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  • The Case for Deflation

    OK starting a thread to hold all the arguments for and against deflation occuring in the USA, which would be the Fed worst nightmare.

    .................................................. .................................................. .....................


    The October Personal Income and Outlays report for October was published today by the Bureau of Economic Analysis.

    The latest Headline PCE price index year-over-year (YoY) rate of 0.74% is a decline from last month's adjusted 0.95% (previously 0.92%).

    The Core PCE index of 1.11% is fractionally lower than last month's adjusted 1.22% (previously 1.19%).

    Note:The Fed is on record as using PCE as its primary inflation gauge.

    The general disinflationary trend in core PCE (the blue line in the charts below) must be quite troubling to the Fed.

    After 5 years of ZIRP and waves of QE, this closely watched indicator has consistently moved in the wrong direction since early 2012 and, after flatling since May, it has now slipped lower.


    [On a personal note I did my retirement planning in 2004 based on 5 inflation senerios; 2%, 4%, 6%, 8% and 10%. LOL so far its been between 1% and 2% which is great for a retiree, since my defined benefit pension is a fixed amount for life.]


    In the graph below the target range is highlighted from 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 12 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.





    A look at the longer term.





    Personal Consumption Expenditures Price Index
    "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

  • #2
    Dec Taper Bells Deflated Despite Jobs Report
    December 6, 2013 4:31 pm by Ashraf Laidi

    Dectaper Bells Deflated Despite Jobs Report | City Index
    "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

    Comment


    • #3
      If People Were Paying Attention To This Obscure Inflation Chart, There Would Be Pani

      .
      .
      ALBERT EDWARDS: If People Were Paying Attention To This Obscure Inflation Chart, There Would Be Panic

      Read more: Albert Edwards: Market-Based PCE Deflationary - Business Insider


      Almost every major economy in the world is wrestling with surprisingly low inflation this year. Some argue this is the big economic story of 2013.
      Societe Generale's Albert Edwards has been early on this story, warning of deflation as other market skeptics warned of Fed-induced hyperinflation.

      In his new note to clients, Edwards points to an obscure inflation measure that reinforces his concerns.

      "Staring catatonically at this month’s US Personal Income and Outlays press release I was struck by just how weak an alternative measure of the core PCE deflator it had become," wrote Edwards. "The report says “the market-based PCE is a supplemental measure that is based on household expenditures for which there are observable price measures. It excludes most imputed transactions (for example, financial services furnished without payment)”, i.e. it excludes prices which the statisticians have to invent!"

      He noted that this measure was trending below other more popular measure of inflation like core CPI and core PCE, a favorite of the Federal Reserve.

      But what really concerns him is the more recent moves in the measure.

      "Most significantly, there has been an unusually wide divergence just recently," he continued. "Whereas the closely watched core PCE deflator has risen by 0.1% in each of the last four months, the market-based measure of core PCE deflator was flat in both October and September. Now we are dealing with very small numbers here, but that still means an annualised rate of inflation was 0.5% rather than 1% (see chart below)."

      Deflation can be a very scary thing that is very difficult to reverse. Falling prices cause consumers to hold back purchases, which in turn causes prices to fall further. This leads to falling profits, falling wages, falling everything.

      "If the market had any idea that we were starting to register zeros on this measure, I think there would be panic aplenty," said Edwards.


      Last edited by SeattleSun; 01-04-2014, 01:24 PM.
      "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

      Comment


      • #4
        "An Ill Wind" by Russell Napier of CLSA

        Russell Napier of CLSA put out a new paper titled "An Ill Wind" making the case for a serious world deflation event coming. Haven't got my hand on it yet but have read some summaries.


        For investors who can not take the risk of leaving the bull-market party too early, Russell Napier's 'An Ill Wind' report focuses on three leading indicators of imminent deflation:

        1) copper prices;
        2) inflation expectations, as implied by the difference in yield between five-year Treasuries and Treasury inflation-protected securities (TIPS); and
        3) the spread on BAA corporate bonds.

        .................................................. .................................................. ...................................

        Selected extracts from CLSA's Russell Napier:

        Inflation has fallen to 1.10 in the USA and 0.7% in the Eurozone and we are now perilously close to deflation. Reflation is needed to relieve debt burdens throughout society and in doing so to bolster corporate equity. Investors are cheering the direct impact of QE on their equity valuations, but ignoring its failure to produce sufficient nominal-GDP growth to reduce debt. In a market where such bad news has been seen as good news (as it leads to more QE.), the reality of QE's failure will become bad news as we head towards deflation.

