Tag Archives: deflation

Hulbert Does Harvey & Erb, Who Did the CPI Adjusted Gold Price

By Biiwii

Much more than CPI inflation needs to be considered with respect to the gold price

Yes folks, it’s the return of the two egg heads (Campbell Harvey and Claude Erb) who first put the scare into gold bugs back in 2013 with the research paper The Golden Dilemma (PDF), which found that as adjusted for CPI, gold was very over valued.  Enter Mark Hulbert with the updated warning for inflation-centric gold bugs.  Gold has no business being this expensive.

market hulbert, gold price vs. CPI

I have never understood who would want to be one of these “gold traders” (other than the miners with a need to hedge and bullion banks with a need to hedge and manipulate, ha ha ha).  Why would you be a trader in an element that is a measure or barometer of other items and conditions?  It don’t get it.  I guess slick traders speculate with insurance policies, so why not gold too?  Everything’s a play after all, in the casino.

To answer Hulbert’s points, beginning with the above…

Continue reading Hulbert Does Harvey & Erb, Who Did the CPI Adjusted Gold Price

Why So Negative?

By Michael Ashton

If the Bank of Japan’s goal has been to extinguish deflation, it has already done so

The news on Friday that the Bank of Japan had joined the ECB in pushing policy rates negative was absorbed with brilliant enthusiasm on Wall Street. At least, much of the attribution for the exceptional rally was given to the BoJ’s move. I find it implausible, arguably silly, to think that a marginal change in monetary policy by a desperate central bank on the other side of the world – however unexpected – would have a massive effect on US stocks. Subsequent trading, which has reversed almost all of that ebullience in two days, suggests that other investors also may agree that just maybe the sorry state of earnings growth rates in this country, combined with a poor economic outlook and still-lofty valuations, should matter more than Kuroda’s gambit.

To be sure, this is a refrain that Ben Bernanke (remember him? Of helicopter infamy?) was singing last month, before the Federal Reserve hiked rates impotently, and clearly the Fed is investigating whether negative rates is a “tool” they should add to their oh-so-expansive toolbox for fighting deflation.

Continue reading Why So Negative?

NFTRH 380 Out Now

By Biiwii

nftrh 380We have been on the bounce scenario and speaking as a bear on the intermediate trend, I say thank you Mr. Kuroda.  Everything, including clear as day analysis on the precious metals sector, is brought up to date in 34 highly graphical pages; and I feel that I, as a puny little market participant, am as well prepared as possible after once again doing the work.

I no longer tend to offer discounts or other incentives, as I see happening with some services as a bear phase engages.  Frankly, this work is still under valued at today’s price.  You read the more formal stuff at nftrh.com and the less formal stuff at biiwii.com.  You know who I am by now.

The screen shot reprises the old Whack-a-Mole shtick and then NFTRH 380 gets down to serious business.  This market is burping up data points and parameters left and right.

 

Post CPI

By Michael Ashton

CPI observations…

Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus…sign up to receive notice when my book is published! The title of the book is What’s Wrong with Money?: The Biggest Bubble of All, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to [email protected]. You can also pre-order online.

  • So I guess the good news this morning is that the market has bigger worries than CPI. Wait, is that good news?
  • OK, remember this morning we’re dropping off some lousy numbers so core should rise to 2.1% just on base effects.
  • But Dec CPI is always weird, like many Dec numbers. It’s the only month that has a strong seasonal effect on prices (in the US).
  • Headline CPI will also rise, y/y, simply because of base effects. Don’t think the Fed didn’t know this when they tightened!
  • OK, +0.1% on core a bit weaker than expected, but y/y still rose to 2.1%. y/y headline to 0.7%, though I don’t care about headline.
  • Core month/month was 0.13% to 2 decimal places, and forecasters were really looking for 0.18%ish, so not horrible miss.
  • y/y core is 2.09% to 2 decimals. I really thought it would go to 2.2% this month, but like I said, Dec is wacky.

Continue reading Post CPI

Stealing Deflation

By Steve Saville

“…central bankers are thieves. They are stealing our deflation.”

If you listen to the top central bankers of the world talk for long enough you will come away with the impression that central banks are attempting to give us “price inflation”, as if rising prices were beneficial. However, nobody wants to pay more for stuff. In fact, rational people prefer to pay less, not more. Therefore, when central banks claim to be giving us “price inflation” what they are really doing is stealing the “price deflation” from which we would otherwise benefit.

We are told that a general expectation of rising prices is important, because if people start expecting prices to be lower in the future then they will curtail their spending in the present. This, apparently, will lead to an economically-disastrous downward spiral in which the general expectation of lower prices leads to reduced spending and reduced spending leads to even lower prices.

The economic ‘logic’ contained in the idea that expectations of higher prices are needed to promote present-day spending explains why companies like Apple can never sell anything. After all, who in their right mind would buy an Apple product today when they can be sure that a better product will be available at a lower price by this time next year?

And just imagine how bad it would be if prices trended lower throughout the entire economy the way they do in the computing and mobile communications industries. There would be almost no spending anywhere! That operation to save your life that you have scheduled for next week could be postponed until healthcare charges have declined to much lower levels. And all of the eating you were planning on doing over the next few months could be delayed indefinitely in anticipation of more attractive food prices. And there would never be a good reason to buy a house or a car because each year you did without these things, the more of a bargain they would become and the better off you would be for not having bought earlier.

