Market Currents
"A little inflation would be good for the economy and good for equities," Jeff Miller asserts....
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Thursday, February 17, 2011, 6:15 PM ET"A little inflation would be good for the economy and good for equities," Jeff Miller asserts. Core inflation is close to zero, and Bernanke is handling the money supply just fine. "Understanding inflation is now the single biggest challenge for investors," Miller writes. "There is a lot at stake."
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If you look at the volumes on the NYSE and wonder where the volume went take a look at the volumes on the Chicago Mercantile Exchange, you will find your answer...
Supply and demand issues that's a laugh
So why are commodities under supply and demand pressure (coal, wheat, etc.) increasing in price while commodities with plenty of supply (nat gas) not increasing in price? Additionally, why would legitimate supply disruptions NOT increase speculation volume in that market?"
but elsewhere commodities that are under no supply/demand pressure, i.e. large surpluses exist, such as aluminum and nickel, are also increasing in price. In other words if you look across commodities there is no consistent link between supply/demand and price (it is there in some cases and not in others).
Coward
Cowards
"What part of Miller's article do you disagree with? All he is saying is that certain prices going up do not equal inflation - and he's absolutely correct. How would YOU define inflation? "The prices of things I buy are going up" ? The increase in commodity prices looks more like a supply and demand issue than a monetary policy issue and I don't see many prices going up beyond commodities. "
If there is so much slack in the output gap as Bernanke says is the reason he's so bent on inflation targeting, then why have prices risen. Moreover, the increase in commodity prices would not be a result in supply/demand factors as 1) demand is apparently dead and 2) the output gap deficiency.
Inflation can be defined many ways: a decline in purchasing power, too much money chasing after too few goods, or basic affordability. There is currency inflation, commodity inflation, food inflation-- all different terms to measure the ability of a person to afford certain prices. Core inflation is a joke measure and an excuse for Bernanke to engage in social class genocide. Tell the poor, the working poor, the middle class, families on food stamps, people struggling to get to work if they have work and put food on the table there is no inflation-- the very same inflation that Bernanke has created by capitalizing TBTF institutions and forcing people into the market to speculate as there is no reward for savers.
Like I said before: the blind leading the blind.
And no, inflation can't be defined however you want to. Inflation is the rise in the general price level NOT the rise in a few goods or categories of goods. There is no such thing as "food inflation" as food is just one category of goods.
The reason people are suffering is not an inflation issue it's an issue of a weak economy... which is why monetary policy is so accommodative.
BTW what do you mean by "plenty of coal in the world" ? Are you suggesting that coal still in the ground counts as supply? Supply is the PRODUCTION of coal which has been seriously diminished in Australia due to the floods.
Coupled with the fact that we have high unemployment and people struggling to afford food and other basic necessities (including coal), margin compression can be a possible outcome for corporations. If that is the case then where's the hiring going to come from? Inflation does not equal good economy, but rather increasing end demand and you can't manipulate one to get the other.
Monetary policy does have its shortcomings. It's no magic cure-all but it does work.
Data goes back to OCT 2007. Also, it's to illustrate my point on how inflation is relative and that inflation exists today in various forms. Thus, proving it isn't good for the economy like my previous post indicated.
And as far as your faith in monetary policy goes, you should study history more closely. Booms and busts resulting in mass economic carnage are the results of monetary policy and central banking, but that's a whole other subject for another day. I have no doubt monetary policy works, but you should be asking yourself for whom does it work for.
Politicians get a COLA (Cost of Living Allowance) increase but retired folks can't get a Social Security increase due to the CPI, can ya smell the hypocrisy...
Do you suppose you are one alias of the Bernake Fanboi Troll Patrol???
I'm starting to see a pattern here:-)
CPI is used to justify NOT giving COLA increases to Social Security recipients yet it is clearly disconnected from it's intended purpose as a measure of economic stress on the consumer. The CPI's blatant manipulation by reordering the weight of each item in the basket relegates it's purpose to sideshow smoke and mirrors economics...
Do you believe we are currently experiencing significant inflation at the real world consumer level and do you believe the CPI accurately reflects this stress thus making it an accurate economic barometer.
Who the hell is he? Please post his resume.
Therein lies the problem. Academics can hide behind inadequate definitions to "prove" their points. Core inflation is irrelevant if you pay your own bills and so therefore are the opinions of (central) bankers and those of their ilk.
The Thumbs down Trolls will not like your comment
Coward
Don't look for C.O.L. Wage increases or Social Security Increases though. We will all have to tough it out.