        When US inflation fell below 1% in 1998, 2001-02 and 2008-09, equity investors saw major losses. If a similar deflation shock hits us now, those losses will be exacerbated, since the available monetary responses are much more limited than they were in the past.

        For investors who cannot take the risk of leaving the bull-market party too early, this report focuses on three leading indicators of imminent deflation: copper prices; inflation expectations, as implied by the difference in yield between five-year Treasuries and Treasury inflation-protected securities (TIPS); and the spread on BAA corporate bonds.

        With US inflation already dangerously low, a significant decline in copper prices would signal a major deflation shock. Investors should sell equities if the five-year TIPS-implied inflation rate falls from the current 1.86% to 1.50% or below, or if the spread on BAA corporate bonds rises from the current 262bps to 300bps or higher.


        Deflationary winds are strengthening Japanese corporations continue to cut their US-dollar selling prices, forcing Chinese and Korean exporters to follow suit, A further major fall in the yen would ratchet up the pressure. Meanwhile, broad-money growth remains anemic across the developed world. In the USA, the Fed's failure to create normal broad-money growth is intensifying as bank credit growth slows rapidly, while in the Eurozone, bank credit to the private sector is now contracting more rapidly than it did in 2009. The failure of monetary policy to defeat deflation is about to become apparent, with dire consequences for equity prices.

        Conclusion

        We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels. This research seeks to provide investors with some lead indicators as to when the current disinflationary forces erupt into a destructive deflation. Each investor must decide for themselves just how close to midnight they want to leave this particular party. The advice of Solid Ground is leave now as it is increasingly likely that one event will be the catalyst to very rapidly change inflationary into deflationary expectations. Indeed, when key prices are already falling across the globe, one should expect one key major credit event to occur.

        Three times since 1997 inflation has fallen below 1% with very negative impacts for equity investors. On all three occasions an existing low level of inflation was forced lower by dramatic events: the bankruptcy of Russia and collapse of LTCM in 1998; the terrorist attacks of 11 September 2001; and the bankruptcy of Lehman Brothers in September 2008. While nobody would attribute the 11 September atrocity with extant global deflationary forces, the other two episodes can clearly be associated with such forces. So perhaps it is global deflationary forces creating a bankruptcy event, somewhere in the world, that is the catalyst for a sudden change in inflationary expectations in the developed world. It can all happen very quickly; and it is dangerous to stay at an equity party driven by disinflation when it can spill so rapidly into deflation.

        In 1998 falling export prices triggered a Russian default, and in 2008 falling US house prices triggered the Lehman bankruptcy. Going back further, deflation in the oil price in 1982 produced a Mexican default and a credit event which threatened to bring down the US banking system. Deflation in these key prices produced a credit event which rapidly produced a major reassessment of the outlook for the general price level. Across the world today we see falling commodity prices and, primarily due to the weak yen, falling manufactured-goods prices. When there is plenty of leverage in the system and any key price starts to decline then a credit event and a sudden change in inflationary expectations are much more possible than the consensus believes. So watch the TIPS, BAA bond spreads and copper if you must, but this analyst prefers to observe the party from outside.


        http://www.zerohedge.com/news/2013-1...ationary-shock
        Last edited by SeattleSun; 12-11-2013, 08:52 AM.
        "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

        Comment


        • #5
          Just to be Clear...

          .,,,I am not in the "deflation camp" but have it on the "watch list".
          "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

          Comment


          • #6
            Economists Around The World Have Been Slashing Their Inflation Forecasts

            "The big story this year is not the US spending sequester, the China slowdown or the ongoing European recession," said Bank of America Merrill Lynch's Ethan Harris back in May.

            "The big story is inflation, or more precisely, the lack thereof."

            Seven months later, the lack of inflation is still arguably the big story.

            "Inflation continues to surprise to the downside," said St. Louis Fed President James Bullard on Monday.

            Low inflation seems to be a pretty good reason for the Federal Reserve to keep its foot on the monetary stimulus gas pedal.

            However, low inflation isn't strictly a U.S. phenomenon.

            All around the world, inflation has been much more benign than forecasted by economists.

            Bloomberg LP Chief Economist Michael McDonough tweeted this chart of how expectations for inflation have come down everywhere (excluding the Middle East.)

            Note this graph below is a Forecast of Inflation for 2014 and note how the forecasts keep falling all thru 2013 and the end points on the right are now the current forecasts and all are negative except for the middle east region.

            Last edited by SeattleSun; 02-15-2014, 07:12 PM.
            "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

            Comment


            • #7
              Considering the FED's efforts to date...what we have here is deeply deflationary. You can't argue that the FED has not been ahead of the curve on this front, right or wrong.
              "Stop thinking of income in terms of your time"

              The Financial Tap - Cycles Analysis & Trading

              Comment


              • #8
                If you listen to anything I post, you is dumber than a WeTodd. I DO NOT know what will happen in the future.
                An investor/trader can remain irrational longer than the investor/trader can remain solvent.

