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3 Things Worth Thinking About
Submitted by Lance Roberts of STA Wealth Management,
Inflation Goal Elusive For A Decade
I have written previously about the Federal Reserve's real worry which is a rise in deflationary pressures:
"The biggest fear of the Federal Reserve has been the deflationary pressures that have continued to depress the domestic economy. Despite the trillions of dollars of interventions by the Fed, the only real accomplishment has been keeping the economy from slipping back into an outright recession.
Despite many claims to the contrary, the global economy is far from healed which explains the need for ongoing global central bank interventions. However, even these interventions seem to be having a diminished rate of return in spurring real economic activity despite the inflation of asset prices.
Despite the ongoing rhetoric of those fearing inflation due to the Fed's monetary interventions the reality is that such actions have, so far, failed to overcome the deflationary forces of weak global demand."
What is quickly being realized on a global basis is that injecting the system with liquidity that flows into asset prices, does not create organic economic demand. Both Japan and the Eurozone's interventions have failed to spark inflationary pressures as the massive debt burden's carried by these countries continues to sap the ability to stimulate real growth. The U.S. is facing the same pressures as continued stimulative measures have only succeeded in widening the wealth gap but failed to spark inflation or higher levels of economic prosperity for 90% of Americans.
When interest rates spiked in 2013, and many calls for the "death of the bond bull" were being made, I was one of the few screaming that this would not be the case. The reason for my steadfast belief was simply the lack of the three catalysts required to spark inflation: rising commodity prices, rising wages and increased monetary velocity.
(Read this for more on the construction of the index)
The reason I am dredging all of this history is to reiterate the point that Central Bank interventions have been proven NOT to be inflationary NOR effective in stimulating actual organic economic growth.
As stated by Bloomberg:
"Inflation expectations have plummeted in the past three months, with yields of Treasuries implying consumer prices will rise an average 1.5 percent annually through the third quarter of 2019. In the past decade, those predictions have come within 0.1 percentage point of the actual rate of price increases in the following five years, data compiled by Bloomberg show."
What Bloomberg is addressing is that both the drop in Treasury yields, along with the decline of "Breakeven Inflation Rates" (the spread between equivalent treasury and inflation-adjusted rates), are suggesting that inflationary pressures are nowhere on the horizon. It also suggests that expectations for 3% economic growth over the next several quarters is also likely to come up short.
The Recent Rally May Not Last
That is the title to an article by Michael Kahn at Barron's which has extremely similar tone to a piece I wrote earlier this week entitled "Be Cautious: Correction May Not Be Over."
Michael makes a couple of good points that confirms much of my analysis, to wit:
"Since the steadiest part of the bull market began two-years ago, every pullback was very sharp and very quick. Some call them 'V' bottoms although that term is really reserved for the end of bear markets, not market dips. However, the meaning is similar as the market’s mood turned on a dime from fear to greed."
"There is something profoundly different about the rebound this week versus prior rebounds. This time, it occurred below the bull market trendline. When a major trendline such as this is broken to the downside, strict interpretation of the technicals says that the bull is over. Therefore, rebounds now take place in the context of a flat or even falling market, not a bull market."
The recent correction has inflicted a good bit of technical damage to the market that is unlikely to be cleared on an extremely short-term basis. While anything is certainly possible, the ability of the markets to make a run at new highs is much more suspect given the extraction of the Fed's liquidity driven support next week. This is a set-up we have seen previously as I pointed out in my analysis earlier this week.
"With the Fed's liquidity support now ending, the markets have once again plunged below the bullish trendline. The current rally, like every other time, is most likely a short-lived rebound from extremely oversold short-term conditions."
"Importantly, the deterioration in the internal dynamics of the market also suggest that the current rebound is not the resumption of the current bull market cycle, but rather a bounce that will likely be used to liquidate holdings. This will likely lead to a retest of lows, or even perhaps the setting of a new low, before a bullish trend can be re-established."
Michael sums the current situation very well stating:
"But for now, all we have is hints and possibilities. The rally from last weeks low does not have enough merits on its own to continue much higher so the bears may be resurrected from the depths of short-covering hell."
Interesting Thought Of For The Day
My friend Michael Gayed recently penned a very interesting thought:
"I believe that the Last Great Bubble is bursting — faith in central banks to solve all problems."
