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Inflation-Deflation Spread Hits 9% As Schrodinger's Cat Goes Nuts
The debate over inflation and deflation has just hit a spread of almost 10%, with deflation (10 Year Yields) barely budging from near record lows, while inflation (stocks) are at a level last seen when the 10 Year was at 3.25%. In other words, one is right and one is wrong, with the convergence between the two now at almost record levels of around 9%. At this point the markets can continue diverging as 10 Year yields drop even as stocks do their irrelevant thing, or, at some point, the correlation desks can get their act together and realize that this spread makes no sense and unlike a Schrodinger Thought Experiment, you can't live in a world in which assets predict both inflation and deflation at the same time. Perhaps all it takes is for some person with a dose of common sense to "observe" this discrepancy and collapse the wave function of the insanity that our market has become. The snap back will be violent.
Long term:
Intraday:
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bi-flation bitches
You made me laugh out loud irl with that comment, thanks. That was much needed today.
thats it ....we need a new term for the wierdness. i laughed too.
But it's a bit innocuous--doesn't convey the same malaise as stagflation does.
How about crapflation, or Chitflation, or AIDSflation?
Outflation, perhaps.
Very creative...Can I use that?
I am still sticking with "damnflation"
Doublethink.
+999 laughed hard.
you are absolutely correct. next up: empire collapse.
I'm not super clear on these metrics but whenever there is a spread, somebody can trade the arb right? What trade does this to kill the spread and make whoever is maintaining it pay through the nose?
Well, market is pushing higher while yields are pushing lower....
So I'd imagine short market and long 10y would work.
if the market continues this rally though, then the 10 year could lose the tug of war eventually. there are some people out there who think treasuries are an incredible bubble. im not sure myself what is going on.
No.... no..... no .....no...... short the market and SHORT the 10y (if 10 y falls then yields goes up).
Hey guys what are you talking about???? No wounder you don't get girls!!!
Check the chart. The orange line represents the "market" (in reality is E mini S&P 500 futures... but let's keept thing simple here) the white line is the 10 yield. In order to meet, the orange line needs to go down (short the market) and the white line needs to move up (yields going up means 10 y falling.... that's why you short the 10y).
But there is a problem...........
"Markets can remain irrational a lot longer than you and I can remain solvent." -- John "I'm Bernankes's Father" Keynes
So my advice for you two is..... get all your moneys out of the market don't trade... just save and buy short term corporate bonds in good companies (because yields are going to go up).... but don't trade.... ok do paper trading but with Monopoly money.
Thanks for clarifying - shorting bonds = shorting price, not yield. Right?
Yields move inversely to the price of the bond. If the bond price goes up then the yield that the bond pays goes down and vice-versa.
If you short the bond, you are betting that the price of the bond is going to go down, if the price moves down then the yield is going to go up.
Read this if you want to understand what is the yield ---> http://www.investopedia.com/university/bonds/bonds3.asp
Again, my advice to you.... don't trade $1 of real money.... trade paper money or open a practice account with a broker that would give you fake dollars to practice....
Thanks.
The bond market is ALWAYS right.
deflation in terms of gold
The markers reaction to all this bad news..... Fuck all this Harvard, Old fuck investor from the 80s analogy, Bens got us covered. Dig in Boys!!!
Quantum physics, bitches
"parallel universe" in full operational mode.
See Multiverse interpretation
++ all worlds are equal in reality.
observe.
Your question assumes there is some sort of "connection" between the equity casino and the so-called "real world". Like the fable of the frog and the scorpion, equity traders trade because "they can't help it, it is their nature." Even if they kill themselves in the process.
Exactly. The relationship presumption is that there's a relationship. But we have seen that "reality" and "markets" are not correlated. While minute to minute we might "see" a relationship, this is an illusion.
While corporate profits may be higher than a year ago, why are they higher? Certainly not because of any sustainable relationship to well understood and recognized "fundamentals".
The market level is based upon the concept of "things will get better and fundamentals will fall back in line eventually". In other words, hope. While doom and gloom might be an over reaction, the market levels are also an over reaction.
"Hope" is a dirty four letter word. But so is "drug". And we can be "sustained" on hope and drugs for a long time before our (economic and human body) system collapses and dies.
I agree that there lacks a positive correlation, but no negative correlation at all? Can finances grow without it taking anything away from other markets or the "real" economy?
There is no debate over deflation or inflation. It's like having a debate as to whether the Moon is made out of cheese.
The financial system is collapsing, the rate of collapse was slowed by the Federal government but it's still deflating. See government action between July 2008 and April 2009.
See Federal Reserve Z1 report. Worshipping non-existent helicopters is not going to help.
+1. That is actually what is happening, regardless of whether anyone sees it or not.
so then in your opinion marc faber and jim rogers are full of it with their talk of inflation?
they think things are collapsing too, but they, especially faber thinks the markets can rise for a long time during that collapse.
It's a fact it's not my opinion.
You had inflation from 1945 to 2007 of 5.5-15% annually, that stopped by the end of 2007 and went negative in 2009 and continues to be negative. It's simple a fact.
Of course, things usually don;t go in a straight line. If the Fed and the Federal government wouldn't have gotten in the act it would have looked more like a straight line down.
cycles and cycles within cycles. You are looking at a collapse and liquidation process that will take place over the rest of your lifetime and probably beyond that.