                Comment


                • #9
                  ECRI is out with this update to "Becoming Japan"
                  Becoming Japan: Update | News | News and Events | ECRI







                  The European Central Bank cut rates last month following a "surprise" drop in Harmonized CPI inflation to 0.7% in October. But a head-to-head comparison on the same metric (see chart above) shows that U.S. inflation was actually lower, having dropped to just 0.6% in October.

                  What many still fail to acknowledge is that the major Western economies – including the U.S. – are effectively becoming Japan: the comfortable consensus is that, in contrast to the Eurozone, inflation in the U.S. should be (to quote the Fed) “moving back toward its longer-run objective” of 2%, and thus not a concern.

                  But should it be a concern, with yoy growth in the Personal Consumption Expenditures deflator falling to a four-year low of 0.7%, increasingly distant from the Fed’s 2% target, precisely as ECRI had predicted?
                  Last edited by SeattleSun; 12-14-2013, 01:44 PM.
                  "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                  Comment


                  • #10
                    The Case for Deflation
                    Looks like you are on to something, Seattle!

                    BERLIN (Alliance News) - Germany's wholesale prices declined for a fourth consecutive month in November, data from the Federal Statistical Office showed Friday...... Strong price declines for grain, unmanufactured tobacco, seeds and animal feeds as well as for ores, metals and semi-finished products
                    German Wholesale Prices Continue To Fall - Finance News - London South East

                    Wholesale prices in the U.S. declined for a third month in November, reflecting lower costs for energy and cars.
                    http://businessdayonline.com/2013/12...h-in-november/
                    Last edited by Grodon; 12-14-2013, 03:58 PM.

                    Comment


                    • #11
                      So you think FED will not tapper?
                      Originally posted by SeattleSun View Post
                      ECRI is out with this update to "Becoming Japan"
                      Becoming Japan: Update | News | News and Events | ECRI







                      The European Central Bank cut rates last month following a "surprise" drop in Harmonized CPI inflation to 0.7% in October. But a head-to-head comparison on the same metric (see chart above) shows that U.S. inflation was actually lower, having dropped to just 0.6% in October.

                      What many still fail to acknowledge is that the major Western economies – including the U.S. – are effectively becoming Japan: the comfortable consensus is that, in contrast to the Eurozone, inflation in the U.S. should be (to quote the Fed) “moving back toward its longer-run objective” of 2%, and thus not a concern.

                      But should it be a concern, with yoy growth in the Personal Consumption Expenditures deflator falling to a four-year low of 0.7%, increasingly distant from the Fed’s 2% target, precisely as ECRI had predicted?

                      Comment


                      • #12
                        ..
                        If you listen to anything I post, you is dumber than a WeTodd. I DO NOT know what will happen in the future.
                        An investor/trader can remain irrational longer than the investor/trader can remain solvent.

                        Comment


                        • #13
                          Originally posted by jin View Post
                          So you think FED will not tapper?
                          The DATA says we are getting closer and closer to deflation and the Fed said that it will be a 'data driven decision' so my read is the data says no taper next week.

                          But eventually someday it will have to end or the currency will get ruined.
                          "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                          Comment


                          • #14
                            I think you are right. In a way I want them to get over with the taper, so the market can be in peace for a while. But if the we are getting closer and closer to deflation, taper or not, we are getting closer. We may very well get a 2011 type summer this coming year. John Murphy was talking about this in today's stock chart market message. He also mentioned your other interest, the rotation from bond to stock market, which he believe is under the way: "I believe that the "secular" bear market that started in 2000 ended this year when the S&P 500 broke out of a decade-long trading range to hit a new record. I also believe that a major rotation out of bonds and into stocks is now underway which should make stocks a much better investment than bonds for several years."


                            Originally posted by SeattleSun View Post
                            The DATA says we are getting closer and closer to deflation and the Fed said that it will be a 'data driven decision' so my read is the data says no taper next week.

                            But eventually someday it will have to end or the currency will get ruined.
                            Last edited by jin; 12-15-2013, 10:04 AM.

                            Comment


                            • #15
                              The Fed is Losing its Battle Against Deflation!


                              Last edited by SeattleSun; 02-15-2014, 11:43 AM.
                              "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                              Comment


                              • #16
                                TIPS Wipeout Signals Fed Losing Fight Against Disinflation

                                TIPS Wipeout Signals Fed Losing Fight Against Disinflation
                                By Susanne Walker and Daniel Kruger
                                Dec 16, 2013 5:29 AM PT

                                Bond investors are signaling they expect the Federal Reserve to lose its battle against disinflation, even after inundating the U.S. economy with more than $3 trillion in the past five years.

