Crb_goldman

Crb_gs_chart

Chart courtesy of Bill King, M. Ramsey Securities
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For quite some time in these pages, we have been lamenting the mistaken belief amongst some on Wall Street that there was a free lunch to be had. Lowering interest rates, the Panglossians argued, would stimulate the economy, whose slowdown would prevent inflation.

If that argument strikes you as both circular and contradictory, welcome to the club. That obvious flaw was apparently lost on its authors, who required a 2 X 4 across the skull to show them the error of their ways.

That swing of the lumber took place yesterday — even as demand supposedly weakened — when Crude Oil passed $100 a barrel on a closing basis for the first time. OPEC nations are expected to reduce output when they meet next on March 5th.

But don’t think its just Oil. The promiscuity of the US Federal Reserve has led to all manners of dollar-denominated commodity price surges:

-Gold soared $26
-Platinum exploded $91
-Iron-Ore Prices Up 65-71%
-Copper surged 20 handles
-Wheat prices surge to new high
-Soybeans traded at a record high.
-Fertilizer makers soared to record share prices

Then there’s gasoline. A survey of prices shows the rising impact of inflation. Gasoline has rallied from $2.22 on Feb. 7 to a record $2.62 yesterday.
This is an 18% increase in less than two weeks – and drive season
buying is still way ahead of us. These increases have yet to work their way through to the consumer; the  economic impact of energy costs still lay off in the future.

One would imagine that expectations of ebbing inflation would be dashed by now. One would be wrong.

As we have seen time and again on the Street of Dreams, Wall Street pundits take months, if not years, to accept what is before their very eyes. Whatever you want to call it — cheerleading or Cognitive dissonance — it is a fact of life that the obvious takes much longer to be accepted than is logical. Hence, this simple numerical  inflation fact, reflected in global food prices, record energy and both industrial and precious metal inflation, will be ignored for as long as possible.

Maintaining this denial of reality is becoming increasingly difficult. Yesterday, Wal-Mart reported Q4 earnings,, and its becoming increasingly difficult to deny reality.  Net sales rose 8.3% to $106.3 billion, while earnings rose 4% to $4.1 billion, or $1.02 a share. The big increase in sales reflected a combination of new store openings and of course, gasoline and food price increases.

Sales at stores open at least a year were
sluggish, up 1.6% rise over the year-ago period. Excluding fuel
costs, sales rose 1.4%.  However, Wal-Mart (Costco also) do not break out food prices from their reports. Hence, Wal-Mart sales were likely much weaker than the headline number, reflecting inflation. We suspect that’s why the company lowered its Q1 and FY ’08 forecasts.

So why this foolhardy approach? Why, as Bill King calls it, "Inflate or Die" ?  Several theories abound, led by Fed hubris  and/or incompetence.

I’m not sure I buy that. A more likely possibility is what John Cassidy describes in A Bankers’ Bailout:

"The rescue operation brings to mind John Kenneth Galbraith’s dictum that in the United States, the only respectable form of socialism is socialism for the rich."

 

