Category Archives: Inflation

One of These PMI’s…

By Alhambra Investment Partners

One Of These PMI’s Is Not Like The Others

The ISM Manufacturing PMI for June was up to 53.5 which was the best monthly showing this year. That has been taken as inarguable insistence that the US factory sector is doing what economists expect, even though 53.5 is significantly below both June 2014 and the 12-month average (which includes four months beginning February below 53) of 54.7. As usual, the PMI is abused as to what it may actually mean:

U.S. manufacturers ended the second quarter on stable footing, reporting a strong flow of orders that could help support the overall economy in coming months.

The Institute for Supply Management on Wednesday said its purchasing managers’ index edged up to 53.5 in June from 52.8 in May. The index, based on a survey of supply-chain executives, is back up to its January reading after stalling in the early spring. A reading above 50 denotes expansion in the sector.

“Manufacturing is over its winter hump,” said Ward McCarthy, chief financial economist at Jefferies, pointing to first-quarter drags from the bad weather and shipping delays caused by the West Coast port slowdown.

That proclamation from the credentialed economist looks strikingly overwrought in light of highly contradictory and contractionary information about factory orders, which sank 8% in May. Even if the ISM PMI is correct about June being better it isn’t appearing so significant in its inflection as to erase all 8% to just get back to zero.

ABOOK July 2015 Factory Orders NSA Continue reading One of These PMI’s…

CPI Ticks Up

By Biiwii

Up by .2% the BLS reports this morning…

Consumer Price Index Summary

Here is the graphical view of recent CPI history…

cpi

The US dollar has been correcting and over at NFTRH.com we showed some support parameters for Uncle Buck.

Also, as noted in the precious metals update for subscribers this morning, silver is making a move vs. gold and this will be a key indicator on whether or not a good old fashioned ‘inflation trade’ can get going.  It has not triggered a signal yet, but it is flirting.

The thing is, there has been a nice deflationary pull coming out of Europe and Asia that has played into the US Goldilocks scenario (strong US currency, strong stock markets and tamped down prices within the economy).  Europe is inflating its asset markets (i.e. trying like hell to boost prices)… Europe Fights Lower Prices.

[edit] Also see Euro Area PMI’s Continue Upward just posted at NFTRH.com.

Now, prices may be becoming an issue within the US economy as the global situation eases (literally).

Europe Fights Lower Prices

By Biiwii

The European inflation rate is “calculated using the weighted average of the Harmonised Index of Consumer Price [HICP] aggregates” according to TradingEconomics.com.  That is a fancy way of saying the things people pay for, including the things they need on a daily basis.

Here is the dreaded deflation (of consumer prices) that Europe is fighting.  Like the US before it, Europe is operating on a plan that would boost prices (i.e. the effects of inflation) higher so that people participating in the financialized economy can benefit from rising equities (as we first projected in Q4 2014) and the regular people can, well… get screwed (USA style).

euro.inflation

Welcome to the European ‘me too’ QE play!

Yesterday the Euro boinked our target of 105 [1.04935] and all seems to be going according to plan.

euro

But the play (dollar bull, euro bear) is getting extreme now.  Extremes can persist but they are what they are, defined as “reaching a high or the highest degree; very great”.

Let’s just assume the extremes have not yet reached the highest degree.  That does not mean the risk vs. reward to a stance in line with current trends is not extreme.  It is.  Time is the thing.  Trend followers who momo mature trends and go on autopilot always get burned sooner or later.

Economic Cost Pressure From an Unlikely Source

One little anecdote from within the vast US economy…

I received this note from my trash and recyclables collector this morning:

“The reason for this raise being larger than normal for us is primarily due to unforeseen increases in our costs, including this past September receiving the largest increase in over 5 years to both our single stream processing fees and trash disposal fees.”

So despite the gas price cost savings in this fuel intensive business, other costs have have come out of left field from elsewhere in the economic food chain.

I wonder how my old industry (manufacturing) is faring in this regard.  Even as I left the industry the definitions of what was considered toxic waste had been historically strict, regulations were as tight as a drum and the related costs were significant.  I wonder if this is a progressive situation.

I have been out for 2.5 years now.  Maybe it is time to check in and start asking questions.

