• Tag Archives Deflation
  • German Elections Void of Any Critical Discussion

    The German Bundestag election campaign has seen a total black-out of any discussion of the major crisis that is building in Europe. Nobody is mentioning that Euro crisis, ECB monetary policy, disintegration of the EU, refugee crisis, pension crisis, the municipalities on the brink of insolvency, or the drastic increases in taxation coming AFTER the election that will only lower disposable incomes and extend deflation.
    The politicians, and the press, are in full swing to hide the real trend at foot. The press is running stories why the Germans Love Merkel, yet she has never won even 40% of the popular vote. Even the press outside of Germany is in on the ‘selling’ of Merkel because she is the leader of Europe – good – bad – indifferent.
    Perhaps the monetary policy of the ECB has set the stage for a serious monetary crisis over the coming years that will seriously disrupt the German economy, in one way or another, depending upon the industry. Mario Draghi has experimented with negative rates which has kept the Eurozone governments on life-support – but they have not used the time to reform anything.

    This post was published at Armstrong Economics on Sep 23, 2017.


  • Bill Blain: “Let’s Pretend”

    Blain’s Morning Porridge – Fed Acts, ECB Smoking – but what?
    The Fed acts. Normalisation. Hints of a rate rise in December, confirmation of further ‘data-dependent’ hikes to come next year, and ending the reinvestment of QE income. Exactly as expected – although some say three hikes in 2018 is a bit hostage to the global economy. The effect: Dollar up. Bonds down. Record Stocks. Yellen threw the bond market a crumb when she reminded us low inflation will require a ‘response.’
    Relax. US markets will sweat, but not break. Dollar ascendant.. Yen collapses.. What about Yoorp?
    Not quite as simples in Europe.
    I’m indebted to my colleague Kevin Humphreys on BGC’s Money Market desk for pointing out yet another Northern European central banker with a smug self-satisfied smile on his face this morning.
    Klass Knot (Holland) has been telling us the European reflationary environment is improving to the extent where the tail risk of a deflationary spiral is no longer imminent. He said ‘robust’ economic developments have improved confidence inflation will rise in line with the ECB’s mandated aims. He added the appreciation of the Euro reflects an improving assessment of the EU’s economic success. And, he concludes the ECB should focus on the more important structural and institutional issues facing Europe, rather than the short-term stabilisation and crisis management – WHICH ARE NO LONGER REQUIRED.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Japan’s “Deflationary Mindset” Grows As Household Cash Hordes Reach Record High

    After being force-fed more stimulus than John Belushi, and endless rounds of buying any and every asset that dares to expose any cracks in the potemkin village of fiat folly, Japan remains stuck firmly in what Abe feared so many years ago – a “deflationary mindset.”
    As Bloomberg reports, cash and deposits held by Japanese households rose for 42nd straight quarter at the end of June as the nation’s consumers continued to favor saving over spending.

    The “deflationary mindset” that the Bank of Japan is battling to overcome was also evident in the money laying idle in corporate coffers, which stayed near an all-time high, according to quarterly flow of funds data released by the BOJ on Wednesday.

    This post was published at Zero Hedge on Sep 21, 2017.


  • The Most Important Paper Of The Next Decade

    Whenever I tell people the next big crisis will come from inflation, not deflation, the looks of disgust are worse than when someone says Justin Bieber’s music is not that bad. And when I try to tell them that the true bubble is in fixed income, not stocks, they look at me as if I just slipped the Biebs into the next-up slot on the Spotify playlist.
    ‘Where will the growth come from?’ they often ask or, ‘demographics will keep inflation subdued for another generation,’ they retort.
    And I must admit, I have always had difficulty articulating how inflation would manifest. Usually, I would go with the classic, ‘throughout the millennia, governments have always resorted to inflating their way out of debt, and this time will prove no exception.’
    But that has always left a sour taste in the mouths of the deflationistas who cannot imagine anything but falling prices and moribund growth. These investors need a theory why the trend will change. And it has always been difficult to slap any research in front of them as the Lacy Hunt deflation crowd seems to have the market cornered with their articulate forecasts that the trends of the last 30 years will continue ad infimum, and that interest rates are going to zero throughout the entire developed world.

    This post was published at Zero Hedge on Sep 11, 2017.


