Tag: Deflation

Kroger And Walmart Try More Gimmicks To Thwart Amazon; They Will Fail…Again

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Over the summer, we argued that the grocery business in the U. S. is, and always has been, a fairly miserable one. From A&P to Grand Union, Dahl’s, etc., bankruptcy courts have been littered with the industry’s failures for decades.
The reason for the persistent failures is fairly simple…razor-thin operating margins that hover around 1-3% leave the entire industry completely incapable of absorbing even the slightest financial shock from things like increasing competition and food deflation.
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Meanwhile, if these retailers have difficultly absorbing even the slightest changes in competition and food inflation, you can only imagine how the efforts of Amazon to slash in-store employee headcounts, a line item which Kroger spends roughly 17% of their revenue on, might impact the fragile industry. Unfortunately, at least for the traditional grocers of the world, a completely automated shopping experience may be closer than they had hoped just a couple of years ago.

This post was published at Zero Hedge on Dec 18, 2017.

UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall

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UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall
– UK inflation hits 3.1%, highest in nearly six years
– UK earnings flat – households are still suffering falling real wages
– Stagflation risk as food and drink prices jumped 4.1% in 12 months
– UK house prices fall two-months in a row, down 0.5% in October
– Real stagflation risk now, inflation high and growth slowing
– Savings continue to be eaten by inflation
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It was just two years ago that Mark Carney was writing his fourth letter to the British Chancellor, explaining why the country was in a deflationary slump. Even then households were feeling the pinch, despite what officials reported.
Since then Brits have become increasingly vindicated as inflation figures have begun to show what they have all known for some time – prices and the cost of living is on the rise.
Now Mark Carney is forced to write a different type of letter to the Chancellor, one where he will have to explain why inflation is above target at 3.1%. The jump to over 3% in the year to November is the fastest paced increase seen in nearly six years.

This post was published at Gold Core on December 13, 2017.

Inflation v Deflation – State Finances

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There is a general belief, and that is all it is, that state finances fare better in an inflationary environment than a deflationary one. This perception arises from the transfer of wealth from lenders to the state through a devaluation of the currency, which occurs with monetary inflation, compared with the transfer of wealth from the state to its creditors through deflation. The effect is undoubtedly true, even though it is played down by governments, but it ignores what happens to continuing government obligations and finances. This article looks at this aspect of government finances in the longer term, first on the route to eventual currency collapse which governments create for themselves by ensuring a continuing devaluation of their currencies, and then in a sound money environment with a positive outcome, for which there is good precedent. This is the second article exposing the fallacies of supposed advantages of inflation over deflation, the first being posted here.
Inflationary policies While central bankers have convinced themselves, in defiance of normal human behaviour, that consumption is only stimulated by the prospect of higher prices, there can be little doubt that the unmentioned sub-text is the supposed benefits to borrowers in industry and for government itself. Furthermore, the purpose of gaining control over interest rates from free markets is to reduce the general level of interest rates paid to lenders, further robbing them of the benefits of making their capital available to willing borrowers.

This post was published at GoldMoney on December 07, 2017.

The Venture Capital Bubble Is Imploding! (The Beginning Of The Great Bubble Deflation?)

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Following The Great Recession and The Fed’s extraordinary response, there was a lot of money available that we seeking risky assets, such as equities, housing and apartments.
Venture capital, the darling of business schools (that rarely look at the data, but focus on the snake oil-aspect of VC), has been in decline since 2014 after a meteoric rise after 2007.

This post was published at Wall Street Examiner by Anthony B Sanders – December 1, 2017.

Goldman: The Last Time This Happened Was Just Months Before The Start Of The Great Depression

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Ah Goldman, never change.
One week after Goldman’s chief equity strategist David Kostin predicted a three-year bull market of “rational exuberance“, lifting his 2018 S&P price target from 2,500 to 2,850 rising to 3,100 in 2020, and stating that should the exuberance turn “irrational”, the S&P could rise as high as 5,300 by the end of 2020, another Goldman strategist, Christian Mueller-Glissmann, has decided it may be a good idea to play bad cop and cover all bases.
And so, in a report released on Tuesday “The Balanced Bear – Part 1: Low(er) returns and latent drawdown risk” this now bearish Goldmanite warns that in the medium-term, the two likely scenarios are either i) a “slow pain” deflation scenario of low yields and high valuations “which persist as macro is stable but there are less windfall gains from rising valuations and less carry – as a result, returns are likely to be lower across assets”, or ii) a “fast pain” drawdown scenario in which there is “either a material negative growth or inflation/rate shock, or a combination of both, which drives a drawdown in 60/40 portfolios.”
For those confused, don’t worry – you read it right. While on one hand Goldman is predicting nothing but blue skies for the “medium-term” of the next three years, predicting no recession and double digit equity upside, at the very same time, the very same Goldman is also forecasting either a “slow” or “fast” pain scenario, which while different, share one thing in common (as the name implies): “pain.”