What Faber is talking about is the Federal government taking on the sole creator of new credit, of course it's unsustainable... why? because the real helicopter... all lemmings requesting new credit stop flying in 2007.
Death spiral, there is no out except through the meat grinder.
Mako you are eloquent and backed with hard cold facts today. Good job my son. Whoever believes there is ANY pragmatic chance of inflation only needs to look and chart SIFMAs most recent data reports. You can download them here and also you can have fun Excel-ing them. The picture is ... well . you'll see. *Disclaimer data is only about SPs and Standard FI; the most important markets for this debate.
http://www.sifma.org/research/research.aspx?ID=10806
I find it strange how these people think we got to this point and why what is happening is happening.
Those committed to inflationary expectations are 'fighting the last war'. Human nature, and one of those factors that ensures differences, and thus cyclicality.
As for equity traders still speculating because "they are unable to help themselves" . . . .I . . . I can quit anytime I want to!
After reading above, let me rephrase to see if I get it. So what we are seeing is the end of the inflation bull market created by a fiat monetary system.
It is impossible to have tight monetary control, because the system is inherently corrupt. It takes x amount of years for the corruption to work its way from the bankers to financiers, through the politicians getting bought off and settling with the man in the street. Once the man in the street figures out the game and demands his cut it is the beginning of the end. The fiat system starts as a light skim off the top for a few to creating massive amounts of debt to keep the game afloat as more players get enter the game.
And usually ends badly for the ones last in the game.
Tell that to Zimbabwe
As long as they keep the box closed we can't see the dead cat. So maybe inorder to prevent this from going any further someone were to shake the fuck out of the box.
'Harder' and 'Colder' facts:
"Adjusted to pre-Clinton (1990) methodology, annual CPI inflation was roughly 4.3% in June 2010, versus 5.4% in May, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was about 8.4% (8.37% for those using the extra digit) in June, versus 9.2% in May."
Remind me again, what are price increases usually indicative of? Oh right, I forgot, it's not 2007 so this is impossible; Nothing to see here folks, blinders and earplugs back in place please, carry on...
The Fed is desperate to get inflation ramped up again, which explains the unlimited fiat creation. The fact that deflation is still occurring in the face of unprecedented quantities of lighter fluid being poured on the open flames without a successful flare up is what keeps Ben and company walking the halls at night.
May we live in interesting times.
Mish, Denninger & TAE have been right about this all along. The total value of credit vs money in the aggregate credit-money system is orders of magnitude greater than money. I think Steve Keen mentioned last year that the Fed would have to print $25T to even begin making a dent. At this point, it could conceivably be $100T.
So what happens if Ben prints anything near the levels required? Well, it's simple arithmetic: if he increases the money supply by 10X, we should expect to see monetary (not credit eg home) prices increase by 10X. So gas would be $30/gallon, etc.
All this QE talk is pure nonsense - it's just jawboning. Money printing does nothing absent a desire by hundreds of millions of individuals to resume engaging contracts for credit (ie going into debt).
I think Ben's jawboning is a signal to the insiders that the jig is just about up. Some final gunning of the equities markets in (false) anticipation of printing, then the collapse. Printing does nothing for those who have already cashed out. TARP and the other programs instituted over the last 2 years made sure the power-elite got out & were made whole.
What do people desire when holding cash? For prices to drop. A Republican majority which embraces & implements "austerity" is exactly what the power-elite want. What they want is what they will get. Their only gamble is whether we go 1789 on their asses. Wake me when repudiation is on the table.
When the whole doelarrs are fractionalized it becomes enough to matter. The doelarr is finished as a currency. New ones will be appropriated shortly.
I'm no pro, and agree witht the broad conclusion that the absolute magnitude of credit>>>>>money, but I have a question.
What is to stop the liquidity that comes from Fed monetization from finding its way into smaller markets like commodities and driving inflation from the supply side?
I believe an example of this was the explosive 147/bbl run up in crude in 2008, what's to stop something similar from happening?
The credit thus created is subject to market valuation. Since it can't conceivably be fully paid back, that value will be reduced from 'par', both of it and the rest of identical credit.
The actual money is not only in vastly shorter supply, but harder to make quickly (it would take decades to physically print enough FRNs to fill this hole) which is why they prefer credit creation.
The run up in crude you cite happened in market conditions of easy credit. With default looming for ALL credit classes, even sovereign, interest rates Will be higher, specs have no free money to play with.
Simple....true inflation is brought about by wage increases.....not price increase. Price increases are a result of inflation....not a cause of it. When wages rise, people feel good about themselves, hence they buy more and contribute to inflation (the perception). The problem is, during the 1990's and 2000's it was not rising wages that caused inflation, it was excess credit. people had more credit (money) so they felt good about themsleves. the PEOPLE WERE TRICKED..... Nice one Ben... Fool us once, shame on us....fool us twice.....I DON'T FUCKING THINK SO......
Your a snake ben....you and your minions deserve a slow painful death.....by a thousands cuts.....
Well said CYR.
Easy credit engenders an un-earned sense of entitlement.
Not a good thing.