Well guess what, these alleged capitalists running the show now have managed to privatize their insane profits and completely socialize their losses and that isn't capitalism, that's just criminal.
So to hell with "we will all have to tough it out", the truth of the matter is that the middle class will get squeezed, the underclass will sink further into despair and poverty, and the white collar criminals at the top of the chain will continue to plunder from those two classes. They won't tough anything out, they will continue to steal and live the high life.
It won't impact me very much, because really I am fortunate and lucky in terms of income, debt, wealth, education, and so on. But it's still wrong and eventually it will come crumbling down, but it will probably take a decade or two.
Also, the idea that inflation is good and deflation is bad is...well it's just dumb, and frankly I'm tired of people pushing the idea like it's gospel. What is good about inflation? Higher earnings? Higher salaries? Not so much when the cost of everything is going up, too. Nothing is better than price stability IMO. Wouldn't it be great to know that $100 today will equal $100 5 years from now or 10 years from now? Instead it just about takes $100 to fill up a SUV. Money has little meaning when it's treating with such disrespect.
Technically price stability is fine, but low rates of inflation increase wage flexibility and competitiveness due to our cultural norms. For example, people get extremely upset if you lower their wages by 2% in an environment with price stability. They are less upset with constant nominal wages in a background of 2% inflation, leading to the same 2% drop in real wages. Again its not ideal, but if you need to lower wages to regain competitiveness like Greece, controlled moderate inflation is very helpful.
Jeff Miller actually has very good articles, read one or two before you start insulting him.
Inflation isn't exactly great either, but in small amounts its effects are less dire than those of deflation.
BTW - what's Miller is proposing is no different from Krugman and I will crucify that clown until there's no breath left in my body.
the markets are always behind the curve and Mr. Miller seems to think inflation hasn't arrived yet. Its like a marathon runner becoming thirsty and drinking to avoid dehydration. the fact the runner is thirsty just verifies that dehydration has already set in. the fact that the market is discussing the possibility of inflation only confirms it has already been with us but no one took time to notice.
i can not believe some moron gave you a thumbs down for asking a question LOL. you can't make this shit up! this thumbs up is for you.
Currently macro trends look to be setting up a biflationary landscape. The deflationary trend in some important assets and incomes is continuing . Housing prices sink lower as deleveraging continues, inventory rises, and distrust of the foreclosure, title, and financing process worsens.
Incomes for most households are negatively impacted by downward pressure on wages from the credit contraction, pension issues, and questions about employee costs (mandated health care, payroll taxes, social security), as well as reduced returns on investments (fixed income not equities at the moment), and valuations of assets such as cars and homes.
Meanwhile, the prices of daily living expenses are poised for rises - or inflation. Necessities such as food, energy and water have mostly been moving higher.
Simple math - required purchases will cost more while the resources with which to buy will be reduced. The wealth effect the Fed is creating via higher prices for equities works a bit, but if people actually cash in their "gains" to obtain actual income, then that bubble would burst. Of course, most of the buyers aren't households but HFTs these days.
...so if a little inflation is good for equities, and good for the economy.... should we assume that a lot of inflation would be great for equities, and great for the economy..???.. Sweet.
Inflation measures the purchasing power of the US dollar against a certain benchmark - be it gold, other currencies, a basket of assets, etc... Price is what you pay for a good, based on many, many factors, including inflation, if it is present.
Its easy to see that equating rising prices with rising inflation is silly. Clothes have jumped in price because of the Egyptian riots. This has been well publicized - cotton exports have fallen to almost nothing. So, since cotton prices are up approx. 58%, does that mean we have 58% inflation? Of course not. The price has fluctuated due to supply and demand. Now, it is possible if prices rise 56% that it is due to inflation - that is possible. But rising prices does not equal inflation as a rule.
You can easily tell if a rise in a commodity price is due to inflation or another cause - look up its price in a few other currencies. For example, lets take oil. Oil has risen across the board, probably due to the Gulf Moratorium, closing of the Suez and the Alaskan pipeline - oil supply has been drastically restricted. Now, if the rise in oil was due to inflation - as many, many SA commentators has screamed at the top of their lungs - look at food prices! look at energy prices! - you would not see a rise in oil prices in any other currency. That is, if it was the erosion of purchasing power in the USD causing the rise in prices, you wouldn't see a rise in the Euro price - just the USD price. However, oil prices in nearly every currency have risen by exactly the same amount - making it virtually certain that the price increases have nothing to do with inflation, and much more to do with either higher demand or scarcer supply.