This post was published at Zero Hedge on Nov 29, 2017.

The $76 Trillion Bond Market Is Forecasting Inflation. Are You Ready?

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This year, (2017) was the year that the financial system moved from fearing deflation to expecting inflation.
You can see this in the breakout in inflation expectations. From 2013 until mid-2016, the financial system’s expectations of future inflation were in a downtrend. Mid-2016 this changed as expectations began to rise, breaking this downtrend in early 2017.
They’ve since continued to rally. Bouncing off support.

This post was published at GoldSeek on 27 November 2017.

Fake Market Narratives Are Masking The Roots Of The Next Crisis

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During the second half of an interview with MacroVoices host Erik Townsend, Fasanara Capital fund manager Francesco Filia explained how the trillions of dollars in post-crisis asset purchases by central banks have bred a dangerous trend-following mentality that ultimately undermines the stability of markets and leaves stocks and bonds vulnerable to a vicious reversal.
Passive, trend following funds – which account for the bulk of daily flows across financial markets – have only helped exacerbate the situation. But what’s worse is market strategists’ refusal to acknowledge how these flows, which create destabilizing feedback loops, tend to drive trading. Instead, sell-side ‘experts’ employ flimsy fake narratives ex post to explain trading activity. These narratives are often accepted without question or criticism by financial reporters at CNBC, the Wall Street Journal, Bloomberg…the list goes on.
While it’s much easier for strategists and traders to latch on to the narrative of the day during interviews and conversations with clients, Filia posits that both professional and retail investors are ignoring these fundamental trends at their own peril.
There was a moment in the market a couple of years ago where, whenever we saw bad data, the market was rallying, because they were expecting more monetary printing and more interventionism from the side of central banks.
A little bit later, when rates were falling because of deflation, the narrative was chasing yields. So the narrative was not that there is deflation, therefore there will be a recession, therefore there will be a deflationary bust. The narrative was that there will be a deflationary boom. So the narrative was chase yields. So go into bonds even if the yields are low (whenever there is some yields left), go into equity to get some yield, and so make equities more expensive.

This post was published at Zero Hedge on Nov 26, 2017.

Operation Twist By Another Name and Method?

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The TIP/IEF ‘inflation gauge’ is still motoring upward after breaking above the SMA 200. If this turns the 200 up along with the MA 50 it could indicate a mini hysteria about inflation.
The problem lately has been that the longest duration bonds have been relatively strong, putting a cap on yields and inflationary signaling, if not indicating deflationary pressure. TIP/TLT has not nearly kept up as 30yr yields have been a big drag over the last couple of weeks (this could still turn out to be a bottoming pattern though).
Of course the Tin Foil Hat wearer in me wonders where some of this pressure might be coming from. Political and monetary authorities who have an interest in keeping long-term rates capped, maybe? Macro Tourist checks in with some details (last part of the article) about potential political shenanigans in the long-term Treasury bond market.

This post was published at GoldSeek on 20 November 2017.

Manhattan Retail: The New Rust Belt

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Via Global Macro Monitor,
Bleecker Street, said Faith Hope Consolo, the chairwoman of the retail group for the real estate firm Douglas Elliman, ‘had a real European panache. People associated it with something special, something different.’ Ms. Consolo, who has negotiated several deals on the street, added: ‘We had visitors from all over that said, ‘We’ve got to get to Bleecker Street.’ It became a must-see, a must-go.’
Early on, Ms. Consolo said, rents on the street were around $75 per square foot. By the mid-to-late 2000s, they had risen to $300. Those rates were unaffordable for many shop owners like Mr. Nusraty, who was forced out in 2008 when, he said, his lease was up and his monthly rent skyrocketed to $45,000, from $7,000.
– NY Times
Retail is not just being Amazoned in Manhattan, retailers are being priced out of business by exorbitant rents.
Note to commercial landlords: Lower your rents! But, God forbid, that would be deflationary!