ORI
http://aadivaahan.wordpress.com
Inflation: tuition, health care, food, oil, taxes
Deflation: wages, house prices, consumer discretionary
Aggregate deflation => deflation => hyper-inflationary currency collapse
"Inflation: tuition, health care, food, oil, taxes"
Prime examples of why over time, subsidies are bad for the consumer.
nice observation.
You are wrong: the inflation rate is positive, not negative.
>You had inflation from 1945 to 2007 of 5.5-15% annually, that stopped by the end of 2007 and went negative in 2009 and continues to be negative. It's simple a fact.
No, it is positive:
http://www.shadowstats.com/alternate_data/inflation-charts
Note that price inflation is not an objective measurement (the ratio of objective exchange values of any two economic goods may fluctuate). But whether you believe the government or John Williams (I lean toward the latter), the values are both positive.
And if you look at the money supply - an objective measurement - it's skyrocketing: http://mises.org/content/nofed/chart.aspx?series=TMS
The problem you face, Mako, is to explain how the federal government with $100 trillion debt, and printing presses, will keep its monetary sphincter clenched and avoid pinching off more fiscal stimuli and bailouts. Yes, institutions will collapse. The structure of production will be wrecked. But the politicians will act to delay the government's own collapse: erelong we will be awash in a sea of green toilet paper.
FedZ Q1 2010 found Household credit contracted -2.4%, Business 0%, State increased +4.3%, Fed increased +18.5%. Great time to have a Fed job...
When the Fed acts to support collapsing equities, they flood the banks with money. Some of the money goes into equities, driving prices higher. Some goes into fixed income, driving the yields lower. Twenty holes in the dike and only one working finger (the middle ones have already been used up signing at the middle class, index fingers are in the ears, pinkies are up for tea time, thumbs are . . . ). QE 2.0 has started with vengeance. It's the only finger left.
No, it's sitting there or going into Treasuries.
I love it when people pull out M1 and M2 charts when the system is $52+T... those are farts in the wind of the system.
The flip side of that coin is that despite all the deleveraging that has gone on since 2007 M1 and M2 (for the sake of the argument I won't even mention True Money Supply) have increased, indicating an unprecedented increase in the money supply.
What I love is when people pull out some quant wizard's conjured figure of M3 and don't realize that even a quadrillion is a teardrop in the rain compared to infinity, a number which any printing press can easily aspire to reach (but never quite get there.)
Regards
Five years ago it was utterly unthinkable that the Fed would print a trillion dollars for a bailout. Why do you think they won't print 52 trillion dollars for all the bailouts to come?
Or are you relying on our politicians to reign them in? (*snicker*)
Because you can't fund your own credit... then the total amount would be $104T and then that would have to be serviced but if you can fund your own credit there is no reason to have credit in the first place.
If what you suggest is possible, have Ben drop me off a pizza and 12 pack and 99 virgins while he is flying around in his helicopter.
There is no out, that would just bring them more quickly to the meat grinder.
You can beat a dead horse all day long I assure you he is not going to run faster. You and the rest of the lemmings are the dead horse, the Fed and the Federal government are trying to whip you to run faster but you can't. It's game, set and match.
Sure the government and central banks can play game, at the end of the day it will peak then collapse.
Because they don't want to print $52T and it will not help them. The various bailouts are just inefficient payment mechanisms to wealthy individuals and/or direct payments to keep certain "systemically important" institutions kicking. All presently have a mandate to increase cash (or equivalent) position.
The bailouts served at least two purposes: (1) the credit waters were tested just to ensure we could not inflate any further (it was enough money to test without making it patently impossible for us to repay our future obligations... at least with some degree of smoke, mirrors, and loosely plausible deniability); and (2) the afore-mentioned restocking.
They don't care about inflating now. The shopping spree is here and they're just making a list. Once you can separate individuals from the limited liability organizations they largely control, it's easy to see where this is going.
People cry for an end to the FED, but I think they're going to get it... and probably in fairly short order (2-5 years). Its shitbird holdings that were not offloaded to GSEs will be, like the GSEs' holdings, liquidated to the top 1% (either directly or through new, non debt laden limited liability entities controlled by the same). Its lifespan is up... people ask how they could buy such bullshit... it's because the FED has terminal cancer and that was the end game all along...
PS, the FED isn't an island unto itself... BB doesn't wake up one morning and decide to print $52T... he has keepers... congress will reign him in because he, and his predecessors, have been printing all along at the behest of congress... the two are effectively tied at the hip.
Thanks to the bill that is going through BB gets to decide who is TBTF now. Now that is 'reform' GS can get behind.
Regards
Sort of... it's six of one half dozen of another...
"When the Fed acts to support collapsing equities,"
The Fed buys only Agencies and Treasuries...
Mako, just because the figurative 'helicopters' operate in stealth mode so you can't see/hear them doesn't mean they're not flying as we speak.
Worshipping non-existent value in fiat currencies is not going to help.
Oh and 'that is a fact, not an opinion' too, by your metrics.
Regards
Worshipping non-existent value in fiat currencies is not going to help.
I hope you didn't mean that towards me, I assure you I worship no such thing. All you guys are looking for the next chair to get in as the game of music chairs starts up again, eventually this will go on so long there will be no chairs left.
Treasury bubble AND equity bubble. Short them both.
With PMs.