                                * The gap between yields on TIPS and fixed-rate Treasuries show that traders anticipate inflation will average 1.75 percent in the next five years. That’s plummeted from this year’s high of 2.42 percent in March.


                                TIPS Wipeout Signals Fed Losing Fight Against Disinflation - Bloomberg

                                ................... From Post #4 .................................................. ....................

                                We are getting closer to Russell Napier's 1.50% sell trigger on the TIPS vs Treasuries metric.

                                For investors who can not take the risk of leaving the bull-market party too early, Russell Napier's 'An Ill Wind' report focuses on three leading indicators of imminent deflation:

                                1) copper prices;
                                2) inflation expectations, as implied by the difference in yield between five-year Treasuries and Treasury inflation-protected securities (TIPS); and
                                3) the spread on BAA corporate bonds.

                                * Investors should sell equities if the five-year TIPS-implied inflation rate falls ...........to 1.50% or below
                                Last edited by SeattleSun; 12-16-2013, 01:02 PM.
                                "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                Comment


                                • #17
                                  Excellent thread. I've been pondering this for a while. I posted comments about near zero inflation in the (9 Dec) daily thread in The Lounge; sometimes I'm reminded of TF while in The Lounge. I guess it's good to be reminded that one must fight their personal biases. Months ago, I don't think I would have been discussing the possibility of impending deflation.

                                  I am concerned as to what will happen to the inflation rate when the Fed starts tapering; I think we will be looking at a Japan-style deflationary depression if we end QE too soon. We are currently exporting our deflation through QE to Europe and anywhere else that isn't engaging in QE.

                                  Some interesting articles have popped up recently discussing how QE is deflationary in the long term. I'd disagree, but expect that unwinding QE will be deflationary and for that reason, we'll see a very prolonged period of interest rates near the zero bound.

                                  Here are two articles:
                                  Monetary policy: Is QE deflationary? | The Economist
                                  Noahpinion: Does QE cause deflation? ... click on the links in this article if you want to read a lot of wonkish articles on QE and deflation.


                                  If QE stops, I will move my money to cash and possibly to overseas markets because I don't expect US equity markets to do well in a deflationary environment. Has anyone thought about where to invest in a deflationary economy?

                                  Comment


                                  • #18
                                    May be that will be the time for gold? from what I read, deflation and inflation are good for gold, but disinflation (what we are having now) is not good for gold.
                                    Originally posted by iflyjetzzz View Post
                                    Excellent thread. I've been pondering this for a while. I posted comments about near zero inflation in the (9 Dec) daily thread in The Lounge; sometimes I'm reminded of TF while in The Lounge. I guess it's good to be reminded that one must fight their personal biases. Months ago, I don't think I would have been discussing the possibility of impending deflation.

                                    I am concerned as to what will happen to the inflation rate when the Fed starts tapering; I think we will be looking at a Japan-style deflationary depression if we end QE too soon. We are currently exporting our deflation through QE to Europe and anywhere else that isn't engaging in QE.

                                    Some interesting articles have popped up recently discussing how QE is deflationary in the long term. I'd disagree, but expect that unwinding QE will be deflationary and for that reason, we'll see a very prolonged period of interest rates near the zero bound.

                                    Here are two articles:
                                    Monetary policy: Is QE deflationary? | The Economist
                                    Noahpinion: Does QE cause deflation? ... click on the links in this article if you want to read a lot of wonkish articles on QE and deflation.


                                    If QE stops, I will move my money to cash and possibly to overseas markets because I don't expect US equity markets to do well in a deflationary environment. Has anyone thought about where to invest in a deflationary economy?

                                    Comment


                                    • #19
                                      Originally posted by iflyjetzzz View Post
                                      Excellent thread. I've been pondering this for a while. I posted comments about near zero inflation in the (9 Dec) daily thread in The Lounge; sometimes I'm reminded of TF while in The Lounge. I guess it's good to be reminded that one must fight their personal biases. Months ago, I don't think I would have been discussing the possibility of impending deflation.

                                      I am concerned as to what will happen to the inflation rate when the Fed starts tapering; I think we will be looking at a Japan-style deflationary depression if we end QE too soon. We are currently exporting our deflation through QE to Europe and anywhere else that isn't engaging in QE.

                                      Some interesting articles have popped up recently discussing how QE is deflationary in the long term. I'd disagree, but expect that unwinding QE will be deflationary and for that reason, we'll see a very prolonged period of interest rates near the zero bound.

