This post started as an email that got way too long. I added some charts and put it up here:
The rally has not surprised me (on March 31 I expressed the opinion that we would hit 900 or higher by summer:
…more likely in my mind is a protracted rally extending to 900 or higher by summer, then rolling over to meet a date with 400 next winter. Look at last year’s rallies from March to May and July to August for an idea of what this might look like, though on a larger percentage and time scale because we are correcting a larger sell-off. The case for such a move is bolstered when you hear major investment banks’ strategists calling this a dead cat bounce. Too many people are still afraid to call a bottom, and they need to be suckered into long positions before this is over (along the same lines, too many traders are embracing the dead cat bounce and need to be shaken out before it can get back to leading the buy-and-holders to slaughter).
That said, I was leaning closer towards 900 than 1050:
I am highly skeptical, though respectful, of calls for a the mother of all bear market rallies. Robert Prechter and some other Elliott Wavers, as well as Tim Knight (slopeofhope.com) seem to be anticipating a 6-month or longer rally to as high as 1050. I simply don’t see why that is necessary in this environment. This is a depression, and the last one was accompanied by bear market that, after the first 6 months, maintained the momentum of a cruising supertanker. Rallies of 20 percent and 2 months were about all you got from April 1930 to July 1932 as the Dow dropped from about 295 to 41. That deflation-driven event was a much more orderly bear market than the jagged trajectory of the dot-com crash, which occured while the credit bubble continued to expand. Interestingly, the 1966-1982 secular bear (a brutal 75% loss in real terms) also traced out such a series of steep plunges and rallies as the bubble kept inflating thanks to a compliant Fed and the abandonment of the last trace of the gold standard. Employment was down, but animal spirits were still running high with the computing boom, the advent of securitization, and new innovations in consumer credit.
Though I saw this rally coming a mile away, I have traded it very poorly. First, I put too much emphasis on picking the absolute bottom for a buy-in. Back in Feb and March I got out of most of my shorts by the time we were under 700, and I entered a bunch of limit orders to put over 1/2 of my net worth in SPY on the long side. Unfortunately, those orders started at 620, and we bottomed at 666. So I missed the bounce, and not only that, starting in April I began to short the junk stocks that were flying the highest and have been the real driver of this market. That was way too soon, and they kept on going, to the surprise of many a long-short fund as well. The outperformance of junk was a surprise, but the overall bounce has not been. When you have mood as compressed as it was back in March and you reach an exhaustion point after 18 months of a strong bear trend, you get a big reversal, which can then generate the extremes of optimism needed to set up the next plunge.
I’ve been buying long-term puts on the S&P and Nasdaq again since late March (way too soon, considering that I expected the rally to continue). I bought a bunch more yesterday, by the way. I view it as extremely unlikely that this market doesn’t decline to the point where solid value offers support — that would be a sub-10 PE and dividend yield of over 5% on dividends that have to fall by 50% or more from here to around $12 for the S&P. That would be the 240 level, but it should take at least a couple more years to get there (or below), if not four or five.
What has always worried me as a short in this market is not a 5-8 month rally, but a 12-18 month affair like some of those that Japan has experienced in its long bear market since 1989:
Source: Yahoo! finance
That said, Japan’s financial sector was deflating while exports were improving, families had savings and the rest of the world was growing. Today’s situation is much, much more severe of course, and we can only find a parallel in the Great Depression for so many of the economic trends we are seeing. The longest bounce in that bear market was 5 months, and it was of similar magnitude (48% from Nov. ’29 to April ’30; we’re up 47% in the 4.5 months since March 6).
This is the Dow from 1928 to 1931:
Source: Yahoo! finance
And here’s how that bounce looked from 1933:
Source: Yahoo! finance
The S&P500 is now the most overvalued in history by PE (infinite as of this quarter’s running 12 month total, or a dot-com-esque 32 times current annualized earnings levels, about $7.50 per quarter). The dividend yield is about 2.5%, but dividends are nearly as high as earnings right now, which is completely unsustainable (they should be less than half of earnings). On a sustainable basis, the yield is 1.0 – 1.25%.
Here is the S&P PE ratio (TTM data through 12.31.08) going back to 1936. (the dates read right to left, since I can’t figure out how to reverse them in Excel). Data through 6.30.09 would be off the chart:
Real (U-6) unemployment is approaching 17% and climbing, and that is if you exclude the likely 6 million illegal immigrants who are out of work now (who used to take home $100 per day as construction cleanup boys or dishwashers). Throw them in, as we would have in the 1930s, and you get a solidly depressionary 20%.
Credit is still being withdrawn everywhere you look, whether in home equity, credit cards or small business loans. There has been a bounce in the corporate bond market, but that is due to the same technical forces that are driving the stock market, and the big bankruptcies are just beginning. Only the very weakest have gone under so far, like the car companies.
So with this backdrop, I don’t expect this summer’s good feelings to last into the holidays. The markets should start to roll over again soon, since the big-money value investors needed for a sustained advance can find no reason to buy in, and the little guy has been burned too many times to chase this market very far. Volume is very thin, and an unusually large fraction of trading is taking place between automated programs.
When the data to back up the green shoots theory fails to show up after another few weeks or months, and even official unemployment is solidly into the double digits and climbing, while another huge wave of mortgage resets hits the middle class, there will be no hope at all left to support this market, and it will slide to levels not seen since George Bush Sr. was in office.
It will then still not be a safe long-term buy. For that, considering all of the obstacles that the government has created to profit-making, we need to get back to Reagan-era levels, somewhere under the bottom of the 1987 crash.
S&P500:
Source: Google finance
There is almost a universal acceptance by Prechter’s followers that SPX is destined to 1050+.
From a cycles POV, there are two pivot points ahead. The first is circa August 3rd (most likely a low) and then a mid September high.
The next uptrend is not expected until year’s end.
Thinking as a contrarian though, I wonder if this fixation on SPX > 1000 might be the signal needed that it will not happen.
From what I can tell you have your doubts too.
Yes, I have always had my doubts about 1050, but I have to respect Prechter here as well. He was born to trade this kind of a market. 1050 is not very far away now anyway. I just don’t see why it is necessary. This has been one heck of a rally, and would certainly suffice to set us up for new lows.
I would be surprised if the rally went beyond 1100 or October, though it feels like the bears are capitulating already.
Mike,
It seems everyone is focusing on the problems in the US: unemployment, credit still contracting, green shoots turning brown weed, etc. These are significant factors that affect the market. But are they big enough to cause a major market meltdown? Somehow I kind of doubt it.
If history is any guide, perhaps we should look at Europe and their ongoing problems. For this, I’ll refer you to this piece:
http://www.blackswantrading.com/files/EuroReport.pdf
Another wildcard is the Asian economies. Tremendous amounts of optimism lay on those economies, be it Chindia & this region’s other emerging markets. China stimulus propelled China GDP growth to 7.9%, within touching distance of its 8% per annum target. But these are reckless loans going into stock market & commodity speculations, and other highly risky ventures. Michael Pettis has very nice discussions on this: http://mpettis.com
Remember in 1931, what brought the relapse of the market was the failure of a large Austrian bank, Credit Anstalt (overseas credit event).
So, my point is… if we are looking for a major market meltdown, possibly a black swan event… shooting to your extra low targets you mentioned (240 & such), shouldn’t we be looking overseas instead?
Furthermore, I hope to have your takes on this piece by Hugh Hendry, especially on the CNY vs. crude oil correlation:
http://www.marketfolly.com/2009/06/hugh-hendry-eclectica-fund-investor.html
OK Mike, I certainly look forward to your takes. Thanks in advance
I was reading on Bloomberg that:
““Any tiny improvement in the global outlook will make the market jump because so much pessimism is priced in,” said Ribeiro, a partner at Brasil Capital, which manages the equivalent of $163 million. ”
I do not see that pessimism is even priced in at these levels. It seems that a recovery is priced-in. I do not know what the market prices in or how it is priced in; all I know is that the market is historically overvalued. (During the Depression, dividend yields were slightly below 5% with spikes in the dividend yield in 1932 and 1938. Also dividend yields were higher than bond yields) Dividend yields are too low and P/E ratios are too high for pessimism to be priced in.
Mike, I suppose the final ingredient of the bear market rally is the bears capitulating because of impatience, or actually believing in the rally. Although I do not trade money directly (my parents sometimes ask me for advice and they do have a margin account where one could use plain vanilla shorts — the current shorts were stopped out with a fairly loose trailing stop), I got bearish too early out of fear; I feared that I might be too late in getting bearish and establish shorts before the sell-offs resume. I recommended short positions at the beginning of June, and I really thought that was the actually high (because of the “low” VIX, price above the 200 day EMA, an RSI of 65…). However, one needs discipline not to short when the market is technically oversold and not to buy when it is overbought. Such discipline has limited to scope of potential losses in my experience. Of course, as Stanley Druckenmiller said: “The most important lesson Soros had taught me was that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong. The few times Soros has ever criticized me were when I was really right on a market and didn’t maximize the opportunity.”
Mike:
I few weeks back, EWI’s analysis indicated that the then high of 956 was an acceptable minimum for the retracement of the March 9th rally. I guess my question is: if that was an acceptable min., so must be all the closings above such number. At the time EWI was pointing to a low in the 820s before the rally resumed. They have now made a complete about face and it certainly bothers me to see such “flexibility” in technical analysts who are supposed to illuminate the path, certainly not obscuring it.
Aki:
To paraphrase what you said above, the objective is to short the overbought and long the oversold conditions. By such criteria one should be a buyer of shorts here.
Dean, regarding EWI and their flexibility, all I can say is “good for them”. They are quick to admit fault and see things as they probably are, not as they probably would be. For instance, they were calling the wave structure incomplete for a low back on March 6, but after the rally took off in earnest, they looked at the balance of technicals and reversed course on March 20, saying that wave 2 was underway towards SPX 1000 or above.
There is no perfect method and there are no perfect analysts. We all just take our best guesses and try to trade with a methodology that maximizes the gains when we are right and gets us out fast when we’re wrong.
Agreed. The confusing part is that there is opinion galore out there that fits every taste.
For example, how about a thesis supporting SPX 1200?
http://www.decisionpoint.com/ChartSpotliteFiles/090724_bt.html
My point is there are arguments supportive of any given bias. What about those that would prefer to be unbiased? where can seek the truth?
Biases are just opinions about a larger degree trend, and there is nothing wrong with that.
Ultimately, you are on your own. Get to know a few commentators whom you can respect, learn their biases or weaknesses, but make your own calls if you are doing your own trading.
You don’t have to agree with everyone you respect and read regularly. I like to read Jim Grant, but thought he was dead wrong on gold and treasuries last summer. I was glad to read his logic though, since understanding the various opinions is key to trading: you could say that we trade the rise and fall of investment theses via proxies called securities.
Hochberg was also counting a bearish trend in bonds last fall, and though I used his analysis for stocks, I did not agree on bonds. There is nobody I respect more on the markets than Hochberg and Prechter, but if I were simply following them I probably wouldn’t have very much short equities at the moment, at least not long-term short. I would wait for SPX 1000+ or until they say the big rally is probably over.
Jason Bourne, thanks for the links. I had read the Hendry letter a few weeks ago, and I can say that my take on things is very similar to his, though I am not as unabashedly bullish on long-term government bonds as he seems to be. I was in June, and made a nice trade off the bottom, but he seems to be long-term bullish. I’m just not sure how this will go as the debt piles up year after year, though bonds could certainly have another nice run when the risk trade pops again.
I also like how he looks at things as all the same market (short dollar and short bonds = long commodities, long stocks, long corporate credit). Along this vane, CNY = oil. I am bearish oil (I own Dec and June puts on futures at the moment) and am looking for a bottom in the dollar before long, so that makes me bearish on the Canadian dollar also, though I’d rather short the Euro.
Speaking of which, yes, there are huge troubles over here and I do expect the Eurozone to fracture, if not the EU itself. As a traveler, I would welcome that, since it is no fun to leave the US empire just enter an equally obnoxious regime over here. As you know, in the old days, you could live your whole life as a tourist in Europe and never leave, by spending 90-180 days in one country, then doing the same in another. Now, it is all one customs zone — no borders within, but so what if you can’t stay for long? There is a lot to be said for a diversity of laws between nations — it adds both color and options.
One thing in your comments that I would take issue with is the assumption that we need an event (or events) to drive the markets lower. I am of the school that says the markets are driven purely by social mood, which creates the events as well as how they are perceived. Thinking that events drive markets is crediting them with some degree of rationality, and I believe they are inherently irrational at all times.
What drives mood? Solar cycles for one, but mostly just rhythms that emerge from our DNA that have existed from before we were human. We are coded to react to others around us in ways that maximize the survival of our DNA on average through generations of bodies, some of which are weak, some of which are strong, some smart, some dumb.
Our reptilian brains are built for humans who are average in every way. I don’t think that there is tremendous variation here, as there is in other parts of the mind. What should an average human do in a crowd situation, to maximize his survival, on average? That is what we are wired to do, and when we all do that at the same time, patterns emerge in the crowd.
Usually, those patterns help us, but in a financial bourse, they are extremely harmful to the average participant. Anticipating the crowd’s next move at any given time is extremely difficult, since the patterns are so complex and we are a part of that crowd and subject to the same messages from our reptilian brains. There are however times at which a self-conscious intelligence can predict with decent certainty the next move of the crowd. Such times are often when the crowd has made a very strong move in one direction, such that few individuals have not joined in, and the majority express with great certainty that they should continue to move in this direction, although they have slowed down.
Fortunately, the movement of the crowd in a bourse, though complex, is restricted to one dimension: up and down.
Guys, you might want to have a look at this, it’s mind boggling:
http://realitylenses.blogspot.com/2009/07/historical-annual-s-500-earnings.html
Thanks for the excellent points, Mike.
On government bonds, it does look quite complicated. Historical precedents, as Hendry mentioned, favor his views on government bonds. Japan has enormous public debts, amounting to 180% its GDP. In the great depression, the long-term govt bonds also reached extremely low levels. Furthermore, if risk in business environment rises stratospherically high, it makes sense to own government bonds giving yields of 2-3%, instead of losing money. In the worst case, countries that owe in its own currency can always print currencies to pay for those interests. These are all the pro-govt bonds view
Much of the grudge on govt bonds today centers on the argument that the US is the largest debtor nation ever and it is yet to take even more debt. After that, the creditor nations will dump those US govt bonds, and comes hyperinflation… which kills govt bonds. However, I’m confused w/ the notion “debtor” and “creditor” nation. If you look at China & Japan, for example, those two are touted as the largest creditor nations. But aren’t they deep in debt? Those China stimuli & Japan public debts are enormously huge, relative to the respective economies. Is it fair to just view things as extreme indebtedness is pretty much the state of affairs for virtually all nations?
If it is, then it is very natural as the world economic leader & owner of the global reserve currency, the US has the safest (relative) debt compared to all other nations. China recently had numerous consecutive failures in their debt auction. US Treasuries auction has been relatively going well so far (high bid/cover ratios of 2.4, at times 3+). Looking at that comparison, well… is China really a strong “creditor”? The US seems to be a trusted borrower, for now at least.
Excellent points you make there on socionomics. I guess I have to be more careful in drawing lines of causation. However, isn’t it the case that those massive turns in social mood/herd attitude tend to coincide w/ those “credit events” (massive events)? Last year, it was the failure of Lehman, setting off a massive chain reaction in the financial world. While they are not necessarily causation, they at least seem to be very closely correlated & almost coincident. The event and the massive turn may not come simultaneously, but they tend to coincide quite closely — perhaps the degree of intensity also correlates very well.
addendum:
on another perspective (bullish reasoning) of govt bonds (debt & its relations to economy, & ultimately to govt bonds), i’ll refer you to this piece from Hoisington AMC:
http://www.hoisingtonmgt.com/pdf/HIM2009Q2NP.pdf
Jason, I am calling a bottom on Treasury yields as they hit bottom in December. Well, if you are going to trade using previous history by recalling the Japanese bond market and the Great Depression bond market, then I’ll ask this question: How long has US 10 Year Treasury yields stayed below 3% during this decade? They answer is not that long… if I remember correctly, Treasuries bottomed at around 310 basis points in May 2003 and stayed there for a weak. In August of 2003, yields rose at least 100 basis points from that low. (This is somewhat similar to the Japanese bond market sell-off in 2003 when JGBs bottomed at 44 basis points). I think yields went below 300 bps in December of last year, and then bottomed at 210 that month… their yields then rose above 300 bps in April 2009, and peaked at about 393 basis points. Well, there are many reasons for avoiding Treasuries such as the record US government debt, fear of inflation, etc… but the point above is volatility risk. The coupon for high duration bonds has to be large enough to compensate for bond market volatility. Do you think holding a ten year Treasury below 250 basis points is a good idea when the bond market has > 10 basis point moves in one day? One reason the Japanese bond market has lower yields is because of lower yield volatility. Treasury yields may approach 290-320 bps at the end of this year, and I have a bullish bias (in the medium term) for them, but I doubt they’ll go lower than that.
