Memories of 2012 & 2007

Guest Post by Doug Noland

Draghi and the PBOC throw gas on a fire.

November 21 – Reuters (John O’Donnell and Eva Taylor): “European Central Bank President Mario Draghi threw the door wide open on Friday for more dramatic action to rescue the euro zone economy, saying ‘excessively low’ inflation had to be raised quickly by whatever means necessary… ‘We will continue to meet our responsibility – we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us,’ Draghi said… ‘If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.’ ‘Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely,’ said Nick Kounis, an economist with ABN Amro. …Draghi’s remarks were almost as dramatic as his ‘whatever it takes’ speech in the summer of 2012 with which he pulled the euro zone back from the brink. Having earlier in the week pointed to early signs of improvements, Draghi on Friday said the economic situation remained difficult and the latest business survey suggested a stronger recovery was unlikely in the coming months.”

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Investors Hated Gold…

Guest Post by EWI

Investors Hated Gold at Precisely the Wrong Time: What About Now?

Sentiment extremes often foretell major turns in financial markets

Editor’s note: You’ll find the text version of the story below the video.

I came across this sentence in an article about gold:

Nobody expects gold prices to turn up soon…

Another observer put it this way:

There doesn’t seem to be anything on the horizon that will make gold prices go up.

It would be easy to think these comments published last week, when gold’s price reached a 4 1/2 year low ($1,131.85).

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How Fed’s ZIRP is Fueling the Next Subprime Bust

Guest Post from StealthFlation (David Stockman)

Deformations On The Dealer Lots: How The Fed’s ZIRP Is Fueling The Next Subprime Bust

On any given day, Janet Yellen is busy squinting at 19 essentially meaningless labor market graphs on her “dashboard”, apparently looking for evidence that ZIRP is working. Well, after 71 months of zero money market rates—-an unprecedented financial absurdity—-there are plenty of footprints dotting the financial landscape.

But they have nothing to do with sustainable jobs. Instead, ZIRP has fueled myriad financial bubbles and speculations owing to the desperate scramble for “yield” that it has elicited among traders and money managers. Indeed, the financial system is literally booby-trapped with accidents waiting to happen owing to the vast mispricings and bloated valuations that have been generated by the Fed’s free money.

Nowhere is this more evident than in the subprime auto loan sector. That’s where Wall Street speculators have organized fly-by-night lenders who make predatory 20% interest rate loans at 115% of the vehicle’s value to consumers who are essentially one paycheck away from default.

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Draghi Speaks the Truth

Draghi Speaks the Truth; ECB Will ‘Do What it Must’

Words are important.  This is not just a headline, it is a reality…

Draghi says ECB will ‘do what it must’ on asset buying to lift inflation

Not ‘do what it thinks would be the best course for the European economy’, not ‘choose the path of least resistance in guiding the financial system to recovery’… the ECB will DO WHAT IT MUST.

As I have written til I’m blue in the face for the last 10 years, we are in the age of ‘Inflation onDemand‘©, 24/7 and 365.  “…do what it must”… let that sink in for a moment.

Japan is trying to kill the Yen, China is dropping interest rates and the world over we have a rolling inflationary operation that is little more than a game of Whack-a-Mole.  BoJ popped up a couple weeks ago and now this one…

draghi
Source: MarketWatch

US Situation

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T-Bond Open Interest Peak Looming

Guest Post by Tom McClellan

T-Bond Open Interest
November 20, 2014

It is time again to look to a fascinating signal from T-Bond futures open interest, one which gives really reliable signals, but only for a fraction of the time.  There is a really interesting price behavior that I have noticed in relation to this open interest peak, which I want to share with you this week.

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Post-CPI Tweets

Guest Post by Michael Ashton

Below is a summary of my post-CPI tweets. You can follow me @inflation_guy.

  • CPI +0.0%, +0.2% on core. Above expectations.
  • Core 0.203% before the rounding to 1 decimal place. So this didn’t “round up” to 0.2%. Y/y core at 1.82%, versus 1.7% expectations.
  • Today’s winners include Treasury, who is auctioning a mess of TIPS later.
  • Today’s losers include everyone shorting infl expectations last few months. Keep in mind median CPI > 2.2% so this is not THAT shocking.
  • Core services +2.5%, core goods -0.2%. Both higher (y/y basis) than last month.
  • Fed will be considered a “winner” here since y/y core moves back toward tgt. But in fact losers b/c median already near tgt & rising.
  • Accel major groups: Housing, Apparel, Medical, Recreation, Other. Decel: Transp, Educ/Communication. Unch: Food/Bev.
  • ex motor fuel, Transportation went from 0.6% y/y to 0.7% y/y.
  • Housing: primary rents 3.34% from 3.29%. OER 2.72% from 2.71%. Lodging away from home was big mover at 8.4% from 5.0% (but small weight).
  • Within medical care, medicinal drugs decelerated from 3.08% to 2.77%; but hospital & related svcs rose to 3.91% from 3.47%.
  • Core CPI ex-housing still rose, from 0.88% (a ten-year low) to 0.95%.
  • Primary rents to us look like they should still be accelerating, and are behind pace a bit.
  • Really, nothing soothing at all about this CPI print, unless you were hoping to get inflation “back to target.”
  • Pretty feeble response in inflation markets to upside CPI surprise, but that’s likely because of the looming auction.

After several months of below-trend and below-expectations prints in core inflation, core inflation got back on track today. I must admit that I was beginning to get a big concerned given the multiple months of downside surprise (especially in September, when August’s core inflation figure printed 0.0%), but the solidity of Median CPI has always suggested that we should be getting close to 0.2% prints every month and so a catch-up was due.

It is also possible that median inflation could converge downward to core inflation, but quantitatively we would only expect that if the reasons for core inflation’s decline were that categories which tend to lead were heading lower. In this case, that wasn’t what was happening: most of what was happening to core inflation was self-inflicted, caused by sequester effects that pushed down medical care. So it was always more likely that core inflation would begin to converge higher than the other way around.

Some Fed speakers have recently been voicing concern about the possibility of an unwelcome decline in inflation from these levels. I am flummoxed about those remarks – surely, Federal Reserve economists are aware of median inflation and understand that there is absolutely no evidence that prices broadly are increasing more slowly than they were last year. No evidence whatsoever. But perhaps I should not malign Fed economists when the speakers may have other agendas – for example, the desire to keep interest rates as low as possible lest asset markets correct and cause a messy situation, and therefore to find reasons to ignore any signs that inflation is already at or near their target with upwards momentum.

Our forecast for median inflation has been slowly declining since the beginning of the year, when we expected something from 2.8%-3.4%. As of September, our forecast was 2.5%-2.8%. Median CPI today rose 0.21%, pushing the y/y figure to 2.29%. That’s the highest level since the crisis, just beating out the high from earlier this year and probably signaling a further increase. Our September forecast will not be far wrong.

coremed

 

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  • Crude Oil?  Jeff Saut’s latest note (Nov. 17)

 

What’s Scarier Than DE-flation?

Guest Post by EWI

As early as 2011, our analysis warned that Europe’s deflation was coming — here’s why

For the economies of Europe, the past few months have felt like one long ice-bucket challenge that never ends: A perpetual state of shock induced by the bone-chilling fact that deflation

“…has become a reality in many European countries.” (Oct. 24, New York Times)

At last count, eight European nations are now in outright deflation, including:

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Pivotal Events

Guest Analysis by Bob Hoye

pivotal.events
Click for full report

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