What Could Pop The Everything Bubble?

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.

Amazon Is Asking Customers To Hand Over Their House Keys

Would you feel comfortable giving Jeff Bezos your house keys? Amazon is hoping that the answer is yes.
The e-commerce behemoth and creator of a global deflation impulse on Wednesday introduced a connected door-lock and security-camera system to let package carriers, guests and dog walkers into your home using an app, WSJ reports. The so-called ‘Amazon Key’ will be available for the bargain price of $25. ‘This is not an experiment for us,’ said Peter Larsen, vice president of delivery technology at Amazon. ‘We think this is going to be a fundamental way that customers shop with us for years to come.”

This post was published at Zero Hedge on Oct 25, 2017.

“Great Rotation” Ahead; Will it Be Inflationary or Deflationary?

[edit] This article ultimately leans toward the view that the reasons for a rising curve will be inflationary. But I woke up in the middle of the night and my thoughts drifted to the components of the article (yeah, that’s pretty sad, I know), and with further consideration I am leaning toward neutral or even a bit into the deflationary camp. The reasons will be the stuff of another article.
Think back to the blaring headlines about the Great Promotion Rotation in the financial media in 2013. Perhaps the media circus started in January of that year when The Economist asked the question of whether the rise in bond yields signaled a ‘flight’ out bonds and into equities. It was probably an earnest and right minded question asked by The Economist, but you know our friends in the greater financial media; get a good story and flog the hell out of it to harvest eyeballs. Reality be damned, man, it’s the eyeballs that matter!
As the mini hysteria grew that year we called it a ‘Great Promotion’ (by the financial media) in expectation that the Continuum’s limiter (the red monthly EMA 100 on the 30 year bond yield chart below) would hold once again, just as it had during Bill Gross’s inflation hysterics that signaled a top in inflationary angst in early 2011. By the end of 2013, our ears were ringing with the media buzz and drone about the ‘Great Rotation’.

This post was published at GoldSeek on 22 October 2017.

Trump Considers Bringing Both Powell And Taylor To The Fed Together

only one leaves pic.twitter.com/k0F8JrPxar
— zerohedge (@zerohedge) October 20, 2017

The farce is now complete.
What is the best way to run schizophrenic monetary policy in a schizophrenic country, where the Fed sees “mysterious” deflation everywhere even as most ordinary consumers can’t afford to pay their health insurance, resulting in Fed chair candidates ranging from the extremely hawkish end to the dovish one? Simple: if you are Donald Trump, you bring both of them in.

This post was published at Zero Hedge on Oct 20, 2017.

Eric Peters: “This Is The Nightmare Scenario For The Next Fed Chair”

While we will have much more to share from the latest weekend letter by One River’s Eric Peters shortly, we found the following section on inflation vs asset bubbles – a topic which BofA’s Michael Hartnett has been focusing extensively on in the past year and which serves as the basis for the “Icarus Rally” – particularly notable as it explains all of today’s comments from Janet Yellen and other central bankers, discussing why it is only a matter of time before inflation returns, as the alternative, as Peters’ explains, is a world in which yields simply refuse to go up, leading to a nightmare scenario for the next Fed chair, who will be forced to pop the world’s biggest asset bubble.
Excerpted from the latest weekend notes by One River CIO, Eric Peters:
‘Why are we not experiencing deflation?’ he asked. ‘How can the top five stocks in the Nasdaq reduce US GDP but we feel better off?’ he asked. ‘Why are Americans buying no more cars today than in 1978 when our population is 100mm higher?’ he asked. ‘Why compare today to a world of combustion engines when we have so many more interesting things to do without moving an inch?’ he asked.

This post was published at Zero Hedge on Oct 15, 2017.

Yellen Was Right: ‘Transitory’ Factors of ‘Low’ Inflation Are Reversing, with Much More to Come

What’s Boiling Beneath the Surging Inflation?
Consumers are going to shell out more money for the same stuff, that’s for sure. Inflation as measured by the Consumer Price Index jumped 2.2% in September compared to a year ago, the Bureau of Labor Statistics reported this morning. All fingers pointed at energy costs: the index jumped 10.1% year-over-year. Within it, ‘motor fuel’ prices (gasoline and diesel) jumped 19.2%.
Food prices rose 1.2% year-over-year, kept down by prices for ‘food at home’ – the stuff you buy at the grocery store – which inched up only 0.4% year-over-year in part due to the price war currently tearing into the supermarket sector.
In the chart below of CPI, note the dreadful ‘Deflation Monster’ – one of those rare and brief occasions in the US when the purchasing power of wages actually rose just a tiny bit on a year-over-year basis. It was caused by the energy bust. And it was ‘transitory’:

This post was published at Wolf Street on Oct 13, 2017.

Can We Blame the New iPhone’s Mediocrity on Inflation?

