sponsored false-flag.
I am working on being less verbacious (deleted my draft long-form comment) :blush:.
JP

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Chris:

Do you think a ton of illegal migrants leaving the USA will have any significant mitigating effect on deflation?

Ed Dowd always has a different, but very interesting take on things.

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Yes, and according to Ed it comes with a giant sucking sound as it goes into reverse. Makes intuitive sense. Weā€™ll see how it plays out.

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I hate to say it, but Australia is shot through with wokester thinking which can be identified by virtue of the fact that it is unerringly hostile to the very people within its own population who work the hardest and contribute the most.

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Would it be fair to say that with inflation, the value of your fiat currency is deflating, and with deflation, the value of your fiat currency is ā€œinflatingā€ ?? What then about gold and silver?? I have no debt so what assets should I hold, cash, PM, or a combination.

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Hi James! There are many people here who are probably smarter than me on the subject, but my thoughts are:

  1. Yes, it would be fair re your description of the fiat values in an inflationary or deflationary scenario.

  2. Great that you have no debt, ditto here.

  3. For the gold and silver, hopefully you already ā€˜holdā€™ some. Personally, especially for gold, I wouldnā€™t be buying here, hate buying at tops, I mostly got mine in the late 90ā€™s when the BOE was selling off theirs. If Ed is correct and there is a deflation event, where everything goes down, that should be a good time to start adding more, if you are already holding cash, or short term treasuries. If I already had the PMā€™s, Iā€™d hold onto them, even in a downturn, unless it was desperate times.

  4. If I had cash, Iā€™d look for opportunities in any downturn (crash) to do the Buffet thing, heā€™s way smarter than me! Buy low, sell high :slight_smile: