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InvestmentInflation/deflation
« Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next » » Jas_Jain - Why The Stage Is Set For Deflation October 29, 2006 Why The Stage Is Set For Deflation The energy complex (as reported in Barron's) is down 19%, YoY.
Energy price declines of this magnitude, after a big run up in prices, have occurred only preceding or during a recession. When the aggregate demand weakens, businesses will be able to lower prices, rather than lose mkt share, due to huge reduction in the cost of energy. Needless to say, the energy itself is a big part of the rise in inflation in the recent years. It is true that a recession would be necessary before deflation can occur in the US, but the coming recession WILL slide effortlessly into a depression. Depression would be a result of Demand Destruction. With all the doping, or brainwashing, that Americans have received the fact remains that too much bad financing by bankers caused past depressions; does anyone doubt that that is the case now? It is the depression that will solidify deflation for a period of time. What happens after the US is already in the Greater Depression is something that can wait. Until then there is a zero chance for an inflationary bout. 1970s have nothing to do with the climate in 2000s. We are at the opposite end of the Longwave spectrum. Jas -- posted by Jas_Jain » permabear - Would Ben Bernanke ever allow deflation to take hold? http://www.federalreserve.gov/boardDocs/... -- posted by permabear » Jas_Jain - RE: Would Ben Bernanke ever allow deflation to take hold? In response to Would Ben Bernanke ever allow deflation to take hold? posted by permabear:
My comments are not directed at Perma. The idotic faith that Americans have in the Fed's and govt.'s powers to control the economy is deplorable. "As I have already emphasized, deflation is generally the result of low and falling aggregate demand. The basic prescription for preventing deflation is therefore straightforward, at least in principle: Use monetary and fiscal policy as needed to support aggregate spending..." The "aggregate demand" was artificailly boosted by 11% of the GDP per year for more than three years via excessive debt by the households and the Federal govt. How long can this be kept up? What if households decide not to borrow-and-spend? The Fed is going to force them to borrow so that they can spend more? Why do arrogant Americans not look at the Japanese experience after the two bubbles burst? It is different here? It is different this time? And we didn't have the Fed in 1930s? What happened to paying the piper? Jas -- posted by Jas_Jain » permabear - RE: Would Ben Bernanke ever allow deflation to take hold? In response to RE: Would Ben Bernanke ever allow deflation to take hold? posted by Jas_Jain:
Jas, Who said that the Fed can control the economy? My question was whether Bernanke, being known for his interest and expertise studying the Great Depression, would ever allow deflation to take hold. The article I posted suggests that Bernanke will do everything in his power to prevent deflation. That does not mean he makes the economy healthy by any means. That means he does have the power to create inflation over deflation using the printing press and other means. That is the big argument on this thread and that's why I posted the article. Again from the article: The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal. What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation. -- posted by permabear » Jas_Jain - Inflationists Please Take Note Thanks, Kirk, for the press release below. Revised Press Release: U.S. Future Inflation Gauge Falls 3-November-2006 NEW YORK, Nov 3 (Reuters) - U.S. inflation pressures fell in October, pulled down by measures of commodity prices, home loans and vendor performance, a report said on Friday. Inflationary moves in interest rates and jobs partly offset the downward pressure, said the report by the Economic Cycle Research Institute. Its U.S. Future Inflation Gauge, which is designed to anticipate cyclical swings in the rate of inflation, fell to 119.9 in October from 121.6 in September, revised up from 120.3 in September. "The decline in the USFIG, which had already been pervasive and persistent, is finally becoming pronounced," said Anirvan Banerji, director of research at ECRI, adding "Underlying inflationary pressures are in a clear cyclical downswing." The index's annualized growth rate, which smoothes out monthly fluctuations, dropped to minus 3.7 percent from an upwardly revised minus 1.4 percent in September.
-x-x-x-x-x-x-x-x-x- The above behavior is generally seen just before a recession. Repeat after me: Recession is Imminent Let us see how long Bernanke can push more Consumption Debt at 10%+ of the GDP and "increase aggregate demand." (If the increase in debt falls below 6% of the GDP a recession will result purely from the fall in the resulting demand). I am simply amazed at the stupidity of Americans who believe that Fed possesses such powers as to push more debt after already having done so for the past 4 years at the level exceeding that during the New Deal. We all know what happened after the New Deal stimulus ended. I am sorry to say that inflationists (some of my best friends are inflationists!) have been duped by lies of "Printing Money." We can thank Dr. Doomed, Marc Faber, for that. Deflation is coming and coming with a vengeance. Be prepared. -- Jas -- posted by Jas_Jain » mdorsey - Inflation signal flashing red Inflation signal flashing red Government says business productivity flat while labor costs rise, raising fears the Fed may not be finished with interest rate hikes. November 2 2006: 11:53 AM EST WASHINGTON, (Reuters) -- U.S. business productivity stalled unexpectedly in the third quarter, government data showed Thursday, while unit labor costs rose at a faster-than-expected pace that may worry the Federal Reserve. Weekly jobless claims also rose by more than expected last week, while planned layoffs declined in October. But the labor cost news dominated market reaction, with U.S. Treasury note prices falling on the fear of what the U.S. central bank might make of the implied inflation pressures. "The unit labor costs number is a bit unsettling for the Fed," said Scott Brown, chief economist at Raymond James & Associates in St Petersburg, Florida. "So many people have focused on commodity prices, but the Fed's real fear is always the labor market and the possibility of inflationary pressures developing there," he said. Nonfarm business productivity had been forecast by analysts to mount by 1.3 percent, compared with a downwardly revised 1.2 percent increase reported by the Labor Department for the second quarter. This was lowered from a 1.6 percent rise previously reported. Compensation per hour grew 3.7 percent, versus a 6.6 percent increase in the previous three months, helping trim unit labor cost growth to 3.8 percent in the third quarter. This was higher than the 3.4 percent gain forecast by Wall Street, but compared to an upwardly revised 5.4 percent in the second quarter, versus 4.9 percent previously reported, in a series watched closely by the U.S. central bank. Unit labor costs are a gauge of inflation and profit pressures and they have grown 5.3 percent since the third quarter in 2005. That was the biggest gain on a quarter from the year-ago quarter since the fourth quarter of 1982, when the increase was 5.8 percent. -- posted by mdorsey » Normxxx - Inflation signal flashing red In response to Inflation signal flashing red posted by mdorsey:Inflation One of the more reliable tools in my toolbox has been the use of gold as a forecasting gauge for inflation, providing you set the price of gold forward by 14 months. The correlation is very good, in spite of the occasional deviations when wars or other extra-market events put a thumb on the scale. Recently, the year over year change in the CPI has slowed dramatically, thanks in part to gasoline and other energy prices falling. But we are now at a point in this leading relationship where gold says that the inflation rate is supposed to spike dramatically upward, bringing about perhaps 8% inflation if the correlation remains consistent. Yikes!! The problem is that this idea of a giant iceberg of inflation crashing in on us is not being echoed elsewhere. The 2-year T-Note Yield is more than half of a percentage point below the Fed Funds target rate, and that sort of spread usually leads to the Fed lowering interest rates. That is not a scenario which fits well with impending inflationary doom. So either the bond market has got it wrong, or the forecast given by gold prices has got it wrong, because it is unimaginable to think of inflation rates rising toward 8% while 2-year notes and Fed Funds rates remain around 5%. One or the other is out of whack somehow. Despite the strong correlation between gold and inflation (with the 14-month offset), around +0.75 on a correlation coefficient, there is precedent for movements in gold not to be echoed exactly by inflation. In early 1994, e.g., there was a very small blip up in the inflation rate, much smaller in magnitude than suggested by gold's move from $325 to $390 back in 1993. But generally they run pretty well together. If inflation were not to rise in 2007 as gold says it should, then would inflation be "wrong", or would gold? Forget for the moment all of the conspiracy theories about the rigging of the CPI to make things look prettier than they really are. There is some recent evidence that the price moves in gold have been screwier than they should have. The 14-month lag is between gold and consumer inflation, but the relationship between gold and commodity inflation is on only a 4 month lag. Usually, that is. If that nice correlation had worked right this summer, then we should have seen a giant blowoff in commodities prices into September. Oil should have likewise jumped upward. Instead, commodities, including oil, saw big declines and the CRB Index is only just now seeming to be getting back into sync with the gold price's pattern of movements. So if gold's 'forecast' bombed for oil and commodity prices, it seems reasonable to conclude that it may also fail (for a while, at least) for the inflation rate, and we may not have to have that big blowoff next year. But stay tuned for 2008 and 2009. Normxxx The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice. -- posted by Normxxx » Jas_Jain - Inflation signal flashing red In response to Inflation signal flashing red posted by Kirk:
""Kirk's Lifestyle Replacement cost Index" Bogus idea not supported by any data. The word index means somrthing -- quantification. Jas -- posted by Jas_Jain » Jas_Jain - “Inflated Expectations of Inflation [in the US]” & Arrival of th November 14, 2006 "Inflated Expectations of Inflation [in the US]" & Arrival of the Peak Debt That was the confession of one of the Wall Street's inflationists on CNBC. He admitted, "We had inflated expectations of inflation," after the shocking PPI report and very weak Retail Sales data. Get prepared for lot of such confessions from inflationists over the coming months as the US economy slides into an unavoidable housing-led recession. Deflation is waiting to walk in as soon as the US economy enters recession, led by Demand Destruction (Retail Sales down 1% in two months in nominal dollars!), which would only be the trailhead to the pathway to the Greater Depression. Just wait and watch as the Peak Debt™ assert itself and the Peak Oil turns out to be a hoax. Inflationists, led by Dr Doomed, Marc Faber, are basically clueless as to what the Fed can and can't do. Easiest way to identify these clueless people is when they utter "Printing Money," or "hyperinflation," or "Weimer Germany," or "wheelbarrows full of money." These are the victims of propaganda and herd mentality. One victim picks up the line from the last one and so on. Can anyone, who is not on some substance, explain to me the similarities of today's American economy to Weimar Germany? I am waiting. There is no record of hyperinflation in 750 years of Dutch-Anglo-American economic history. PLENTY of episodes of deflation and few after the establishment of the Federal Reserve. I HAVE NEVER MADE A SINGLE AHISTORICAL FORECAST! Jas -- posted by Jas_Jain » Normxxx - PPI 'Hedonic Adjustments' PPI Hedonic Adjustments [¹]
With CPI coming out at 8:30 this morning, I wanted to take a few moments to note some of the oddities and aberrations in the Producer Price Index (PPI). A nagging thought about PPI: It is like a ratchet wrench, one that can only torque in a single direction. When we have Energy price spikes, there's seems to be no impact on producer prices; yet when Energy prices come down, we see a huge drop. One would imagine these things were somewhat symmetrical (but apparently, not). Something doesn't compute. Consider this quandry: How is it possible that prices throughout the entire pipeline, from raw materials to finished goods, managed to stay tame no matter how high energy prices went during the past 3 years? The riddle is answered by observing that government models are gamed to show as little inflation as possible; Otherwise, the COLA obligations would be going through the roof.
Bill King (of The King Report) makes a similar observation: "Isn't it interesting that PPI didn't surge when oil did, but when oil declines sharply PPI plunges?" Consider his observations on the BLS PPI data:
So the anti-inflation question at hand is simply this: Did [real] prices fall, or was this function of statistical sleight of hand? You may recall the headlines for October Retail Sales noted the role of autos and light trucks: Autos Save Retail Sales From Sharp Decline. Let's take a closer look at PPI and Oil (continuous futures contract) again, courtesy of Bill King:
http://bigpicture.typepad.com/comments/i... "The ridiculous PPI reading induced buying of bonds and selling of stocks." And today, we get CPI. At least we are never wanting for riddles to unravel . . UPDATE November 16, 2006, 10:23am BLS inflation reporting is what it is. We can take it at face value, or try to figure out what is really going on. As noted above, I have a problem with the entire "Inflation Ratchet." If its not inflation when energy prices are rising, how can it be proof that inflation pressures are easing when energy comes down? That's inconsistent. Look no further than today's CPI for an example: Apparel was called down 0.7% in CPI, along with the following explanatory BLS note: "Prior to seasonal adjustment, apparel prices rose 1.3%, reflecting the continued introduction of fall-winter wear." Look at Hotels also, down 0.5%. BLS explanation? "Prior to seasonal adjustment, the index for lodging away from home increased 0.5 percent." All Items less food and energy was up but 0.1% on a monthly seasonally adjusted basis. Year-over-year comparisons, however don't get "adjusted." All Items (ex food and energy, of course) were up 2.6% from October 2005. That's EX food and energy. So you can look at the hedonically altered, seasonally adjusted, inflation ex inflation headline spin- or you can look at reality. If identifying the data before it gets tortured is "zealotry," then so be it. . . Normxxx The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice. -- posted by Normxxx 
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