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When A Great Deflationary Bear Starts Turning Inflationary

Tyler Durden's picture


Over the past four years one of the dominant "deflationists" has been Gluskin Sheff's David Rosenberg. And, for the most part, his corresponding thesis - long bonds - has been a correct and lucrative one, if not so much for any inherent deflation in the system but because of the Fed's actual control of the entire bond curve and Bernanke's monetization of the primary deflationary signal the 10 and certainly the 30 Year bond. The endless purchases of these two security classes, coupled with periodic flights to safety into the bond complex have validated his call. Until now.

In his latest letter the Gluskin Sheff strategist appears to be on the verge of a "tectonic shift" in his outlook and appears on the verge of transitioning to an inflationary view. The catalyst? The same one we have been highlighting for the past year - the central-planning induced breach of one of the most fundamental economic principles in the face of Okun's law, which traditionally has been the basis for the Fed's belief that based on current reads of output and GDP, the amount of slack in the system is still a very recessionary 6%, and that with further relentless monetization this output gap may be closed further resulting in a drop in the unemployment rate to the Open-Ended QE's target of mid-6%. However, as we also pointed out previously, this does not jive with the recent surge in labor costs and drop in productivity, both of which are indicative of far less slack in the system and a far smaller output gap, than the Fed believes is present.

Naturally, the logical conclusion is that with the Fed injecting $85 billion in deferred inflation into the system and with the output gap substantially less than forecast, the reflationary inflection point is certainly closer than many have feared. Certainly closer than a great deflationist such as Rosenberg has feared. From his latest letter:

What if the Fed is operating under a false presumption that the CBO's estimate of the output gap is accurate at 6%? And what if the pace of job creation of the past three months is the new normal and that the average pace of the cycle to date is yesterday's story? Well, that would mean that we get to the 6.5% unemployment rate — assuming that the participation rate continues to behave in the manner it has over the past few months — by early 2014. And unless the Fed changes the goal posts again, that would mark the end to this period of ultra-accommodation — aimed at monetizing debts for borrowers and generating asset inflation for risk-toking investors.


Of course, to be talking about inflation today sounds ridiculous, and until recently, I agreed with that. Maybe it's partly because having been in this business for three decades and seeing the Fed make policy mistake after policy mistake — tightening too far in rate-hiking cycles and invariably overstaying its welcome during the easing phases... So this wedge between real growth and real rates is the liquidity excess that is filtering through into the financial markets, triggering excesses in some cases (like in the credit markets).


Again, this is coming home to roost now with respect to deteriorating productivity trends. At the same time, the latest data on earnings from the payroll reports show an uptick in wage growth. This is happening even with a jobless rate of 7.7% and a U6 rate of 14.4%. One would ordinarily believe that we have tremendous slack in the labour market looking at these figures. But maybe the pool of available skilled labour has already been largely drawn out.


If the output gap is actually closer to 2% or 3%, which is quite conceivable, actually, then we are talking about an equilibrium Taylor-based funds rate of 0% — not the de facto -2% that the Fed is targeting via its unconventional easing experiment — and as such, maybe adding more securities to its balance sheet is providing too much juice to the system and risks building an inflationary process in the future. As Herb Stein famously said, anything that can't last forever by definition won't. At some point something will change, and if history is any indication, it is the cyclical view on inflation and how the Fed responds, or whether it will let itself further behind the curve (of course, when the central bank is influencing the price signals by buying up the entire long end of the yield curve) [ZH: someone gets it].


I am not totally changing my view and l am probably way too early as I am talking for the first time in a long time about inflation. I am only detecting some tectonic shifts. Productivity waning. Wages on the rise. This means rising unit labour costs which in turn have their own correlation with inflation — like an 87% correlation (and 84% with the core CPI rate). As a long-term bond and income bull, I am not about to throw in the towel. But to reiterate, I am no longer in this profession of identifying probabilities, in the same comfort zone as I once was. Stay tuned as my thoughts evolve on this file.

And this of course is the Fed endgame: there are tens of trillions in excess debt that can only be inflated away (absent an outright default) and the Fed, as is to be expected, demands inflation, and will get inflation one way or another: whether supply-push, demand-pull, or outright currency obliteration. The problem then will be when does the Fed admit and acknowledge that inflation has set in (besides the obvious bubbles in equity, credit and real estate which Bernanke and Company are so unable to notice in real time). How much longer after inflation has set in does the Fed continue injecting tens of billions in liquidity each month, which is the only reason the stock market has levitated as it has? But the biggest question is what happens if and when Bernanke, like Rosenberg, finally sees the light and says no more to the liquidity Kool-Aid... or even if that will ever happen?

Because if Rosenberg is right, and he certainly agrees with us that achieving a 6.5% unemployment rate with labor costs already rising is virtually impossible driven solely by rising risk asset prices in the current regime, a major regime change is just around the corner.


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Tue, 04/02/2013 - 13:39 | 3400167 Ahmeexnal
Ahmeexnal's picture

sheeple are sheeple

Tue, 04/02/2013 - 13:42 | 3400175 Abraxas
Abraxas's picture

Nobody could have predicted that inflation, and not deflation, would be a ruin of the West. Nobody, since there's nothing beyond the media.