  • Deflation and the Markets; are deflationary forces here to stay

    Machines are worshipped because they are beautiful and valued because they confer power; they are hated because they are hideous and loathed because they impose slavery. Bertrand Russell
    Manufacturing output continues to improve, even though the number of manufacturing jobs in the U. S. continues to decline and this trend will not stop. While some Jobs have gone overseas, the new trend suggests that automation has eliminated and will continue to eliminate a plethora of jobs. As this trend is in the early phase, the momentum will continue to build in the years to come.
    Machines are faster, cheaper and don’t complain; at least not yet. So from a cost cutting and efficiency perspective, there is no reason to stick with humans. This, in turn, will continue to fuel the wage deflation trend. Sal Guatieri an Economist at the Bank of Montreal in a report titled ‘Wage Against the Machine,’ states that automation is responsible for weak wage growth.
    ‘It’s unlikely that insecurities from the Great Recession are still weighing, given high levels of consumer confidence,’ he wrote. ‘However, automation could be a longer-lasting influence on worker anxieties and wages. If so, wages could remain low for a while, restraining inflation and interest rates.’
    Guatieri goes on to state that ‘The defining feature of a job at risk from automation is repetition’. This puts a lot of jobs at risk, many of which fall under the so-called highly skilled category today; for example, Accountants, Lawyers, Radiologists, X-Ray technician, etc.
    North American business order record number of robots
    In 2016, they order 35,000 robots, 10% more than in 2015. But that is nothing compared to China, which ordered 69,000 robots in 2016, South Korea ordered 38,000 and Japan for its small size ordered 35,000 robots. This proves that jobs are not going overseas but are being taken over by machines. Nothing will stop this trend; a trend in motion is unstoppable.

    This post was published at GoldSeek on Friday, 8 September 2017.


  • Retail Bloodbath After Target Announces Price Cuts On “Thousands Of Items”

    Amazon may have the most razor thin margins in the entire retail world, but that doesn’t mean that its peers can’t catch up as the global race to the deflationary bottom enters its final stage.
    Moments ago, that’s precisely what Target did when it announced on its blog that it has taken a “close look” at products most important to its customers to ensure they’re priced right daily, and has cut prices on “thousands of items.” The company also unveiled that it has “eliminated more than two-thirds of our price and offer call-outs so you can more easily spot the savings” and that it is not “ditching promotions.”
    In short, Target just pre-pre-announced that it will shortly be guiding both margins and earnings much lower. The only question is whether Amazon will allow it to expand revenues by enough to offset the bottom line drop. Judging by the market REACTION, the answer is no…

    This post was published at Zero Hedge on Sep 8, 2017.


  • The Euro & the Dollar

    Nothing has yet changed. We are still 500 points away from the start of important resistance. Keep in mind that theONLY way to break the bank of the monetary system will be a STRONG DOLLAR – not a weaker on. People far too often make a serious mistake and believe that a strong currency reflects a strong economy. Trump wants a lower dollar to reduce the trade deficit, increase sales of US products, and hence create more jobs.
    Europe remains caught up in the postwar thinking when the higher the currency the more they were recovering from World War II. A rising Euro is deflationary – not inflationary. It reduces the price of imports from energy to manufactured goods and food.

    This post was published at Armstrong Economics on Sep 8, 2017.


  • Slow Wage Growth Could Be Thanks to ‘Sticky Wages’

    The economic outlook in the United States right now is remarkably positive according to many indicators; unemployment is at it’s lowest since the dot-com bubble, the stock market is at record highs, and inflation is relatively mild. Wages, however, seem to be bucking the trend. Growth in nominal wage rates has remained modest despite a tight labor market, puzzling many commentators. The blame has been spread widely; China, robots, and Baby Boomers are the target of one recent article. However, the answer for this puzzling phenomenon could perhaps be found in the work of John Maynard Keynes.
    One of the central tenets of Keynesian economics is the concept of ‘sticky wages;’ the belief that wages, more so than other prices, are inherently inflexible and rigid, particularly in the downward direction. This key plank of Keynes’ theory has often been used as an argument against deflation and as an impetus for monetary expansion in a recession. Although, these policy prescriptions have been dealt with countless times, what of the underlying claim?
    It turns out that praxeology per se has very little to say about the existence, or non-existence, of sticky wages. Assuming that by ‘sticky’ all that is meant is that it takes a long time for wages to adjust to market pressures, the only judgment being made is a quantitative one. Mises constantly stressed throughout his work that the only judgments praxeology can make are strictly qualitative. For example, if there is a increase in the demand for labour, we know qualitatively that the wage for labor must rise, ceteris paribus. However, in the exact same sense that we cannot predict the magnitude of this increase in wage rate, we can never predict the time it will take for wages to increase.

    This post was published at Ludwig von Mises Institute on September 8, 2017.