I agree with Michael. The mantra has been over the last five years that you "do not fight the Fed." The problem, as discussed above, is that the Bank of Japan, the ECB and the Fed have all failed in accomplishing their objective of "reflating" the global economy.
The issue that has been consistently ignored is the massive, and expanding, debt burdens that act as a deflationary drag on economic growth and inflation. Despite statistical economic headlines, the underpinnings of the domestic economy remain far too weak to create the level of consumption needed to support stronger economic growth. The bond market has already recognized that inflation isn't coming, Japan and the Eurozone economies are slipping quickly back into recession, and even China's seeming inexhaustible growth has begun to drag. These aren't the drivers of a "secular" bull market.
As Michael concludes:
"A growing economy coincides with rising inflation expectations. A healthy bull market coincides with rising inflation expectations. Fight the Fed? You sure they are going to get that inflation target when the market itself is screaming they won't, at the same time quantitative easing is ending?"
Or, maybe this time really is different?
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An economy that exists solely based on credit and debt ALWAYS fears deflation, because such an economy REQUIRES ever increasing levels of debt to sustain itself. Perhaps someone should let the Fed in on this secret.
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Does she masturbate on cam?
Your roommate's ex-wife is a knob gobbler.
Stupid article. I want my two minutes back.
I hope it was the last bubble ever.
This is only a rest I repeat this is only a test!
http://www.marketwatch.com/story/fed-stress-tests-to-put-banks-through-6...
They wish it were to be that benign
Best I can say is "we'll see."
Hard to imagine a commodity collapse as good for equities. With Wall Street reliving the glory daze of the 70's its kinda hard to see where complexity is the way to go here.
Tis the silly season so all the hack politicians are gonna throw everything and the kitchen sink at their venality and outright theft. (When it gets serious you have to lie!) If this market coughs up a hairball in my view you've only got ONE "bail in" from Bubble 3.0.
real accomplishment has been keeping the economy from slipping back into an outright recession.
So the depression is over??? Great!!!!
I believe in order flow. Even 161 million geniuses are going to do what they are fucking told if central banks can convince 162 million morons to do something else. Unfortunately, we know half the country is stupid, and most of the other half doesn't know what's going on. So what was that about central banking bubble bursting?
"Despite the trillions of dollars of interventions by the Fed, the only real accomplishment has been keeping the economy from slipping back into an outright recession."
this line of thinking must be killed
letting subprime auto lending get back to 2006 peak; forced spending on ACA; student loan explosion; fedgov annual outlays $600 billion higher than when entering recession; etc ... are the source of "growth"
FR BS "wealth effect" more than offset by lost interest income (and yield spread capture by lenders mooting much of ZIRP for consumers)
people spend income ... not asset appreciation
people spend income ... not asset appreciation
+1... and asset appreciation is good mostly for speculators. If you're like most people, who don't have a lot of money in the market, if any, and most of your money in your house, asset appreciation means your property tax goes up when you're not planning to sell, so it's a net loss. And this is most of the population. Then again I don't have an economics phd so what do I know.
despite your lack of an econ PhD, you're probably more insightful than 98% of economists.
I've got a neighbor trying to flip a property bought 3 yrs ago... complaining abt not getting the 'right offers.' This fucker's trying to squeeze every last dollar from some sap off the street so that I end up paying higher property taxes next year. fuck him. I've already highlighted this point to several, more long-term, neighbors who don't give a shit about him cuz they know he's just a flipper. a running joke is that we might start parking junkers in the front yard the next few weeks just to fuck him over.
"people spend income ... not asset appreciation"
Negative. When home prices levitate, larger HELOCs are available, which are then spent on a bigger flat-screen than the neighbor.
What makes Lance or anyone else for that matter think that the faith of the average moron in the Fed to fix everything at a moments notice has waned one bit? I mean you get 3 days with no ebola headline and the markets scream right back to where they were before a new ebola headline this afternoon makes them back off just a tad bit. If the Fed announces next Wednesday that they are going to keep QE going to make sure that the economy recovers and maybe even step it up, do you think the markets are going to go "Holy Fuck!!! They think we need more QE so the economy must really be messed up!! Sell!!! Sell!!! Sell!!!"
