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The Inflation Trader  

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  • Inflation Risks Behind, Beside, And Ahead [View article]
    Sure. Stagflation happens when money growth is too fast, but economic growth stalls for other reasons. And global money growth is too fast - moreover, there is a lot of "potential energy" in central bank balance sheets that will eventually move into money, unless those balance sheets are shrunk. But no central bank seems to care about its balance sheet.
    May 6, 2015. 10:44 AM | Likes Like |Link to Comment
  • Inflation Risks Behind, Beside, And Ahead [View article]
    Actually, it has been those calling for very low inflation or deflation who have been wrong. Median inflation has been above 2% for several years now, and hasn't shown any sign of the deceleration they have been calling for since they were calling for deflation after 2008. It never happened, and never will happen.
    May 6, 2015. 08:04 AM | 3 Likes Like |Link to Comment
  • If Liquidity Is Your Sword, Keep Swinging [View article]
    I don't make investment recommendations per se here. I remain bullish on commodities although after further research earlier this year I think the margin over other asset classes is less than I thought and the asset class isn't screaming cheap on an absolute basis - just cheap to other asset classes. TIPS are quite cheap to other fixed-income instruments but on an absolute basis they are rich. Stocks are rich to all.

    At this point I generally suggest to people that they barbell between TIPS as the 'safer' asset class and Commodity indices (not individual commodities) as the 'risky' asset class. Being naked long Apple has outperformed that approach but I am concerned about protecting my wealth right now, given the general state of overvaluation in the markets, and not taking the risks that would be necessary to double it.
    Apr 29, 2015. 07:45 AM | 1 Like Like |Link to Comment
  • Whither (Wither?) Profits [View article]
    CeeB - I can't really do that in this forum. Partly because I need to avoid making "recommendations" in order to keep compliance off my back, but partly because that would involve a whole lot of work. We don't track MLPs because they require individual research (every MLP is totally different, so looking at them like an asset class is fraught). REITs are more similar to each other but REITs are really stocks - we track commercial RE and residential RE but REITs are highly correlated with equities and therefore don't tend to be good inflation hedges. Ditto miners. Infra also requires lots of in-depth individual research - there are some decent values there, but most individuals don't have access to those and it's hard to unravel the listed infra plays.

    We do analyze not just commodities but individual commodities. Without saying too much, we are talking to people about both a better commodity index (performance-wise) and long/short approaches in that market. But it isn't stuff I'd want to publish here.

    Sorry for the bad news! :-)
    Apr 29, 2015. 07:40 AM | Likes Like |Link to Comment
  • Summary Of My Post-CPI Tweets [View article]
    Interesting thought about the behavioral side of things. We've hopefully realized that monetary policy does almost nothing for growth, so the Fed should just focus on restraining the price level - reducing the size of its balance sheet and slowing money growth, hopefully without raising rates and increasing money velocity. But it's an interesting point about them being able to APPEAR to have some bullets.
    Apr 20, 2015. 08:00 AM | Likes Like |Link to Comment
  • Summary Of My Post-CPI Tweets [View article]
    I have seen this too, but I find it hard to square with the data showing that the volume of commercial credit is growing at the fastest pace since before the crisis. I wonder if the rejection rate here isn't being skewed by a high APPLICATION rate for credit - many smaller businesses have been essentially frozen out of the credit markets for five years; perhaps they are now applying (and still being rejected). Don't really know....just a supposition.
    Apr 20, 2015. 07:57 AM | Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    AND NOW THE TALE OF THE TAPE CAN BE TOLD:
    March CPI: 236.642 (the base figure)
    April CPI: 237.1110
    May CPI: 237.658
    June CPI: 237.984
    July CPI: 238.217
    August CPI: 238.340
    September CPI: 238.686
    October CPI: 239.120
    November CPI: 239.304
    December CPI: 239.445
    January CPI: 239.871
    February CPI: 240.247
    March CPI: 240.793 (released today)

    And the winner is...Inflation Trader by a nose. It actually was a bit more than I had thought it would be when I posted last month, with the y/y coming in at 1.754%.

    While I would note that, as I did last month, this is all but a push - I won't be doing any victory dances for the 0.054% victory - I will also note that it is unambiguous in that both Median CPI and Core "Sticky" CPI...the other two reasonable measures of central tendency for CPI are well above 1.7%. Sticky was 2% y/y as of Feb (don't have today's yet) and Median was 2.2%. Trimmed Mean CPI was 1.77% through last month. So, while this was close it was ONLY close because Core CPI is aberrantly low. (I actually included core PCE on the list, and was fortunate that Mr. dlA didn't choose it because the same aberrations that have held Core CPI down are exaggerated in core PCE).

    Where I was right was that core inflation was clearly not going to fall, and the aberrations that were holding down core CPI last year (mainly medical care from sequester effects) would fade. Where I was wrong was that money velocity has not picked up, and that there were additional aberrations which replaced the 2013-14 ones.

