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?
Well actually, one Hommie is getting hammered and the index is getting dinged. We have been following this chart of the Homebuilders Index for probably a year or so now. It has been moving along in a large, bullish Cup & Handle.
Today KB Home grossed out the market (thanks for the heads up, Hammer) with talk about stuff that you would not expect to see in a low energy and (some) materials and low interest rate environment.
“We are projecting our first quarter 2015 gross margin will drop significantly from the first quarter of 2014 hitting the low point for the year before improving sequentially for the remaining three quarters of 2014,” Chief Executive Jeffrey Mezger said on a conference call after the company released quarterly financial results. He said there was a “softening in demand” in some markets during the fourth quarter, more sales incentives, and pressures from construction, labor and material costs.
Unbelievable. It reminds me of what I posted a few weeks ago about my trash man boosting prices due to increased costs – of nearly everything other than powering his trucks. There have been other surprising instances of late as well that I don’t quite recall at the moment.
Could the payback for the balls out inflationary operation in play 24/7 and 365 over the last 6 years be brewing?
Guest Post by David Stockman & Stealthflation
The Deflation Calamity Howlers Are Dead Wrong—-In Europe And Everywhere Else
The calamity howlers of deflation are out in force this morning owing to an absolute economic non sequitur. Namely, that year-on-year consumer prices in the EU came in at negative 0.2% in December, implying that ECB printing presses need to go into immediate overdrive.
Well, of course the CPI has momentarily weakened. Crude oil has experienced a monumental plunge of more than 50% since mid-2014. That has temporarily dragged down the euro zone’s reported CPI and the math isn’t all that complex. During the last 12 months, euro zone energy prices have fallen by 6.3%, and everything else is still 0.6% higher than a year ago.
So what’s the emergency? This is the very same CPI blip that occurred when oil collapsed in the second half of 2008. As is evident below, that episode did not generate some cascading plunge into economic darkness. In fact, the Eurozone CPI was back running above 2.5% in no time.
The truth of the matter is that the EU-19 is in clover because it’s consumers get a big break; and, on the other side of the economic equation, it produces almost no oil. Europe’s production is mainly in the UK and Norway and they have their own currencies. Accordingly, the ECB should be putting its printing presses on an extended sabbatical and declaring victory on the achievement of its “price stability” objective.
Continue reading Deflation Calamity Howlers Are Dead Wrong
Guest Post by Michael Ashton
Today’s column is a brief one, as I need to post a correction. Not a correction to my stuff, mind you, but to others.
Pictures like the below have been circulating now for a couple of weeks. This is a chart of the 2-year inflation “breakeven” on Bloomberg, illustrating how a “deflation warning” is sounding as they go negative.
Continue reading Call Off the Deflation Warning
- Fill’er Up –Market Anthropology [biiwii comment: a few days late but interesting viewpoint on the post-2011 disinflationary phase]
- 5 Themes for 2015 –SeekingAlpha [biiwii comment: this SA post disputes MA’s view; what makes a market and all…]
 December ISM just out, details here –NFTRH.com
and… What Happens After a Big Down Day Between Christmas & New Years –QuantEdges
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.
 this link from BLS was kindly sent by a reader: US city average, water and sewer trash collection services.
Guest Post by EWI
Jaguar Inflation – A Layman’s Explanation of Government Intervention
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy.
Continue reading Jaguar Inflation