This post was published at Zero Hedge on Nov 17, 2017.

Hayek on Good and Bad Unemployment Policies

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In 1944 Professor Hayek emphasised that sustainable employment de pends on an appropriate distribution of labour among the different lines of production. This distribution must change as circumstances change. Sustain able employment thus depends on appropriate changes in relative real wage-rates. If established producers – both unions and capitalists – prevent such relative changes from becoming effective, there follows an unnecessary rise in unemployment. Sustainable employment now depends on successfully tackling these established labour and capital monopolies. – Sudha R. Shenoy
One of the obstacles to a successful employment policy is, paradoxically enough, that it is so comparatively easy quickly to reduce unemployment, or even almost to extinguish it, for the time being. There is always ready at hand a way of rapidly bringing large numbers of people back to the kind of employment they are used to, at no greater immediate cost than the printing and spending of a few extra millions. In countries with a disturbed monetary history this has long been known, but it has not made the remedy much more popular. In England the recent discovery of this drug has produced a somewhat intoxicating effect; and the present tendency to place exclusive reliance on its use is not without danger.
Though monetary expansion can afford quick relief, it can produce a lasting cure only to a limited extent. Few people will deny that monetary policy can successfully counteract the deflationary spiral into which every minor decline of activity tends to degenerate. This does not mean, however, that it is desirable that we should normally strain the instrument of monetary expansion to create the maximum amount of employment which it can produce in the short run. The trouble with such a policy is that it would be almost certain to aggravate the more fundamental or structural causes of unemployment and leave us in the end in a position worse than that from which we started.

This post was published at Ludwig von Mises Institute on 11/16/2017.

Russell Napier: Debt Deflation Worries Are Starting to Rise Again

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There’s been very little deleveraging after the last financial crisis and, in fact, debt levels are at new records globally, which means investors should be thinking about the risk of ‘debtflation,’ Russell Napier, editor of The Solid Ground, told FS Insider last week (see Russell Napier on Debt Deflation: Too Much Debt, Not Enough Money for audio).
No Deleveraging
It isn’t the case that we’ve seen much deleveraging since the financial crisis, Napier noted. Globally, the debt-to-GDP ratio is at an all-time high, he added, significantly above the levels seen in 2007.
Though there has been some deleveraging in the household sector, Napier stated, this isn’t the whole picture. It ignores the releveraging of the government during the last crisis, and also that corporations have been adding significant amounts of debt.
If we look globally, emerging markets are fueling the rise to a new high in the debt-to-GDP ratio. It isn’t just China either, but other countries as well that are responsible for this effect.
‘If the world was fragile in 2007 because there was too much debt and not enough GDP, it is significantly more fragile today,’ Napier said.

This post was published at FinancialSense on 11/14/2017.

Why Core Inflation is Rising & What it Means for Fed Rate Hikes

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Yellen was right to brush off ‘transitory’ factors of ‘low’ inflation.
Consumer prices, as measured by CPI for October, rose 2.0% year-over-year. A month ago, CPI increased 2.2%. The Fed’s inflation target is 2%, but it doesn’t use CPI, or even ‘Core CPI’ – which excludes the volatile food and energy items. It uses ‘Core PCE,’ which usually runs lower than CPI, and if there were an accepted measure that shows even less inflation, it would use that. But it does look at CPI, and there was nothing in today’s data to stop the Fed from raising its target rate in December.
The Core CPI rose 1.8%, up a tad from September’s 1.7% increase. Core CPI has been above 2% for all of 2016 and through March 2017. In the history of the data going back to the 1960s, Core CPI had never experienced ‘deflation.’ But when Core CPI rates retreated in the spring through August, along with other inflation measures, a sort of panic broke out in the media:

This post was published at Wolf Street on Nov 15, 2017.

