• Tag Archives Inflation
  • ‘Never Let A Good Crisis Go To Waste’ – And Short AMZN

    The ‘crisis’ quote above originated with Winston Churchill. Several U. S. politicians have referenced it since then (most recently Rahm Emanuel when he was Obama’s Chief of Staff). I’m sure the Wall Street snake-oil salesmen and economic propagandists are more than happy to attribute the deteriorating economic numbers to the hurricanes that hit Houston and southwestern Florida.
    Retail sales for August were released a week ago Friday and showed a 0.2% decline from July. This is even worse than that headline number implies because July’s nonsensical 0.6% increase was revised lower by 50% to 0.3% (and it’s still an over-estimate).
    Before you attribute the drop in August retail sales to Hurricane Harvey, consider two things: 1) Wall St was looking for a 0.1% increase and that consensus estimate would have taken into account any affects on sales in the Houston area in late August; 2) Building materials and supplies should have increased from July as Houston and Florida residents purchased supplies to reinforce residences and businesses. As it turns out, building supplies and material sales declined from July to August, at least according to the Census Bureau’s assessment. Furthermore, online spending dropped 1.1%. Finally, the number vs. July was boosted by gasoline sales, which were said to have risen 2.5%. But this is a nominal number (not adjusted by inflation) and higher gasoline prices, i.e. inflation, caused by Harvey are the reason gasoline sales were 2.5% higher in August than July.

    This post was published at Investment Research Dynamics on September 23, 2017.


  • Weekend Reading: Yellen Takes Away The Punchbowl

    September 20th, 2017 will likely be a day that goes down in market history.
    It will either be remembered as one of the greatest achievements in the history of monetary policy experiments, or the beginning of the next bear market or worse.
    Given the Fed’s inability to spark either inflation or economic growth, as witnessed by their dismal forecasting record shown below, I would lean towards the latter.
    The media is very interesting. Despite the fact there is clear evidence that unbridled Central Bank interventions supported the market on the way up, there is now a consensus that believes the ‘unwinding’ will have ‘no effect’ on the market.

    This post was published at Zero Hedge on Sep 22, 2017.


  • Broken Velocity: Yellen’s Low Inflation Quandary (Hint: FHFA Home Price Index Growing At 6.62% YoY)

    Here is a brief summary of Fed Chair Janet Yellen’s thoughts from yesterday courtesy of Deutsche Bank’s Peter Hooper: The Fed is on track to raise rates once more this year and three times in 2018. Yellen recognized that inflation has been running low recently, and that while there was some uncertainty around this performance, one-off factors that are not expected to persist, and which have not been associated with the performance of the broader economy, have been important. At the same time, Yellen noted that monetary policy operates with a lag and that labor market tightness will eventually push inflation up.
    Inflation has been running low ‘recently’? Actually, ‘inflation’ (defined as core personal consumption expenditure price growth YoY) has been below 2% since April 2012 and below 3% since July 1992. Notice that hourly wage growth for production and nonsupervisory employees has remained low as well, particularly since 2007.

    This post was published at Wall Street Examiner on September 21, 2017.


  • New York Fed Calculates Inflation Is Running Hottest Since 2007

    As if inflation wasn’t “mysterious” enough to the Fed already, today the New York Fed joined the Atlanta Fed first in releasing its own measure to track underlying inflation called, simply, the Underlying Inflation Gauge. What is notable is that this latest inflation tracker shows prices behaving quite differently from traditional indexes this year.
    According to the UIG’s August measure, broad inflation came in at a red hot 2.74%, the highest since November 2007, according to historical data from the Fed. That compares with just 1.9% annual inflation according to the Labor Department’s CPI and an even more paltry 1.4% as measured by the preferred PCE gauge of Fed policy makers, which matched the lowest since September 2016.

    This is what the latest reading showed:
    The UIG estimated on the ‘full data set’ increased from a revised 2.64% in July to 2.74% in August. The ‘prices-only’ measure increased from a revised 2.09% in July to 2.17% in August. The August CPI showed a further pick up in inflation from June. In response to the firming of CPI inflation, both UIG measures displayed a rise in trend inflation. he UIG measures currently estimate trend CPI inflation to be in the 2.2% to 2.7% range, with both registering above the actual twelve-month change in the CPI.

    This post was published at Zero Hedge on Sep 22, 2017.


