Rising Commodities Mean No Deflation

Well, gang, it happened. I had my first sighting of premium gasoline top 3 bucks at the pump yesterday morning with a 30 cent spread over regular. Any wonder why I remain positive on oil and oil stocks?

Monday's column was on energy and I want everyone to take particular note of the oil chart priced in the basket of currencies that make up the US Dollar Index. In other words, oil priced in a combination of Euros, British Pounds, Japanese Yen, Canadian Dollars, Swiss Francs and yes, the critically important Swedish Krona.

A lot of talking headery has been dedicated to telling the public that commodities are strong because the dollar is weak. In the words of Col. Sherman T. Potter, "horse hockey!" Crude oil is rising whether you price it in the currency basket (sans US dollar), or any of the component parts (well, I did not check the Krona). It is even rising when priced in Brazilian Reals so it is fairly safe to say that crude is rising a heck of a lot faster than the dollar is falling.

I repeat what I have been saying ever since the first expert invoked the D-word many months ago. Rising bonds meant no deflation. And now rising commodities mean no deflation.

Comments

[jeremiah74:]

what is your definition of deflation ?

Jun 09 08:19 AM

[BrotherMaynard:]

Debt defaults (in part due to declining asset values) and unemployment/underempl... are about the most deflationary things i can think of. Both of those are getting worse.

Dave Rosenberg, via FTA:

"right now two out of every three companies are shedding labour. Average weekly earnings — the wage-based proxy for personal income — has slowed to a mere 1.2% YoY...They actually fell 0.2% MoM in May and over the last three months, have deflated in rare fashion at a 0.7% annual rate.

This is the critical deflation that the bond bears do not see — not yet anyway — but the Fed surely knows this and the view being expressed in the futures market that we will see three rate hikes in the next year seems to be out of touch with this wage contraction reality."

I don't buy the inflation canard for a second.

And the fed? Their actions pale in comparison to the amount of credit that has been destroyed -- see here: 3.bp.blogspot.com/_KqO...

here's the FTA link: ftalphaville.ft.com/bl.../

Jun 09 11:42 AM

[Larry House:]

There are many contrary opinions to yours. I think you are very premature to state "no deflation" as a conclusion. We have a long way to go.

Jun 09 11:59 AM

[Jimbo:]

A proposed means to resolve all the contrary opinion above: STAGFLATION

Jun 09 04:58 PM

[D. McHattie:]

'Inflationary depression' is another.


On Jun 09 04:58 PM Jimbo wrote:

> A proposed means to resolve all the contrary opinion above: STAGFLATION

Jun 09 07:10 PM

[Dirk McCoy:]

If you combine deflation with price controls, you will see massive underutilization.

So, as wages need to deflate and people either won't take lesser salaries, or minimum wages are uncompetitive in global markets, unemployment will continue to rise (above the current unofficial estimate of 20%);

As home prices need to deflate and people won't sell or buy due to price fallicy, homes won't sell and a glut of homes will grow;

As the dollar should deflate against the yuan, and it doesn't, the trade imbalance doesn't correct.

As corn prices should deflate, but are kept high by ethanol subsidies, we sell less food and more people starve (mostly outside the US).

Not everything deflates or inflates at the same rate. By not allowing deflation or inflation to send price signals, resources are misdirected. And when the government then tries to deal with those via subsidies, an unsustainable situation- that can end badly- emerges.

Jun 10 12:37 AM