I just got back from a most excellent fishing trip in the eastern Sierra. When fishing for wild trout (we're talking humping it 10 miles one-way over the Sierra crest @ 11-12,000' to get to naturally spawning Golden trout waters), the key is to get a reaction in order to induce them to strike.
For example, some of the most popular flies are termed 'attractants' because rather than mimic the appearance of a fly, they simply anger/annoy the shit out of the fish (they are extremely territorial) to cause them to strike. (GT aren't stupid-ass planter trout that lazily bite on bait.)
The point of this missive? ZH keeps throwing out these frequent updates to keep the Goldens' biting. Note that I classify ZH space monkeys not as sheep, but rather the premier fresh water game fish available. Beautiful, intelligent & highly desired, yet still at heart a simple animal that predictably reacts to certain stimuli.
People should take heed to Mako's post(s). These hourly/daily distractions are all noise. We had our inflation - it lasted from 1945-2008. There isn't any incipient or organic credit demand remaining simply because there isn't any economy activity by which people @ large believe they can generate a sufficient return.
Hence credit is contracting - a death spiral for any fractional reserve system, gold or fiat based. Mish has it completely right - Bernanke & all the other theorists have been trumped by human nature. Attitudes have changed - both Boomers & X are in full savings mode. Not only for self preservation, but the simple fact that with ZIRP, it's almost like earning the spread by paying off whatever debt one may have.
Absent the emergence of some incredible new economic driver, this baby is toast. Review what happened in Argentina/Russia; we are going to be reduced to pulling this thing around from a complete reset point. All the rest is just a distraction.
Well, they are trying... before you know it they will reset everyone's credit score to 850 in a desperate attempt to get those people to take on more loans even though they have already defaulted. It's game, set and match. I guess they can go to the funeral home and start digging up dead bodies and make them sign up for an alleged loan that never existed to start with.
See Modern Money Mechanics by the Federal Reserve.
Simple put the pyramid scheme has run it's course, of course people still believe, how do I know, well the system would collapse this second if they didn't.
I am out of this discussion. Federal Reserve Z1 reports is showing the lie that everyone is running from. The Helicopters are all these people that stopped requesting the commerical banks to create new.
If MY credit score hit that number I'd laugh until my eyes were bloodshot and I was choking on my own spittle. After recovering a few minutes later (if I didn't pass out) I'd immediately fill my car to the roof with guns, ammo, storable food and get GTFOOD - calling all the naysayers I know screaming, "Hahahaha! I'll see you in hell, bitches!"
Not to mention the rapidly aging demographics in Japan, America, Europe and in 10 years - China - thanks to its short sighted one child policy.
Yes, we had our inflation, now we get our hyperinflation. It's a currency event and not demand driven. If it were demand driven, Zimbabwe would have a GDP 10 times the USA.
Well said.
@B9K9:
Fucking glorious post.
And thank you for that analogy - now I can have a more charitable view opf those I disagree withg - and that's something that really Needs cultivating in times like these.
"There isn't any incipient or organic credit demand remaining simply because there isn't any economy activity by which people @ large believe they can generate a sufficient return."o
Yeah. Nobody eats, drives, parties, or buys computers, spare tires, paper doilies, adult appurtenances, dingleberries and Iplugs, sunglasses, seat covers and personal lubricants anymore. That whole 'consumer' gig is all sooo 2007. Absolutely every scrap of commerce has stopped utterly and completely, didn't you know? Because there has been no 'money' in one iota of it since 2007 and exactly 100% unemployment, worldwide. Thanks so much for pointing that out B9K9, I missed it and it was so obvious...
Regards
No debate? Then why are you debating?
Whenever I hear this, alarms go off.
Its seems silly to hear Senator after Senator ask Uncle Ben "what needs to be done to create jobs?" Its clear few companies will increase hiring since the economy depends on continued stimulus spending funding by unsubstainable debt on the other side. About 10% of GDP is now coming from FED Govt deficit spending. This will end, a severe double dip will occur generating more layouts. Does no one in Washington understand. Of course, Obama will likely allow the Bush tax cuts to expire which will further depress consumer demand. Companies will only spend on increased productivity which will cut jobs. The private sector understand perfectly what coming.
"what needs to be done to create jobs?"
1) Abolish the Fed.
2) Require Congresscritters to travel from their home districts/states to DC on horseback as the founding fathers envisioned.
agree completely!... abolish the fed and the collection of taxes from the american people would be near wholly unnecessary immediately
Dear Ben and Tim,
Continue to manipulate at your own peril.
Much Love,
Inflation/Deflation
It is quite quiet in the markets for such violent moves in opening....too quiet. Something is going to give by EOD.
TNX actually backed up 2 bps after this post. You da man, TD. LOL!
OPEN THE BOX! OPEN THE FUCKING BOX!
Enquiring minds want to know!
Didn't this happen for an entire decade, in the '90s?
More seriously though.. what does anyone have to look forward to? Until that question is answered satisfactorily for the billions of people on the planet for whom life sucks ass..things ain't gonna get better.
Hey! All this fuss and the answer is right in front of our faces. Look at that first chart, in the upper left hand corner it says hit "<Help> for explanation". TD, you should look into that and resolve this seeming paradox once and for all.
Regards
lol i thought of that too.