I’ll read the PDF later.
The S&P 500 will not recover to 2007 highs. At the peak, 44% of the S&P was the financial sector. That is gone… not coming back …. so the new peak is 840 or 1000 Max … this is after the crash that will ensue in the Fall this year … If 1000 is the High … the Fibonnaci retractments at 68.2 is 680 … we are for sure headed back there … bit not before we hit 1200 first … this will truly break the will of all investors and the reality will be crushing to most people who once again lost monet and now do not see hope of ever recovering their losses …
Jason, that is a very good paper. I only skimmed it, but I agree with its general conclusion that deflation won’t be stopped by deficit spending. The large amounts of public and private debt are deflationary, since the need to service that debt reduces money invested and spent elsewhere. Cash may be trash in theory, but in practice it is more and more valuable for most people and businesses today who’s incomes are declining but debt loads are stagnant or even increasing.
I am fairly proud of this post from last August (when commodities were still way up and everyone was calling bonds a bubble), where I laid out the reasons why 30-year treasuries could yield under 3% for the first time since the 1940s:
http://sovereignspeculator.com/2008/08/08/that-crazy-crazy-bond-market-a-call-for-sub-3-long-bonds/
They of course went to 2.5% by December (at which point I shorted them):
http://sovereignspeculator.com/2008/12/23/finally-time-to-short-the-long-bond-for-a-trade/
They could go back under 3%, sure, but the wildcard is the likelihood that the US govt is going to default on the long bonds being issued today, and maybe even the 10 years, through excessive monetization or outright repudiation.
Bonds are in the process of making a generational top, so I think going long at this point has to be for fairly short-term trades. There will be bigger money made in going short from super low yields if they are reached again, which I do think is likely when risk appetites subside and equities and commodities crash again. But like last fall, it will only be time to go short when most shorts have tried and failed to the point of frustration.
The faster asset prices crash and flush out the bad debt, the sooner the shadow banking system can get rolling again. That could bring inflation. Also, don’t underestimate the impact of increasing government expenditures (which put cash directly in people’s hands), since that is what brought about the Weimar inflation and the US’s double digit inflation in the 1940s (interestingly, that coincided with the last top in the bond market). With an increasingly socialist and militaristic government and a population brainwashed by Keynesianism and war propaganda, who knows what will happen in the coming years?
For now, until assets crash to historically cheap levels or the feds double or triple their spending as a share of GDP, deflation will continue and bonds should hold up.
In any consideration of the treasury market, you have to look at yields globally, since most major government debt markets are strongly correlated. Because each nation’s credit situation is unique, but its bond market is likely not, you have to look above all at market technicals and sentiment for your trading. Other fundamental considerations are more relevant for assessing the likelihood of unique situations like default.
Is there another piece of the equation that I am missing?
Jason, I agree, the big turns in mood coincide with credit events, but possibly because the attitude towards risk and therefore debt changes. The change in risk appetite means people are less eager to speculate, borrow, and lend, so asset prices stop going up. When prices are stagnant, debt becomes merely a burden, not a means to big gains.
I am not sure to what degree events like the Lehman collapse have causality, since it is never clear how the market is going to react to them. Sure, something like 911 will be negative, but I think that a few percentage points of the decline afterwards were already baked in, since we were in a strong bear trend when the event happened.
Also, the optimism that produces and sustains a bubble sets the conditions for its bursting. By definition, all bubbles burst, and all such crashes coincide with negative mood, so yes, to some degree, the mis-allocation of capital and excessive debt buildup is a cause of the mood shift. That said, the mood would have changed anyway, since society can’t stay excessively optimistic forever (kind of an identity statement here, since I assume that mood is always changing and can’t move in one way forever).
Ok, so I am not at the moment a pure socionomist or market technician when it comes to the credit cycle, since once a bubble starts to burst, there are mechanics of debt terms and income involved here that trap people in the crash no matter what their mood would be otherwise. However, when it comes to a shorter time scale (less than a couple of years), I attribute very little or nothing of what the markets do to fundamentals.