Tue, 04/02/2013 - 13:42 | 3400185 DJ Happy Ending
DJ Happy Ending's picture


Tue, 04/02/2013 - 13:58 | 3400236 Cult_of_Reason
Cult_of_Reason's picture

Bernanke is a modern John Law (held views that money creation will stimulate the economy, that paper money is preferable to metallic money which should be banned, and that shares are a superior form of money since they pay dividends).

He was responsible for the Mississippi Bubble and a chaotic economic collapse in the early 18th century France.

Tue, 04/02/2013 - 13:59 | 3400263 Pinto Currency
Pinto Currency's picture

The CB's print $12 trillion and maybe, just maybe, we will have inflation.

I'm not quite certain.  Hmmm.

SURPRISE!  We have hyperinflation.

Tue, 04/02/2013 - 14:23 | 3400348 narnia
narnia's picture

The level of uncollateralized worthless credit in the system dwarfs the effects of labor rate changes. When the mark to market iceberg breaks, for whatever reason, they'll be the mother of all margin calls. The Fed will fail at preventing this credit purge.

Wed, 04/03/2013 - 12:24 | 3403773 Pinto Currency
Pinto Currency's picture


The action in Cyprus and the revelation that the BIS / IMF / EU / Cdn Gov etc., etc. plan to confiscate cash deposits to protect distressed banks may lead to depositors withdrawing enough cash that banks are forced to sell bonds/debt to raise further cash.

This could be the trigger that raises interest rates and sets-off a crisis.

Tue, 04/02/2013 - 14:15 | 3400316 LawsofPhysics
LawsofPhysics's picture

Correct, resource scarcity always trumps these types as innovation takes time and advances much slower than population growth.  The "price" becomes irrelevant when some you need for survival simply isn't available, period.  Oh well time for humanity to re-learn what "wealth" really means again.  Hedge accordingly.

Tue, 04/02/2013 - 14:58 | 3400467 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

So the smart thing to do would be to borrow as much as you can right now and buy assets, then pay off those loans with inflated BernankeBux.

Tue, 04/02/2013 - 15:09 | 3400518 LawsofPhysics
LawsofPhysics's picture

Only if you are close to the "free money" spicket, otherwise you will still depend on revenues and peoples wages going up in order to collect those benankeBux.  I certainly would not count on that.

Tue, 04/02/2013 - 21:15 | 3401586 tbone654
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yes... but what else you got?  still requires some agility to know when to get out...

Tue, 04/02/2013 - 13:59 | 3400261 Pinto Currency
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Tue, 04/02/2013 - 13:43 | 3400192 Ahmeexnal
Ahmeexnal's picture

Watch Bela Tarr's last film ("Turin Horse") if you want to know the endgame.  Listen to what the guy who shows up for booze has to say.

Tue, 04/02/2013 - 14:10 | 3400307 bank guy in Brussels
bank guy in Brussels's picture

For those not familiar with European film, here is that scene from 'Turin Horse' ...

A man walks in to buy a bottle of liquor ... says he did not go into town, because the town has been in destroyed

And then goes into a five minute quiet rant ... about how the bad guys win in the world, they own everything ...

And how what you would imagine or hope is the 'opposition' ... in fact gives up and fades away, when they realise that they have no hope, no chance ... because, the man claims, there is no god [this is a pessimistic pro-Nietsche movie]

Cinematically well done, but depressing ... and many of us would disagree, believing that there is a God and heaven, and justice that will come one day ...

But worth a look ... the same kind of gloomy European film tradition as Bergman's great 'The Seventh Seal'

The 'Turin Horse' scene here on YT with English subtitles, and its theme of the

« disappearance of the excellent, the great, the noble ... »

Tue, 04/02/2013 - 14:25 | 3400364 macholatte
macholatte's picture


I haven't seen the film but let me guess what happens........ nothing.

The man continues to drink and complain and makes himself comfortable foraging at the bottom of the garbage pit because if there was a God, he'd be the one who was rich and shitting on the other people in the bar and that would be justice, ahem, social justice.


Tue, 04/02/2013 - 15:30 | 3400585 walküre
walküre's picture

The man should figure out how he can capitalize from gullible people willing to throw time and money at just about any form of religion professing there is good and bad and eternal justice for the poor and dumb.

If people realized there was absolutely nothing after their lives ended and just accepted that, the world might be looking alot better. What you do here and now matters and what you can accomplish here and now is all there is. If you screw up, you screw up for good and won't get a second chance.

The End.

Tue, 04/02/2013 - 15:42 | 3400643 Ahmeexnal
Ahmeexnal's picture


Tue, 04/02/2013 - 15:56 | 3400706 Kayman
Kayman's picture

Fractional Reserve banking = proof there is no god, only god wannabees.

Tue, 04/02/2013 - 18:12 | 3401142 DCFusor
DCFusor's picture

L Ron Hubbard did just that - professed at a SciFi writers conference that they were all in the wrong game, since they knew how to make decent sounding alternative realities.  The rest is history - and people fell for it despite this being fairly widely known.