Claudio Grass Interviews Mark Thornton

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Introduction
Mark Thornton of the Mises Institute and our good friend Claudio Grass recently discussed a number of key issues, sharing their perspectives on important economic and geopolitical developments that are currently on the minds of many US and European citizens.
A video of the interview can be found at the end of this post. Claudio provided us with a written summary of the interview which we present below – we have added a few remarks in brackets (we strongly recommend checking the podcast out in its entirety – there is a lot more than is covered by the summary).
Interview Highlights
We currently find ourselves in a historically and economically significant transition period. The already overstretched bubble in the markets is still expanding, but we now see bold moves by the Fed to reduce its balance sheet, at the same time the ECB plans to taper, overall presenting us with a fairly deflationary outlook. This reversal of the expansionary policies of the last decade can be seen as the first step toward a potentially ferocious correction in the not-too-distant future.
The ECB is trapped, as it already holds 40% of euro zone sovereign debt. At the same time, Spain, Italy and Greece continue to potentially present major challenges, as a banking crisis could easily reemerge in these countries [ed note: banks in Europe have managed to boost their capital ratios, but the amount of legacy non-performing loans in the system remains close to EUR 1 trn. Moreover, TARGET-2 imbalances have recently reached new record highs, a strong sign that the underlying systemic imbalances remain as pronounced as ever]. Mario Draghi intends to reduce the ECB’s asset purchases from EUR60 billion to EUR30 billion per month. He may soon realize that if the ECB does not buy euro zone bonds, no-one will.

This post was published at Acting-Man on November 14, 2017.

Back to the Yield Curve Future

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A few weeks ago, we highlighted the apparent contradiction of the reflation trade that has unfolded in the Treasury market. In brief, that contradiction is the flattening yield curve.
This week, we’re returning to the yield curve – the 2-10 spread specifically – and we will be discussing what it means if it is indeed a harbinger of slower economic growth.
A Trade of Desperation?
First, we must posit that the narrowing spread between the 2-yr note yield and the 10-yr note yield might not be the telltale economic indicator some pundits think it is.
It could be, yet we can’t dismiss the possibility that it’s a byproduct of a desperate search for yield among foreign investors staring at such low rates at home.
Hear Russell Napier on Debt Deflation: Too Much Debt, Not Enough Money
Before inflation, the yield on the 10-yr Japanese Government Bond is 0.02%; the yield on the 10-yr German bund is 0.38%, and the yield on the UK’s 10-yr gilt is 1.26%. The yield on the 10-yr Treasury note is 2.33%.

This post was published at FinancialSense on 11/13/2017.

The Size Of The Financial Avalanche Coming Grows Larger

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Inflation vs deflation. The true economic definition of ‘inflation’ is the rate of increase in the money supply in excess of the rate of increase in wealth output. Inflation is monetary in nature. Rising prices are the manifestation of inflation. Someone I follow on Twitter posted an ingenious example from which to conceptualize the true concept of inflation using the game of Monopoly:
The players all start out with reasonable amounts of money to speculate on real estate. As the game proceeds, players collect $200 by simply passing Go and use this money to speculate on real estate. By the end of the game, only $500 dollar bills are worth anything, the whole thing blows up, and most players end up destitute. In a twist of irony, an original game board sells for about $50,000.
A fixed amount of real estate and continuously increasing money supply, with ‘passing Go’ functioning as the game’s monetary printing press. The monopoly analogy is readily applied to the current real estate market. The Fed tossed roughly $2 trillion into the mortgage market, which in turn has fueled the greatest U. S. housing bubble in history. The most absurd example I saw last week is a 264 sq ft studio in Los Angeles listed on 10/26 for $550,000. The seller bought it a year ago for $335,000. This is the degree to which Fed money printing and easy access Government guaranteed mortgages have distorted the system.
Here is monetary inflation as it is showing up in the stock market and housing markets:

This post was published at Investment Research Dynamics on November 10, 2017.

Asian Metals Market Update: November-10-2017

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The US dollar weakened and gold rose on suspicion that Trump’s tax cut proposal could see modifications. The next seven days is filled with market moving US economic data releases. The answer which investors will be looking for is what next after the expected December interest rate hike by the Federal Reserve. I am looking into global inflation/deflation targets for next year. Energy price trend will play a key role in inflation direction next year. The big challenge is to judge the pace of rise of crude oil prices and not the actual rise. At the moment the bottom for crude oil looks at $42 and top at $86+ in the next twelve months.
Developments in bitcoins and block chain technology are being closely watched.

This post was published at GoldSeek on 10 November 2017.