Hi Mike,
There are a couple of things I kind of disagree with your points:
1. “Also, don’t underestimate the impact of increasing government expenditures (which put cash directly in people’s hands) … ”
>> By stimulating and bailing out banks, the net effect is actually taking money out of people’s hands. They may put some money to 1 million people, but with taxing… they take away money from 100 million people or more. Remember that government productivity is near zero. That spending is funded by taxing and/or further debt creation.
Now, about debt creation. We see because of the existence of credit/bond markets, as governments get fiscally mad (keep issuing treasuries)… interest rates soar. This will create huge upward pressures towards mortgage rates, resulting in upshot of delinquencies. So, if you extend this line of reasoning, it will put huge downward pressures to asset prices. It will then blow a huge hole in bank balance sheets (what the FED does not want).
In essence, with the presence of credit market… the market itself can tighten monetary policy, causing all sorts of problems. I guess if the govt forces the issue, the likelihood of political upheaval will rise dramatically.
2. Comparison to Weimar inflation
>> At the time, there was no credit market. The Germans were forced to pay their war debts and they couldn’t. So, they had to (or maybe choose to) inflate their currencies. With non-existing credit market, inflating is easily done. And during those times, unemployment was very low (I think we have to confirm that). In hyperinflation, it will not make sense for people to put money in banks. It will not make sense either for people to save money. What is happening now is exactly the opposite.
As for defaults… I don’t disagree that it is a possibility. But as always, the case is about relative safety: who’s going to default first? Given US’s supreme economic leadership (a bad leader… but still), the likelihood favors most of the others to default before the US. The UK is in significantly worse fiscal postures. European countries in general has astronomical bank leverages & horrific risk posturing (please refer to my Euro Report I posted before), with bank assets amounting to several times their (individual) GDP.
The US can manage to bail banks out. I’m sure it will be much much more difficult for those European countries. So all in all, as much as I hate Obamanomics, Government Sachs, crooked banksters, & how the US is becoming USSA, I still think for now the US is the one-handed man in a kingdom of the blind. For sure, their steps are leading to economic ruins. But I doubt the end is hyperinflation. Perhaps the US is going the Japan way.
To create inflation in a credit-based economy — the world we are in now — rising leverage & debt creation (i.e. ever bigger bubbles) are required. With banks balance sheets blown really deep, that mechanism of leverage & debt creation is broken… that’s what happened to Japan. When the economy recovers, it is likely that there won’t be hyperinflation either… inflation will return but perhaps they are much more limited than most people think.
I agree with most of these points, to a degree. I am a dollar bull, and I do not think defaults are necessarily more likely in the US than in other many nations (certainly not the UK, Italy, Greece, Russia, eastern Europe). All the same, the US could default outright, or it could just keep monetizing, but at a faster and faster pace.
Yes, the credit system is broken now, but if we have a big event that flushes out bad debts and suppresses asset prices (basically more of what we are experiencing, much more), then credit can get flowing again after an episode of rapid deflation.
I think 2-3 decades of slow deflation like Japan is unlikely, considering that every sector of the US is horribly indebted. There, the problem was mainly in large financial institutions. Families were OK, and jobs were available since the rest of the world was still in a credit expansion and buying their exports.
Also, you can’t forget the entitlement problem in the US, which is big enough to bankrupt us many times over, even in the absence of a credit bust with its bailouts and New Deal.
So, yes, if the govt crashes the treasury market by going overboard with monetization, asset prices will collapse as interest rates rise, and even the big NYC banks could cease to function. It is what happens after this event that could threaten the integrity of the dollar, as well as other paper currencies, since the US will not be alone in this madness.
If the govt runs multi trillion dollar deficits after most private debt has been defaulted away, while it monetizes like wild, the currency will lose value, and possibly very rapidly. The key here is that first you have to get through deflation to wash away the debt.
In conclusion, I agree, there is no path around deflation. The question is how long it takes for the debt to be defaulted away. The prices of labor and assets will continue to drop as long as the defaults keep rolling in. This is deflation, and it is today’s reality. The financial markets are just having a spasm, and reflect nothing but people’s misplaced bets on a rebound and a rapid return of inflation.
My guess is deflation lasts until 2012-2015.