Tag Archives: inflation

Fed Nonsense and Error Bars

By Michael Ashton

Wages follow inflation, rather than leading it

[Yesterday’s] news was the Employment number. I am not going to talk a lot about the number, since the January jobs number is one of those releases where the seasonal adjustments totally swamp the actual data, and so it has even wider-than-normal error bars. I will discuss error bars more in a moment, but first here is something I do want to point out about the Employment figure. Average Hourly Earnings are now clearly rising. The latest year-on-year number was 2.5%, well above consensus estimates, and last month’s release was revised to 2.7%. So now, the chart of wage growth looks like this.

ahe

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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…

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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.

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No Strategic Reason to Own Nominal Bonds Now

By Michael Ashton

If you choose to own nominal bonds instead of inflation linked bonds for the next 10 years, you are short a straddle on inflation

Today I presented our 2016 inflation forecast to the investment committee for a multifamily office, and when I was putting the presentation together I developed one slide that really is a must-see for investors in my opinion.

For some time, TIPS have been too cheap. Really, it has been more than a year that our metrics have shown inflation-linked bonds as not just cheap, but really cheap compared to nominal bonds. I don’t mean that real yields will fall – so this isn’t a statement about whether I am bullish or bearish on fixed-income. Frankly, I am somewhat conflicted on that point at this moment.

Rather, it is a statement about what sort of fixed-income instruments to own, for that part of your portfolio that needs to be in fixed-income. If you are running a diversified portfolio, then you can’t really avoid owning some bonds even if you are bearish on the bond market. For risk-reduction reasons if for no other, it makes sense to own some bonds.

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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.

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Back From the Moon

By Michael Ashton

We are likely to see inflation rates rising rather than falling

Economics is too important to be left to economists, apparently.

When the FOMC minutes were released this afternoon, I saw the headline “Some FOMC Members Saw ‘Considerable’ Risk to Inflation Outlook” and my jaw dropped. Here, finally, was a sign that the Fed is not completely asleep at the wheel! Here, finally, was a glimmer of concern from policymakers themselves that the central bank may be behind the curve!

Alas…my jaw soon returned to its regular position when I realized that the risk to the inflation outlook which concerned the FOMC was the “considerable” risk that it might fall.

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Fed Still Behind the Curve

By Tom McClellan

Fed Still Behind The Power Curve

spread between 2-year T-note yield and Fed Funds target, fomc
December 17, 2015

The “power curve” is a term borrowed from the jet age of aviation, referring to the delayed response time of a jet engine to an increase in the throttle position.  In 1979, New York Yankees catcher Thurmon Munson tragically died while piloting a Cessna Citation jet, sinking too low while on approach for a landing.  He had reportedly realized there was a problem and added throttle, but the lag time in the response of the jet engines meant that power was not there soon enough to correct the flight path.  Munson’s one year of experience in piston-powered aircraft, which have a faster throttle response time, was cited as a factor in the pilot-error crash that killed him.

The stock market and the economy have a similar lag time in response to throttle adjustments by the Fed.  And it is the 2-year T-Note yield which tells us what the throttle setting ought to be for shorter term rates.

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Post CPI Summary

By Michael Ashton

Summary of My Post-CPI Tweets

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.

  • #CPI +0.0%/+0.2%. Y/y on headline goes to +0.5%, highest since December. Welcome to base effects!
  • Core was actually +0.18% m/m, a bit higher than expected. y/y on core goes to 2.02% from 1.91% as we dropped off a weak mo.
  • Next month, core #CPI will go to 2.1% or 2.2% y/y, simply because we drop off last December’s +0.06% aberration.
  • The rise in core seems dramatic (highest since 2012 now), but it’s just catching up with Median. Expected.

coremed, cpi

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The Cult of Draghi

By Doug Noland

Credit Bubble Bulletin: The Cult of Draghi

Friday’s 370-point surge in the DJIA quickly erased memories of the rough session throughout global financial markets the previous day. It’s worth noting, however, that the euro gave back little of Thursday’s spectacular 3.1% surge, the biggest daily gain versus the dollar since March 2009. Additional Friday losses made for a terrible week in European equities.

With a view that Thursday’s important policy developments and market reactions are best not expunged from our analytical consciousness, it’s worth a brief market recap. Beyond the wild moves in now highly unstable currency markets, European market vulnerability was again on full display. Core euro-area equities indices suffered their biggest selloff since September. Thursday’s session saw the German DAX hit for 3.58%. France’s CAC40 also fell 3.58%, while Spain’s IBEX 35 index dropped 2.41% and Italy’s MIB sank 2.47%. For the week, the German DAX sank 4.8% and French CAC40 dropped 4.4%.

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