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The Inflation Trader

 
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  • Why So Many Inflation Market Haters All Of A Sudden? [View article]
    1s and 2s seem like a slam dunk and with gasoline this low I would seriously consider ignoring the hedge. The forward still seems low but I agree there's more room for disappointment there.
    Sep 26 10:44 PM | Likes Like |Link to Comment
  • Long-Term Outlook - Bleak! [View article]
    You really attack a straw man here. I certainly don't test models and apply them to periods unlike the period of development, unless I put tremendous caveats on them. In fact, I have gone out of my way in my articles to attack economists (generally Keynesians) who have taken refutation by out-of-sample data as an excuse to re-parameterize rather than to reject their acting hypothesis (in the case of Keynesians, the idea that growth causes inflation, which has been solidly disproven most recently - in addition to many many times previously - by the fact that sharply negative growth in the Great Recession never even sniffed deflation).

    But your assumption that in terms of these models this is a period unlike any other is flawed. It is like comparing two cars, both of which are the same model of Ford coupe in blue, but saying they are unlike because in one case it is raining when you are looking at the car while in another case it is sunny. That's a difference, but it is an irrelevant difference.

    In terms of pure monetarism, there are only a couple of variables and we can compare the current circumstance to many other periods which are quite similar along those variables ... and other variables are irrelevant to the model.

    Now, that might not actually be the case - it may be that monetarism itself is mis-specified. I doubt that is true, given its tremendous track record of success, but it is possible.

    However, in no case am I taking a model developed for a period of stasis and applying it to a different type of period, without many caveats being pointed out. That's what bad economists do - and not what I am doing.

    Thanks for letting me set the record straight.
    Sep 23 12:03 AM | Likes Like |Link to Comment
  • Ugly CPI [View article]
    We agree on this. They are useless at forecasting, and they are awful at understanding how markets work in practice.
    Sep 17 08:00 PM | 1 Like Like |Link to Comment
  • Ugly CPI [View article]
    I'm glad to hear that. It's an old and mostly forgotten relationship, the one between interest rates and velocity and it's good that people are remembering it. Economists actually call it the "price puzzle" that inflation generally starts to accelerate when interest rates first rise - which is not of course a puzzle at all, but straight monetary theory. (Theory which Mr. Robson thinks is bunk despite all of the history in support of it).
    Sep 17 07:59 PM | Likes Like |Link to Comment
  • Ugly CPI [View article]
    New Normal was a cute buzzword that Pimco introduced, but it doesn't mean anything in particular. It just means that expected returns are low. Duh. And that expected real growth should be low. Duh. These days it seems to mean something different to everyone who uses the phrase, only about 5% of whom seem ever to have read the original article.

    It really isn't MY model you're questioning, but hundreds of years of economic history in hundreds of countries. Not to mention Nobel prize winners like Friedman.
    Sep 17 07:57 PM | Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    Yep - but you need core inflation to go for the remaining 7 months at 1.6% or so...that's a much harder bet than the one you originally made, which was that it would be under 1.7%. It's close, though - you've gotten 5 months of inflation at just about 1.6% or 1.7% (thanks to today). It is going to be closer than I thought, that's for sure!
    Sep 17 03:08 PM | 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
    August CPI: 238.345 (released today)


    We have had 0.736% core inflation so far (1.77% at an annual rate). With 7 months to go and 240.626 the push, Mr. de los Angeles needs aggregate core inflation to be 0.957% or less (1.641% at an annual rate). I need the over.

    Today's figure makes this a race again! It's still not a very close race, since core inflation hasn't been below 1.6% in a non-crisis period since the 1960s and housing pressures remain, but it's at least a race!
    Sep 17 11:24 AM | Likes Like |Link to Comment
  • 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
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