Friday, February 16, 2018

Of Course it is About Inflation!

Look! The market went down and then it went up!

So it can't be about "inflation"!, they say.

Yes, it IS about inflation. Let me explain.

Start with the famous quote by Milton Freidman, "inflation is always and everywhere a monetary phenomenon".

Now consider that for the last 40 yrs. the central banks of the world have been fighting deflation with monetary stimulus. The deflation from Asian imports was countered with free money. What else was there to do???
We put all of our manufacturers out of business and laid off the help. In a "normal" world the nation would experience a colossal depression and imports would be unaffordable. But instead of that terrible thing we printed money by making credit available to everyone. We created a "service" economy out of thin air. We spread the credit around and got into the business of serving each other. (For minimum wages, of course) So we had some money to buy those imports. The importers had huge margins, stocks went up, and we all got on the gravy train as we became a "service and financial" economy.
That deflationary wave lasted most of the last decades. Now, Asia is coming into their own so to speak. They want broad increases in standards of living. China is increasing wages by letting the yuan appreciate. They do that by NOT buying U.S. dollars. Same in the rest of the emerging world. They will start to consume what they produce. That means prices for us will go up as the standards of living in the whole world go up, production being equal.
For decades we only measured inflation as the price of commonly used goods. Those were in good supply. Food, energy, etc....We didn't measure financial asset prices as part of inflation, but they surely were inflated if you consider what they would have been without central bank credit.

So, yes, it was inflation that we caught a whiff of. Another "taper tantrum"....

They will think of excuses and other names for what is and will happen, but it will be the result of free market capitalism and easy credit for decades. Because capitalism works. Capitalists make money. The profitable enterprises survive and prosper. And they stash the money away or loan it to others. This is the function of sovereign wealth funds. They "save", to coin a word. And now, in order to raise the standards of living of themselves they will spend what they have saved. That means there will be more money coming into the markets to compete for the goods we take for granted. And they will be using our money. Well it was 'ours'....But they have most of it now...

Interest rates will rise for those with demand for money and no savings....That is us...

What will democratic societies do when faced with a lack of money. We are in the process of cutting our safety nets. Cutting social programs. And running up our national debts even as we speak.

Perhaps we will depend on the kindness of strangers? Or central banks!

Alas.

Monday, February 5, 2018

What? Me Worry?

Inflation worries?
Oh, puhleez!

Does anyone really think the central bankers of this world will actually act to stop inflation?

The world has been waiting for inflation for decades to bail us out of our debts.

As money flees bonds it is more likely to be invested in oil, or steel, or gold...

Assets, in other words.

The only troubling spot is if wages for the workers start to rise. But that will  be needed to offset a rise in the cost of consumer credit.

Methinks the stock averages protest too much.

They ain't making anymore world, you know.

Tuesday, January 9, 2018

Is This Time Different?

I remember quite well what happened when long bonds were set to go down in '07.....

Here is an interesting chart of the long bond "bubble".

How much of "growth" is dependent on consumer debt and lending?

If there was a movement from long bonds to other assets would that include "real" assets?

The chart.


 
 
Timing is everything.
 
gh

Friday, November 17, 2017

Silver to Shine

The U.S. Dollar is on a path to secular weakness.

It is showing in this chart of Silver Standard.

Friday, October 20, 2017

Real Estate/ Interest Rate Correlation

Just the charts.

Rising Wedge in U.S. Housing Prices?

The 'Rising Wedge' is fairly reliable technical analysis chart pattern, particularly when the price rises on ever lower volume.

Every month the U.S. housing numbers reflect rising prices with a lack of sellers. Inventories down.

Two questions.
Why no sellers?.......... Are the survivors of the last crash holding on. What do they do if prices start to fall?

How will higher interest rates affect the buyers? Wages continue under pressure in the U.S. Can new buyers afford higher interest payments or higher down payments?
Will a strong dollar temper foreign demand?
What do the bank balance sheets look like with respect to housing loans?

Wednesday, October 18, 2017

Steel Yourself!

Are we on the verge of yet another "supercycle"?

Trump is energetic about deficit spending and fiscal stimulus.

Look at some similarities in the long term chart of AK Steel.

The only real difference is the trend over the last few years....

But hope springs eternal!!

gh

Thursday, October 12, 2017

Worldwide Recovery?

It seems every stock market in the world is rising to new highs on anticipation of economic growth.

Even the lowly Baltic Dry Index is recovering.
I don't see much movement in the shippers, though.

It does seem about time to this trader.....

Baltic Dry Index at Bloomberg


Dianna Shipping  DSX

Control risk.

gh

Monday, August 28, 2017

Next Hyper-Inflation?

As global warming continues to create extreme weather events it may be the seed of the next worldwide hyper-inflation as countries spend to remediate the destructive events and as industry and food production is impacted and as economies are 'stimulated' to avoid debt defaults.

gh

Thursday, August 17, 2017

Slouching Towards Armageddon

Are we having fun yet?

The President of the United States has fully convince a clear majority of the world that he is completely unfit for his job.

All that is left is for him to resign.

A Pence presidency will get the Republican agenda back on track quickly. I suspect the country is willing to leave this episode behind as soon as possible.

Do it, Mr. President. You are costing the country immensely.

gh