Excellent article! I think zerohedge team does the best economics analysis work in the world. My congratulations comrades!
i am not too much into technicals BUT....inverted head and shoulder on SPX 500(daily chart)....markets may go to 1220...no?
We had the crash, now for the denoument. But don't pronounce that as if it were some sort of mint.
Nowandfutures.com has the bear market forecast:
http://www.NowAndFutures.com/forecast.html#bear_markets
...with deflation (10 Year Yields) barely budging from near record lows, while inflation (stocks) are at a level last seen when the 10 Year was at 3.25%. In other words, one is right and one is wrong...
Yeah, that's what happens when you have a command economy. USGovt intervention is pushing down bond yields and pushing up equity prices. It does not make sense, but that is what the command economy wants to do. Courtesy your friendly neighborhood PPT.
thats a very good point.
very sharp.
Unless.....they're Both right! The Double Whammy Economy: Deflation in middle class incomes, property and retirement assets is happening at the same time as inflation in the cost of living and doing business. Today is just a picture perfect example: new jobless claims are up, existing home sales are down but there's a monster rally in commodities and stocks. Plus we're talking tax hikes on the hill. Tuitions hikes are being announced, credit card rates are in the sky, and healthcare premiums are up.
This is the end result of over 30 years of deliberate economic policy favoring capital accumulation over income (no accident). A deliberate attack on wage inflation in the 80s turned into 30 years of deflating incomes and now employment too thanks to relentless outsourcing of jobs. Credit was the only way for the middle class to afford prices in the US. So a debt bubble formed. And since the 80s deficits (that didn't matter, mind you) were allowed to pile to the sky all to finance inflation masquerading as growth in a country that outsourced production and specialized in importing finished products.
So now you get the "inexplicable" spread between deflation and inflation. The two are forcing people reliant on incomes to do a full split. There's little incentive for those with capital to invest in US enterprise since inflation ensures nearly risk free growth.
this is also a good point.
also very sharp.
good for poking people.
Capital accumulation? The environment that gave birth to Just in Time and the persistent drive to lower overhead is not an environment that favors capital accumulation at the expense of wages. Productive business was forced to get leaner as the stagflationary margin squeeze forced them to export their labour-intensive production to China. This is capital -consumption- not accumulation.
also sharp.
Maybe you two are talking about different recipients of these two types of accumulation?
Three,
Induced Stagflationary margin squeeze would be more like it.
The decision to move productive labour overseas was as much political as it was financial.
The question of Inflation/Deflation, when it peaks like this, is always settled by war, in which both hyperinflation (currency debasement) and hyperdeflation (value definition resets) can happily co-exist.
That is the real 6 million dollar question.
At this time, is politics driving finance or finance driving politics?
If the answer to the above is obvious to you then so should be the direction this ship is going.
ORI
http://aadivaahan.wordpress.com
utter absurdity as a result of this program that links G7 currency moves directly with stock indices
this program that, were it not of GS JPM and the NYFED, would have been shut down as soon as it was discovered to be manipulating markets
it hasn't been shut down, that is for sure
it has only gotten more sinister
the banksters are out to steal everyone's money
and unless they are shut down, they will
All the Hedge Operators margined by Investment Banks levered by Primary Dealers funded by Fed and IRS, running gold, forex and equities up, are tiny relative to the size of the markets they try to run.
Tax revenues fell a third each of the last two years and the Fed faces bankruptcy as Agencies and Treasuries implode insolvent. Agencies are guaranteed only until 2012.
When the AUD, EUD and equity markets turn down, as early as next week, the fiduciary institutions may be ruined, along with governments and munis, in Act III of the great Deflation as the USD jumps to 115.
Their mission to get retail middle class lemmings in failed for the most part; the emperor has no money...
http://www.jubileeprosperity.com/
Bloomberg reported in an article yesterday, that in Bell Ca. (a small city near LA with a population of 38,000 and average income of $40,000) the City Manager and Chief of police make a salary of nearly $800,000 and $500,000 respectively. Is there a web site where you can find the pay levels for public employees for other cities? If these outrageous salaries are exposed at the local level, they will be rolled backed to reflect the private sector reality. I checked with on web site of several local cities in my area and nothing is disclosed about pay levels.
That’s like a mini-Wall Street. But let’s face it, the chores with a population of 38,000 must be overwhelming.
The wave func collapses when the assets on the Fed's and TBTF's books are marked to something other than a quantity along the imaginary axis of the complex plain (i.e. no real value).
If you never open the box, does Schroed's kitty live forever?
if only
Yes, we are experiencing inflation and deflation. Inflation in the price of necessary items, and deflation in goods not needed. This but the terms are misappropriate due to their definitions. A better way to contextualize this happening is "Bloblation", which was termed by Max Keiser. Albeit he did promptly dive into the deflation camp, and we may experience deflation once again, I think bloblation is the dominant term.
Blobflation will not only affect assets of real goods such as TVs and cars and houses, it will affect stocks and bonds accordingly. For example, stocks priced into assets that are about to appreciate will go to the moon while equities invested in deflationary assets will move to ZERO. This zero sum gum will be when things are all marked to market, if peak oil has come before it. If we act before oil production moves down for good, some assets can be auctioned off at some value. If we wait until after a major oil spike, houses in Vegas will not be worth anything. And if there are millions of houses priced at zero, TVs will not be selling, and neither ipaduhs.