Indeed.

~~~

Consumer Prices (CPI) is out today at 8:30am. Producer prices (PPI) are mysteriously MIA due on February 26. . .

>

Sources:

Weakening Demand? Oil Still Passes $100
By NEIL KING JR. and ANA CAMPOY
February 20, 2008; Page A3
http://online.wsj.com/article/SB120346863077378499.html

Opec worries drive oil price to $100 close
Andrew Clark in New York
The Guardian, Wednesday February 20 20
http://www.guardian.co.uk/business/2008/feb/20/oil.globaleconomy

With Iron-Ore Price Hikes Like This, Who Needs a Monopoly?
Heidi Moore 
Deal Journal, February 19, 2008, 12:13 pm
http://blogs.wsj.com/deals/2008/02/19/with-iron-ore-price-hikes-like-this-who-needs-a-monopoly/

Wary of economy, Wal-Mart cautions on ’08
David Goldman
CNNMoney.com, February 19 2008: 10:43 AM EST
http://money.cnn.com/2008/02/19/news/companies/walmart_earnings/?postversion=2008021908

The Bankers’ Bailout
John Cassidy   
Portfolio, March 2008    http://www.portfolio.com/views/columns/economics/2008/02/19/Massive-Bailout-Planned-for-Banks

Category: Commodities, Consumer Spending, Economy, Energy, Federal Reserve, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

68 Responses to “Inflating Our Way Into Recession”

  1. SM says:

    CPI will be massaged to.249999999999999999%

    Rounded down to .2

  2. techy says:

    i have not seen gas at 2.22/gal in the last one year

    ~~~

    BR: That’s wholesale trading, not at the pump price

  3. VennData says:

    “There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.”

    – John Kenneth Galbraith

    I think for these students (professors) of financial history that wield money-pricing power, an other problem is the severe political pressure they’re under by the powerful… the powerful must have enough strands of evidence to declare the tax cuts for the rich a success.

  4. Chief Tomahawk says:

    Man, Rick Santelli just burned down Steve Leisman’s house…

  5. Tom Durff says:

    Thank you for reference to Cassidy article. Eye-opening.

  6. easy says:

    The PPI is due on Feb 26. The entire year’s release schedule is available from a link in the dead center of the bls website.

    Why is this a mystery?

    ~~~

    BR: Doh! Fixed above

  7. Contra-Trader says:

    I love the bearish sentiment… Look at the lack of volume. “They” can’t push this market down. We are going up. JMHO (and many others as well).

  8. Michael M says:

    Feb 20, Bloomberg:

    The Fed “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” Bernanke told Congress last week.

    “To date, inflation expectations appear to have remained reasonably well-anchored,” he said.

    You could almost say they were contained… (con-tainted?!)

  9. SPECTRE of Deflation says:

    As credit/debt is vaporized much faster than it’s being originated, we won’t be worrying about inflation as the 800 pound Gorilla in the months to come, but it does serve the purpose of misdirection when it’s needed.

    Inflation in things we need, and deflation in everything we formally wanted. Anyone have a recipe for soup using a big screen TV as the stock for the soup?

  10. Dave says:

    Inflation ? What inflation?!

    I trust the run up in commodity prices far more than those CPI/PPI/core deflator numbers.

  11. Tom F. says:

    “Whatever you want to call it — cheerleading or Cognitive dissonance –”

    It’s none of the above. The clowns doing this stuff are professional liars and their reason for existence on Wall Street is to keep the public hoodwinked. They know exactly what’s going on. We have an inflation problem and they know it.

  12. SPECTRE of Deflation says:

    When I look at these headlines, inflation is the least of our problems:

    Wed Feb 20 2008
    Banks quietly borrow $50 billion from Fed (news.yahoo.com)
    Signs Point To Banking Crisis Getting Much Worse (247wallst.com)
    U.K.’s Northern Rock Move Highlights Risk to Taxpayers (online.wsj.com)
    America’s economy risks the mother of all meltdowns (news.yahoo.com)
    Wall Street Faces Fury Over Subprimes (biz.yahoo.com)
    Mortgage Lenders Toast Wall Street with Kool Aid (seekingalpha.com)
    Turning a Costly Blind Eye to Mortgage Speculators (seekingalpha.com)
    Median LA listing prices down $110K from peak (latimesblogs.latimes.com)
    Preventing foreclosures: Why bother? (latimesblogs.latimes.com)
    The REAL American Dream: It’s NOT Owning A House! (erica.biz)
    Forclosure Map Of Vegas (foreclosurepulse.com)
    Loans go bad as English housing bubble pops (latimes.com)
    Inflating Away Debt (minyanville.com)