  • Yet Another Theory Of The Fed (Or Why A “Major Policy Shift” Looms)

    Take Bernanke, again. During his first FOMC stint from 2002 to 2005, the committee responded to a deflation ‘scare’ with successive rate cuts dropping the fed funds rate to a 45-year low of 1%. In just a few years time, people would see that boost to the credit markets as a mistake. And Bernanke was closely associated with it – he had long argued for fighting deflation with extreme measures. He then downplayed the risks of his preferred policies, as in his insistence that falling house prices were a ‘pretty unlikely possibility’ and subprime mortgage troubles were unlikely to result in significant ‘spillovers.’
    So Bernanke was a central figure in the lead-up to the crisis, but you already knew that. Our point is that it had little effect on his reputation. Among mainstream economists and in the mainstream media, he’s currently basking in the admiration of his ‘courage to act.’ By comparison, his critics, mostly in the financial sector and outside the mainstream, point to his shortsightedness. Which perspective wins? As of today, the ‘hero tale’ dominates. Just as presidents need only act presidential to gain plaudits during wartime, central bankers need only act aggressively to gain plaudits during financial crises. In either case, it doesn’t matter what came before.
    Why the Fed’s Priorities are Changing
    With those ideas in mind (that we’re dealing with perceptions more than realities), let’s look at the reputational risks faced by today’s FOMC. We’ll argue that the current decade’s primary risk – the risk of a 1937-style relapse into recession – is fading in importance. Until recently, an echo recession similar to the one that snuffed out the mid-1930s recovery would have been a reputation killer. It would have led people to question whether the 2008 – 9 recession would morph into another Great Depression, after all.

    This post was published at Zero Hedge on Sep 6, 2017.


  • “I Was Wrong”: Albert Edwards Finds Something That Has Never Happened Before

    At the start of the year, we were surprised when SocGen’s Albert “Ice Age” Edwards, the biggest perma-deflationist on Wall Street, flipped his outlook on the US economy, and said he now expected a fast spike in inflation driven by wage growth, which in turn would prompt an even more accelerated tightening cycle by the Fed. We did not see it, and said so, pointing out that the bulk of US job growth in recent years has been among industries that have little to no wage power. More than half a year later, and several months after a puzzled Edwards asked “Where Is The Wage Inflation?”, the SocGen strategist has finally thrown in the towel, and in a note released this morning, admits he was wrong, or as he puts it “I was too optimistic“, to wit:
    At this point in the US economic cycle a tight labour market would normally be producing a notable upturn in wage and CPI inflation. This would usually prompt the Fed into a tightening cycle that would typically end in a surprise recession. This is exactly what I expected to occur at the start of this year and I thought it would be that recession that would tip the US into outright deflation ? but I was wrong. I was too optimistic!
    And while there has been a modest improvement in average hourly earnings according to the BLS, if not according to the BEA’s wage data, which according to the just released Personal Income data showed another drop in both private and government worker wages…

    This post was published at Zero Hedge on Aug 31, 2017.


  • Vice Index – Consumer Spending & Confidence Rolling Over

    One of the important aspects of the US economy is that recent business cycles have been longer. But also shallower.
    I believe that the internet is playing a big role in this ‘lower-for-longer’ phenomenon.
    Increased communication that is the essence of the internet has also meant:
    a) Pricing power reduction: Consider what is happening with retail store chain closings. They are casualties of the net: with a click of a button, mobile shoppers can find the lowest prices. And shippers can deliver the goods virtually overnight (if not sooner).
    b) Supplier expansion: More suppliers means more competition
    c) Consumer base expansion: Connecting suppliers and buyers have expanded the overall marketplace. With more buyers, producers can achieve profits through greater volume. It’s become a virtuous cycle – if you consider deflation virtuous
    Simply put, it’s damn near impossible to create scarcity. And scarcity is at the heart of inflation and economic expansion.
    But here’s the gotcha: this slow economy depends on low inflation.

    This post was published at FinancialSense on 08/30/2017.


  • Walmart Tumbles After Amazon Says It Will Cut Whole Foods Prices Monday

    Here comes even more of that deflation the Fed hates so much.
    Walmart stock is getting whacked, as is the broader grocer sector, after Amazon announced moments ago that the acquisition of Whole Foods will close on Monday, and that in keeping with the company’s tradition of stealing market by underpricing its competition, it will cut prices at Whole Foods once the deal closes.
    In its press release, Amazon announced that its acquisition of Whole Foods Market will close on Monday August 28, 2017, and the two companies “will together pursue the vision of making Whole Foods Market’s high-quality, natural and organic food affordable for everyone. As a down payment on that vision, Whole Foods Market will offer lower prices starting Monday on a selection of best-selling grocery staples across its stores, with more to come.”
    Just in case it was not clear, it then added that “starting Monday, Whole Foods Market will offer lower prices on a selection of best-selling staples across its stores, with much more to come. Customers will enjoy lower prices on products like Whole Trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic Gala and Fuji apples, organic rotisserie chicken, 365 Everyday Value organic butter, and much more.”