                                      Here are two articles:
                                      Monetary policy: Is QE deflationary? | The Economist
                                      Noahpinion: Does QE cause deflation? ... click on the links in this article if you want to read a lot of wonkish articles on QE and deflation.


                                      If QE stops, I will move my money to cash and possibly to overseas markets because I don't expect US equity markets to do well in a deflationary environment. Has anyone thought about where to invest in a deflationary economy?

                                      Not something Im worried about. That kind of deflation would mean that the Fed has failed, and I wouldnt write them off yet. If that happens, we would have major problems, and I doubt anyone would be better off than us.
                                      Markets can remain irrational longer than you can remain solvent.

                                      Comment


                                      • #20
                                        Originally posted by Tex View Post
                                        Not something Im worried about. That kind of deflation would mean that the Fed has failed, and I wouldnt write them off yet. If that happens, we would have major problems, and I doubt anyone would be better off than us.
                                        You're a minority on this website.
                                        I agree that the Fed can probably maneuver its way out of a deflationary event but I think that the taper pressure is mounting on them ... I wouldn't be surprised to see several months of zero inflation as the USD rises due to tapering before the Fed untapers.

                                        But I do like to at least go through the mental exercise of planning investment contingencies in a deflationary world.

                                        Comment


                                        • #21
                                          The Market P/E does best with Inflation between 0% and 3%.....

                                          ....equities don't like deflation or too much inflation. Not too hot, not too cold the porridge has to be just right!

                                          We get CPI tomorrow morning. Inflation is a key driver for direction of P/E multiples.


                                          "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                          Comment


                                          • #22
                                            Tomorrow we get CPI to find out how high real rates are

                                            As I remember last month real interest rates ROSE to -0.84%.

                                            As inflation approaches zero real interest rate rise and if we get to actual deflation real interest rates will go positive making hold cash a good investment aka the Fed's worst nightmare.

                                            ------- Yea here is my post #787 from the Cadbury Thread ----------------------------------------------------------

                                            Real Interest Rates Rise to -0.84% in Oct 2013 yoy.

                                            Using the "annual numbers"

                                            CPI is 0.96% to the second decimal place in Oct 2013 and
                                            the yield on the one year treasury is 0.12%
                                            So the REAL interest rate is:
                                            1 Yr T - Annual CPI = Real One Year Rate of Interest or
                                            +0.12% - 0.96% = -0.84%

                                            So your only losing -0.84% purchasing power a year keeping your money in 1 Year Treasury Bills

                                            This isn't enough pain for the evil savers in our society so expect the Fed to push for more inflation!

                                            But are they pushing on a string?
                                            Last edited by SeattleSun; 12-16-2013, 10:40 PM.
                                            "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                            Comment


                                            • #23
                                              Real Interest Rates Rise to -0.84% in Oct 2013 yoy. Using the "annual numbers" CPI

                                              ^
                                              ^
                                              Real Interest Rates Fall to -1.11% in November 2013 yoy as CPI ticks up to 1.24%.

                                              Using the "annual numbers"

                                              CPI is 1.24% to the second decimal place in Nov 2013 and
                                              today the yield on the one year treasury is 0.13%
                                              So the REAL interest rate is:
                                              1 Yr T - Annual CPI = Real One Year Rate of Interest or
                                              +0.13% - 1.24% = -1.11%

                                              So your only losing -1.11% purchasing power a year keeping your money in 1 Year Treasury Bills.

                                              This isn't enough pain for the evil savers in our society so expect the Fed to push for more inflation towards their target range of 2.0 to 2.5%!

                                              --------------------------------------------------------------------------------------------------------

                                              The Bureau of Labor Statistics released the November CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.24%, which the BLS rounds to 1.2%, up from 0.96% last month (rounded to 1.0%).

                                              Year-over-year Core CPI (ex Food and Energy) came in at 1.72% (rounded to 1.7%), virtually unchanged from last month's 1.68% (rounded to 1.7%).




                                              Full CPI report by DShort
                                              http://advisorperspectives.com/dshor...e-and-Core.php
                                              Last edited by SeattleSun; 12-17-2013, 12:57 PM.
                                              "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                              Comment


                                              • #24
                                                Inflation and Unemployment since the start of QE3 in September 2012

                                                Since the start of Fed’s QE3 in September 2012, the decline in US inflation has been three times the rate of decline in US unemployment rate.

                                                It is time markets focused on the proportion of both variables as the Fed’s dual forward guidance is thoroughly put across by the Federal Reserve.