Deutsche Bank Enters the Economic Fringe, Considers ‘End of Fiat Money’

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Fiat currencies have had nearly a 46 year run of success. But with cryptocurrencies ‘all the rage,’ what Deutsche Bank Strategists Jim Reid and Craig Nicol call ‘inherently unstable’ fiat currency system without any commodity backing might be coming to an end, they assert.
The end of a demographic trend will usher in another inflationary period, Deutsche Bank asserts The idea of tying the supply of money to a commodity such as gold was that it kept government spending in check because money was in limited supply.
The US abandoned the gold standard in 1971, anchoring the currency’s value, not to a commodity but rather the faith in a government. This was followed by a sharp rise in inflation resulting in mortgage rates rising to near 20% annually by 1981. The resulting debasement of currency value and loss of buying power might have ended the fiat monetary system if it were not for the deflationary period that came along in the 1980s.
This gentle deflationary trend is about to come to an end, Reid and Nicol think.

This post was published at FinancialSense on 11/06/2017.

The Results of Financialization – Part III

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THE BIG REVERSAL
After three and half decades the global economy has now entered a three and half year period of slow rotational change which will likely be seen in future years as the “Great Reversal”.
DEBT + DEMOGRAPHICS + DISRUPTION = DEFLATION
We are leaving an era which as witnessed unprecedented global debt growth, work force demographics and the emergence of profoundly disruptive technologies. These trends through globalization, labor arbitrage, and oversupply have coupled to deliver slow inflation, disinflation and even deflation in various areas of the world.
What we have experienced during this era on a global basis is:
A decline in real interest rates (which have been a prime supporter of asset prices), A drop in real labor earnings in advanced economies, and, A meteoric rise in inequality within countries alongside a drop in inequality between them.

This post was published at GoldSeek on 5 November 2017.

Doubling Down on Deflationary Forces

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Almost all other forecasters have been looking for a revival of inflation for years. And they still are.
Zeal for Gold
After the Fed bailed Wall Street out of the 2008 financial crisis, and exploded its balance sheet through quantitative ease, many investors, including astute hedge fund managers, foresaw hyper-inflation and charged into gold as the most likely beneficiary. They solemnly quoted Milton Friedman, who said that inflation is driven by central bank-created money, and leaping Fed assets foretold lots more of it. But inflation didn’t gallop, but receded – and with it, gold prices.
But that hasn’t dissuaded the inflation bulls. Wall Street Journal columnist James Mackintosh wrote in the recent September 8 edition: ‘The danger is that the low inflation consensus has grown far too strong, on too little evidence.’ A September 1 Journal headline sums up those folks’ problem: ‘Inflation Still Subdued, Posing a Conundrum.’ They point to the low U. S. unemployment rate, the weak dollar, and stronger growth worldwide, which, they maintain, should intensify demand for commodities and push their prices up. Yet the personal consumption deflator, the Fed’s favorite inflation measure, ex food and energy has been slowing since late last year.

This post was published at FinancialSense on 10/31/2017.

What Could Pop The Everything Bubble?

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As central bank policies are increasingly fingered by the mainstream as the source of soaring wealth-income inequality, policies supporting credit/asset bubbles will either be limited or cut off, and at that point all the credit/asset bubbles will pop.
I’ve long held that if a problem can be solved by creating $1 trillion out of thin air and buying a raft of assets with that $1 trillion, then central banks will solve the problem by creating the $1 trillion out of thin air – nothing could be easier. This is the lesson of the past eight years: if a problem can be solved by creating new money and buying assets, then central banks will solve that problem. Problem: stock market is declining. Solution: create new money and buy, buy, buy stock index funds. Problem solved! Market stops falling and quickly rebounds as ‘central banks have our backs.’
Problem: interest rates are inhibiting lending and growth. Solution: create a few trillion units of currency and buy enough sovereign bonds to drop interest rates to near-zero.
Problem: nobody’s left who can afford to buy the new nosebleed-priced flats that underpin China’s miracle-grow economy. Solution: create new currency, lend it to local government agencies who then buy the empty flats.
Problem: stagnant employment and deflation. Solution: create a trillion in new currency, buy a trillion in new government bonds that then fund infrastructure projects, i.e. bridges to nowhere.

This post was published at Charles Hugh Smith on SATURDAY, OCTOBER 28, 2017.