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The Inflation Trader

 
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  • Enter The Draghi [View article]
    A rising dollar, like any market price, just hurts some people and helps others. It hurts domestic manufacturers and service providers who compete in a global marketplace that isn't priced in dollars; it helps consumers, who get better prices from more-competitive foreign producers. There's only a 'problem' with a rising dollar (or Euro) if you are a union shop trying to maintain wages and employment, or a manufacturer who for some reason cannot produce globally. Or if you are on the edge of deflation already. But consumers should really love a strengthening dollar.
    Sep 5 08:12 AM | Likes Like |Link to Comment
  • Enter The Draghi [View article]
    Not sure. It's easier to inflate a bubble from 14 PE than from 26 PE!
    Sep 4 08:42 PM | Likes Like |Link to Comment
  • Back To School [View article]
    I haven't read his piece, but yes - it's implied by my chart above. Velocity is already lower than it should be. Unlike Hussman, I can't find a way to measure "liquidity preference" so I am not sure whether that's the reason that velocity hasn't yet rebounded. But it may be.
    Sep 4 11:57 AM | Likes Like |Link to Comment
  • Back To School [View article]
    It is right on schedule. We have the highest median inflation since the crisis, housing inflation is higher than that and pulling it higher, and unless velocity has reached a permanently low plateau or the Fed pursues a policy of negative money growth prices will continue to rise. The only question is whether this happens quickly or slowly, resulting in high inflation for a few years or persistently not-low-enough inflation for quite a few. My guess is that we will have 3-5% inflation for a while, but I can't discount the notion of a spike higher since inflation historically has gone over 10% about 1/3 of the time it has gone above 4%.

    But inflation is right about where I have been forecasting it to be late this year. Actually a tick or two below my forecasts but pretty close. So far there have been no significant inflation surprises in either direction since the crisis.
    Sep 4 07:41 AM | 2 Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    March CPI: 236.604 (the base figure)
    April CPI: 237.163
    May CPI: 237.776
    June CPI: 238.083
    July CPI: 238.311 (released last week)

    We have had 0.721% core inflation so far (2.16% at an annual rate). With 8 months to go and 240.626 the push, Mr. de los Angeles needs aggregate core inflation to be 0.971% or less (1.457% at an annual rate). I need the over.

    Interestingly, while last week's figure lowered the annual-rate-to-date for the wager, the shortened time to maturity of the bet means that not much really changed. The current breakeven is about 1.457%, which means Mr. de los Angeles needs a bunch more downside surprises like last week (he would say it's no surprise at all), which was 0.0958%, or 1.155% at an annual rate. It's closer! But not much closer.
    Aug 29 08:35 AM | 1 Like Like |Link to Comment
  • Fed Gearing Up To Stand Down [View article]
    it's a great paper. I heartily recommend it for knee-slappers like this!!
    Jul 31 03:27 PM | 2 Likes Like |Link to Comment
  • Fed Gearing Up To Stand Down [View article]
    I don't think we'll get deflation again in Japan unless the BOJ loses its will. There's some sign of that (they haven't doubled the money supply as they promised), but so far so good.

    In Europe, if the ECB follows through on its STATED plan then inflation there will start to rise again. But they have failed to follow through on many of their stated plans. We started writing in our Quarterly Inflation Outlook late last year that Europe is the best candidate for Japanification now, hands down. But I still think that when push comes to shove, they'll print enough. The problem is that Germany and Greece have such different needs. But right now they all need inflation.
    Jul 31 03:02 PM | 1 Like Like |Link to Comment
  • Fed Gearing Up To Stand Down [View article]
    Thanks for your kind words, and anecdote, Happy!
    Jul 31 08:43 AM | 1 Like Like |Link to Comment
  • Setting Up For A CPI Surprise? [View article]
    I am interested in the feedback on water cooler talk. I suspect that my 'real feel' temperature misses one important effect. It takes a wide variance in price changes to represent "feels like inflation but isn't inflation" since people recognize what's going up and don't see what's going down. But I think at the other end, where many things are going up in unison, there's also an effect that seems like more inflation because it feels more "pervasive." I am suspicious of this low reading as well. Thanks for that feedback. The measure is clearly an unfinished one.
    Jul 25 09:02 AM | Likes Like |Link to Comment
  • Setting Up For A CPI Surprise? [View article]
    That doesn't answer his question, and moreover it's from a site that is known to be completely clueless when it comes to inflation. I would strongly caution anyone from using anything found there, because the purveyor doesn't understand math (as I've demonstrated repeatedly in the past).
    Jul 25 08:59 AM | 1 Like Like |Link to Comment
  • Setting Up For A CPI Surprise? [View article]
    The BLS has an experimental index for 62-and-over consumers, but I am not aware of one that parses by income groups. However, all of the price series are there, so all one needs to do is to describe the consumption basket and a series can be created. Probably someone has done this, but I can't point you to it.
    Jul 24 07:11 AM | Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    March CPI: 236.604 (the base figure)
    April CPI: 237.163
    May CPI: 237.776
    June CPI: 238.083 (released today)


    We have had 0.625% core inflation so far (2.50% at an annual rate).
    With 9 months to go and 240.626 the push, Mr. de los Angeles needs aggregate core inflation to be 1.068% or less (1.42% at an annual rate). I need the over.

    Interestingly, although the figure today was well below expectations, Mr. D actually fell behind slightly more. Previously, he needed 1.44% annualized or less; now he needs 1.42% annualized or less. In other words, if each of the last 9 months was +0.129%, then it would be close but Mr. D would still be on the wrong side. In such a case, I'd probably proffer a draw though.
    Jul 22 04:25 PM | 1 Like Like |Link to Comment
  • Dog Bites Man: Markets Still Not Making Sense [View article]
    Well, for starters you listen to what they say. If they decide to begin to be aggressive, to shrink their balance sheet or to keep the excess reserves inert in some way, they will first have to start talking about it very aggressively. Because right now, no one believes they will do anything except maybe raise interest rates, and raising interest rates without removing reserves will actually increase inflation rather than decreasing inflation. (That's actually my vote for what is the most-likely Fed mistake in this cycle).

    But until they start talking not about "maybe some day" starting to increase rates, but draw a line in the sand and say "inflation can't go higher than this or we are going to respond aggressively and in this explicit way," it's not going to happen. Because they are going to give the financial markets a HUGE lead time before they make a meaningful change in policy.
    Jul 9 09:12 PM | Likes Like |Link to Comment
  • Dog Bites Man: Markets Still Not Making Sense [View article]
    They CAN act long before inflation gets to that level, but they could also have done it in the 1970s and chose not to. It isn't clear to me that the current Federal Reserve is any brighter or has any greater foresight than the Arthur Burns Fed. The question is not CAN they arrest inflation - of course they can, in the same way they can always ensure that deflation doesn't happen. The question is always whether they have the will to do so. The jury is out, but there seems to be no urgency even though median inflation is at 2.3% and rising, and policy takes many months before it has any impact on inflation...even if there AREN'T loads of excess reserves to remove first.

    I'm not saying inflation is inevitable. I am only saying it is inevitable if the Fed doesn't do something hawkish in 2013. Oh. Whoops.
    Jul 8 04:15 PM | Likes Like |Link to Comment
  • Dog Bites Man: Markets Still Not Making Sense [View article]
    Okay, then why did stocks go up last year, when interest rates were rising? If they go up when interest rates fall, but then go sideways or up when interest rates rise, then we simply have a perpetual motion machine and we should have the Fed continue to lower rates forever. Make them good and negative, in fact!
    Jul 8 12:29 PM | Likes Like |Link to Comment
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