Tag Archives: inflation

Inflation Stuff

In the previous post’s video Esther George talked about how it is difficult to know what is ahead with regard to a build up of inflationary pressure.  She rightly wants to make sure policy is out ahead of it, although I suspect that if the inflationary horse is going to get out of the barn it will not be put back in an orderly manner that catch-up policy can handle.

In this post we present a couple tools for viewing the inflationary backdrop (or more accurately, the current lack of one) and also a guest post by ‘Inflation Trader’ Michael Ashton.

First, here is the Silver-Gold ratio, which simply must bottom if commodities and the inflation trade are going to get a boost.  It is no coincidence that commodities are on a tiny bounce along with the same situation in the Silver-Gold ratio.


Next is the TIP-TLT (inflation protected vs. unprotected Treasuries) ratio, still burrowing southward…

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Future “Inflation” and the Fed’s Madness

Guest Post by Steve Saville

[edit] Highly recommended because it gets to the heart of our big picture view…

Prior to 2002 the Fed would tighten monetary policy in reaction to outward signs of rising “price inflation” and loosen monetary policy in reaction to outward signs of falling “price inflation”, but beginning in 2002 the Fed became far more biased towards loose monetary policy. This bias is now so great that it seems as if the Fed has become permanently loose.

The following chart comparing the Fed Funds Rate (FFR) target set by the Fed with the Future Inflation Gauge (FIG) clearly illustrates the change in the Fed’s tactics over the past two decades. The Future Inflation Gauge is calculated monthly by the Economic Cycle Research Institute (ECRI) and should really be called the Future CPI Gauge, because it is designed to lead the CPI by about 11 months.

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Awareness of Inflation, but no Fear Yet

Guest Post by Michael Ashton

Suddenly, there is a bunch of talk about inflation. From analysts like Grant Williams to media outlets like MarketWatch  and the Wall Street Journal (to be sure, the financial media still tell us not to worry about inflation and keep on buying ‘dem stocks, such as Barron’s argues here), and even Wall Street economists like those from Soc Gen and Deutsche Bank…just two name two of many Johnny-come-latelys.

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Core and Median CPI Converging

Guest Post by Michael Ashton

As expected, and as I’ve been saying for a long time, (a) median inflation is rising and now is at 2.3% y/y, the highest level since 2009, and (b) core inflation is converging to median inflation as the one-off effects of the sequester on Medicare payments is removed from the data.

coremedBoth will continue to move higher, with Core chasing Median until they are basically right atop each other again.

Following is a summary of my post-CPI tweets. You can follow me @inflation_guy!

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Short vs. Long Term Yields Rise

If the Fed won’t stop its chronic ZIRP’ing, maybe the market will do it for them.  Today the CPI (what most people think of as inflation) is indicated to have jumped per this Bloomberg report.

Equities fell earlier today as data showed the cost of living in the U.S. rose more than forecast, reflecting broad-based gains that signal inflation will move closer to the Fed’s goal. The consumer price index increased 0.4 percent, the biggest advance since February 2013, after climbing 0.3 percent the prior month.

“Probably the most troubling number for investors is the CPI number,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $65 billion in assets, said by phone. “Both numbers put those inflation readings around the Fed’s target policy of 2 percent. That to me suggests that the Fed, in looking at that, could say we run the risk of inflation being hot and could suggest pulling forward an increase of rates.”

Of course we have been viewing the ISM data (when ISM not screwing it up) every month and noting the pesky ‘prices’ component.  Of course CPI was going to get a bump.  The 2 year yield vs. the 10 year has made a 1.5 year high at least partially in response to price pressures.


This is by the way not a configuration that is friendly for gold.  At least that used to be the case before policy makers became so aggressive in meddling with the system.  Now, I wonder how many indicators are going to act exactly as they did before the steady diet of ZIRP, QE’s 1, 2 & 3 and all the other stunts being pulled in the US and around the globe.  But stand alone and at face value, short rates rising faster than long rates is not usually friendly for gold.

It may or may not be unfriendly to the stock market.  I think the market is going to stand or fall more on its own merits for a while, because it usually does not start to decline at the beginning of a rate hike cycles.  But again there too, what is “usually” about the current environment?

The Dollar & Commodities – Just Friends

Guest Post by Michael Ashton

The recent, aggressive ECB ease, combined with some mild Fed growls about increasing rates “at some point,” ought to be good news for the dollar against the Euro. And so it has been, although as you see in this weekly chart (source: Bloomberg) the weakening of the Euro has been (a) mild and (b) started more than a month before the ECB actually took action. (Note that the units here are dollars per Euro).


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Inflation Expectations

Nominal TIP bottomed in September and has gently risen (in stops and starts) since.  TIP’s ratio to TLT is a better indicator of when inflation expectations are becoming acute in my opinion because it backs out the overall up move in T bonds.


TIP-TLT by daily view is in a ‘W’ bottom stance with positive divergence.  Hey, it’s a start for the inflationistas.

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Per just a few of the many charts included in this morning’s ETF update for subscribers… Inflation?

Not according to TIP-TLT (inflation protected vs. unprotected T bonds)…


Not so much, according to the commodity fund DBC, which may be breaking down from a little bear flag (which was noted in this morning’s update, pre-breakdown…

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Inflation Signals Non-Existent by TIP-TLT

Another NFTRH 287 excerpt…


It’s a busy I chart, I grant you. But these are my favorite charts because in their busy way they try to tell stories. The story told by TIP (Inflation protected Treasury bonds) vs. TLT (regular long-term T bonds) is not one of inflationary concerns. Quite the contrary, TIP-TLT shows a break down in inflation expectations.

The gold ‘community’ does not publicize this because it is antithetical to the fundamental they most often tout for gold (inflation). In the short-term, a deflationary bout may indeed be a negative. But in the longer-term, a failing ‘inflation trade’ would be what eventually builds stronger fundamentals for the sector. Again, economic contraction (with gold rising not necessarily in nominal terms but in relation to most everything else) is what the sector needs. Moderate the inflation hysterics.

The above picture would be positive for US stocks if it results in a continued Goldilocks atmosphere, but last year Goldilocks held sway with TIP-TLT gently rising but muted. It is debatable how well she would do if this indicator of deflationary pressure keeps dropping.