  • Fed’s Kaplan Makes A Stark Admission: Equilibrium Rate May Be As Low As 0.25%

    As we have hammered away at for years, “the math doesn’t work”, and it appears The Fed just admitted it.
    In a stunning admission that i) US economic potential is lower than consensus assumes and ii) that the Fed is finally considering the gargantuan US debt load in its interest rate calculations, moments ago the Fed’s Kaplan said something very surprising:
    KAPLAN SAYS NEUTRAL RATE MAY BE AS LOW AS 2.25 PCT, LEAVING FED “NOT AS ACCOMMODATIVE AS PEOPLE THINK” Another way of saying this is that r-star, or the equilibrium real interest rate of the US (calculated as the neutral rate less the Fed’s 2.0% inflation target), is a paltry 0.25%.
    What Kaplan effectively said, is that with slow secular economic growth and ‘fast’ debt growth, there’s only so much higher-rate pain America can take before something snaps and as that debt load soars and economic growth slumbers so the long-term real ‘equilibrium’ interest rate is tamped down. It also would explain why the curve has collapsed as rapidly as it did after the Wednesday FOMC meeting, a move which was a clear collective scream of “policy error” from the market.
    This should not come as a surprise. As we showed back in December 2015, in “The Blindingly Simple Reason Why The Fed Is About To Engage In Policy Error“, when calculating r-star, for a country with total debt to GDP of 350%…

    This post was published at Zero Hedge on Sep 22, 2017.


  • The forthcoming global crisis

    The global economy is now in an expansionary phase, with bank credit being increasingly available for non-financial borrowers. This is always the prelude to the crisis phase of the credit cycle. Most national economies are directly boosted by China, the important exception being America. This is confirmed by dollar weakness, which is expected to continue. The likely trigger for the crisis will be from the Eurozone, where the shift in monetary policy and the collapse in bond prices will be greatest. Importantly, we can put a tentative date on the crisis phase in the middle to second half of 2018, or early 2019 at the latest.
    Introduction
    Ever since the last credit crisis in 2007/8, the next crisis has been anticipated by investors. First, it was the inflationary consequences of zero interest rates and quantitative easing, morphing into negative rates in the Eurozone and Japan. Extreme monetary policies surely indicated an economic and financial crisis was just waiting to happen. Then the Eurozone started a series of crises, the first of several Greek ones, the Cyprus bail-in, then Spain, Portugal and Italy. Any of these could have collapsed the world’s financial order.

    This post was published at GoldMoney on September 21, 2017.


  • Jim Rickards Warns “QT1 Will Lead To QE4”

    There are only three members of the Board of Governors who matter: Janet Yellen, Stan Fischer and Lael Brainard. There is only one Regional Reserve Bank President who matters: Bill Dudley of New York. Yellen, Fischer, Brainard and Dudley are the ‘Big Four.’
    They are the only ones worth listening to. They call the shots. The don’t like dots. Everything else is noise.
    ***
    Here’s the model the Big Four actually use:
    1. Raise rates 0.25% every March, June, September and December until rates reach 3.0% in late 2019.
    2. Take a ‘pause’ on rate hikes if one of three pause factors apply: disorderly asset price declines, jobs growth below 75,000 per month, or persistent disinflation.
    3. Put balance sheet normalization on auto-pilot and let it run ‘on background.’ Don’t use it as a policy tool.

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


  • Un)Affordable Housing Alert! FHFA Purchase-Only Home Price Index Rises 6.3% YoY For July (4.5x Fed’s ‘Inflation’ Rate and 2.73x Wage Growth)

    The FHFA’s purchase-only home price index is out for July. It shows that home prices grew at a 6.3% YoY rate, but only 0.2% MoM. The largest home price increases were in Pacific and Mountain states.

    This post was published at Wall Street Examiner on September 21, 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.