Apple held its 10th anniversary iPhone press event on 9/12. As expected, the tech giant released new iterations of their decade-old smartphone as well as the new iPhone X. Whereas the media has focused on innovation and technology, the event also tells another story: how the company uses the perception of innovation as a strategy for dealing with inflation.
Yes, inflation. This is despite the fact the consumer tech market generally – and accurately – is characterized as deflationary: new generations of improved and innovative devices are released at a rapid pace and sold at unchanging or even falling prices. In other words, we get better and cheaper computers and other tech gadgets. But even though price deflation accurately describes this industry, it is not unaffected by inflationary pressures on prices due to the Fed’s quantitative easing.
Consequently, Apple needed to find a way to jack up prices for their devices to maintain profitability. But with the consumer tech market being extremely competitive, even a market leader cannot simply raise prices without potentially losing market share. Being Apple, they find a solution in marketing.
The Marketing The iPhone set a standard ten years ago both in terms of the look-and-feel of the smartphone and the pricing. Throughout the past decade, the dollar price of premium smartphones, including the annually updated iPhone, has remained basically the same. With only very few exceptions, premium smartphones sell at a standard $700-800.

This post was published at Ludwig von Mises Institute on Oct 10, 2017.

Gold and Yen at Key Inflection Points; Watch for Possible Breakdown

Key trend changes in the yen have a close correlation with major moves in the price of gold Both yen and gold are at another major inflection point Diverging monetary policy between the Fed and BOJ suggest next move is to the downside Background: Moves in the Japanese yen have been a reliable indicator for gold due to the effects of the yen carry trade. Given ultra-low interest rates in Japan, its currency has been the funding currency for global speculators who borrow in cheap yen and then speculate in other assets. When the yen weakens, there is greater borrowing of the currency to chase financial assets all over the globe. This pushes financial assets higher and reduces overall market volatility, which decreases the allure for gold as a safe haven asset. A weak yen relative to a stronger dollar is also negative for gold since a stronger dollar is typically associated with lower overall inflation rates. Thus, when the Bank of Japan (BOJ) decided to embark on a massive money printing program in 2012 to end deflation in Japan, that effectively marked the end for the bull run in gold.
In this chart and those that follow, I show the yen inverted (in red) next to gold (in black) to illustrate the relationship over the key timeframes discussed. Here is the price of yen and gold from 2007-2012:

This post was published at FinancialSense on 10/06/2017.

What Few Expect: Inflation Will Surge, Destabilizing the Status Quo

Few seem to ponder what global shortages in key commodities might do to prices.
If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.
Just for laughs, let’s look at healthcare, almost 20% of America’s entire economy, as an example of low inflation forever. If being up over 200% in the 21st century is low inflation, I’d hate to see high inflation.

This post was published at Charles Hugh Smith on TUESDAY, OCTOBER 03, 2017.

What Few Expect: Inflation Will Surge, Destablizing the Status Quo

Few seem to ponder what global shortages in key commodities might do to prices.
If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.
Just for laughs, let’s look at healthcare, almost 20% of America’s entire economy, as an example of low inflation forever. If being up over 200% in the 21st century is low inflation, I’d hate to see high inflation.
Here’s the official Consumer Price Index (CPI), which as many have noted, severely distorts real-world inflation by claiming big-ticket items such as college tuition and healthcare are mere slivers in household budgets.
Note the remarkably stable trend line in CPI over the past 40 years. This certainly doesn’t shout “inflation is near-zero and will stay low indefinitely.”
Here’s the PCE, Personal Consumption Expenditures, the Federal Reserve’s favored measure of core inflation. Let’s put it this way: either the PCE is real and the CPI is false, or vice versa; they can’t both be accurate measures of real-world inflation.

This post was published at Charles Hugh Smith on OCT 3, 2017.

Real Estate Company Is Replacing Agents With Robots

With robots slowly but surely taking over every semi-skilled occupation including in a bizarre development, the production of cocaine which may well unleash the era of cocaine deflation upon Wall Street (a welcome development in light of ever-shrinking bonuses), a new – and familiar – industry has emerged as the robots’ next target. According to Newsday, a California real estate technology company that aims to lower the cost of home-selling by using robots and ‘big data’ instead of commission-based real estate agents has recently opened a Long Island office.
The latest potential source of tech-inspired deflation, REX Real Estate Exchange, which charges a selling commission of only 2% instead of the usual 5 to 6%, launched its Long Island operation this summer. The Los Angeles-based company expects to start listing New York-area homes on its website, rexchange.com in the near-term.

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

Comparing the cost of living between 1975 and 2017: Inflation continues to eat away at purchasing power in housing and other big ticket items.

For the most part people widely misunderstand inflation. It is a complicated topic. If you ask the man and woman on the street they would respond that inflation is the price of goods going up. This is true in some respect but what people see is merely the outcome of larger forces at work like monetary decisions made by the Federal Reserve. Generally speaking central banks want to limit inflation (but have some) and avoid deflation. Today we have seen purchasing power decrease because of the way we have allowed debt to infiltrate every aspect of our lives. Items like homes, cars, and education are all largely funded by debt. Let us see how things have changed since 1975 to 2017 by comparing the cost of living in this time span.
Examining the cost of living over time
As we examine some of these items we also notice that there is some disinflation going on. For example, instead of selling five pound bags of sugar you now see four pound bags of sugar. Or you will see smaller packaging with potato chips. At least with foods, things have been relatively controlled. Where we see the cost of living shooting up is with big ticket purchases.

This post was published at MyBudget360 on September 24, 2017.

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.