However, that doesn't mean all theology is junk - merely that professed by nearly 100% of all organized religion.  The crowd won't take anything else, I know from experience.  It's not that there is no truth, it's just that no one wants to hear that - they want their fairy tales, and that's the only thing nearly everyone will fall for.

The bible does not say you have to die to get into the kingdom of heaven - that's a distorion created by the practicioners of religion, which has little or nothing to do with faith or truth.  It's here and now, and it's what you do here and now that counts...and that IS in the bible.


Wed, 04/03/2013 - 12:12 | 3403715 DosZap
DosZap's picture

The bible does not say you have to die to get into the kingdom of heaven - that's a distorion created by the practicioners of (SOME)religion, which has little or nothing to do with faith or truth. It's here and now, and it's what you do here and now that counts...and that IS in the bible.

Yes, the moment you accept Christ(by Faith,and believe,and profess) Rom 10:9-10, Eph:2-8-10, you are in.IN the Kingdom of heaven immediately.

and it's what you do here and now that counts

Partially, there is nothing YOU can do to work your way in, that is what separates Christianity from Religion.(If that is what you meant).Christianity in not a religion,it is a way of life.But after this we are meant to do good deeds,to show our faith is real,(not just Fire Insurance.)

Tue, 04/02/2013 - 15:32 | 3400590 robertocarlos
robertocarlos's picture

G-d helps those who help themselves.

Tue, 04/02/2013 - 17:34 | 3401039 DosZap
DosZap's picture

G-d helps those who help themselves.

Nope, just the other way around.

Tue, 04/02/2013 - 22:08 | 3401713 GoinFawr
GoinFawr's picture

Ask not what your god can do for you, but what you can do for your god?

Wed, 04/03/2013 - 12:19 | 3403728 DosZap
DosZap's picture


Read my post above,YOU,in and of yourself can do NOTHING for GOD.(without Faith it is impossible to please him).

Thu, 04/04/2013 - 12:32 | 3407700 GoinFawr
GoinFawr's picture

Read my post DZ, it's all second person.  Little to do with me; as long as you stick to practicing what you preach, anyway.

Tue, 04/02/2013 - 15:46 | 3400624 Diogenes
Diogenes's picture

Harry Lime explains the world in The Third Man

Tue, 04/02/2013 - 15:50 | 3400668 Ahmeexnal
Ahmeexnal's picture

With the beautiful Alida Valli, who stared in italian version of Ayn Rand's "We the Living".

Filmed during il Duce's iron grip, the filming was heavily monitored. When il Duce proudly showed the film to his teutonic overlords, they went ballistic and ordered him to destroy all copies of the film as they realized it was extremely dangerous (il Duce thought it was only a condemnation of communism, but his overlords understood it applied to all tyrannies).

One copy survived, and made it to our day.


Tue, 04/02/2013 - 14:10 | 3400312 TPTB_r_TBTF
TPTB_r_TBTF's picture


Tue, 04/02/2013 - 14:23 | 3400345 msmith9962
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Mr. Ahmeexnal - i'm streaming it on netflix now.  I'm 10 minutes in, your killing me here.  Can you just tell me what the boozer has to say? My american attention span can't handle this  ;-)

Tue, 04/02/2013 - 14:25 | 3400360 Ahmeexnal
Ahmeexnal's picture

Be patient, it will be worth every minute.

Tue, 04/02/2013 - 14:06 | 3400286 rogeliokh
rogeliokh's picture

"Today’s Massive Attempt To Break Gold
April 2, 2013, at 8:32 am
by Jim Sinclair in the category General Editorial |

My Dear Extended Family,

This is a massive attempt to break gold in order to camouflage the weakening Western banking sector. Paid bashers are flooding in to all pro-gold sites and many other pro-gold sites are under attack in other ways.

Gold banks are flogging the paper market seeking to depress the price but without selling too much.

It is so obvious that this is a gold bank organized strategy to keep gold under $1600. Old lows will hold and the reversal will be at a spiritual level.

My strategy is to simply to do nothing."

Tue, 04/02/2013 - 14:31 | 3400387 macholatte
macholatte's picture


I have a theory....... based upon no quanttative evidence, but yet a hunch.

Here it is......

During the past year or so, whenever PMs have dropped for no logical reason, a financial crisis surfaced shortly thereafter. Later, when "calm" is restored, the PM's spike up.  So maybe another EU coutry is going to crash soon.


Tue, 04/02/2013 - 14:39 | 3400407 Ahmeexnal
Ahmeexnal's picture

The small strip of Slovenian coast is about to witness lots of naval calamities.

Tue, 04/02/2013 - 15:34 | 3400602 robertocarlos
robertocarlos's picture

I thought the giant S stood for Spain and here it is Slovenia. And I also would have hoarded the Euro notes stamped G. A little bit of knowledge is a bad thing.