  • “So What Did We Learn From Yellen?”: Deutsche, Goldman Explain

    For those still unsure what Yellen’s rambling, disjointed press conference meant yesterday, or are still in shock over the Fed’s admitted confusion by the “mystery” that is inflation, here is a quick recap courtesy of Deutsche Bank and Goldman, explaining what we (probably) learned from the Fed and Yellen yesterday.
    First, here is DB’s Jim Reid:
    So what did we learn from the Fed and Yellen last night? Firstly we learnt that stopping reinvestment is a sideshow for now and that the market still cares more about the probability of a December hike and where the Fed thinks inflation is heading. Just briefly on the balance sheet run-off, they have committed to the plan from the June meeting of $10bn per month ($6bn USTs and $4bn Mortgages) with an incremental increase every 3 months until we get to $50bn. However on the rates and inflation outlook the committee and Yellen were on the hawkish side. As DB’s Peter Hooper discusses in his note, barring negative surprises in the months just ahead, the Fed is on track to raise rates once more this year and three times in 2018. Yellen recognised that inflation has been running low recently but put a higher blame on one-off factors than was perhaps anticipated. At the same time she noted that monetary policy operates with a lag and that labour market tightness will eventually push inflation up.
    The complication for markets though is that beyond 2017, the FOMC will see a huge upheaval in its membership which could easily mean current member’s thoughts are meaningless in a few months time and also that Mr Trump’s fiscal plans (or lack of them) have the ability to completely change the debate. So its difficult to read too much into the current FOMC’s forecasts. However for now December is very much live with the probability of a December rate hike moving from a shade under 50% to 64% by the US close (using Bloomberg’s calculator).

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


  • Spot The Moment Inflation Turned Exponential

    In the aftermath of a surreal Janet Yellen press conference, in which the Fed chair admitted that Fed “no longer understands” the “mystery” that is inflation, we did our best to explain to Yellen that the reason why the Fed’s search for inflation has been fruitless, is because for nearly a decade it has been looking in the wrong place: the “real economy” where the Fed’s impact has been negligible, as opposed to “asset prices” where the Fed has unleashed near hyperinflation.
    ***
    Sadly, we doubt the Fed will understand what the above chart means.
    Which of course, is ironic, because it was the Fed’s arrival in 1913 that was the catalyst for inflation to snap and unanchor from 700 years of patterns, and to mutate from gradually upward sloping to spike exponentially over the past 100 years. Furthermore, as Deutsche Bank’s Jim Reid writes, nothing will change, and Inflation remains the most likely outcome “until a new global financial system found.” Incidentally, he adds the latter because even chief credit strategists of major banks have come to the same “tin foil” conclusion we unveiled in 2009, namely that the existing financial and economic (if not social) system is doomed as long as an unconstrained fiat regime, which creates ever greater and greater asset bubbles, remains.

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


  • Traders Yawn After Fed’s “Great Unwind”

    One day after the much anticipated Fed announcement in which Yellen unveiled the “Great Unwinding” of a decade of aggressive stimulus, it has been a mostly quiet session as the Fed’s intentions had been widely telegraphed (besides the December rate hike which now appears assured), despite a spate of other central bank announcements, most notably out of Japan and Norway, both of which kept policy unchanged as expected.
    ‘Yesterday was a momentous day – the beginning of the end of QE,’ Bhanu Baweja a cross-asset strategist at UBS, told Bloomberg TV. ‘The market for the first time is now moving closer to the dots as opposed to the dots moving towards the market. There’s more to come on that front. ‘
    Despite the excitement, S&P futures are unchanged, holding near all-time high as European and Asian shares rise in volumeless, rangebound trade, and oil retreated while the dollar edged marginally lower through the European session after yesterday’s Fed-inspired rally which sent the the dollar to a two-month high versus the yen on Thursday and sent bonds and commodities lower. Along with dollar bulls, European bank stocks cheered the coming higher interest rates which should help their profits, rising over 1.5% as a weaker euro helped the STOXX 600. Shorter-term, 2-year U. S. government bond yields steadied after hitting their highest in nine years.
    ‘Initial reaction is fairly straightforward,’ said Saxo Bank head of FX strategy John Hardy. ‘They (the Fed) still kept the December hike (signal) in there and the market is being reluctantly tugged in the direction of having to price that in.’
    The key central bank event overnight was the BoJ, which kept its monetary policy unchanged as expected with NIRP maintained at -0.10% and the 10yr yield target at around 0%. The BoJ stated that the decision on yield curve control was made by 8-1 decision in which known reflationist Kataoka dissented as he viewed that it was insufficient to meeting inflation goal by around fiscal 2019, although surprisingly he did not propose a preferred regime. BOJ head Kuroda spoke after the BoJ announcement, sticking to his usual rhetoric: he stated that the bank will not move away from its 2% inflation target although the BOJ “still have a distance to 2% price targe” and aded that buying equity ETFs was key to hitting the bank’s inflation target, resulting in some marginal weakness in JPY as he spoke, leaving USD/JPY to break past FOMC highs, and print fresh session highs through 112.70, the highest in two months, although it has since pared some losses.