    Vallejo On Brink Of Bankruptcy (nbc11.com)
    Midwage jobs vanish in Silicon Valley (sfgate.com)
    Obama says Clinton’s housing plan helps rich (reuters.com)
    Housing: Is it Going to Get Worse Before it Gets Better? (seekingalpha.com)
    Homeless Woman Approved for $470,000 Mortgage (efinancedirectory.com)
    Invalid Property Value (patrick.net)

  13. Ross says:

    So, this is new news?

    How does any serious market/economic historian think that we got out from under our massive WWII debt and the Marshall plan? Print money…

    How did we pay for the Great Society and a massive war effort? Print money…

    When Bernake blinked last August, the smartest man I know had two investment ideas. Precious metals and Ag…

    It’s in the Constitution. Freedom of the press. Bring your own paper, print money…

  14. Neal says:

    The 69% increase in iron ore price translates into a 13-18% increase in rolled steel products (sheet, plate, structurals).

    Chian projects a 11% increase in steel imports and a 27% decrease in steel exports. As the world’s largest steel producer, what effect do you think that will have on the price of steel? Driving the prices of rolled steel products up by another 20% would be my guess.

    Lloyds shipping news yesterday has a story on how the build price for a very large tanker was $90M in 2004 and is now $150M. A 66% increase in 3 or 4 years. No inflation, nosiree…

    This is of more than casual interest to me, as I run a steel fabrication company.

    How would you bid the price for a project of 2 year duration with no escalator clause offered?

  15. shoeless says:

    CPI 0.4
    Ex-inflationary items: 0.3

    Contained my @ss

  16. BG says:

    Barry, Thanks for this blogsite.

    I am 51 and I have never seen such a mess financially, socially, geopolitically (domestic and international) swinging wildly from one issue to the another.

    Maybe we should just reverse our thinking completely. Maybe we should only discuss those things that are going well and accept by default that everything else not discussed is totally @#cked-up! It’s sad to see all of this happening. I am not referring to just the CPI, economy, subprime or gas prices. I feel like the US and its citizens are losing control of their destiny. We are losing our ability to contain problems and issues that are detrimental to our well-being.

    The chickens are coming home to roost in a thousand different areas simulataneously. Our time of putting things off until tomorrow is over. Everything is evolving faster and faster and faster. That is a bad situation if you are going in the wrong direction. We in total are out of control. We just don’t realize it yet. I guess that lack of realization at the inflection point is the only thing that hasn’t changed over the years. God Bless America!!

  17. Ross says:

    Neal,
    It’s a cost plus contract world again. If one of your competitors under bid you on fixed price, let him have it. He’ll be toast in a few years and you will have one less vendor in the market.

    In 1974, Westinghouse and Combustion Engineering were technically bankrupt because they had fixed price contracts to build power plants. Long lead times and faulty accounting crushed their margins.

    Tell your accountant to be sure you are using LIFO inventory accounting and accelerated depreciation or you will be paying taxes on inventory gains and replacement costs on your fixed assets.

  18. DavidB says:

    Maybe we should only discuss those things that are going well

    don’t you think it would get awfully boring talking about the same two things all the time BG? OK, I stand corrected, the same thing all the time

    Hey Barry, don’t worry. When the inflation enters the labor pool IT ENDS! That is their promise. The circle will not be full

  19. Francois says:

    “the only respectable form of socialism is socialism for the rich.”

    History shows that it is so, until the middle class get its head handed to them by severe recession; and this one promises to be a nasty one.

    Since socialism is state-induced, replacing those who head the State can shift the socialism toward other classes. Just look at what happened in the years following the Great Depression. BTW, things do not need to get that bad for a deep seated and enduring shift in attitudes (leaning “left” vs. “right”) take place in American psyche.