While inflation has been going on non-stop for years, situations like the above, where wage and cost pressures start to bubble up are what most people (including conventional economists) consider to be inflation.

[edit] this link from BLS was kindly sent by a reader:  US city average, water and sewer trash collection services.

bls

Is Inflation Over Sold?

Some guy over here is asking that question.

Deflation!

soda.jerkWell, now that the title has hopefully gotten your attention I’d like to talk about the ‘d’ and ‘i’ words that so many financial types – myself included – throw around so often.  This is due to a reader/subscriber KR’s aggravation at my use of the word deflation, which he had thought was meant sarcastically, but then came to find out I am serious when I use it.

First I want to note that I seem to have been pissing everyone off lately, gold bugs (one of which I am) and gold bears in particular.  That is due to my writing style being one where if I’ve got something to say, I say it.  Sometimes that’s bad for business, as I can get a little heavy handed.

I’ll try to be less heavy handed going forward but in criticizing what I view as promotion with little backing substance (whether bullish or bearish), I don’t retract any comments aimed at the type of people that I think are not being square with readers or are simply not doing the work required (i.e. promoting lazy analytical thinking).

Continue reading Deflation!

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

Continue reading Draghi Speaks the Truth

“It’s Inflation All the Way, Baby!”

The title’s quote is one of many eminently quotable messages I had the pleasure of receiving over a few years of contact with a late, great and a very interesting man* named Jonathan Auerbach, who headed a unique specialty (emerging and frontier markets) brokerage in NYC called Auerbach Grayson.

kabukiJon was an honest and ethical man.  He was also a gold bug (in that descriptor’s highest form) who innately understood the Kabuki Dance that has been ongoing by monetary authorities since the ‘Age of Inflation onDemand‘ (what guest poster Bruno de Landevoisin calls the Monetized New Millenium) started its most intense and bald faced phase in 2000.

Yesterday the minutes were released from the last (FOMC) meeting of official interest rate manipulators and surprise surprise, they are found to be hand wringing about the strong dollar.  A strong dollar is going to take direct aim at US manufacturing among other exporting businesses, after all.

“Over the intermeeting period, the foreign exchange value of the dollar had appreciated, particularly against the euro, the yen, and the pound sterling. Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector.”

And the money line…

“At the same time, a couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase in inflation toward the FOMC’s 2 percent goal.”

In an inflated construct (cue the chart for what seems like the 1000th time), there is no way out other than inflation “all the way”.

sp500

So while we twittle our charts and manage markets in the here and now as if we are conventional market participants, we (well I, anyway) are anything but that.  What I do is have some fun along the way with graphical representations of the falseness that is the underpinning of the Age of Inflation onDemand; and the humor too.  Every time the Fed rolls over on making real and sound policy and/or speaks out of both sides of its mouth the reaction is either comical or sad, depending on how you look at it.  I choose both, it’s comical and sad…

outerlimits

“There is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical. We can roll the image, make it flutter. We can change the focus to a soft blur or sharpen it to crystal clarity. For the next hour, sit quietly and we will control all that you see and hear. We repeat: there is nothing wrong with your television set. You are about to participate in a great adventure…”

Nothing has changed since 2000, when Alan Greenspan began this most adventurous experiment in inflation.  What we have had are boom and bust cycles.  The current cycle has simply emboldened the worst kind of trend followers and touts in an ‘In Greenspan err, Bernanke, err… Yellen we trust!’ continuum of greed and ignorance.  Today, the worst of us hold sway in promoting fantasies that newer and more gullible arrivals on the financial scene will pay for one day.

The FOMC minutes released yesterday prove that they are trying to inflate, they want inflation and that in this “monetized new millennium” it is asset appreciation above all else; especially above the saving that a chronically strong dollar would promote among the population.  Saving after all, is necessary for real and sustainable economic cycles.

aliceThat is not what we have going here.  What we have here is a one-way ticket to the Outer Limits or Wonderland or (pick a popular culture reference)…

* Among other things, Jon was pals with New York Dolls guitarist Johnny Thunders, attended a Mets game with Iggy Pop, was involved in the 1960’s NYC film and arts scene and even advised President Clinton on economic issues.  “Did he take your advice?” asked I.  “Ha ha ha… no” said Jon.  Like I said… interesting.  He was also NFTRH’s very first subscriber, a fact that to this day keeps me trying to live up to his standards.