No, Tepper will come on and say that stocks are the only game in town, the Fed has your back. Buy all the stock you can and go to sleep. And the S&P will go to 2500 by March. Something like ebola or a real recession coming on again or something else has to happen to force the blind to see that the emperor wears no clothes. I mean I surely believe the emperor wears no clothes but I have been bearish and wrong for several years now wondering why no one else sees this? Or not enough see it. It is a conundrum as the person formerly known as the Maestro, now known as the absolute moron would have said. I say moron because he is the one who made it Fed dogma that a rising stock market is the sine qua non of central bank policy. Prior to him no self respecting central bank governor would have come down on the side of "manipulating markets as a matter of policy is not only acceptable but desirable". We truly live in bizarro world.
That said, todays amazon earnings will prove to have been a watershed and one I think with implications for the market generally. I am getting short the NAS 100 shortly.
Plug in the chart of Crude Oil to your calcs.
Beyond that, the only thing The Fed fears is bondholders taking a loss. Pay that damn coupon, the principal be damned! (rolled).
"or a real recession coming on again or something else has to happen to force the blind to see that the emperor wears no clothes."
no truer words
but i think we're at threshold of next recession (Q12015 latest) ... currently 5 years 4 months into "recovery" ... getting a little long in the tooth ... 6 years 1 month between 2001 and 2007 recession
tick tock tick tock tick tock ...
Dude, what you may call a recession is based on the average of the whole country- I've been in a "personal recession" since 2006! No wage growth, food up 100%, gasoline is expensive, they don't care about me who has no debts to pay, but daily expenses have increased bigtime.
They only worry about if a recession will hinder the ability of their bonds to pay interest to them. Case Closed, that's the fed's mandate. Oh, and now OIL PRICES.
funny, I was just thinking, when I woke up this morning, what is the trade for 'everyone has lost faith in central banks' ability to inflate global asset prices w/out causing an outright catastrophe?'
it's been pretty obvious for a while now, which is why I live in an impenetrable compound nestled deep in a difficult to get to section of the world. by my calculations, i'll be able to stave off the 1st 2048 attempts to infiltrate my perimeter before I actually have to put forth some effort. even then, they'd better come w/ serious H-to-H training, cuz it's not hard to disable a human being in 1-2 seconds.
hint: the solution is tangible, fungible, and not that hard to acquire.
The only thing worse than breaking your dick is breaking your trend
Recently released minutes from the last Federal Reserve meeting confirmed growing concern about the pressure a stronger dollar is putting on other currencies around the world. Bottom-line is other currencies are under assault because both economies are weak and countries are buried in debt they can never repay at real market interest rates. When investors become unwilling to buy the bonds of heavily indebted nations causing the bond bubble to burst the values of currencies in those countries will tumble.
While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Recent weakness in the value of the Yen, Pound, and Euro must not go unnoticed. The Currency Vigilantes are acutely aware of when a currency is overvalued or ready to be re-pegged and pounce on the weak currency to tear it apart. The article below questions just how stable the currency markets really are and may be a signal that currency trading is about to get very wild. Please note, this may also be sending a signal that the whole system is unstable and the stock market is about to drop like a stone.
Many people are looking for a "dis-inflationary crash" and it is possible or we may see money shift from bubble to bubble. I have pondered the possibility that what we are and have been going through is the "major deflationary period." More and more often we seen Central Bankers forced to pull rabbits out of their hats. When we stand on the abyss central bankers will be forced to print so much worthless paper the money it will act as a cushion to our fall but not change the reality. Before you discount this possibility that we will move directly into the final stage of hyperinflation consider that hyperinflation paves an easier transition to a replacement currency and a reset of the system.
http://brucewilds.blogspot.com/2014/10/fed-concerned-that-stong-dollar.h...
Banks and politicians still picking the pockets of home owners...
http://www.globaldeflationnews.com/santayana-will-be-proven-right-again-...
It appears the central banks of the world have made the crux of their existence a balancing act. You can almost imagine these bankers standing atop a fence. On one side lays a field of inflation and on the other a deep pit of deflation.
A new round of easing by central banks to combat a slowdown in growth may again be in the cards but do not be surprised if this time it is less successful. The magic of this policy is losing its luster. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/11/central-banks-try-to-balance-on-fence.html
FED = FOUND ECONOMY DEAD
This article quotes questionable data. No inflation? Seen the price of Pork lately, how bout Chicken and Beef. What about medical & taxes...
It's almost like the unemployment numbers. May as well pull them from your Ass. 5.9%? you cant make this shit up, oh wait...
You really think they won't use "tanks in the streets!" again?