    I do not think voters are ready to forgive anything by now. Too much abuse has taken place in the last 25 years and even the dangerously dim-witted cluster of Joe 6-packs and Jane Cartoons is getting the distinct feeling that something is definitely wrong in Uncle Sam’s turf.

    For once, election season promises to be quite interesting.

  20. cinefoz says:

    Ross,

    You’re hysterical. Inflation is nowhere near bad enough to switch to LIFO if your company has decent inventory control and quick turns. If you’re turns are slow enough to require inflation accounting for your inventory, then you have bigger problems to worry about. LIFO reserve accounting (you probably don’t know what that is) is not something to do for fun.

    For tax purposes, MACRS is accelerated until straight line becomes beneficial, Then it automatically switches over. Most, but not all, depreciable assets, use accelerated depreciation for tax purposes. Real estate requires SL, I believe. This is all built into the tables. Tax law is pretty rigid with respect to applicable depreciation. Unless he can take a $179 deduction, the IRS removes discretion from depreciation.

    For books, do what you please since tax accounting controls the cash for most small businesses.

    Please define the term ‘replacement cost on fixed assets’. It sounds slick but appears to mean gobbledygook.

  21. Neal says:

    Thanks, Ross, the cost plus contract may make its way back into use when the buyer realizes that the smart estimator is over-estimating price increases in order to make sure that they’ll be in business next year.

    It seems to me that this is the point when inflation spirals out-of-control–the point where a business cannot reliably predict costs in the next year or two within a reasonble (and survivable) margin of error.

  22. Burnt burrito says:

    You guys will love this.

    From the government economic indicators page:

    Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008.

    Draw your own conclusions. How much do you want to bet the next TAF report doesn’t get reported to the public?

  23. cinefoz:
    You think BR doesn’t know what LIFO reserve accounting is? He is a financial analyst(When you boil it down). I’d take his word over yours any day. And just curious, at what point would inflationn get bad enough? Weimar Republic type inflation?

  24. Estragon says:

    Neal,

    Might it be worth looking for a hedge, and build the hedge cost into your bids? Even if there isn’t a perfect hedge for your material costs, maybe a close enough for government work proxy hedge?

  25. cinefoz says:

    Joe Klein’s conscience said …

    You think BR doesn’t know what LIFO reserve accounting is? …

    reply:

    Just for grins, What Say Ye?

  26. scorpio says:

    massive monetary stimulus, fiscal stimulus, two wars, gigantic deficits, huge tax cuts for the wealthiest and this is all we get? i’d say US capitalism is going to have a ruff couple years

  27. Mike Nomad says:

    Burnt burrito,

    I wouldn’t circle the wagons, yet.

    Looking at the data they provide, it could easily be folded into the Bureau of Economic Analysis (BEA) site. The site going away does look a bit redundant.

    On the other hand, if the data does not get housed elsewhere and simply goes away (Like when GOV took out all the projection data in the budget), I don’t think people will be able to pull their money out of the market fast enough, move to another country fast enough, etc.

  28. Prophet of Profit says:

    Don’t worry, once the EconomicIndicators.gov website is shutdown, inflation will also miraculously be under control as the inflation rate will immediately moderate – based on the government’s calculations!

  29. cinefoz says:

    MS,

    Placid ignorance, punctuated by outrage over what you always somehow misunderstand, no matter how factual and clearly presented, makes you a pretty odd fellow.

    If I were to ask you for the sum of 2 + 2, would your answer be ‘sideways’? And then would you get mad at me for asking the wrong question for the answer you gave?

    Please, try to get something right. I have yet to see that from you. Why not google some of the terms I used and check them out for yourself, halfwit.

  30. Ross says:

    Cinefoz,
    Replacement cost accounting implies that it is always wise to reserve enough capital to replace the assets you must have to be/stay in business.

    Let’s use Neal’s example of a tanker costing $90mm in 2004 and now costs $140mm. The owner may only depreciate the actual cost $90mm. You must use the most aggressive depreciation which is a pre tax charge or you will be paying income tax on monies set aside to replace your tanker. You must also reserve an additional $50mm to buy a new one if you want to be in the tanker business.