                                                As both inflation and unemployment race to the bottom, understanding the magnitude of both variables and their impact on economic growth becomes vital in assessing clues on Fed policy for 2014, particularly when comparing it to BoE. We repetitively said since September that low inflation figures will be the next trick for the dovish FOMC members to maintain their taperless and low rate credentials over monetary policy.

                                                Inflation Decline since Start of QE3

                                                Since the start of QE3 in September 2012, US inflation (as measured by the Fed’s preferred measure of core PCE price index), has fallen 35% from 1.7% to 1.1% (the lowest since March 2011). Meanwhile, the CPI measure fell by about 40%–from 2.0% y/y in Sep 2012 to 1.2% in November.

                                                With US unemployment rate falling by 11% since September 2012 and inflation falling by three times as much, the Fed’s priority in supressing bond yields will be best grasped via comparing the trends in unemployment relative to inflation.

                                                Inflation vs Unemployment & FX Implications for UK & US | City Index
                                                Last edited by SeattleSun; 12-17-2013, 12:51 PM.
                                                "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                Comment


                                                • #25
                                                  PCE Data Updated for today's release of November 2013 Data

                                                  The November Personal Income and Outlays report for November was published today by the Bureau of Economic Analysis.

                                                  The latest Headline PCE price index year-over-year (YoY) rate of 0.87% is a small rise from last month's downwardly adjusted 0.72% (previously 0.74%).

                                                  The Core PCE index of 1.12 is fractionally higher than last month's downwardly adjusted 1.09% (previously 1.11%).

                                                  [Still no signs of increasing inflation - SS}

                                                  This graph updates the graph of PCE in post #1 that started this string
                                                  Last edited by SeattleSun; 02-16-2014, 01:23 PM.
                                                  "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                  Comment


                                                  • #26
                                                    The economy has two major uncertainties for an investor: 1) Growth and 2) Inflation.

                                                    As stated before in Post #21 the sweet spot for inflation is between 0% and 3% and its better to have 4% growth than 3% or 2%.

                                                    These charts below show 9 POSSIBLE OUTCOMES for this decade and so far the Fed has keep Deflation from the door (barely) and recently (3Q13) has pushed Real GDP to have a "4" handle on it. Which puts us in the bottom center white box, which is a good as it gets in a developed economy like the USA!








                                                    http://www.crestmontresearch.com/stock-market/
                                                    Last edited by SeattleSun; 12-25-2013, 04:58 PM.
                                                    "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                    Comment


                                                    • #27
                                                      Fastest Japan Inflation Since ’08 Stokes Wage Pressure:

                                                      Prices excluding fresh food rose 1.2 percent from a year earlier.....,

                                                      Japan is now past the halfway point to the central bank’s 2 percent inflation target
                                                      Fastest Japan Inflation Since

                                                      1.2% "inflation".

                                                      Who cares?

                                                      Why is that a big deal, Seattle?

                                                      Comment


                                                      • #28
                                                        Originally posted by Grodon View Post
                                                        Fastest Japan Inflation Since

                                                        1.2% "inflation".

                                                        Who cares?

                                                        Why is that a big deal, Seattle?
                                                        I think they look at these from a "rate of change" perspective not so much the absolute value.

                                                        So lets say Japanese inflation went from 0.1% to 1.2% that is a 12X or 1200% increase!
                                                        "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                        Comment


                                                        • #29
                                                          So lets say Japanese inflation went from 0.1% to 1.2% that is a 12X or 1200% increase!
                                                          1200%!

                                                          Gotcha, Seattle!

                                                          Comment


                                                          • #30
                                                            Real Interest Rates Fall to -1.39% in Jan 2014 (yoy) Using the "annual numbers" CPI

                                                            ^
                                                            EDIT: this was DECEMBER data!
                                                            ^
                                                            Real Interest Rates Fall to -1.39% in DECEMBER 2014 yoy as CPI ticks up to 1.50%.

                                                            Using the "annual numbers"

                                                            CPI is 1.50% to the second decimal place in Jan 2014 and the yield on the one year treasury is 0.11%

                                                            So the REAL interest rate is:
                                                            1 Yr T - Annual CPI = Real One Year Rate of Interest or
                                                            +0.11% - 1.50% = -1.39%

                                                            So your losing -1.39% purchasing power a year keeping your money in 1 Year Treasury Bills and -1.50% if you have cash under your mattress.

                                                            This isn't enough pain for the evil savers who are hording money in our society so expect the Fed to push for more inflation towards their target range of 2.0 to 2.5%!

                                                            Real interest rates moved more negative in January which is a positive thing for the yellow metal.


