Investors and policymakers have been obsessed with the risk of deflation for so long that they may be missing the risk of higher inflation. The headline inflation numbers in the U.S. do in fact signal a deflationary impulse. Prices have contracted by 0.20% over the last twelve months, but the headline number is being depressed by lower gas prices and a stronger dollar. Neither factor will persist indefinitely. Services inflation, which is a more stable indicator of inflation, shows that the underlying trend of inflation is up. Trends in the labor market are also pointing toward higher … [Read more...]
This Has Never Ended Well
The latest quarterly update on consumer balance sheets, out yesterday from the Federal Reserve, shows that the net worth of households is closing in on an all-time high relative to income. Inflating asset prices (stocks and homes) are the big driver here. Asset prices can become unhinged from the income they generate temporarily, as my chart proves, but the historical record shows that episodes of income and asset price divergence don’t last long and they are ultimately resolved through a painful busts. … [Read more...]
How Does Your State’s GDP Stack Up?
There are a number of predictable winners here, and a few states that may surprise you with their GDP growth numbers. Check out the map below. Source: BEA … [Read more...]
Panic at the IMF
Yesterday, IMF President Christine Lagarde said the Fed should hold off on hiking interest rates until 2016. Apparently Ms. Lagarde and her Keynesian brethren who dominate global policy circles, are so terrified of a 0.25% interest rate hike that they dream up reasons to delay the day of reckoning. Ms. Lagarde justified her policy call by saying inflation is too low and there are “significant uncertainties as to the future resilience of economic growth.” Seems an odd sentiment considering how ineffective Fed policy has been at driving strong growth in the U.S. over recent years. Hopefully … [Read more...]
Financial Disaster Prep
You never know when you're going to be in a bad spot. But when TSHTF, you know it. And it doesn't feel very good. I want you to think about your investments from a survivalist point of view. What do you need to do to make sure you survive? And what's the downside of being prepared? It is clear as day that we have a currency system that will always be untethered from reality. There is no other way around it. That's why you need to have some precious metals in your portfolio and some coins outside of it. When I was a kid scooping ice cream for minimum wage a medium, two scoops, cost … [Read more...]
The Monday Melee: The Robots are Coming
Ubiquitous Autonomous and Imminent It seems like everywhere you turn in the news there are stories of new advances in robot technology. Stories are heralding robots as the solution to seemingly every problem. There are rescue robots, killer robots, finance robots, professor robots, flying robots, swimming robots, and every other type you can imagine. Needless to say, robots are getting a lot of attention. Amazon is looking to improve its operations with robots and held a competition to find a robot that could pick out items from shelves. The results were mixed, but it's only a beginning for … [Read more...]
Federal Reserve: Coming Clean
St. Louis Federal Reserve President James Bullard who has made a habit of moving markets by lobbing monetary policy grenades into the markets when they are least expected is coming clean on the Fed’s failed monetary experiment. You may recall that many investors credited Bullard with single handedly putting a floor under a nasty stock market correction last October by suggesting the Fed should halt the taper. Well he is sort of coming clean. Bullard is out with a new paper that comes to the very obvious conclusion that holding rates at zero since 2008 or promising to hold them there for … [Read more...]
The Inflation Ruse
Inflation plays a key role in the monetary policy decisions of the Federal Reserve. The Fed’s mandate is maximum employment and stable prices. In its infinite wisdom the Fed has decided that the definition of price stability means 2% inflation. How the Fed gets away with defining an inflation rate that wipes out about half the value of a dollar over a 30-year period as price stability is truly bewildering, but I’ll leave that topic for another day. Since professors Bernanke & Yellen took over the Fed, the central bank has been obsessed with hitting its self-imposed 2% inflation target. … [Read more...]
The Crash that Cured Itself
James Grant, in his book The Forgotten Depression—1921: The Crash That Cured Itself, explains the resilience of the free market. During the 1921 economic contraction, the government and the Fed got out of the way, and America was better for it. The Mises Institute writes: James Grant, of Grant's Interest Rate Observer, recently joined us at our event in Stamford, Connecticut, to discuss his new book, The Forgotten Depression—1921: The Crash That Cured Itself. If you've never heard of the Depression of 1921, it's because the federal government and the (then new) Federal Reserve did the … [Read more...]
Tiny Bubbles
Originally posted January 21, 2014. Imagine outgoing Chairman Ben Bernanke joyfully wrapping things up at the Fed while humming “tiny bubbles make me feel happy” from Don Ho’s song Tiny Bubbles. Creating bubbles seems to be a job requirement for a Fed Chair. The Fed is putting on an air of solidarity for incoming Chair Janet Yellen. The broad show of support for Mini “Tapering” is part I. Any concerns about the stock market are cloaked in Fed speak. Take the recent Fed meeting minutes for example. "Several [Fed officials] commented on the rise in forward price-to-earnings ratios for some … [Read more...]
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