Tue, 04/02/2013 - 15:35 | 3400604 Debugas
Debugas's picture

my guess is Italian Monte Paschi is going belly up

Tue, 04/02/2013 - 16:04 | 3400744 AGuy
AGuy's picture

"Paid bashers are flooding in to all pro-gold sites and many other pro-gold sites are under attack in other ways."

Hope they win! I would love another discounted buying opportunity. Also hope they do the same for the other heavy metal commodity that contains lead and brass.

As I see it, we have two gov't departments buying Heavy Metals. We have Central Banks stocking up on PMs, and we have gov't departments like the DHS buying up all the lead and brass available. Too bad hoarding regulations don't apply to gov'ts.




Tue, 04/02/2013 - 15:02 | 3400484 CheapBastard
CheapBastard's picture

We are in a pre-hyperinflationary stagflationary depression right now depending on where you are located on the totem pole. Bankers are still at the top with little to no pain....public sector not too bad, and privately employed, middle class sector getting royally reamed with little to no KY lube and the ss retiree group devastated by ZIRP's 0% COLA and soaring food prices.


Tue, 04/02/2013 - 22:38 | 3401775 jerry_theking_lawler
jerry_theking_lawler's picture

was told at my local deli today that my normal chef salad was increasing 20% in price....due to increase in input costs (ingredients that make it up).....

yep, no inflation to see here, move along.

Tue, 04/02/2013 - 22:53 | 3401832 Buck Johnson
Buck Johnson's picture

I know, only the economists who have written about what we did would cause inflation aka hyperinflation.  It will kill our economy and also our govt..

Tue, 04/02/2013 - 15:18 | 3400548 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

sheeple are sheeple

didn't take you for a Depeche Mode fan...

Tue, 04/02/2013 - 13:42 | 3400178 JustObserving
JustObserving's picture

When A Great Deflationary Bear Starts Turning Inflationary

make sure that you hammer gold and silver - Bernanke's red book.


Tue, 04/02/2013 - 13:42 | 3400186 Ying-Yang
Ying-Yang's picture

"But maybe the pool of available skilled labour has already been largely drawn out"

He makes a good case for this. By the time you see it, it's too late.

Tue, 04/02/2013 - 13:53 | 3400235 Political_Savage
Political_Savage's picture

Does he only consider the skilled labor of the domestic pool, meaning Americans? Because I wonder about the impact of skilled immigrant labor... which companies are apparently maxing out Visa-wise. America still draws the best and brightest (open to argument in regards to China) from around the world.

Tue, 04/02/2013 - 15:01 | 3400267 are we there yet
are we there yet's picture

Yen-yang... Going out to lunch on todays workday in Houston, I saw lots of unemployable looking youth on cell phones walking aimlesly as far as I could tell. Healthy,young, hoodie 20ish somethings that I whould be unable to inspire or lead as employees for any kind of work I can think of.... so maby you are right 'the pool of available skilled labour has already been largely drawn out'

Tue, 04/02/2013 - 15:19 | 3400553 Snoopy the Economist
Snoopy the Economist's picture

I wonder what most of us looked like to the then 40-50 year olds when we were in our 20s. I know I was in college and then working in my 20s - but hey you were walking around at lunch just like them. I wonder what they thought of you.

Tue, 04/02/2013 - 16:24 | 3400802 gmrpeabody
gmrpeabody's picture


Tue, 04/02/2013 - 21:50 | 3401675 mkkby
mkkby's picture

Except we've never had a whole generation of young people coming out of school with no opportunities -- except taking on a crippling amount of student debt just to delay the inevitable lower middle class existence. 

They know their future is bleak, so they make do with welfare and living with their parents or multiple room mates.

Tue, 04/02/2013 - 15:36 | 3400613 walküre
walküre's picture

Everyone is suddenly "employable" when their lives depend on it. Turn the wifi off, cut the phone lines and see what's cooking under da hoodie.

Tue, 04/02/2013 - 22:00 | 3401692 pitz
pitz's picture

Maybe they're like that because the employers that actually pay a living wage generally won't give the 'time of day' to younger people.  May as well have fun, instead of giving your labour away for free.

Tue, 04/02/2013 - 13:42 | 3400187 Danielius
Danielius's picture

hey whatever happened to the "BITCHEZ"  or however he spelled it- guy.  ?   I was thinking that was part of the deal here.  wtf?  Been missing that!


Tue, 04/02/2013 - 13:43 | 3400190 bugs_
bugs_'s picture

The key here is not the Fed.  The Fed, like the BOJ, like the ECB is printing printing printing.

Money velocity remains low.  The world is Japan.  A sustained generational shift in money velocity in response to the Keynesian Devastation.  The only way the central bankers can get money to move is to confiscate it.  This makes money slow down even more and look both ways.  Why did the dollar cross the street?

Tue, 04/02/2013 - 14:01 | 3400253 NoDebt
NoDebt's picture

To avoid confiscation?

Don't go telling people round here that we're going to become Japan.  I tried making that argument a few months ago in multiple threads and was soundly thrashed in most of them.  (But nobody can tell me nothin', so I don't worry about it too much.  I just keep it to myself now.)