                                                            Last edited by SeattleSun; 02-20-2014, 03:40 PM.
                                                            "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

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                                                            • #31
                                                              Felix Zulauf Warns Of "Another Deflationary Episode" As ........

                                                              .
                                                              ..... "The Mother Of All Bubbles" Pops
                                                              Tyler Durden's pictureSubmitted by Tyler Durden on 02/15/2014

                                                              Felix Zulauf Warns Of "Another Deflationary Episode" As "The Mother Of All Bubbles" Pops | Zero Hedge
                                                              "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                              Comment


                                                              • #32
                                                                (BN) IMF Warns G-20 of Risks of Deflation, Emerging-Market Turmo il

                                                                By Sandrine Rastello
                                                                Feb. 19 (Bloomberg) -- Risks of prolonged market turmoil in emerging markets and of deflation in the euro area are threatening the world’s improved economic prospects, according to the International Monetary Fund staff.
                                                                In a note prepared for central bankers and finance ministers from the Group of 20, the IMF said the recovery is still weak and “significant downside risks remain.” A January global growth forecast of 3.7 percent for this year, from 3 percent in 2013, hinges on recent market volatility from Turkey to Brazil being short lived, staff wrote.
                                                                “Capital outflows, higher interest rates, and sharp currency depreciation in emerging economies remain a key concern,” according to the report prepared ahead of the G-20 Feb. 22-23 meeting in Sydney. “A new risk stems from very low inflation in the euro area, where long-term inflation expectations might drift down, raising deflation risks in the event of a serious adverse shock to activity.”
                                                                Rising political tensions from Ukraine to Thailand, China’s slowdown and the Federal Reserve’s tapering of its stimulus have resulted in falling stocks and currencies in emerging markets.
                                                                Less than two months into 2014, global investors pulled more money out of emerging-market stock and bond funds than the total amount they retracted last year.
                                                                To weather the current turbulence, the Washington-based IMF urged these economies to further increase interest rates when inflation remains high and cut spending when fiscal credibility is lacking.

                                                                Currency Flexibility

                                                                “Exchange-rate flexibility should continue to facilitate external adjustment, particularly where currencies are overvalued,” IMF staff wrote. Currency intervention “where reserves are adequate, can be used to smooth excessive volatility or prevent financial disruption.”
                                                                Advanced economies must maintain accommodative monetary policy, with the Fed needing to pay particular attention to its communication over the gradual adjustment of its asset purchases, according to the note.
                                                                In the 18-country euro area, which is “turning the corner from recession to a weak recovery,” the fund urged authorities to make it clearer that public backstops will be available for banks that may need funds after stress-test results.
                                                                The IMF also suggested cooperative policies to the G-20, which became the premier forum for economic policy discussion in September 2009, in order to raise global growth.
                                                                Better coordination between central banks over their exit of unconventional monetary stimulus, combined with measures such as infrastructure investment, changes to labor markets and policies to boost domestic demand in export countries could raise the world’s output by 0.5 percentage point a year, or
                                                                $2.25 trillion, by 2018, the fund said in a separate note.
                                                                “Strengthened and cooperative policies would deliver stronger, more balanced, and sustainable medium-term growth while reducing risks of renewed global turmoil,” it said.

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                                                                • #33
                                                                  Real Interest Rates Fall to -1.47% in Jan 2014 (yoy) using the "annual numbers" CPI

                                                                  ^
                                                                  ^
                                                                  Real Interest Rates Fall to -1.47% in January 2014 yoy as CPI ticks up to 1.58%.

                                                                  Using the "annual numbers"

                                                                  CPI is 1.58% to the second decimal place in Jan 2014 and the yield on the one year treasury is 0.11%

                                                                  So the REAL interest rate is:
                                                                  1 Yr T - Annual CPI = Real One Year Rate of Interest or
                                                                  +0.11% - 1.58% = -1.47%

                                                                  So your losing -1.47% purchasing power a year keeping your money in 1 Year Treasury Bills and -1.58% if you have cash under your mattress.

                                                                  This isn't enough pain for the evil savers who are hording money in our society so expect the Fed to push for more inflation towards their target range of 2.0 to 2.5%!

                                                                  Real interest rates moved more negative in January to -1.47% from -1.39% in December which is a positive thing for the yellow metal.

                                                                  EDIT: If commodities are indeed bottoming we could see inflation accelerate per comments from those like TZ, etc.

                                                                  "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                                  Comment


                                                                  • #34
                                                                    I think that oil and natural gas are already showing that inflation is coming back.

                                                                    Comment


                                                                    • #35
                                                                      Deflation Myths by Daniel Amerman ~ here is a quick synopsis:

                                                                      He is an asset deflationist, and fears that there is a strong chance that asset deflation in purchasing power terms may become an unstoppable force in the coming decade.