    You are right about inventory turns. If you turn inventory 10 or 12 times a year, no problem. If your business is capital intensive and you have only 1 or 2 turns a year, you have a problem. You will be replacing inventory at higher prices and in hindsight realize you didn’t charge enough to replace what you already sold. And you paid taxes on a ficticous inventory profit.

    Study the accounting practices of International Harvester and Cat Trac in the 1970′s. IH sold for 6X earnings and dividend yielded 6.5%. But they had to borrow money to pay the dividend. Not unlike buying back stock with borrowed money. Which company prospered?

  31. scorpio says:

    everybody calm down. this site isnt about your personal problems.

  32. SPECTRE of Deflation says:

    Is inflation a leading or lagging indicator? In other words, are we seeing the inflation that is already baked into the cake? With the destruction of credit/debt we are witnessing, it may mean moving forward that we have a self correcting problem with inflation.

  33. DavidB says:

    massive monetary stimulus, fiscal stimulus, two wars, gigantic deficits, huge tax cuts for the wealthiest and this is all we get? i’d say US capitalism is going to have a ruff couple years

    You call that capitalism?

  34. SPECTRE of Deflation says:

    everybody calm down. this site isnt about your personal problems.

    Posted by: scorpio | Feb 20, 2008 10:48:59 AM

    I would love to keep the conversation on point, but damned if I will say nothing when some dumbass decides he would love to see someone dead because they don’t like the persons politics. Fluck them and the other blind haters.

  35. JustinTheSkeptic says:

    Leisman, on CNBC is saying that it is “wage inflation” that matters. He’s right it matters; it means that prices keep increasing while wages keep decreasing or remaining the same and nothing gets bought. So let the FED cut rates all the way to zero – there still isn’t going to be anyone around to buy anything. Where’s the logic?

    They need to raise rates to put the clamps on inflation so that prices will come down to where someone will be able to aford them. We need to take our licking and then start ticking again. If they continue down the course that they are going nothing will happen except we will get deflation later, rather than sooner. We are screwed either way, so doesn’t it make sense to be expedient about it???

  36. fattyk says:

    You can’t just look at price increases and immediately blame inflation. Inflation is not an increase in prices of certain goods. It is an overall increase in prices due to an expanding supply of money and credit. Just because certain commodities are increasing in price does not mean that there is overall inflation. It means that the cost of some items is going up due to supply and demand issues. If supply and demand stay constant, but the supply of money increases, then you have inflation causing the price of goods to go up. If the money supply stays constant, demand stays the same, but the supply is less, then an increase in price occurs not due to inflation. Inflation is not the cart, it is the horse. Even with the increase in commodity prices, there is a much stronger and much larger deflationary effect on the economy driven by the contracting credit market and housing market. This is the worst of both worlds. A deflationary economy with isolated increases in prices of necessary goods. A prolonged recession will help to alleviate some of the demand pressure, thereby lowering some of the commodity prices. Why do you think OPEC is talking about lowering there output. Oil prices are increasing because of the fear of lowered supply, NOT because of an increase in the money supply or available credit.

  37. cinefoz says:

    Ross,

    Thank you for your reply.

    With respect to depreciation, you might be confusing book vs tax accounting. Books use GAAP while taxes use IRS rules. Temporary differences are recorded in the books to reconcile the application of different rules. The difference between GAAP and tax accounting with respect to depreciation is one of the temporary differences that is adjusted for.

    Tax accounting controls actual cash flow.

    I can’t speak to the specifics of an ocean liner because, undoubtedly, there are special rules in effect for special interests. Likewise, GO Zone rules allow for special accelerated depreciation for special cases. For most everyone else, MACRS rules and the IRS has fairly rigid rules for everyone else.