Tue, 04/02/2013 - 14:42 | 3400411 LawsofPhysics
LawsofPhysics's picture

Perhaps, but I would argue that the resources of the U.S. are considerably greater than Japan's.  Liabilities that can't be sustained, won't be, but all those natural resources are not going anywhere.

Tue, 04/02/2013 - 14:56 | 3400462 NoDebt
NoDebt's picture

Yeah, it is kinda cool that we have all that.  Like a little piece of the 3rd world right here inside our own borders.  Agricultural products are still our largest export, at least last time I checked.

Tue, 04/02/2013 - 16:08 | 3400764 Kayman
Kayman's picture

Subsidized Agricultural products are still our largest export.


Tue, 04/02/2013 - 14:01 | 3400274 kindape
kindape's picture

they are printing in very small #s relative to total aggregate money supply. Ie. 2-3 trillion relative to 60 trillion of claims. Mildly inflationary, for now. the amount they would have to print to really create inflation is....not printable. We will see no major inflation without an explosion (ie loss of a currency). Similarly we will see no major deflation without an implosion (massive defaults). Odds of one or the other happening are 20-30% and rising imo...

Tue, 04/02/2013 - 13:45 | 3400199 Joe Davola
Joe Davola's picture

"risk-toking investors", did Seth Rogen ghost write that portion of the newletter?

Tue, 04/02/2013 - 13:48 | 3400218 Yen Cross
Yen Cross's picture

     "And this of course is the Fed endgame: there are tens of trillions in excess debt that can only be inflated away (absent an outright default) and the Fed, as is to be expected, demands inflation, and will get inflation one way or another: whether supply-push, demand-pull, or outright currency obliteration." 

      I'll take the third endgame scenario. The Fed. won't stop printing, which will lead to the destruction of the $. The $ is already being pressured as a reserve currency. Inflation will explode and the economy will implode.

Tue, 04/02/2013 - 13:54 | 3400242 NoDebt
NoDebt's picture

I'm all with you at the emotional level, Yen.  But that would imply that the Fed's REAL master is the government, not the TBTF banks.  Would it not?

I keep going back and forth on who really pulls the Fed's strings.  It's for sure one of the two, but popular opinion around here is that it's the bankers who are in control.

Tue, 04/02/2013 - 14:06 | 3400288 Yen Cross
Yen Cross's picture

      I think it's just a big 'circle jerk' finger pointing [good guy-bad guy game]. When rates and inflation blow up in their faces, they will cannibalize eachother.

Tue, 04/02/2013 - 14:07 | 3400295 Monedas
Monedas's picture

Endgame .... that implies .... someone knows WTF .... they're doing ?   I call this Predatory Helter Skelter Socialism Sabotage Dysfuntion Syndrome !      Monedas      1929       Comedy Jihad World Tour

Tue, 04/02/2013 - 22:05 | 3401707 mkkby
mkkby's picture

Yen, I mostly agree.  However, the dollar WAS BEING PRESSURED as a reserve currency.  Clearly now it is showing strength as in flight to quality.

The euro countries are toast... and as they go Greece one by one, USD assets will get the inflows.  The dollar will be printed to death, but only after we see the Spain, Italy, France, UK and Japan go down.

Really my disagreement is on timing.  Maybe decades.  Look how long Greece was allowed to drag on.

Tue, 04/02/2013 - 13:49 | 3400220 The Big Ching-aso
The Big Ching-aso's picture

Garbage in, eventually garbage out.   Or eventually you're one of those hoarders killed when their living room caves in.

Tue, 04/02/2013 - 13:49 | 3400223 ISEEIT
ISEEIT's picture

Relax,,, the experts are in charge.


Tue, 04/02/2013 - 13:58 | 3400256 Political_Savage
Political_Savage's picture

I deem thee a terrorist... you've been placed on a non-judicial-reviewed list.

Stay calm and stand still if you hear a buzzing noise that gets louder.

Tue, 04/02/2013 - 13:49 | 3400224 The Dancer
The Dancer's picture

bugs, what's your background...expertice...

Tue, 04/02/2013 - 13:52 | 3400225 machineh
machineh's picture

maybe adding more securities to its balance sheet is providing too much juice to the system 

From a technical POV, now that the S&P blew through its Oct. 2007 high, we are effectively replaying 1997-1999.

Then as now, crises (Asian crisis 1997, Russia/LTCM 1998) caused the Fed to pump, and stocks went through the freaking roof.

Bubble III, bItCHeZ! Bennie's outta control.

Tue, 04/02/2013 - 13:51 | 3400229 NoDebt
NoDebt's picture

Right now Fed money printing and ZIRP benefit both the banks and the government- part of the reason it's so irresistable to do it.  What if the interests of those two big camps diverge, as will happen if inflation starts to kick in?  Right now I can't see a difference between big banks and big government- they're two sides of the same fiat coin.  Someday that might change, hopefully in my lifetime.

Tue, 04/02/2013 - 13:56 | 3400250 kahunabear
kahunabear's picture

Inflation is not that hard to deal with. Just locate under a nice bridge down by the river with plenty of grocery superstores around to graze for free samples. But, watch out for those face eaters like the one in FL. 