Also, try to imagine how bad it must have been before there were central banks to guarantee a continuous rise in the general price level. If expectations of rising prices are needed to promote spending and growth, then in pre-central-bank days, when money often increased in purchasing-power from one year to the next, there must have been almost no spending anywhere in the economy. That is, there must have been relentless economic contraction. Thankfully, we now have people like Ben Bernanke, Janet Yellen, Mario Draghi and Haruhiko Kuroda to save us from such a predicament.

The point that hopefully hasn’t been totally obscured by my sarcasm is that central bankers are thieves. They are stealing our deflation. It isn’t fair to compare them with common burglars, though, because common burglars don’t claim to be doing you a favour while they make off with your valuables.

Silver vs. Gold; Still no Inflation Signal

By Biiwii

We harp on it all (and I do mean all) the time in NFTRH.  There is most likely no end to the commodity-adversarial deflationary phase until silver is bid higher than gold.  People intellectualize things that they see with their own eyes like rising costs in the economy, and think inflation is coming.  I think it is too, but market signals will tell when the market is ready.

As it stands, silver is getting bid down worse than gold and that has been a trend since the last inflation phase blew out in 2011.  There is no signal.

slv and gld, no inflation yet

You remember the end of the last cycle, I am sure.  It was called nearly to the week by Bill Gross’s short of the long bond (loudly broadcast across financial media) due to inflation expectations.  We had a different view; one that stated ‘maybe, but let’s tap the breaks for a moment and see if we can break the Continuum first…’ 

We didn’t.  We simply added the 2nd to last red arrow on said Continuum…

30 year yield monthly chart, an inflation barometer

Have a nice weekend folks.

 

Post-CPI

By Michael Ashton

Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus…sign up to receive notice when my book is published! The title of the book is What’s Wrong with Money?: The Biggest Bubble of All, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to [email protected]. You can also pre-order online.

  • +0.2% on core CPI…as expected…waiting for breakdown
  • With Median CPI running 2.5% as of last month, we should be expecting 0.2% as the “normal” core going fwd.
  • 20% was core to 2 decimal places. 1.91% y/y. [ed note: mistweeted as 0.19% first]
  • Note that the next two months, we roll off +0.08% and +0.06% from last year. This means core will be about 2.2% by dec CPI.
  • (Though there’s some evidence of missed seasonality in core CPI these days, through airfares e.g.)
  • Primary Rents 3.74% vs 3.71%. OER unch at 3.09%. So Housing roughly unch at 2.12% y/y
  • Medicinal drugs 2.95%, up a bit, but Hospital Services 4.87% vs 3.28% and Health Insurance 2.99% vs 1.74%.
  • No big surprise that there’s a jump in medical care services if you’ve looked at your bills recently! Probably not temporary.
  • core services at +2.8% mainly due to medical; core goods -0.7%, weakest since Jan.
  • Apparel -1.91% vs -1.37%, a non-negligible part of core goods.
  • New vehicles also soft: +0.14% from +0.47%. Some will say this is a VW effect, but also a general dollar effect.
  • The dollar effect, overall, is very small but in a few categories like Apparel it is large and in cars it is measurable.
  • First cut at Median, looks to me like ~0.21%, unchanged at 2.5% y/y. That’s the number that matters but not due out for hours.
  • I think I mistweeted the core to 2 decimal places…was 0.20%, not 0.19%. still 1.91% y/y, I just typoed. Why? It’s a mistwee. [ed note: har har!]
  • Summary is there’s still no sign of deflation! The pop in medical services inflation joins housing as concerns to the upside.
  • The rise in Medical care will also tend to make PCE catch back up with core, since it has 3x the weight in PCE as in CPI.
  • I don’t care about PCE, but the Fed does.

Continue reading Post-CPI

Why Hasn’t the Fed’s QE Caused “Inflation”?

By Steve Saville

This post is a slightly-modified excerpt from a recent TSI commentary.

The Federal Reserve has monetised a few trillion dollars of bonds over the past seven years without creating much in the way of what most people call “inflation” (a rise in the general price level). How could this happen?

One popular explanation is that the Fed’s Quantitative Easing (QE) adds to bank reserves, but not the economy-wide money supply. According to this line of thinking, the ‘money’ created by the Fed to purchase bonds remains trapped in reserve accounts at the Fed. However, this explanation can be immediately eliminated, because as previously explained every dollar of QE adds one dollar to bank reserves at the Fed AND one dollar to demand deposits within the economy. The fact is that the economy-wide money supply is now a few trillion dollars larger thanks to the Fed’s QE.

Continue reading Why Hasn’t the Fed’s QE Caused “Inflation”?

Europe in Deflation…

By Elliott Wave International

Europe in Deflation: Got (cheap) Milk?

Why falling food prices are not a boon for Europe’s economy

In the early 1990s, two simple words from a genius ad campaign radically transformed the way the U.S. consumer saw it: “Got Milk?”

Suddenly, the narrative changed from an obligatory drink you had to finish as a kid, along with eating your vegetables — into a sexy, funny, and above all desirable treat for all ages.

Until now.

In Europe, in 2015, famous celebrities donning milk mustaches no longer light the public’s passion for lactose — as prices for milk have spoiled. Here, a September 8, 2015 CNN Money article captures the curdled state of affairs:

Continue reading Europe in Deflation…