    Depreciation has nothing to do with building cash reserves.

    For most fixed assets, current value replacement cost accounting is only an exercise. GAAP does not permit it.

    Available for sale and trading securities are adjusted in the books periodically to mark to market and the changes are recorded. Asset impairments are also recorded.

  38. Brian says:

    The more I read the big picture, the more likely I am to pack up the family and head for Dubai.

    http://www.dubai-architecture.info/DUB-GAL1.htm

    Hmmm, I wonder what’s changed in the Middle East from 1990 to 2008 to cause such a growth?

  39. michael schumacher says:

    …….just a little testy today are we not??

    Spectre…..get over it. you are not the only one who had adversity. We all have to deal with it at times.

    And Cinefiz is now a voice of reason here???

    WOW……

    I guess all it takes is a few well placed words to sound credible.

    Just remember Mr “fiz” has displayed a total lack of understanding of the concept of effective interest rates…..while simultaneously waving the flag to boot.

    Here is a candidate you can vote for

    James Matoon Scott.

    Look it up

    Good luck with your groupies.
    Ciao
    MS

  40. cinefoz says:

    fattyk,

    You have a better grasp of inflation vs the effects of supply and demand than probably 90% of wall street. The CPI measures price levels, not inflation.

    OPEC couldn’t care less about interest rates. There is virtually no relationship between oil prices and interest rates. Likewise, secondary effects are dependent on higher costs. Interest rates will have no effect here except as an ineffective penalty on everybody except OPEC.

    Higher world demand for all commodities with constrained supply is causing that effect to spread to non OPEC controlled items.

    But hoards of know nothings parrot each other and claim otherwise. They will continue to do this for a long time coming, I suspect.

    Inflationary Expectations are just about all that Central Banks can react to, and world competition keeps that in control, substantially.

  41. Ross says:

    Cinefoz,
    Again you are mostly correct. Most Corps keep 3 sets of books. One for the unions, one for the IRS and one for the boardroom.

    Personally I do not trust GAAP accounting. Too much wiggle room for sharp CFO’s. I much prefer to see the IRS accounts. It’s more difficult to lie to Mommy.

    The only point I was making is that in an inflationary economy, it is possible to go bankrupt while reporting profits. If a company cannot properly reserve, they better have a good credit line just to stay in the game.

    Good accounting in the real world is why some companies trade at higher multiples. During inflation, cheap isn’t always good.

  42. cinefoz says:

    Ross Said:

    Most Corps keep 3 sets of books. One for the unions, one for the IRS and one for the boardroom.

    reply: Sorry. I forgot about labor. You win that one. That set of books is based on house rules, I suspect.

  43. SPECTRE of Deflation says:

    The more I read the big picture, the more likely I am to pack up the family and head for Dubai.

    http://www.dubai-architecture.info/DUB-GAL1.htm

    Hmmm, I wonder what’s changed in the Middle East from 1990 to 2008 to cause such a growth?

    Posted by: Brian | Feb 20, 2008 11:17:09 AM

    Could it be the over 2 billion people who are rapidly industrializing because we wanted to buy cheap crap? We can all look in the mirror concerning our problems. Now we want to point fingers at everyone but ourselves. Its a good thing we all have big screens because without a job we need something to fill the day.

  44. flow5 says:

    STAGFLATION, a portmanteau of the words stagnation and inflation, is a macroeconomics term used to describe a period of inflation combined with stagnation (that is, slow economic growth and rising unemployment, possibly including recession) — Wikipedia

  45. Shane says:

    I personally would like to see those that spout massive deflation come up with some hard stats on the decrease in the money supply. According to shadow stats, M3 is growing at ~15% yoy, inflation as calculated pre-1980 is ~10% and inflation as calculated pre-1990 is ~8%.
    Sure we might be having a price deflation in certain areas, stocks, housing, but from my vantage point overall deflation it ain’t.