                                                                      In summary, key aspects of current deflationary theory can be characterized as the combination of 1) an absurdity; 2) a misunderstanding; and 3) an oversimplification; all working together to create 4) a serious danger for investors.


                                                                      Deadly Deflation Myths by Daniel R Amerman
                                                                      “That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.” ― Aldous Huxley

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                                                                      • #36
                                                                        Originally posted by HermosaHank View Post
                                                                        Deflation Myths by Daniel Amerman ~ here is a quick synopsis:

                                                                        He is an asset deflationist, and fears that there is a strong chance that asset deflation in purchasing power terms may become an unstoppable force in the coming decade.

                                                                        In summary, key aspects of current deflationary theory can be characterized as the combination of 1) an absurdity; 2) a misunderstanding; and 3) an oversimplification; all working together to create 4) a serious danger for investors.


                                                                        Deadly Deflation Myths by Daniel R Amerman
                                                                        I mostly agree with the article. I disagree a bit. The currency system is a SYSTEM. It's finite and quantifiable at a quantum level upon origination (orthogonal debt origination). As long as we have fractional reserve banking (counterfeiting fungible "dollars") and especially with insoluble interest debt origination and fiat currency the mathematical reality of boom/bust will proliferate. It's not the "gold standard", it's the abortion of alchemic counterfeiting through fractional reserve banking. Economists can spew all the "words" until hell freezes over but the mathematical reality of a defined, finite, quantifiable system will behave within the boundaries of mathematics. Unfortunately the math that governs banker controlled fungible currency creation is UNBOUNDED due to numbers extending to infinity.

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                                                                        • #37
                                                                          Europe continues to turn Japanese.

                                                                          .
                                                                          .
                                                                          The annual rate of inflation has fallen to 0.7%. And four countries are officially in deflation.


                                                                          "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                                          Comment


                                                                          • #38
                                                                            Why is this prediction wrong, Seattle?

                                                                            Thanks in advance!

                                                                            Bridenstine warns of high inflation....

                                                                            He predicts sharply higher inflation and interest rates because of the administration's monetary regulatory policies.

                                                                            "The Democrats are saying 'Where's the inflation? There's no inflation.' Well, the money is out there, it will come into the market," Bridenstine said.

                                                                            He said inflation has not become an issue because "the velocity of money is at a 50-year low," and banks aren't lending enough money because of over-regulation and "artificially low interest rates."

                                                                            "If the economy ever does heat up," said Bridenstine, "you'll see all that money on the sidelines come in. ... Does this sound familiar? High inflation? High interest rates? Anybody buy a house in the 1970s?
                                                                            Bridenstine warns of high inflation during economic summit in Tulsa - Tulsa World: Government

                                                                            Comment


                                                                            • #39
                                                                              Real Interest Rates Rise to -1.02% in Feb 2014 from -1.47% in Jan 2014

                                                                              ^
                                                                              ^
                                                                              Real Interest Rates Rise to -1.02% in February 2014 (yoy) as CPI ticks down to 1.13%.

                                                                              Using the "annual numbers"

                                                                              CPI is 1.13% to the second decimal place in Feb 2014 and the yield on the one year treasury is +0.11%

                                                                              So the REAL interest rate is:
                                                                              1 Yr T - Annual CPI = Real One Year Rate of Interest or
                                                                              +0.11% - 1.13% = -1.02%

                                                                              So your losing ONLY -1.02% purchasing power a year keeping your money in 1 Year Treasury Bills and -1.13% if you have cash under your mattress.

                                                                              This isn't enough pain for the evil savers who are hording money in our society so expect the Fed to push for more inflation towards their target range of 2.0 to 2.5%!

                                                                              Real interest rates moved higher in Feb to -1.02% from -1.47% in January which is a negative thing for the yellow metal.


                                                                              Last edited by SeattleSun; 03-19-2014, 12:26 PM.
                                                                              "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                                              Comment


                                                                              • #40
                                                                                Originally posted by Grodon View Post
                                                                                Only time will tell if a prediction about something happening in the future is right or wrong. This guy could be right a few years down the road but with "the velocity of money is at a 50-year low" , it ain't happening now. And the here and now is where I am investing.

                                                                                Best to keep your eye on the velocity of money data from the Fed, etc. for early warning signs of inflation.

                                                                                "It takes courage to be a Pig!" Barton Biggs (1932 – 2012)

                                                                                Comment


                                                                                • #41
                                                                                  And the here and now is where I am investing.
                                                                                  +1, Seattle!

                                                                                  In the real long run, we're all DEAD!

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