    This post was published at Zero Hedge on Aug 24, 2017.


  • SocGen: “It’s All About A Total Eclipse Of The Currency Sun Today…”

    According to SocGen’s currency strategist Kit Juckes one main reason why Bitcoin and cryptos in general are doing so well today is because “it’s a feature of the low-inflation era that very few governments or central bankers want a strong currency.” As has been extensively observed over the past decade, “strong currencies depress inflation, at least temporarily, and if their impact on competitiveness is exaggerated, it’s still enough to make them take the blame for jobs being lost to other cheaper-currency producers.”
    As Juckes then poetically summarizes, “once upon a time all this was offset by a sense that a strong currency was a sign of national virility, but such superstition is pass. It’s all about a total eclipse of the sun, today.”
    Of course, the problem with no-one wanting a strong currency, “is that someone has to lose out. This year, the winner in the FX stakes, (or loser, in a topsy-turvy world where a strong currency is no kind of blessing) is the Mexican peso, reflecting two of the main underlying themes in markets: Trump deflation and the strong current of cash flowing towards emerging markets.” Meanwhile, the strength of the Zloty and Koruna “reflects the fact that the real winners from the European economic recovery aren’t in the euro area but are countries held back by European policies. SEK and NOK both still look like winners.”
    So with the general U. S. population fascinated with the first full solar eclipse in 99 years…

    This post was published at Zero Hedge on Aug 21, 2017.


  • A Tale of Two ‘Deflationary’ Booms – The Gilded Age vs. Today

    The forces of globalization during the past two decades have been stronger than at any time since the era of ‘the Great Deflation’ which started in the aftermaths of the US Civil War and the Franco-Prussian War, and continued through the 1880s. During teh earlier period, the US economy enjoyed record growth in prosperity. But, during the present era of globalization, the US and most advanced economies have grown fitfully and overall slowly. An obvious question is whether that divergence in outcomes is due to the very different monetary environments (The US and most of Europe were on gold in the first era with prices falling, while monetary experimentation under a global 2% inflation standard prevailed in the second).
    RELATED: “A Modern Concept of Asset Price Inflation in Boom and Depression” by Brendan Brown
    In searching for the answer there are two channels to follow, both involving counterfactual analysis. The first is to study the early episode (the early 1870s to the end of the1880s) and determining whether it would have been less glorious if the monetary environment had been the same as in the present episode (the mid-1990s to now). The other channel is an investigation of the present episode so as to determine whether a sound money regime – as in the earlier episode – would have produced a much better outcome. In conducting the latter search, the analyst should be alert to hints of the world which might have been in the actual world and indeed there are positive findings here.

    This post was published at Ludwig von Mises Institute on August 18, 2017.


  • Great News America – Producer Prices Just Fell For the First Time In 11 Months

    While not quite as enjoyable for the average joe as consumer prices deflation, Producer Prices fell 0.1% MoM in July – the first ‘deflationary impulse’ since August 2016.
    Both goods and services prices fell – with services the biggest driver (which is odd since that’s where all the job growth has been)…
    Most of the July decrease in PPI services can be traced to margins for final demand trade services, which fell 0.5 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Additionally, prices for final demand transportation and warehousing services declined 0.8 percent. In contrast, the index for final demand services less trade, transportation, and warehousing advanced 0.2 percent.

    This post was published at Zero Hedge on Aug 10, 2017.


  • The Cost Of Light Through The Ages

    “Could all historians (and economists) please just turn their attention away for a short moment?! ” asks Der Spiegel’s Guido Mingels, as he reflects on the evolution in the costs of making light work through the ages (spoiler alert – it appears deflation is a ‘good’ thing).
    Let’s talk straight: All man had achieved before 1800 isn’t really worth mentioning. Easy peasy stuff. For thousands of years nothing really happened.
    These days, you visit a museum and are expected to marvel at an ancient plow or a knight’s armor, when back then they didn’t even have electric lighting. No switch, anywhere!

    This post was published at Zero Hedge on Aug 7, 2017.