    All in all, it ended up to be much closer than I expected. I congratulate Mr. dlA for a close contest and a gentlemanly bet.
    Apr 17, 2015. 10:36 AM | 2 Likes Like |Link to Comment
  • 2 Quick Items: Negative Interest Rates And A Minimum Wage Increase [View article]
    I confess that I am completely ignorant of that particular chapter in financial history! Hazarding an uneducated guess: Poland was behind the Iron Curtain until about 1990, so I suspect that when it first emerged it had serious capital controls to prevent flight from the zloty. By the late 1990s, Bloomberg tells me that 2-year interest rates were in the 15-20% range, which I suspect was closer to a free market rate. But again, this is a wild guess. Seems I have a lot of those today. :-)
    Apr 13, 2015. 07:44 PM | Likes Like |Link to Comment
  • 2 Quick Items: Negative Interest Rates And A Minimum Wage Increase [View article]
    If they pay as dividends, their stockholders pay taxes a second time on income that has already been taxed.

    If they buy other companies, they are throwing money away because the prices are too high.

    They could invest in R&D, and they do. But I suspect they don't have enough really juicy opportunities to invest in. Thus, the cash piles up.

    Of course all of this is just a wild speculation on my part!
    Apr 13, 2015. 07:37 PM | Likes Like |Link to Comment
  • 2 Quick Items: Negative Interest Rates And A Minimum Wage Increase [View article]
    Yes, there is no question that the "market" is underestimating. However, recognize in this case that the "market" on breakevens is significantly affected by the very large amount of nominal Treasuries that the Fed holds, pushing interest rates (and hence breakevens) lower than they would otherwise be in a free market. (One place you can see this is in the way nominal Treasuries are becoming more and more "special" in the repo market). So my view is that nominal rates are mispriced, relative to TIPS.
    Apr 13, 2015. 07:35 PM | 2 Likes Like |Link to Comment
  • Lots To Worry About But Nothing To Fear? [View article]
    I don't think it matters much. It isn't as if we get oil cheaper because it's in dollars. When the dollar is weak, we get oil more expensively than oil priced in Euro or other currencies; when the dollar is strong, we get it more cheaply than oil priced in other currencies. Remember, the Brits don't use dollars to buy oil. They use sterling, to buy dollars, which they then trade for oil. But the basic transaction is sterling for oil. The only difference is that the volatility of the oil price in non-dollar currencies is different than the volatility in dollars. That's all. It's not even necessarily higher volatility...depending on how the dollar covaries with oil.

    Having the dollar no longer be the currency in which oil is priced would be embarrassing, but it wouldn't really change anything otherwise.
    Mar 29, 2015. 09:18 PM | Likes Like |Link to Comment
  • Lots To Worry About But Nothing To Fear? [View article]
    Thank you 17741882. If that is your REAL name. :-)

    I actually think that leaving the Eurozone would be better for the Greeks. Not in the abstract, but in the concrete. Staying means indentured servitude basically forever. Leaving means two years of humanitarian nightmare - which we can financially help with, by the way, as humanitarians - followed by a much faster and more enduring growth. In my opinion.
    Mar 29, 2015. 09:15 PM | Likes Like |Link to Comment
  • Lots To Worry About But Nothing To Fear? [View article]
    Okay, good point except that 2020 is only 5 years away. And low interest rates means that there is almost no discounting at that horizon.
    I know, right? Seems crazy that 2020 is almost here!
    Mar 27, 2015. 02:56 PM | Likes Like |Link to Comment
  • Patience Is A Pain [View article]
    March CPI: 236.642 (the base figure)
    April CPI: 237.1110
    May CPI: 237.658
    June CPI: 237.984
    July CPI: 238.217
    August CPI: 238.340
    September CPI: 238.686
    October CPI: 239.120
    November CPI: 239.304
    December CPI: 239.445
    January CPI: 239.871
    February CPI: 240.247 (released today)


    We have had 1.523% core inflation so far (1.66% at an annual rate). With 1 month to go and 240.665 the push, Mr. de los Angeles needs aggregate core inflation to be 0.17% or less (2.09% at an annual rate). I need the over.

    LOL. Folks, unless something REALLY WEIRD happens next month, we'll be within 0.1% of 1.7% on core. Today on a trailing-12-month basis, it's 1.694%. Seriously.
    Mar 24, 2015. 08:40 AM | Likes Like |Link to Comment
  • That's Not How Any Of This Works [View article]
    Well, it isn't the TBTF banks any more. Most of them can't really carry net positions of much size, or anyway no where near the size they used to. That's why Wall Street employment keeps shrinking. The TBTF banks are really struggling, in fact.
    Mar 18, 2015. 10:05 PM | 2 Likes Like |Link to Comment
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