    For some reason Americans have been brainwashed into believing that rising housing prices, rising stock markets are great . . . but rising commodities are bad.
    Rising anything when it is not natural growth is bad. The rise in housing and stocks over the past 5 years was probably 30% real growth and 70% inflation. Now that the unwinding is happening, those in power are doing everything to keep prices high in the areas they want it (housing/stocks) and low in areas they don’t (commodities) by dropping interest rates, stimulus, etc.

    The Fed is pushing on a string . . . that money will not flow to housing and stocks, it will flow to where there is currently a boom i.e. commodities. That’s right . . . the next bubble will be commodities . . . you think they are high now . . . wait till the speculators get rolling.

    I would like the deflation crowd to please, please show me a chart, graph, something that says M3 is negative. The problem is not deflation . . . it is inflation! You can not solve the problem of deflation (caused by inflation-i.e. massive increase in M3) with more inflation.

  46. SPECTRE of Deflation says:

    …….just a little testy today are we not??

    Spectre…..get over it. you are not the only one who had adversity. We all have to deal with it at times.

    And Cinefiz is now a voice of reason here???

    WOW……

    I guess all it takes is a few well placed words to sound credible.

    Just remember Mr “fiz” has displayed a total lack of understanding of the concept of effective interest rates…..while simultaneously waving the flag to boot.

    Here is a candidate you can vote for

    James Matoon Scott.

    Look it up

    Good luck with your groupies.
    Ciao
    MS

    Posted by: michael schumacher | Feb 20, 2008 11:29:32 AM

    You made it personal when you told me tough shit concerning a family member. In the south that will get you ass kicked. Be thankful!

  47. wunsacon says:

    Brian, for one, sanctions on Iran force a lot of business through Dubai, making the middleman rich. But, I really don’t know the relative contribution.

    Spectre, I’ll just say that I don’t rate the truth-value of your analogies highly.

  48. M1 is actually negative the last time I looked, and the monetary base is going nowhere fast. This explains the growth in M3:

    11/30/2007 – Note that much of the large growth in M3 lately has been in flows into CDs and Money Market Funds, a normal occurrence during financial turmoil. See our financial crisis page for more detail, and a picture of the current level of a U.S. financial crisis.

  49. wunsacon says:

    Hmm…my post is now non-sequitor. SPECTRE, I was referring to a post from you that’s now been removed.

    MS, I share many of your views. But, if I might say, you do, on occasion, “escalate” unnecessarily.

  50. JustinTheSkeptic says:

    Four Causes for Deflation:

    1. Decreasing money supply. (not happening now)

    2. Increasing supply of goods. (I believe we imported less last report. Especially if you take out energy.)

    3. Decreasing Demand for Goods. (We most definitely have that happening.)

    $. Increasing Demand for money. (I’m kinda at a loss on this one…but I believe that demand for money is waning also.)

    Conclusion: One for Four is ok, but where’s the pressure for deflation coming from if not from these areas? Educate me please?

  51. EDITOR says:

    Personal, Sniping Comments have been unpublished

    Please stay on topic

  52. et alli. says:

    “When logic and proportion Have fallen sloppy dead…”

    Quotes and Pointers What’s odd about it is we can see all sorts of [signs of a] slowdown in the economy, and a slower economy is supposed to relieve upward price pressure on commodities. That just doesn’t seem to be

  53. SPECTRE of Deflation says:

    Hmm…my post is now non-sequitor. SPECTRE, I was referring to a post from you that’s now been removed.

    MS, I share many of your views. But, if I might say, you do, on occasion, “escalate” unnecessarily.

    Posted by: wunsacon | Feb 20, 2008 11:52:20 AM

    Do you have anything to say concerning inflation? Let’s get back on point.

  54. cinefoz says:

    Fun and Games,

    I would prefer to be the ‘voice of reason’ in comparison to more than Joe Twitmeister, aka MS. But I’ll take what I can get. This is a tough crowd.

    MS, I can see you.

  55. michael schumacher says:

    spectre-

    see the next thread……

    Apparently multiplication is too difficult to do with the CPI numbers for some here.

    ignorance of data or simply saying it’s “baked in” doesn’t make it go away.