Tue, 04/02/2013 - 13:59 | 3400265 EmileLargo
EmileLargo's picture

They can't and they won't raise interest rates. Official "headline" inflation will remain muted.

Does Rosenberg ever get Petrol for his car or buy groceries? Saying inflation is at 2 percent is a sick joke.

Tue, 04/02/2013 - 14:11 | 3400315 JR
JR's picture

Who you gonna believe? Rosenberg and the BLS or your lyin' pocketbook?

Consumer Inflation – Official vs ShadowStates (1980-Based) Alternate , Year to Year Change Through Feb. 2013

February Year-to-Year Inflation: 2.0% (CPI-U), 1.9% (CPI-W), 9.6% (ShadowStats [1980-Based] Alternate)

Note: The SGS-Alternate CPI estimate is based on the pre-1980 official methodology for computing the CPI-U. There also is a ShadowStats 1990 alternate based on the methodology which was employed prior to 1990.

“The CPI-U (consumer price index) is the broadest measure of consumer price inflation for goods and services published by the Bureau of Labor Statistics (BLS).”

Tue, 04/02/2013 - 22:31 | 3401744 GoinFawr
GoinFawr's picture

That's cool.

But it's so much simpler to examine the price of 'bag o chips and a pop' over the decades.

1975 a quarter each

1985 double that

1995 double that

2005 double that

Give or take some flux in the capacitor here and there,  natch.

But as an accessible eg. at least your neighbours' eyes won't glaze over quite so much before you finish relating it. Hell, if you're lucky they might even be able to pick out the pattern.


Tue, 04/02/2013 - 13:59 | 3400268 HulkHogan
HulkHogan's picture

"I am not totally changing my view and l am probably way too early as I am talking for the first time in a long time about inflation. I am only detecting some tectonic shifts. Productivity waning. Wages on the rise."


hahaha, that's a good one.

Tue, 04/02/2013 - 14:06 | 3400293 kito
kito's picture

@hulk-------yeah, whats that all about???????...........wages on the rise??????????? 

Tue, 04/02/2013 - 15:08 | 3400511 earnyermoney
earnyermoney's picture

He's talking about the greedy bastards in DC.

Tue, 04/02/2013 - 14:01 | 3400276 Monedas
Monedas's picture

It's all relative .... imagine a down escaltor .... built on top of .... an up escalator .... well  .... you get the idea .... I'm not much for details .... I'm a concept guy !

Tue, 04/02/2013 - 14:27 | 3400366 css1971
css1971's picture

Where I come from we call them "The fucking idea people".

Tue, 04/02/2013 - 17:57 | 3401102 Cheesy Bastard
Tue, 04/02/2013 - 14:04 | 3400283 Watson
Watson's picture

When A Great Deflationary Bear Starts Turning Inflationary

Is the time when the deflation finally arrives, in spades.

The route isn't obvious, but FWIW my personal theory is a _vastly_ lower velocity of money, triggered by a particular political decision (that no-one here will think possible).

That decision is that a new crisis at a major US bank is to be resolved (wait for it) by a shareholder wipeout and a bond and depositors (above the insured limit) bail-in.

You need a _big_ crisis, so big that giving the problem to the taxpayer is unacceptable to the politicians. In those circumstances the opinion of the Fed chairman is irrelevant (replaced if necessary).

In those circumstances cash becomes king.

Tin hat on...

Tue, 04/02/2013 - 14:05 | 3400289 hannah
hannah's picture

as soon as i got the part of the article USING GOV EMPLOYMENT NUMBERS i quit reading. basing any analysis on imaginary gov numbers is just pointless......

Tue, 04/02/2013 - 14:08 | 3400298 TimmyM
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All this domestic minutiae misses the big picture global deleveraging process. Not that the worlds central banks won't take it up a notch, but we're not there yet. We have a long way to go in destroying sovereign debt, and the initial flight to "quality" with its deflationary implications. Another order of magnitude of printing is yet to be extorted IMO.

Tue, 04/02/2013 - 14:16 | 3400326 q99x2
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Rosenberg is pretty good at analyzing reality and he has learned the hard way to say he is probably too early. A little inflation could knock some sense into the system. Better it comes gradually than all at once.

Tue, 04/02/2013 - 14:19 | 3400333 Oldballplayer
Oldballplayer's picture

I don't think this guy understands what "tectonic" means.

Tue, 04/02/2013 - 14:19 | 3400335 Monedas
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When in doubt .... and you're not sure what to do .... slam the PMs .... that will at least .... give you a little more time !

Tue, 04/02/2013 - 14:25 | 3400359 kito
kito's picture

tyler, has there been any change in the velocity??????...... 'cause im not seeing it.........................

Tue, 04/02/2013 - 14:37 | 3400403 css1971
css1971's picture

just wait till banks start failing and debt gets written off. it'll be hopping then.

Tue, 04/02/2013 - 14:25 | 3400361 Jackagain
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Stockman: There are Bubbles All Over, Hide in Cash “…the Fed is a serial bubble machine….”

