Pizzaflation is creeping through the nation. Inflation is slow, and subtle, and making our favorite things like Pizza unaffordable. Pizzaflation explains the deterioration of the US Dollar in something we all love; Pizza.
Central banks can’t afford a big correction to take place as it goes counter to their mandate, a stable growing economy, hence they interfere every single time a correction of size is about to unfold. And any threat to the global economy must be prevented. Now that fiscal year end mark-ups are over for many funds buyers have to prove how committed they are to driving markets higher. Price will ultimately confirm how this will play out, but altogether this chart is an amazing construct of symmetry and, as fans of structures and symmetry, it certainly has our attention. We can’t recall ever seeing such a precise structure.
"The conditions in the economies of the rest of the world have undoubtedly proved weaker compared with a few months ago, in particular in the emerging economies. Global growth forecasts have been revised downwards. This slowdown is probably not temporary."
China as the global Bubble’s focal point – the weak link yet, at the same time, the key marginal source of Bubble finance. China’s policy course appears to focus on two facets: to stabilize the yuan versus the dollar and to resuscitate Credit expansion. For better than two decades, similar policy courses were followed by myriad EM policymakers in hopes of sustaining financial and economic booms. Many cases ended in abject failure – often spectacularly. Why? Because when officials resort to such measures to sustain faltering Bubbles it generally works to only exacerbate systemic fragilities. For one, late-stage reflationary measures compound Credit system vulnerability while compounding structural impairment to the real economy. Secondly, central bank and banking system Credit-bolstering measures create liquidity that invariably feeds destabilizing “capital” and “hot money” outflows.
The talking heads were busy this week powdering the GDP pig. By averaging up the “disappointing” 1.5% gain for Q3 with the previous quarter they were able to pronounce that the economy is moving forward at an “encouraging” 2% clip. And once we get through this quarter’s big negative inventory adjustment, they insisted, we will be off to the ‘escape velocity’ races. Again. No we won’t!The global economy is in an epochal deflationary swoon and the US economy has already hit stall speed. It is only a matter of months before this long-in-the-tooth 75-month old business expansion will rollover into outright liquidation of excess inventories and hoarded labor. That is otherwise known as a recession.
In September, the total physical gold held in custody at the NY Fed dropped another 19.9 tons in September, down to 5,919.5 tons. This was a doubling in gold withdrawals from 10 tons in August, and is the highest withdrawal since January. At just under 5,920 total tons in NY Fed inventory, this is the lowest amount of gold held in NY Fed custody in decades.
We will be the first to admit that yield curve inversion is not the only factor causing recessions, but through the credit channel it can be an important contributor. Depending on the importance of the credit channel, the Federal Reserve, by pegging the short term rate at zero, have essentially removed one recessionary market mechanism that used to efficiently clear excesses within the financial system. While stability obsessed Keynesians on a quest to the permanent boom regard this as a positive development, the rest of us obviously understand that false stability breeds instability.
At least parts of the Fed all the way back in 1979 appreciated how Greenspan and Bernanke’s “global savings glut” was a joke. Rather than follow that inquiry to a useful line of policy, monetary officials instead just let it all go into the ether of, from their view, trivial history. But the true disaster lies not just in that intentional ignorance but rather how orthodox economists and policymakers were acutely aware there was “something” amiss about money especially by the 1990’s. Because these dots to connect were so close together the only reasonable conclusion for this discrepancy is ideology alone. Economists were so bent upon creating monetary “rules” by which to control the economy that they refused recognition of something so immense because it would disqualify their very effort.
Americans are increasingly likely to respond positively to a placebo in a drug trial – more so than other nationalities. That’s the upshot of a recently published academic paper that looked at 84 clinical trials for pain medication done between 1990 and 2013. These findings, while bad for drug researchers, does shed some light on our favorite topic: behavioral finance. Trust and confidence makes placebos work, and those attributes also play a role in the societal effectiveness of central banks. That’s what makes the Fed’s eventual move to higher rates so difficult; even if zero interest rates are more placebo than actual medicine, markets believe they work to support asset prices.
Investors are aware that the market is manipulated... and it doesn’t seem to worry them. They don’t fight the Fed; they sit down at the table with it. They play the game. And so far, they have done well. But now... She will signal that, soon, the central bank will begin the long return to “normalcy.” Don’t believe it. The entire system depends on abnormality.
Back in September we explained why, contrary to both conventional wisdom and the BOJ's endless protests to the contrary, neither the BOJ nor the ECB have any interest in boosting QE at this - or any other point - simply because with every incremental bond they buy, the time when the two central banks run out of monetizable debt comes closer. Since then the ECB has jawboned that it may boost QE (but it has not done so), and overnight as reported previously, the BOJ likewise did not expand QE despite many, including Goldman Sachs, expecting it would do just that.