The economy and the stock market depend on inflation. Get serious giddy stock bulls, they inflate, you make money. They fail to inflate and the tide turns deflationary, your gains go poof, money heaven. I’ll dig out some of those policy-profits-S&P 500 corollary charts again soon enough.
The relationship between TIPS (inflation protected) and TLT (regular long-term T bonds) is one indicator of inflation expectations and while it seems to have spent the last 2.5 years in bottoming mode (allowing Goldilocks to pig out on porridge) it is still going nowhere.
TIP-TLT ratio weekly, from NFTRH 277
Guest Post by Steve Saville
The US will eventually experience hyperinflation, but “eventually” could be long after we are all dead. Therefore, rather than making the case that hyperinflation will eventually happen, it is more useful to ask the question: What is the probability of hyperinflation happening in the US within the next two years? We have asked that question every year for more than ten years, and up until now the answer has always been: So low as to not be worth worrying about. We are now asking the question again.
What more needs to be said? The stock market has been inflated along with the unsavory likes of Junk Bonds and many other ridiculously over valued items in this phase of ‘risk ON’ speculation. 3 Amigos of ‘risk OFF’ are also shown on the chart.
Guest Post by Steve Saville
The US monetary inflation rate continues its downward drift. As at the end of December the year-over-year (YOY) rate of growth in US True Money Supply (TMS) was 7.2%, its lowest level since November of 2008. Refer to the following chart for details.
This chart was put up a while back as the USB stabbed down below the supportive weekly EMA 350. With copper, oil and other commodities plunging one wonders about the ‘D’ word. At least this one wonders about it.
The long bond is at a critical point right now. Given some improving technicals on the US dollar and negative ones in commodities (and their currencies; seen the Aussie and the Canada dollar lately?), what the bond does at this juncture will be telling.
Everybody’s ready for the ‘Great Rotation’ out of bonds and into stocks, especially with anticipated Fed QE tapering being Thing 1 to start the year. The title asks whether deflation or inflation lay ahead. Of course we could have more of the same, with Goldilocks eating her just right porridge for another year, but I don’t think that is the most likely scenario.
A house call from a specialist in exhaustion might be in order for Doctor Copper if the weekly copper chart is any indication.
Above the dotted neckline something else would be going on, like a meaningful commodity (inflation) rally. Below it, and especially the solid downtrend line? Not so much.
Cu weekly, from NFTRH 271
So when is it going to matter that all this economic strength is not translating to anything other than the financialized aspects of the economy? I mean yes, manufacturing is strong. NFTRH was THE first to anticipate that (that I could see anyway, as most current bulls were thumb sucking a year ago). But where’s the beef? Where’s the heavy red metal?
The Effect of the Affordable Care Act on Medical Care Inflation
By Michael Ashton
I haven’t seen anything of note written about the probable effect of the implementation of the Affordable Care Act (ACA, or “Obamacare”) on Medical Care CPI. This is probably because the calculation of Medical Care inflation in the CPI is confusing to many and because the direct effects of the ACA are still speculative at this point. But this is a potentially dangerous oversight since Medical Care is 7.2% of the CPI, and is after all the part that has recently been dragging Core CPI and Core PCE lower because of its unusual weakness.