Everything you own: deflation. Everything you need: inflation.
"Do what you like man."
Max Keiser finally graduates!
Interesting, they use inflation to push equities up and deflation to push savers’ rates down to push equities up. That's why Bernanke doesn't answer questions… So he can have it both ways.
John Williams’ Shadow Government Statistics (SGS) No. 310: Inflation and Production subscriber report (July 16th, 2010) headlines:
• Annual Consumer Inflation: 1.1% (CPI-U), 8.4% (SGS) • Lower Gasoline Tempered June Inflation, but Watch Out for July's Data • June Industrial Production Flattened Out.
With this quote:
“Timing Begins to Narrow, with the Broad Outlook Unchanged: Intensified Economic and Solvency Crises, Higher Inflation and Hyperinflation. The last month or so generally has seen economic reporting turn to the downside, and, importantly, the concept of an intensified economic downturn, or a "double-dip" recession, appears to be gaining broader acceptance. Weak reports on retail sales, industrial production and trade activity this week all showed that broad economic activity has slowed in the second quarter, suggesting not only a slowing of GDP growth in the second- versus first-quarter of 2010, but also an increasing the likelihood of renewed quarterly GDP contraction in the third-quarter. Consensus forecasters, though, appear at present to be looking for a stronger second-quarter, with continuing growth for the balance of the year.
"Accordingly, as the recession intensifies anew, the implications of worse-than-expected ballooning federal deficits, Treasury fundings, banking industry solvency issues, etc., increasingly will bring…"
http://www.shadowstats.com/
treasuries are as worthless as the paper price of gold - a complete fraud. treasury yields are so low due to massive interest rate swaps....it's just an illusion...
Fraud upon fraud.
The spread makes sense in this regard. Deflationary forces today prevail, and as such, especially given the remarks of BB yesterday, many anticipate a not too distant batch of QE. Marc Faber says October. Debt purchases via " U.K." may suggest stealth easing as I type. Many don't want to be standing at the station especially if the magic train is already starting it's engine.
You know what, American consumers are a major part of the economy. And they are not experiencing deflation. Utility prices are going through the roof, gasoline is still in its bubble range, bus transportation is becoming unaffordable for bus riders, bridge tolls are increasing, government has increased licensing fees, pharmaceuticals are impossible for almost everyone without a government subsidy, all insurance is up… Buffett increases the prices big time in his candy store, See’s Candies, about every Easter… This is price inflation.
There is no hint of deflation, except in the propaganda of the government and its toadies in the press and its paid economists. And a drop in housing prices that were blown out of everybody’s income reach who wasn't subsidized, is not deflation, it’s a price adjustment. Besides, it doesn’t affect the public at large.
The definition of fiat money is inflation, a drop in money's buying power. Ask a saver.
you nailed it jr.
lots of sharp minds here today!
price inflation only occurs with monopolised sectors (utilities, buses) or ones where the governments hand intervenes (pharmaceuticals).
Everything else has either reduced in price or is lagging. Gas is clear. It hit $5 2 years ago. Now it's below $3.
BTW, savers have it good. Proof is in cash's increasing purchasing power and low interest rates. Of course you must accept my comments above before accepting this.
"Everything else has either reduced in price or is lagging. Gas is clear. It hit $5 2 years ago. Now it's below $3."
Wrong wrong wrong. Has gas gone back to pre July 2008 prices? No. Neither has food. In fact daily essentials have increased in price since then, much inline with the trend in place since 1971, despite all the finagling of CPI since 1981 and the orchestrated takedown in late 2008. Ask yourself: Oil/bbl went down to 20% of its high, did fuel prices do anything close to that?
Regards
If that's your reference point, then please accept that we did drop to 2002 prices. Milk, the same
http://gasbuddy.com/gb_retail_price_chart.aspx
http://futures.tradingcharts.com/chart/DA/M
There's always a lag in the supply chain. If it was given enough time, gas would also have reached the same potential lows BUT more importantly is that gas prices did not go up as much either. Since 2003, oil more than quadrupled. Gas just doubled with change.
But I guess your argument has more to do with prices appreciating since 2008. Well my answer to that is we are in the 2nd wave of a 3 or 5 waves down dumping. I don't think we've seen the lows in oil, gas, milk, bread DOW, S&P...........
Au contraire (amongst other things):
"Adjusted to pre-Clinton (1990) methodology, annual CPI inflation was roughly 4.3% in June 2010, versus 5.4% in May, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was about 8.4% (8.37% for those using the extra digit) in June, versus 9.2% in May."
(DOW and S&P: Are apples to oranges on this subject.)
Thank you shadowstats.com
Regards
"In other words, one is right and one is wrong,"..actually, in Schrödinger's Cat, in its simplistic form, there is a superposition of states...again, in its simplistic form, we can only know which state the situation is after the actual event (i.e.-is the cat actually dead or actually alive-in a practical "human" sense-sight, touch, etc....). Regardless, ostensibly, it does seem we're in a "Schrödinger's Cat" of sorts.
Personally, I liked the comment of deflation and inflation of (I forget who made the statement here in Zerohedge, so I apologize in advance)
Inflation: Items which I need (or don't have/own) are going up in prices.
