The Death of Inflation

[errolanderson]

Fed Chair Powell stated this morning . . . "Economic reopening cause inflation to pick up temporarily"

These few, simple words have created quite a knee-jerk reaction and equities and commodities. Stock investors appear running for the exit door once again on just-the-thought of rising bond yields.

Metals are getting crushed, which is not a sign-of-inflationary risk (IMO). Copper after soaring to near decade highs recently is now getting hammered. Gold prices are breaking below $1,700 per oz. Silver is in a dive. This reaction suggests the case for inflation is weak at-best. Deflation may again be licking on the doorstep (IMO) and the greatest fear of the central banker.

Moral of any market story . . . when everyone is on one side of the ship, it's time to be on the other side.

[errolanderson]

Errol I challenge you to find someone in North America that has experienced deflation throughout their lifetime.
Things do correct but overall have always inflated over time.

Talk to any cattle feeder . . . .

[errolanderson]

Markets could be a hair-trigger away from potential mass asset deflation (IMO) . . . .

The recipe mix is a break in the stock market held-up by overly-abused central bank money printing (stimulus) and overly-abused free money policies. Investors know valuations are excessive, but that has been little concern as the Fed has-their-back. But any hint of rate hikes and/or ideas the Fed has actually lost control of the bond market will have an immediate impact . . . Equities appear already experiencing symptoms. The NASDAQ has turned negative for the year . . . today.

Should equities break, commodities are also exposed due to global credit risks. Money printing doesn't solve credit risks. Also, central bank intervention is very long-in-the-tooth and may not be enough to rite-a-sinking-ship the next time around (IMO). Velocity-of-money has slowed considerably . . . translation: money printing is having less and less of an impact holding the market glue together.

My opinion: this begs of potential incoming deflationary risks that could surprise investors and impact markets quickly. Realize, central banks rely on inflation and inflation talk, but those days are over (IMO).

My opinion . . . realize that many Agrivillers do not agree.

[AlbertaFarmer5]

I for one agree with you Errol. I just can't figure out how to profit from this information. Without a timeline, how does one put this to use? Waiting for the inevitable deflationary event would have put an investor on the wrong side of history for as long as I have been hearing about it.

And when it does occur, it will be so spectacular, wide ranging and swift, that I'm not sure we even could prepare for it.

[Austrian Economics]

A falling interest rate trend in fiat currency is primarily deflationary. Retail prices can rise due to non-monetary factors like supply disruptions and regulatory compliance measures. So price rises are not all due to what is usually called "printing" money.

The gold price is falling simply because it has an inverse relationship to interest rates. Because debt levels have exploded over the past year (and for many years prior to that) no one should be surprised that there is tension in the capital markets as borrowers try to find buyers for their debt. It looks like the central banks are resisting the urge to buy that debt, but it won't last.

If central banks did not intervene, interest rates would climb like a homesick angel. Governments are petrified of that because then the days of easy deficit financing would be over in an instant, so they will pressure central banks to get into the bond market.

If you want to see inflation, just look at asset prices, which rise in an inverse manner to interest rates. My friend in Vancouver knows someone who just bought a dump there to tear down and put up a duplex for $1.3 million. Two weeks after the purchase, the contractor offered $1.8 million.

Being able to buy a cheap TV is not necessarily a sign of economic progress. Being able to purchase a house at reasonable cost and save for retirement are what denotes progress. The latter are under threat right now.

[Austrian Economics]

Falling interest rates are deflationary? I don't think the Austrian School of thought and Von Mises would agree with you.

They don't for the most part. Von Mises subscribed to the quantity theory of money and I have to disagree with him on the rising quantity of money=inflation theory.

I follow the theory of lesser known Austrian economists like Carl Menger (who actually started the Austrian School) and, in particular, Antal Fekete. Fekete held that the main driver of commodity price inflation is interest rates. The 70s were a period of rising interest rates, hence rising commodity prices. We are now in the falling cycle, so commodity prices will trend downward.

Fekete grew up in Hungary but taught at Memorial University here in Canada for many years.

Although deceased, Fekete's writings are still up on his website: https://professorfekete.com/

[biglentil]

[biglentil]

[HITTGrapevine]

Hard to know which way things will go next. Lots of opinions and theories. All interesting but not sure I'd put too much faith in any of them.
But I certainly agree that CPI is no longer a relevant indicator of inflationary pressure. Outdated methodology and irrelevant to many Canadians.
Regarding the fed, we can probably all agree that central bank will continue to look for ways to manipulate the economy and avoid a big crash at all costs. Trillion dollar question is: Are they up to the task?
When other monetary policies fall short of delivering intended outcomes, its probably reasonable to expect more direct stock market manipulation and other forms of QE, central bank intervention in commercial credit markets.
Used in tandem, the fed might be able to nurse along the sick economy for a long time yet.
But the time bomb seems to be ticking.
Somewhere down the line, you'd have to think there will be a day of reckoning.
Then again, my track record for predicting economic outcomes is 50/50 at best.
https://www.forbes.com/sites/investor/2020/06/23/will-the-market-crash-now-that-the-fed-stopped-pumping-the-stock-market/?sh=51e1408055f4

[jazz]

If you think there is no inflation, look at the price of houses or cars. You cannot get a sub $30k vehicle anymore in any trim level. Anything close to that range would be a subcompact.

We have to stop looking to the CPI numbers. They are a mirage. The real inflation is in assets and services not consumer goods...yet. But that could change now that we have wider inflation taking hold and new ESG and wealth taxation coming our way.

The average joe has no idea whats coming their way. Many will be crying to be put on the govt dole permanently and just shelter in place forever.

To keep china exporting the rest of the world needs to see a commensurate increase in COL so we never ever try to think that we can make anything here, except fiat debt.

[canolacrazy]

i think most on here would agree that central banks have been kicking the can of raising interest rates to manage monetary policy down the road has been happening for years. an earlier poster said trying to guess timing and make money off it is the problem. i agree with that. look at the toronto and vancouver housing markets. we've been told that they have been overheated for years, and yet if you live there and haven't jumped on the bandwagon, you look like an idiot. same with farmland. how many of us have said "i'll never pay the price, i can't make any money at it." one thing i do believe. the longer central banks don't have the guts to tighten monetary policy and stop protecting stock investors, house speculation etc, the quicker and more painful the crash will be.

[Guest]

If you think there is no inflation, look at the price of houses or cars. You cannot get a sub $30k vehicle anymore in any trim level. Anything close to that range would be a subcompact.

We have to stop looking to the CPI numbers. They are a mirage. The real inflation is in assets and services not consumer goods...yet. But that could change now that we have wider inflation taking hold and new ESG and wealth taxation coming our way.

The average joe has no idea whats coming their way. Many will be crying to be put on the govt dole permanently and just shelter in place forever.

To keep china exporting the rest of the world needs to see a commensurate increase in COL so we never ever try to think that we can make anything here, except fiat debt.

shit, look at everything
just about all is 50-100% higher than a year and ahalf ago