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


  • This Fed is on a Mission

    QE Unwind starts Oct. 1. Rate hike in Dec. Low inflation, no problem. The two-day meeting of the FOMC ended on Wednesday with a momentous announcement that has been telegraphed for months: the QE unwind begins October 1. It marks the end of an era.
    The unwind will proceed at the pace and via the mechanisms announced at its June 14 meeting. The purpose is to shrink its balance sheet and undo what QE has done, thus reversing the purpose of QE.
    Countless people, worried about their portfolios and real estate investments, have stated with relentless persistence that the Fed would never unwind QE – that it in fact cannot afford to unwind QE.
    The vote was unanimous. Even no-rate-hike-ever and cannot-spot-housing-bubbles Neel Kashkari voted for it.
    The Fed also telegraphed that it could raise its target range for the federal funds rate a third time this year, from the current range of 1.0% to 1.25%. There is only one policy meeting with a press conference left this year: December 13, when the two-day meeting ends, remains the top candidate for the next rate hike.
    This has been the routine since the rate hike last December: The FOMC decides to change its monetary policy at every meeting with a press conference: December, March, June, today, and December.

    This post was published at Wolf Street by Wolf Richter ‘ Sep 20, 2017.


  • Will The Fed Really ‘Normalize’ It’s Balance Sheet?

    To begin with, how exactly does one define ‘normalize’ in reference to the Fed’s balance sheet? The Fed predictably held off raising rates again today. However, it said that beginning in October it would no longer re-invest proceeds from its Treasury and mortgage holdings and let the balance sheet ‘run off.’
    Here’s the problem with letting the Treasuries and mortgage just mature: Treasuries never really ‘mature.’ Rather, the maturities are ‘rolled forward’ by refinancing the outstanding Treasuries due to mature. The Government also issues even more Treasurys to fund its reckless spending habits. Unless the Fed ‘reverse repos’ the Treasurys right before they are refinanced by the Government, the money printed by the Fed to buy the Treasurys will remain in the banking system. I’m surprised no one has mentioned this minor little detail.
    The Fed has also kicked the can down the road on hiking interest rates in conjunction with shoving their phony 1.5% inflation number up our collective ass. The Fed Funds rate has been below 1% since October 2008, or nine years. Quarter point interest rate hikes aren’t really hikes. we’re at 1% from zero in just under two years. That’s not ‘hiking’ rates. Until they start doing the reverse-repos in $50-$100 billion chunks at least monthly, all this talk about ‘normalization’ is nothing but the babble of children in the sandbox. I think the talk/threat of it is being used to slow down the decline in the dollar.

    This post was published at Investment Research Dynamics on September 20, 2017.


  • US Household Incomes: A 50-Year Perspective

    Last week the Census Bureau released its annual report on household income data for 2016. Last year the median (middle) household income rose to $59,149, a 4.1% increase over 2015 and a record high. The median income adjusted for inflation is also at a record high, above the peak of $58,882 set in 2000. The mean (average) household income set a new high of $83,143. More about that in another commentary. Meanwhile, let’s take a closer look at the quintile averages, which dates from 1967, along with the statistics for the top 5%.
    Most people think in nominal terms, so the first chart below illustrates the current dollar values for the six cohorts across the 50-year period (in other words, the value of a dollar at the time received – not adjusted for inflation). What we see are the nominal growth patterns over the complete data series. In addition to the five quintiles, the Census Bureau publishes the income for the top five percent of households. We’ve included a table to document the impressive year-over-year growth in 2016 for all six cohorts.

    This post was published at FinancialSense on 09/20/2017.


  • ‘Never Let A Good Crisis Go To Waste’

    The ‘crisis’ quote above originated with Winston Churchill. Several U. S. politicians have referenced it since thenm (most recently Rahm Emanuel when he was Obama’s Chief of Staff). I’m sure the Wall Street snake-oil salesmen and economic propagandists are more than happy to attribute the deteriorating economic numbers to the hurricanes that hit Houston and southwestern Florida.
    Retail sales for August were released Friday and showed a 0.2% decline from July. This is even worse than that headline number implies because July’s nonsensical 0.6% increase was revised lower by 50% to 0.3% (and it’s still an over-estimate).
    Before you attribute the drop in August retail sales to Hurricane Harvey, consider two things: 1) Wall St was looking for a 0.1% increase and that consensus estimate would have taken into account any affects on sales in the Houston area in late August; 2) Building materials and supplies should have increased from July as Houston and Florida residents purchased supplies to reinforce residences and businesses. As it turns out, building supplies and material sales declined from July to August, at least according to the Census Bureau’s assessment. Furthermore, online spending dropped 1.1%. Finally, the number vs. July was boosted by gasoline sales, which were said to have risen 2.5%. But this is a nominal number (not adjusted by inflation) and higher gasoline prices, i.e. inflation, caused by Harvey are the reason gasoline sales were 2.5% higher in August than July.