  • Foreigners Scramble To Buy US Debt Every Time Rates Rise

    One of the persistent questions in 2017, has been how – with equities at all time highs – are Treasurys and other corporate bonds so strongly bid, and why is the 10Y still trading at a level that is more suggestive of a deflationary slump than an economic rebound.
    The answer it turns out, is to be found offshore, and was especially visible the day before the Fed’s unexpectedly dovish Wednesday statement, when yields and spreads blew out.
    As Bank of America’s credit strategist Hans Mikkelsen wrote in a Thursday note, when he observed the sharp move higher in yields and subsequent collapse at 2pm on Wednesday, “note the big rebound in net dealer-to-affiliate volumes following the recent notable increase in interest rates (Figure 3) – especially in the back end (Figure 4).” What the charts below show is the relative interest by offshore traders to buy (negative number) or sell (positive) US debt. What is most notable is that on the day yields and spreads spiked, so do foreign buying. In fact, in the total debt bucket, foreigners bought the most debt in the past year.

    This post was published at Zero Hedge on Jul 28, 2017.


  • One Trader Warns Of An “Explosion Of Large Block Trades Across Rates Markets”

    While The FOMC statement yesterday had a little for everyone (dovish inflationary comments and hawkish employment and balance sheet normalization), the bottom line is that, as former fund manager Richard Breslow notes, Yellen has kicked the can down the road one more time to avoid making any decision before the start of autumn: “they are only human and well aware of the fact that August has repeatedly been a cruel month for upsetting their best-laid plans for September.”
    Via Bloomberg,
    I’ll leave it to others to debate if and when the FOMC will ever learn to communicate effectively with the market. Or the efficacy of what they seem to think is an holistic approach to monetary policy-making by conjuring up convenient and, sometimes, dubious headwinds or tailwinds to justify every halting decision. What they did was very simply kick the can down the road to avoid making any decision before the start of autumn. And it has nothing to do summer liquidity (myth), saving up for Jackson Hole, nor a “somewhat” new interpretation of inflation trajectory and slack in the employment situation.
    It’s that they are only human and well aware of the fact that August has repeatedly been a cruel month for upsetting their best-laid plans for September. They bought themselves the optionality they crave, even if they unwittingly paid up for the privilege. It’s always easier to be a free-spender with other people’s money. So while we wait, what should we be thinking about? First off, they are conveniently forgetting that foreign exchange is a two-sided trading instrument. They’ve frequently complained about the drag from dollar strength. In enacting a policy approach that is meant to stoke inflation from currency weakness they seem to believe that exporting deflationary pressures to the likes of the euro zone or Japan will go unnoticed, unremarked upon and ignored.

    This post was published at Zero Hedge on Jul 27, 2017.


  • Does the Mainstream Have the Definition of Recession All Wrong?

    Pundits and government officials keep telling us the economy is strong. Everything is great. After all, GDP is growing.
    But a lot of people recognize things aren’t all that great. Some prominent economic analysts have said a major crash is looming. Nobel Prize winning economist Robert Shiller called stock market valuations ‘concerning’ and hinted that markets could be set up for a crash. Several other notable economists have recently expressed concern about surging stock markets, particularly in the US. Marc Faber has predicted ‘massive’ asset price deflation – possibly of a drop of as much as 40% in stock market value. Billionaire investor Paul Singer recently said the financial system is not sound. And former Ronald Reagan budget director David Stockman said we should get ready of ‘fiscal chaos.’
    So, how is it that some see a meltdown on the horizon while most of the mainstream sees nothing but unicorns and roses? If the economy is growing, how can anybody things recession is right around the corner?
    Well, what if the mainstream doesn’t understand a recession?
    In the following article originally published at the Mises Wire, Frank Shostak explains why the standard ‘two consecutive quarters of negative GDP’ is not a good definition for recession.

    This post was published at Schiffgold on JULY 24, 2014.


  • Last Chance for the Dollar to Rally

    I think we need to focus on what is happening to the dollar. The intermediate cycle is now 63 weeks long. Clearly that isn’t normal. I’ve maintained for several years that the end game was going to play out in the currency markets. There has to be consequences to printing trillions and trillions of currency units , and leaving interest rates at 0 for 8 years. I don’t think the consequences are going to be deflation. I think the end game will be inflation, just like it was in the 70’s, and just like it was in 2007 and 2008.
    It’s taken a while to manifest as other countries have jumped into the game and turned on their printing presses as well, so the collapse in the currency I’ve been looking for has taken quite a while to unfold. The first leg down ended in 2008.
    The dollar rally out of the 2014 3 YCL has fooled everyone into thinking the dollar is strong and the euro is going to collapse. So everyone is now on the wrong side of the market. That’s pretty much how every bear market starts with everyone on the wrong side of the boat.

    This post was published at GoldSeek on Sunday, 23 July 2017.