Tue, 04/02/2013 - 14:30 | 3400377 adr
adr's picture

Everything is great. 2013 car sales are going at a better pace than 2007!!!! Of course the numbers are bullshit, but nobody cares.

I was looking at Volkswagens on the internet. They have a very nice dealer inventory search. On March 15th my local dealer had 37 2012 Beetles in stock and there was 66 month 0% financing on them. There are three other VW dealers in my area and the total inventory of 2012 Beetles was 112 cars. Surely a lot for a car that is already long past its model year.

The following week, actually three days later I looked on the website again. ZERO 2012 cars were shown in the inventory, ZERO!!!! Thinking this was kind of funny I set the search wider for more dealers. ZERO 2012s available. I then searched all models from the 2012 model year, ZERO across the board.

This was impossible. Three days before there were hundreds of cars and now there wasn't a single one left. I know car sales, and there is no way this could possibly happen unless they cut 50% off the MSRP or something else that was very crazy.

So I went to the dealer to find out what was going on. He said VW took all 2012s out of inventory because they would cannibalize sales of 2013s. They were being sent back, or really bought back by the manufacturer. This was hundreds of cars from a dealer. The VW dealer did buy the cars from Volkswagen. If VW buys them back, does the dealer get to count them as sold? Maybe no profit, but units sold would certainly go through the roof.

So it makes me wonder what has been going on at GM dealerships who as of last month had almost one million 2012 model year cars on their lots. Was GM going to buy them all back?

I have also seen crazy offers on cars the past few weeks. $79 leases with $1000 down, $6k off on Dodge Darts, $10k off Malibus.

So again, unit sales aren't the whole story. GM also sold over 14k cars to fleets in March.

Wed, 04/03/2013 - 10:41 | 3400787 DosZap
DosZap's picture


I was looking at Volkswagens on the internet. They have a very nice dealer inventory search. On March 15th my local dealer had 37 2012 Beetles in stock and there was 66 month 0% financing on them. There are three other VW dealers in my area and the total inventory of 2012 Beetles was 112 cars. Surely a lot for a car that is already long past its model year.


Volkswagen is hiring 50,000 people, and will become the LARGEST auto mfgr in the world.Todays news.By judging all the crap they are selling and I see on the streets, they are SELLING.Wait till they get 18-24 mos old, and start melting down,or break down.(Typical of all VW's of any past era.)

Best one they make is the Diesel model.You could not run fast enough to GIVE me one.(other than the diesel.)

Tue, 04/02/2013 - 14:29 | 3400384 yogibear
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Bernanke and the Fed welcome massive inflation. The more the better for them. It's in their plan.

They say bring it on with triple digits. They will just keep denying and printing into it.

Sucessive waves of inflation is what the Fed wants.


Tue, 04/02/2013 - 14:46 | 3400427 ToNYC
ToNYC's picture

Inflation in services is the theft of value in plain sight. The quality runs down the scale as they make the 6 oz coke into the 20 oz. for 20 times the price.

Tue, 04/02/2013 - 14:53 | 3400448 IamtheREALmario
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Is Rosenberg the new contra-indicator?

Tue, 04/02/2013 - 15:05 | 3400496 CheapBastard
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When the Central Bankers stop buying the yellow metals then I will.


However, I do not see that happening any time soon. In fact, we see just the opposite as nations grab the shiny stuff.

Tue, 04/02/2013 - 15:35 | 3400564 Archetype
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I am betting on deflation. By reading Zero Hedge and shopping grocerys myself its obvious that we have had inflation for a while. One more proof for deflation is weak commodities, copper, gold, silver, steel, oil wich is early in the cycle. The developed world has reached peak growth and it doesnt matter if Bernanke adds five or ten zeroes in his computer. The entire stock rally is nothing more than a big pump & dump for the banks to fix their balance sheets with. I might be totaly wrong I just cant see any inflation comming for a long time.

Tue, 04/02/2013 - 19:00 | 3401253 Quinvarius
Quinvarius's picture

We don't have deflation, we have a bad economy.

However, we are sailing straight into the biggest banking crisis in the history of mankind right now.  All market crashes are caused by banking crisis.  So it might look like deflation when the DOW dumps in the not so distant future.  It can't be stopped either.  When companies in the DOW start going out of business, the points will come right off no matter what.

I was a megabull until a few weeks ago.  But no banking system can function without depositors.  Short of a complete QE5 global banking recap and reform, this thing is going down.  But it still won't be deflation. 

Tue, 04/02/2013 - 15:28 | 3400576 robertocarlos
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Deliberately creating inflation calls for a bullet to the head. Didi Mao!

Tue, 04/02/2013 - 15:36 | 3400612 pitz
pitz's picture

The problem is, there's huge numbers of skilled people who are unemployed.  So there goes the thesis of the article -- that there's somehow a shortage of skilled people, and such will lead to the closing of the output gap.

From what I can see, its not just a tiny output gap, its more like a Grand Canyon of an output gap. 