Most commentators on this site seem to think that because the US government is running the printing press, there must be inflation. You might be right. I say again: you might be right. However, be very careful of confirmation bias (where because you believe X, you automatically shut out all arguments for Y). There might be inflation, or inflation coming, but you can't conclude that from a rise in prices, especially in food or other volatile commodity prices. There are too many other factors that go into price to isolate it as inflation without a much deeper inquiry. It is a common trap to equate price to inflation. Its silly.
Cullen Roche posted this article with a cotton chart embedded and it clearly shows cotton taking off 6 months ago and the price is up 300% since then. Not when Egypt imploded.
seekingalpha.com/artic...
Same for silver, the S&P. The Alaskan pipeline was down for 5 or 6 days and doesn't run anywhere near capacity. The storage tanks in Valdez easily take up the slack. It's a commodities bubble driven by loose monetary policy.
It all depends on the time frame you choose. I marked the "since" as when Egypt closed the Suez canal, drastically reducing exports, which did not occur until well into the disturbance. Since 0 AD, Cotton is up a whole lot more. I didn't specify six months.
You might be right. Again, I say it, *I am not arguing that it is supply and demand*. What I am saying is that it takes a whole heckuva lot more analysis than saying "Prices are up... damn Bernake!!!!!!!!!"
I am looking at Gold and Oil. I am telling you there is no inflation. If there inflation, the USD price would have risen but other prices would have stayed constant. Oil is up against virtually every currency by an equivalent amount. Therefore, we can conclude the rise in the price is not due to the erosion of the USD purchasing power - if it were, oil would be up in dollars and flat in everything else. It isn't.
Meanwhile, those who are really interested are welcome to engage in discussion either on my blog, or on the SA article.
I would be happy to welcome some new readers and people willing to discuss issues on the merits.
Jeff
Why should anyone care what you have to say?
What is your resume and why are to be taken any more thoughtfully than any other poster on SA?
Do you have credentials that the rest of us (most anyway) don't have that we should comment on your comments? Even though we did. But thats the fun of SA.
When Trolls attack:-)
Great comment by the way!
Who is Mr. Miller?
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by: Jeff Miller March 04, 2008
Markets can, should, and will look ahead...
Media types and bloggers have a fixation with scare tactics like "stagflation." The cooler heads, like Bob McTeer, try to make careful and reasonable comparisons. Take a look at his latest thoughts. <link>
Meanwhile, the markets have underestimated the impact of Fed rate cuts and the stimulus package. These will start to show up very soon -- perhaps in a month or so.
A Final Observation
There are other policy actions in the works. It is popular to point at the list of potential housing foreclosures. In fact, it is open season for those working to avoid disaster.
So many are so busy at the job of criticizing government officials. In this environment it is easy for the investor to forget a key point.
Those who chose to work in government did so because they wanted power rather than salary. When we tally up the results, whom do you think will be proven correct: The critics, or those who actually have the power?
Our bet is with the Fed and the Treasury.
The Federal Reserve, the Economy, and Stocks
The choice for the investor is easy. On the one hand, you can accept the arguments of the market pundits who think that government officials are too stupid and academics are too smart, and both are therefore out of touch. Alternatively, you might consider the possibility that some very bright and capable people choose different career paths. They are all good at what they do
.
We do not indulge in short-term market calls. On somewhat longer basis, the averages are still trading at the level when our Gong Model (report available upon request) indicated a good risk/reward for those with a multi-month horizon.
We are also very confident that a solution for monoline insurer problems will be forthcoming. The market skepticism on this subject has been vastly overdone. This is an important development for financial stocks, particularly Merrill Lynch (MER).
Full Disclosure: We are long MER.
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IMHO
We do have inflation caused by USD oversupply
It different this time.
There is no oversupply of USD in hands of population.
It in BANKs (via QE).
Since Banks do not shop in grocery stores, they spend USD in Markets, creating inflation in Energy Commodities and Market Equities
Let call it bankflation
Rising price for general population is by product of bankflation and not caused by cash in hands
For who it is good, but for commodities and energy and market equities producers.
For how long, but for duration of QE(?)
Hit the nail on the head...
Barney Miller,
Dennis Miller,
Reggie Miller,
Ryan Miller,
and Steve Miller(minus the band)...
....before any further comments.
Thank You, Thank You very much....
JohnLocke--thumbs up bud.