Deflation:Items which I have (or don't need) are going down in prices.
You got it. This is what happens after economic and political (tax) policies favor capital over income. At first the policy sounded good. But over time it's unsustainable unless you have an authoritarian government.
You know, this wasn't a paradox to explain anything. It was to show what was wrong with many interpretations.
This is fun, but don't get carried away!
in any case. this rally may get defeated soon and curl back. who knows. ive got no idea.
The market is rational (at least in it's simultaneous rediction of inflation/deflation), we are presently experiencing deflation and inflation, and we have been for 20 years, except now reversed. during the 90's, we had asset price inflation and commodity deflation (so all was good!), now we are getting the inverse (so all not so good). Just in time for the babyboomers to retire and begin selling their now much less valuable assets to finance their retirement to buy thing that now cost more!
Serves 'em right!
Ageist comments unwelcome here...
It's pretty simple really the rate of deflation is being offset by the rate of inflation that is hot air coming out of Bernanke's mouth. Bernankenomics will continue to dominate the markets until the dollar just snaps with "no explanation". Eh?
Classical economic definitions of inflation and deflation are simply out the window. Lots of good posts above pointing this out one way or another.
Tah dah! Prestidigiflation.
It's magic.
Why shouldn't things stop working when they're broken? We're broken.
Doesn't the simple spread summary depicted suggest that the equity index is trading 6.22 points below the mean, unless rates go negative. Rates going higher would increase the variance, as would stocks going lower. Hoping someone can explain to me. The intraday correlation chart is a little misleading, since it shows only a single day's correlation. Thanks!
It may just be me, but I find it really interesting that the CIA trained the Muhajideen to assit the West in flushing Russia out of Afghanistan after which the Muhajideen turned on its master and morphed into the Taliban which is demonstrating to the World that with determination, relatively basic weaponry and a great understanding of geography, an illiterate "backwards" society can take on the most powerful army on Earth and bring it to its knees.. I suppose this could give hope to anyone who believes that such tactics might be required to fight the rise of a government back here at home that many are fundamentally (ahem) are opposed to.
I would prefer things not to go there...just saying that one should not discount the possibility given the way events seem to be unfolding...
Anyway you parse it we are just now lauching off the jump into the great unknown of massive cultural, technological and societal change and we haven't a clue where we are going to land.
Good luck to everyone!
Rawles, bitches?
Great empires go to Afghanistan to die.
Never presume we are there to win and end the war. (obviously it's not even "winnable" in any conventional sense).
.
After all, Amherst, Washington, Kosciuszko, Lafayette and Von Steuben did similar with disiciplined trained smallpox guerrilla biowarfare to the reigning military empire of Great Britain in the actual French and Indian first world war and the Second Hundred Years' War, the War of 1812 being the British attempt to collect bank debts and costs of operations in America including the Mississippi Company that owned British Sovereign debt, and the later assassination of Lincoln, who declared martial law and suspended habeas corpus, by a Southern Secret Service Agent as British payback for going around central bank 36% usury with low interest 3% direct issue Treasury Greenbacks and a 3% flat income tax, with cotton slave trade damages from the Civil War and Emancipation that destroyed slave capital economy as surely as Derivative Bailouts today. Booth, born illegitimately of British parents in America, was engaged to the daughter of a Senator from New Hampshire and trained for his mission in Montreal and a lot of these covert alliances were forged and funded via secret Lodges, Franklin being a founder or principal of most, including the Junto.
http://en.wikipedia.org/wiki/Benjamin_Franklin
Nowadays, just look at the natural resources. If there is crucial right of way (Except Panama and Suez), cheap labour, drugs, petroleum, we are there in a flash, with 1000 military installations around the world. And now we are out of money, so it is stolen....
http://library.thinkquest.org/11683/heroes.html
http://en.wikipedia.org/wiki/Seven_Years%27_War
http://en.wikipedia.org/wiki/Second_Hundred_Years%27_War
http://en.wikipedia.org/wiki/John_Wilkes_Booth
http://en.wikipedia.org/wiki/Revenue_Act_of_1861
http://www.xat.org/xat/usury.html
LOL
Maybe we could uncover Higgs boson within the next market crash!!!
Some believe that a (hyper)inflationary snapback could follow a deflationary spiral. If this is indeed a possibility then the choice between investments positioned to benefit from inflation or deflation is one of timescale. The second that the market starts to anticipate that the printing has started everyone is going to dive into inflationary positions. Until that point the deflationistas win but - and here is the point - can everyone reposition fast enough not to get caught with their pants down? Buyers need sellers.
So could the spread be a measure of the uncertainty in whether investors will be able to reposition fast enough to outrun the economic shock wave?
"Until that point the deflationistas win but - and here is the point - can everyone reposition fast enough not to get caught with their pants down?"
I think that is the question. The ultimate answer won't be in the financial markets (IMO) - it will be in hard assets like apartments, farms, i.e. essential production and core services.
or, how about "flatulation",
meaning "letting the air out of the system"?
And, as for
"what needs to be done to create jobs?"
how about coming up with some way to conduct a massive, world wide war
which destroys all kinds of wealth and property
but does not kill any people?