Tue, 04/02/2013 - 15:47 | 3400666 robertocarlos
robertocarlos's picture

If you inflate my pension to nothing am I going to sit here and take it?

Wed, 04/03/2013 - 12:22 | 3403771 DosZap
DosZap's picture


If you inflate my pension to nothing am I going to sit here and take it?.

Yep, YOU will have no choice and there are only a few things you can do for insurance against it.(if you have been here a while, you know what that is).

Tue, 04/02/2013 - 15:53 | 3400690 sschu
sschu's picture

At the same time, the latest data on earnings from the payroll reports show an uptick in wage growth. This is happening even with a jobless rate of 7.7% and a U6 rate of 14.4%. One would ordinarily believe that we have tremendous slack in the labour market looking at these figures. But maybe the pool of available skilled labour has already been largely drawn out.


We are in the staffing business in Seattle and his comment is right on, the labor market, especially skilled labor, has tightened significantly.  The wage that it takes to get a good employee is 20% over where it was in 2010.  The availability of suitable labor is very tight, good people are working, and if they come off a job can get another one quickly. 

What is left are the chronically unemployed, people who do not want to work and the people who have transitioned to SSDI.  In other words, the unemployables, this rank has grown significantly.  So while the numbers say 7.7% UE, the actual number is far less if you factor in those who are really ready and available to work. 

This experiment in currency debasement cannot end well.  How will they raise rates given the Feds DV01?  What makes us think the government can balance their books, or even get close?  How do we afford the demographic free-lunch tidal wave that is eminent?

We know where this leads, the history is out there for all who bother to look, Hitler, Napoleon and Lenin.  Inflation is the least of our worries when compared to these guys.



Tue, 04/02/2013 - 21:52 | 3401682 pitz
pitz's picture

I can assure you, there's nothing that resembles an engineering or technical labour shortage in Seattle.  And if there's no shortage in the senior part of the labour market, there can't be, by definition, a shortage in any junior parts of the labour market.  20% might refer to people no longer putting up with low-ball offers (why bother....), but there are still giant numbers of perfectly employable people out there, with skills, who simply don't receive the time of day from the employers.



Wed, 04/03/2013 - 10:06 | 3403003 sschu
sschu's picture

Thanks for posting this, yours is the perfect illustration of my point.

You may not like work, your employer and the system, but it is what it is.  The pervasive attitude of entitlement is a huge turnoff and may be at the heart of the issue.  Consider it at least.  

Best of luck, sschu


Tue, 04/02/2013 - 15:56 | 3400703 Glass Seagull
Glass Seagull's picture



Copper the public.  Always.



Tue, 04/02/2013 - 16:07 | 3400757 Sutton
Sutton's picture

Ben will raise rates 10 minutes after he detects inflation, Mr. Rosenberg.  Yawn.

Tue, 04/02/2013 - 16:22 | 3400798 Joseph Jones
Joseph Jones's picture

Please stop writing these god-forsaken paragraph long sentences within sentences.  It's impossible to read. 

Tue, 04/02/2013 - 17:08 | 3400954 RockyRacoon
RockyRacoon's picture

Your education has failed you... or perhaps the other way around.

Tue, 04/02/2013 - 17:32 | 3401034 DosZap
DosZap's picture

If that is to me, stop reading it dipshit.

Tue, 04/02/2013 - 17:44 | 3401042 Ghostdog
Ghostdog's picture

Let me add a parable.

A number of people plan to hike to the top of everest. They are told (though have no actual proof) that there is plenty of food at the top once they get there so they pack accordingly. 2/3's of the way they run out of food. They know if they turn around now, they will die as they cannot make it that far back without food. So they move forward as the only hope they have of survival is the chance there is food at the top.

This is the story of the fed and our policy makers in DC. They will not stop, ever, because stopping, to them, means certain death. They have gone too far along the journey to turn back. So they will move on even if it means killing almost everyone along the way. Once the market decides it's over the fools will take one last shot in which their actions will harken that of a hysterical passenger pushing random buttons in the cockpit of a plunging airplane. And that is how it shall finally end.

The moral of the story. Dont go to a proctologist who follows this advice


Tue, 04/02/2013 - 21:33 | 3401634 Tegrat
Tegrat's picture

I for one am not so sure that rates cannot go up. If your debt is 1000 trillion or 100 trillion does it really matter you can't  pay back either.


Wed, 04/03/2013 - 00:18 | 3402039 honestann
honestann's picture

Bernanke will never raise interest rates significantly.  He can't, because the federal government cannot pay significantly higher interest rates without borrowing even more extreme piles of fiat to pay off previous bonds as they come due, plus the usual endless wasteful spending.

As I have been saying for about 2 years now, Bernanke will be replaced by Paul Krugman, because the predators-DBA-government want someone who will print, print, print unlimited sums so the predators can keep buying votes from poor folks, and enriching the predators-DBA-banks who kick back huge sums.  Krugman is such a baldface liar and predator, he will feel no remorse for totally destroying everything and everyone [except his predator buddies], and will advocate every kind of tyranny known to man (plus a few new twists).

All this has been obvious for years.

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