Ugly CPI

Guest Post by Michael Ashton

[biiwii edit:  Inflation protected vs. unprotected T bonds and declining yield curves have been indicative, no?]

Here is a summary of my post-CPI tweets. You can follow me @inflation_guy or (if you’re already following me on Twitter or seeing this elsewhere) subscribe to direct email of my free articles here.

  • Complete shocker of a CPI figure. Core at +0.01%, barely needed any rounding to get to 0.0. Y/y falls to 1.73%. Awful.
  • Zero chance the Fed does anything today, anyway. The doves just need to point to one number and they win.
  • Stocks ought to LOVE this.
  • Core services dropped to 2.5% y/y from 2.6% and core goods to -0.4% from -0.3%.
  • Accelerating major groups: Food/bev. That’s all. 14.9% of basket. Everything else decelerating.
  • I just don’t see, anecdotally, a sudden change in the pricing dynamics in the economy. That’s why this is shocking to me.
  • Primary rents to 3.18% from 3.28%. Owners’ Equiv to 2.68% from 2.72%. Both in contravention of every indicator of market tightness.
  • Apparel goes to 0.0% from +0.3% y/y. That’s where you can see a dollar effect, since apparel is mostly manufactured outside US.
  • Airline fares -2.7% versus -0.2% y/y last month and +4.7% three months ago. It’s only 0.74% of the basket but big moves like that add up.
  • Medical care: 2.09% versus 2.61% y/y. Now THAT is where the surprise comes in. Plunge in ‘hospital and related services.’ to 3.8% vs 5.5%.
  • …we (and everyone else!) expect medical care to bounce back from the sequester-inspired break last year. I still think it will.
  • core inflation ex-housing at 0.91% y/y, lowest since August 2004. Yes, one decade.
  • core inflation ex-housing is now closer to deflation than during the deflation scare. In late 2010 it got to 1.08% y/y.
  • Needless to say our inflation-angst indicator remains at really really low levels.
  • Interestingly, the proportion of CPI subindices w y/y changes more than 2 std dev >0 (measuring broad deflation risk) still high at 38%.
  • To sum up. Awful CPI nbr. Housing dip is temporary & will continue to keep core from declining much. Suspect a lot of this is one-off.
  • …but I thought the same thing last month.
  • Neil Diamond said some days are diamonds, some days are stones. If you run an inflation-focused investment mgr, this is a stone day.
  • Interestingly, Median CPI was unchanged at 2.2% this month. I’d thought it fell too much last month so this makes sense.

I am still breathing heavily after this truly shocking number. This sort of inflation figure, outside of a crisis or post-crisis recovery, is essentially unprecedented. Lower prints happened once in 2010, once in 2008, three times in 2003, and once in 1999. But otherwise, basically not since the 1960s.

Continue reading Ugly CPI

Attn: Inflation Traders…

TIP-TLT is breaking the short-term downtrend line, while Uncle Buck remains very over bought on a short-term basis.  That is all…

tip.tlt

Where’s the Inflation?

Well, the inflation is going on globally 24/7, but it is the manifestations or effects of it that 99% of people care about.  I’ll tell you what I care about.  I care about the cost of my heating oil going down for one thing.  And for another, I don’t much care about the price of the gold I may or may not have 😉  .  So all things being equal, I’ll take declining prices for $1000, Alex.

The TIP-TLT inflation gauge has bounced a little in line with Treasury yields, and if it were to break the downtrend line recent trends in other inflation sensitive items might get a bid.  But as of this moment, TIP-TLT is in a downtrend and thus, so remains the entire ‘inflation trade’.  It’s not just gold, guys… are they manipulating oil, grains, uranium, REE’s, coal, platinum and now palladium and base metals too?

I just bought some T bonds after yields ramped over the last couple of weeks with the idea that recent trends will hold and inflation will remain muted for a while.  My personal investment stance has little to do with inflation hysterics.  And that includes my interest in the gold mining sector, which is not for inflationary reasons but is also currently compromised by incomplete fundamentals, especially in the drubbing gold is taking in ratio to the stock market.

If TIP-TLT breaks trend and starts to rise, then we can talk ‘inflation trade’.

gld.dbc.tip.tlt