Tag Archives: deflation

Bulletin: It’s a Credit Bubble!

By Biiwii

As posted at NFTRH.com

You may have caught the title’s little inside joke.

Sometimes you (well, I anyway) can look at a graph representing data that is a culmination of history (i.e. reality) and just let it settle in for some perspective and even some conclusions.

Whether these conclusions are right or wrong is subjective and open to debate. But what I see here when viewing the Prime Rate historical is summed up after the graph (graphs courtesy of Economagic, mark ups mine).

prime.loan

In the pre-Greenspan era, every rise in Prime rates was eventually corrected through recession. This makes sense as the Federal reserve would, through its Funds Rate, make borrowing by banks more expensive during economic up cycles and hence, this was passed on to the borrowing public by the spread between FFR and Prime.

Continue reading Bulletin: It’s a Credit Bubble!

China: What Deflation Looks Like

By Elliott Wave International

Why the 32% slide in the Shanghai Composite is more than just a “hiccup”

The Shanghai Composite fell another 8% at the open on Wednesday (July 8). Trading was soon halted by the authorities. (But for a different reason that the trading halt on the NYSE the same day.)

From its all-time high on June 12, China’s main stock index is down 32%. Using the word “crash” is becoming appropriate.

“At the moment there is a mood of panic in the market and a large increase in irrational dumping of shares, causing a strain of liquidity in the stock market,” said China’s Securities Regulatory Commission on Wednesday (bold added).

But the “dumping of shares” is not the only type of selling that’s going on in China right now. Bloomberg reports that (bold added),

Continue reading China: What Deflation Looks Like

Austrian Economics…

By Steve Saville

Does “Austrian Economics” Predict Inflation or Deflation?

The answer to the above question is no, meaning that “Austrian Economics” makes no prediction about whether the future will be inflationary or deflationary. That’s why some adherents to “Austrian” economic theory predict inflation while others predict deflation. A good economic theory can give you insights into the likely short-term, long-term, direct and indirect effects of policy choices, but it doesn’t tell you what will happen regardless of future choices and events. I’ll try to explain using two well-known quotes from Ludwig von Mises, the most important economist of the “Austrian” school.

Here’s the first quote:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Continue reading Austrian Economics…

Gold’s Ratio Signals

By NFTRH.com

A brief snapshot of counter-cyclical gold’s macro signals vs. other metals (and broad commodities) that are more positively correlated to economies, using weekly charts…

Each week NFTRH updates many charts of nominal US and global stock markets, commodities, precious metals and currencies over multiple time frames.  But we also cover economic data and indicators, with the first macro chart below (Palladium vs. Gold) still barely holding its economic ‘UP’ signal from January, 2013.  At that time a coming economic up phase did not seem likely, but PALL-Gold and fundamental information gleaned from a personal source in the Semiconductor Equipment sector gave us a good risk vs. reward on that stance.

While it can be argued that using an indicator like Palladium (positive economic correlation) to Gold (counter cyclical) is subject to the discrete supply/demand fundamentals of the two assets, it has worked to signal up and down economic phases, with the most recent shown in Q1 2013 (green arrow).  This indicator has been whipsawing since topping out a year ago and the moving averages are near a trigger point.

pall.gold

A related indicator is Gold vs. Commodities.  Gold-CRB made an impulsive rise in late 2014 as the global deflationary phase topped out.  As policy makers (ECB, BoJ, China Central Planning and US with ongoing ZIRP) continue to promote inflation 24/7, 365 Gold-CRB has dropped as it should when inflation is starting to ‘work’ and inflation expectations start to take hold.  But a problem for hopeful inflationists is that so far at least, counter-cyclical Gold-CRB appears to be in a bullish consolidation.

gold.crb

If cyclical PALL-Gold were to break down and counter-cyclical Gold-CRB to hold support and resume its uptrend the indication for the global economy would be negative.

Another chart worth considering is Gold vs. Copper, the traditionally cyclical red industrial metal.  A series of higher highs and higher lows began in late 2013 and is still in play.

gold.copper

To put perspective on this, behold how bearish nominal Copper is and has been by viewing this monthly chart similar to those we have reviewed in NFTRH for years now to maintain a big picture bearish outlook on this metal.  We have allowed for the current bounce/rally/bear flag, but until $3/lb. is exceeded and held, this is a very bearish picture.

copper

Finally, let’s review Gold vs. its primary running mate, Silver.  Actually, flipping Gold vs. Silver over to the Silver-Gold ratio works best visually at this time.