Morons bidding up equities on LAGGING indicators (earnings Q2). What a bunch of fuckwits. The sooner this market collapses and Western civilization is exposed for its bankruptcy the better. Store wheat.
Who ya buying your wheat from????
We deal in wheat and duram sales....along with just about any other commodity....
Yea bidding up already wildly pumped stocks on a few Iphone sales and IDF bulldozers from LAST quarter...Last acts of desperate men, and big world events are about to blow it all to smithereens anyway. What they all REALLY need is grand coverup for erasing the books clean, and getting rid of about 100 million americans.
We'll see something quite soon that will divert everyones attention from 'economics' for a very long time.
true inflation is brought about by wage increases.....not price increase. Price increases are a result of inflation....not a cause of it. When wages rise, people feel good about themselves, hence they buy more and contribute to inflation (the perception). The problem is, during the 1990's and 2000's it was not rising wages that caused inflation, it was excess credit. people had more credit (money) so they felt good about themsleves. the PEOPLE WERE TRICKED..... Nice one Ben... Fool us once, shame on us....fool us twice.....I DON'T FUCKING THINK SO......
Your a snake ben....you and your minions deserve a slow painful death.....by a thousands cuts.....
Deflation has taken root....deal with it. THe only inflation being generated is the rising fees and bullshit charges you see by banks. Increasing taxes and paneanlties and other garbage brought on by the government at local, state and federal levels. Hmmmmm..... the latest bubbles have been blown by the government and the banks combined. Who is trying to keep the game going??? The very banks and governments that caused the whole mess. F'em!!!!! Take your money out of the markets.....take it out of the banks. Put it in local credit unions and tell the markets to kiss off until they are true markets again. NO MORE FUCKIN GAMES!!!!!
Is the easiest way to explain the ongoing positive correlation of equities and bonds -- both go up -- that there is already more QE afoot? That the Fed -- or the Fed's proxies -- are already creating new liquidity by buying bonds, thus driving down yields and inflating equities?
Not really surprising when you consider that both markets are connected directly to the Fed's money-printing machine. Other market "participants" have little to zero say in what these "markets" of today do...they are more akin to a PR billboard than any real "market".
Low yield on bonds. Liquidity leaving the markets and going into bonds.
Yet, markets rally higher.
Commodity risk trade is back on.
Stick to your guns and gold folks.
I'm looking at some correlations between the stock market and carry trade pairs for possible hedging.
Normally if you wanted to buy the stock market then 1 contract on the stock market would be 1 x $50 x 1067 = $53,350
So, what people do in the carry trade is borrow $53,350 in yen, convert it to dollars and buy the stocks. So, they would borrow 53,350 x 87yen = 4,641,450 yen.
The correlations in the markets are closely linked to AUDJPY and EURJPY.
So, If I wanted to hedge by selling the stock market and buying the FX pair would I then convert the 4,641,450 yen into AUD to work out how much to buy?
4,641,450 / 76.5 = AUD60,672
Since 1 lot = 100,000 units, this would be 1 contract on the ES to 0.6 FX lots.
Is this calculation correct?
Now to complicate things, how do I do the same calculation when wanting to do this on a spread betting platform?
m2 is growing at 2%. you can't have inflation at 2% m2 growth.
Now, with a trillion of excess reserves we have a lot of firewood stacked ouside--so to speak, but unless its gets into the economy(the m1 multiplier will become greater than 1 and grow), you ain't got shit, and its called deflation.
Until the wages start to spiral, you will not get inflation.
Price movements up or down are not inflation or deflation but merely supply and demand trying to find equilibrium.
price movements do not equal inflation/deflation.
Could this have something to do with the fact that the Fed prints money from thin air, thru the power our "democratic government" has given them...but rather than the money being used, say to build Internet connections, high speed rail, alternative energy, scientific research, provide a social safety net, cut taxes, fight terrorism, secure the border... instead, the Fed lends it money from nothing to banks at zero percent interest and then banks then go buy Treasuries and collect the interest, from us, in a no-risk deal?!?.
So we let Fed print money for banks, we can't print it, we have to sell debt and pay interest to people to buy our Treasuries...and we pay the interest to banks that got money from us for free. Is it that simple and are we being fleeced this easily and openly?
The banks are not lending with the free money they get from us, they are buying Treasuries or the greedier ones are prop trading (hence markets going up). Does this not explain the spread. Bet if we printed money to buy solar panels for all govt buildings and schools, the price of solar panels would go up.
Banks don't lend because most business don't want credit, because most don't want to expand, because most are trying to decrease expenses, because most are seeing slowing or stagnation of demand for their products or services. The businesses that do want credit are often too high risk to banks for same reason, credit would not be used to expand/improve business and get more sales as there is no potential demand, rather money would be used to avoid collapse of business...not a good risk to lend to.
So, there is no increase in demand as long as credit is collapsing and their is no increase credit as long as demand is collapsing. So, there is no reason to give banks free money, as they do not lend it.
If we give that same Fed money to economic-type investment projects, that would increase demand, and save us the cost of interest, as we would not have to pay interest on Treasuries the banks bought, we would cut out the middle-man. May not be a good monetary policy, but we are printing anyways, so it is a much better policy than the current one.
Am I wrong on this?
Great one. Could I use it? I'd give you credit if I knew your name.