Tag Archives: inflation

Myth #9: Inflation Makes Gold and Silver Go Up

Guest Post by EWI

Don’t Get Ruined by These 10 Popular Investment Myths (Part IX)

Interest rates, oil prices, earnings, GDP, wars, peace, terrorism, inflation, monetary policy, etc. — NONE have a reliable effect on the stock market

You may remember that after the 2008-2009 crash, many called into question traditional economic models. Why did they fail?

And more importantly, will they warn us of a new approaching doomsday, should there be one?

This series gives you a well-researched answer. Here is Part IX; come back soon for Part X.


Myth #9: Inflation makes gold and silver go up.

By Robert Prechter (excerpted from the monthly Elliott Wave Theorist; published since 1979)

This one seems like a no-brainer. The government or the central bank prints more bonds, notes and bills, and prices for things go up in response. Gold is real money, so it must fluctuate along with the inflation rate.

Continue reading Myth #9: Inflation Makes Gold and Silver Go Up

Gold, Inflation Expectations and Economic Confidence

Guest Post by Steve Saville

As a result of what happened during just one of the past twenty decades (the 1970s), most people now believe that a large rise in “price inflation” or inflation expectations is needed to bring about a major rally in the gold price. This impression of gold is so ingrained that it has persisted even though the US$ gold price managed to rise by 560% during 2001-2011 in parallel with only small increases in “price inflation” (based on the CPI) and inflation expectations. The reality is that gold tends to perform very well during periods of declining confidence in the financial system, the economy and/or the official money, regardless of whether the decline in confidence is based on expectations of higher “inflation” or something else entirely.

Inflation expectations are certainly part of the gold story, but only to the extent that they affect the real interest rate. For example, a 2% rise in inflation expectations would only result in a more bullish backdrop for gold if it were accompanied by a rise of less than 2% in the nominal interest rate. For another example, a 1% decline in inflation expectations would not result in a more bearish backdrop for gold if it were accompanied by a decline of more than 1% in the nominal interest rate.

Other parts of the gold story include indicators of economic confidence and financial-market liquidity, such as credit spreads and the yield curve.

That large rises in the gold price are NOT primarily driven by increasing fear of “inflation” is evidenced by the fact that the large multi-year gold rallies of 2001-2006 and 2008-2011 began amidst FALLING inflation expectations. These rallies were set in motion by substantial stock market declines and plummeting confidence in central banks, commercial banks and the economy’s prospects. Even during the 1970s, the period when the gold price famously rocketed upward in parallel with increasing fear of “inflation”, the gold rally was mostly about declining real interest rates and declining confidence in both monetary and fiscal governance. After all, if the official plan to address a “price inflation” problem involves fixing prices and distributing “Whip Inflation Now” buttons, and at the same time the central bank and the government are experimenting with Keynesian demand-boosting strategies, then there’s only one way for economic confidence to go, and that’s down.

Since mid-2013 there have been a few multi-month periods when it appeared as if economic confidence was turning down, but on each occasion the downturn wasn’t sustained. This is due in no small part to the seemingly unstoppable advance in the stock market. In the minds of many people the stock market and the economy are linked, with a rising stock market supposedly being a sign of future economic strength. This line of thinking is misguided, but regardless of whether it is right or wrong the perception is having a substantial effect on the gold market.

For now, the economic confidence engendered to a large extent by the rising stock market is putting irresistible downward pressure on the gold price.

BOJ Jumps the Shark…

Guest Post by David Stockman via Stealthflation

The BOJ Jumps The Monetary Shark—–Now The Machines, Mad Men And Morons Are Raging

This is just plain sick. Hardly a day after the greatest central bank fraudster of all time, Maestro Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary maneuver by a bare 5-4 vote. Apparently the dissenters——Messrs. Morimoto, Ishida, Sato and Kiuchi—-are only semi-mad.

Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year—-a figure so astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale GDP. And that comes on top of a central bank balance sheet which had previously exploded to nearly 50% of Japan’s national income or more than double the already mind-boggling US ratio of 25%.

Continue reading BOJ Jumps the Shark…

The Great Inflation Lie

Guest Post by Bill Bonner

That we live in an age of man-made wonders is beyond dispute. Painless root canals. Tinder. Central bank price controls.

We were traveling hard over the last couple weeks. Somewhere along the way we picked up a cold, which dogged us from Vermont to Maryland’s Eastern Shore. But the security X-ray at Nashville International Airport seemed to finally knock it out.

Global stocks have lost more than $3 trillion of their value so far this month. But the authorities rushed to the rescue like a surgeon taking out a ruptured gallbladder.

As St. Louis Fed president James Bullard told Bloomberg TV (reprinted from yesterday’s Diary):

Continue reading The Great Inflation Lie

NFTRH; USD & Gold Mining Funda’s

As crude oil continues down today we are presented with a perfect opportunity to review why gold mining fundamentals can IMPROVE in a rising US dollar atmosphere.  So many people run the equation through their heads:  USD Strong = Run Away!

Continue reading NFTRH; USD & Gold Mining Funda’s

“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.

The Monetized New Millenium

Guest Post by Bruno de Landevoisin

[edit] Bruno has a parallel take on biiwii’s ‘Age of Inflation onDemand’, 2000 – ? (brother’s from different mothers?)

I’m certain that the Pompom waving Stock Market fanatics and official Federal Reserve cheer-leading squad will have a hard time accepting this, but fortunately, despite their fantasy football gymnastics, facts remain facts.  As such, I will categorically point out that even with its substantial sell off, Gold remains by far the best performing asset class of the Monetized New Millennium.  That veritable fact is as startling, as it is significant.

Most of the excitable equity equestrians will undoubtedly brush off this striking statement as insignificant, and simply discard it as the typical cherry picking of particular price data during exceptional periods of performance.  Well, ok, but that entirely misses the most critical and crucial point here.  Namely, that the dubiously debt driven asset-bubble based economy ushered in by the Monetized New Millennium shows no signs of relenting.

Zero-Interest-Business-Concept_5829309-515x643QE or no QE, ZIRP lumbers on.  They can talk about it all they want, but until they actually let interest rates normalize it’s just talk, simply more hot air spewing from the blathering bogus balloon blowers.  The Fed can keep reflating the captured capital markets via zero cost funds to their preferred multinational banking institutions, they can keep encouraging the selling of naked digital shorts to contain the Gold market, and they can massage all the economic data they want.  However, what they are utterly unable to conjure up out of thin air is legitimate, productive and sustainable economic growth at the ground level for the average American.

Continue reading The Monetized New Millenium

Inflation Market Haters…

Guest Post by Michael Ashton

Why So Many Inflation Market Haters All of a Sudden?

The inflation market offers such wonderful opportunities for profit since so few people understand the dynamics of inflation, much less of the inflation market.

One of the things which continually fascinates me is how the inflation trade has become sort of a “risk on” kind of trade, in that when the market is pricing in better growth expectations, reflected in rising equity prices, inflation expectations move with the same rhythm.[1] The chart below (source: Bloomberg) shows the 10-year inflation breakeven rate versus the S&P 500 index. Note how closely they ebb and flow together, at least until the latest swoon in inflation expectations.

beistocks

Continue reading Inflation Market Haters…

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

Yield Curve, etc.

The tiny little bounce continues as the curve rises again today, with all maturities declining.  A little risk off’y here.

10.5.2
10, 5 & 2 year yields from Bloomberg

May as well throw in a couple other indicators while we’re at it.  TIP vs. TLT indicates that a little counter trend support could be setting for a bounce in precious metals, commodities, etc.  Depending on what USD does with its over bought status.  Junk bonds are weak but still showing a bullish hint vs. Treasury (and Investment Grade) bonds.

tip.tlt

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