    This post was published at Investment Research Dynamics on September 20, 2017.


  • Why This Time Is Different: “Fed Guidance Really Matters”

    From Bloomberg macro commentator Marc Cudmore
    Today’s Fed meeting is critical for all financial assets. A large part of the framework for how to trade the year ahead will be clarified between Wednesday’s statement, the dot plot and subsequent FOMC member speeches in coming days.
    Fed meetings are often overhyped, particularly by financial commentators. Don’t dismiss the hype this time. And because the Fed’s decision is so crucial for the path of FX and rates, every other asset hinges on the outcome by extension.
    It’s not that Fed guidance has never mattered before, but it’s vital now that we have moved beyond the data dependence that was the key theme for the last few years.
    Previously, those traders who believed in higher yields bought into the idea of inflation accelerating, whereas those who were most bullish Treasuries feared for the strength of the economy.

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


  • What Happens When Inflation Walks In?

    If you watch and participate in markets long enough – and no, we’re not talking about, ‘On a long enough timeline…’ – you’ll appreciate or get bitten (as we certainly have from time to time) by the sardonic irony that often becomes exposed by a market’s cycle. Consider Mohamed El-Erian’s ‘New Normal’ market strategy, that aimed at the start of this decade to capture the anticipated outperformance of emerging over developed markets. Bear in mind that the phrase has stuck around since then, despite the fact that it was largely a narrative for a poor investment strategy.
    What happened? El-Erian and Gross were prescient in inventing the term ‘new normal’ to describe a very slow-growing global economy with heightened risks of recession, as befell much of Europe. But they were dead wrong in predicting that emerging markets would provide outsize stock returns, and they were wildly off base in their notion that developed-market stock returns would be deeply depressed. Emerging market stocks have stumbled since 2011, and emerging market bonds have lost ground this year. Meanwhile, developed-world stock markets have soared. The fund’s use of options and other techniques to hedge against ‘tail risk’ – which essentially means insuring against extremely bad markets – has also surely cost the fund a little in performance. – Kiplinger, November 14, 2013
    Not to overly pick on El-Erian here, who is typically a very thoughtful and creative macro thinker – not to mention many of his new normal predictions did prove prescient, with the very large exception of rising inflation that would have likely driven a successful investment strategy – not just a convenient catch phrase… but, ironically, it appears his timing earlier this year of calling for an end of the new normal, as selectively revisionist as they paint it, might provide a fitting bookend to the market’s wry sense of humor.
    Eight years later – and instead of just getting slow growth right in a developed economy like the US, as he initially suggested in May 2009, his other two major tenets of rising inflation and rising unemployment might eventually be realized domestically in the economy’s next chapter. In fact, from our perspective it seems more likely than not.

    This post was published at GoldSeek on 19 September 2017.


  • BIS Hunts for ‘Missing’ Global Debt, Inflation (Try Including Housing!)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    Just like global central banks, the Bank for International Settlements can’t seem to find inflation and $114 trillion in off-balance sheet FX derivatives.
    ZURICH – Nonfinancial companies and other institutions outside of the U. S., excluding banks, may be sitting on as much as $14 trillion in ‘missing debt’ held off their balance sheets through foreign-exchange derivatives, according to research published Sunday by the Bank for International Settlements.
    These transactions, which resemble debt but for accounting purposes aren’t classified that way, aren’t new. Rather, researchers from the BIS – a consortium of central banks based in Basel, Switzerland – used global banking data and surveys to estimate the size of this debt for the first time.
    The implications for financial stability are unclear because FX swaps are backed by cash collateral and can be used to hedge exposure to currency swings, thus promoting stability. Still, the debt ‘has to be repaid when due and this can raise risk,’ the authors wrote.

    This post was published at Wall Street Examiner on September 19, 2017.