We are allowing for a bounce in Silver vs. Gold.  This could come about if the Fed rolls over again today and plays nice with its language.  Or it could just come about simply because it is due.  This would go hand in hand with a resumption of the mini inflation bounce implied in TIPs vs. regular Treasury bonds and in nominal Treasury bond yields.  The message of Silver-Gold however, is similar to the charts above on the bigger picture because it is locked below very strong resistance.

sgr.wk

Bottom Line

I consider Gold vs. Palladium and Gold vs. Copper to be indicators on the global economy whereas Silver vs. Gold is more an early indicator on inflationary pressure.

The conclusion is that the economy is in danger of decelerating (Pd-Au, Au-CRB, Au-Cu) amidst a dis-inflationary environment (Ag-Au).  The timing could be by this fall.  First, a resumed bounce in the ‘inflation trade’ has a chance to get reanimated.  But that is not the dominant longer-term trend.

Risk Behind Buffett…

By Biiwii

Thanks to reader Mary, an excellent article at Forbes by John Tobey…

The Risk Behind Buffett’s Advice

I found it interesting for several reasons.  One is the use of log scale charts and their value in viewing percentage based prices over very long (a Century in this case) periods.  I use mostly linear charts because I usually deal in 1 week to 10 year time frames.  But Mr. Tobey’s assertion that long-term investors should be interested in percentage performance is a good one.

Secondly, adjustments are made to the market (in this case, the Dow) for ‘inflation’ and ‘deflation’ using the CPI as the denominator.  CPI is noisy (e.g. faulty) on shorter time frames (it is not inflation, it is inflation’s effects), but over a century it is what it is after inflation and deflation have long since shaken out into the picture.

Here is his chart of the adjusted Dow.  But read the article.  It’s quick and to the point.

dow.cpi

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.

The ‘Good’ Deflation Argument

By Elliott Wave International

Here’s What’s Wrong with the ‘Good’ Deflation Argument

Editor’s note: This article was adapted, with permission, from the February issue of The Elliott Wave Financial Forecast, a publication of Elliott Wave International, the world’s largest market forecasting firm. All data is as of Jan. 30, 2015. Click here to read the complete version of this article, including specific near-term forecasts, 100% free.

Deflation is a decline in the supply of money and credit relative to goods and services in an economy.

History shows us that the most important deflationary episodes are invariably accompanied by comparable declines in equity, factory and retail prices.

Continue reading The ‘Good’ Deflation Argument

Deflation

We have deflation of footballs and deflation of my lungs after round 1 out there in the driveway.  Back in and taking a break, I always find Jeff Gundlach an interesting listen.  Maybe you will too… Pardon the ad if one pops up in the 1st 30 seconds.

Around the Web

  • Would a Gold Standard Brighten Economic Outcomes?  –Big Picture  [biiwii comment: the old argument… the author’s conclusion is laughable as practically applied by today’s CB’s (“a gold standard is not needed to preserve price stability as long as a country’s central bank is independent and has a clear mandate to achieve price stability), but a gold standard for a modern financial and economic system is not the answer; discipline and transparency are the answers in large part imo; esp. discipline, which is lacking world-wide]

 

Money, Commodities, Balls and How Much Deflation is Enough?

Guest Post by Michael Ashton

Money: How Much Deflation is Enough?

Once again, we see that the cure for all of the world’s ills is quantitative easing. Since there is apparently no downside to QE, it is a shame that we didn’t figure this out earlier. The S&P could have been at 200,000, rather than just 2,000, if only governments and central banks had figured out a century ago that running large deficits, combined with having a central bank purchase large amounts of that debt in the open market, was the key to rallying assets without limit.

That paragraph is obviously tongue-in-cheek, but on a narrow time-scale it really looks like it is true. The Fed pursued quantitative easing with no yet-obvious downside, and stocks blasted off to heights rarely seen before; the Bank of Japan’s QE has added 94% to the Nikkei in the slightly more than two years since Abe was elected; and today’s announcement by the ECB of a full-scale QE program boosted share values by 1-2% from Europe to the United States.

Continue reading Money, Commodities, Balls and How Much Deflation is Enough?

Debt and Deflation: 3 Financial Forecasts

Guest Post by Elliott Wave International

Debt and Deflation: Three Financial Forecasts

There’s more to deflation than falling prices

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Inflation ruled from 1933 to 2008.

Yet in the just-published Elliott Wave Theorist, Bob Prechter’s headline says, “Deflation is Starting to Win.”

Take a look at this chart from The Telegraph:

Continue reading Debt and Deflation: 3 Financial Forecasts