    It does for Mr Capital Gains though…

    Ciao
    MS

  56. Mike G says:

    Copper surged 20 handles

    ? Explain please.

  57. SPECTRE of Deflation says:

    spectre-

    see the next thread……

    Apparently multiplication is too difficult to do with the CPI numbers for some here.

    ignorance of data or simply saying it’s “baked in” doesn’t make it go away.

    It does for Mr Capital Gains though…

    Ciao
    MS

    Posted by: michael schumacher | Feb 20, 2008 12:26:39 PM

    You will see I addressed this in the new thread including answering your thoughts. I have some questions for you in the new thread. Let’s see what you can do with it. It may mean having to do more than simple multiplication with a numbers that tells us where we have been.

  58. JustinTheSkeptic says:

    I want to start a country whereby all stats/records are kept at levels only Walmart enjoys today. My country will have a free-market economy but there will be no room for wiggle when it comes to understanding what is really going on in the economy. My country (Now named: ReallyFreeMarkets) will make sure that only “real economic growth and shrinkage occur – no more asymetrical advantage by the elites, no more bluffing joe sixpack who happens to have to work all day doing things that support everybody else.

    My point: in this day and age why can we not come up with a more accurate way to find out what is happening in the economy? Hell, standardize everyone’s work, and stick a wireless clicker on everyone working, that inputs what output was accomplished each day at work. Why does there always have to be this obfuscation?

  59. rexl says:

    ross, i think comparing printing money in the instances you list above and the inflation of today are vastly different, particularly viewed from Spengler and where we are in terms of cycle of an empire. especially after WW2 and all the pent up demand and change from war materials to civilian, and on and on. the whole manufacturing capacity I mean where to start. now we are inflating because paper is all we do, or at least a much larger percentage. we are not even being asked to pretend society can be made ‘great’.

  60. wunsacon says:

    >> Do you have anything to say concerning inflation? Let’s get back on point.

    Spectre, my polite response to your now-removed political row with MS was offtopic? You’re correct.

    As for inflation, I think it’s biflation, as described by other posters. I’m betting with Ross. Let the hoarding begin.

  61. flash91 says:

    Hi Justin:

    I think you have the causes right, if I may add my 2 cents:

    1. Decreasing money supply. (not happening now)
    - Its not just money supply, but all dollar denominated negotiables. With the credit crunch, the total is dropping. This can be as simple as counting the charge limit on your CC as available cash.

    2. Increasing supply of goods. (I believe we imported less last report. Especially if you take out energy.)
    - Yes.

    3. Decreasing Demand for Goods. (We most definitely have that happening.)
    - Yes

    $. Increasing Demand for money. (I’m kinda at a loss on this one…but I believe that demand for money is waning also.)

    - There is a drive to liquidity right now in banking, because of fear of credit defaults. This money is not in circulation (or being put into negotiables of any form) effectively reducing the money supply.

    Its really the circulation of dollars (and phoney dollars) that effect price changes. As credit dries up, fewer dollars circulate.

    If I have to place bets, I’d have to bet with the inflation power of the government, they have a good track record.

  62. kckid816 says:

    Sounds like Cinefoz is studying for the level 2 CFA like me.

    a couple of bones to pick though, OPEC does care about interest rates because it affects exchange rates. There is a reason that there is a movement to get oil denominated in more than just dollars.

    Cinefoz wrote:
    “Available for sale and trading securities are adjusted in the books periodically to mark to market and the changes are recorded. Asset impairments are also recorded.”

    This wasn’t really relevant but the classification of these types of securities is an easy area to abuse. Trading securities are marked on the Income Statement whereas Available for Sale go to the balance sheet. The only time these show up in tax accounting is if there is a realized gain.

    Also, LIFO and FIFO both have their places and their best uses. In inflationary environments LIFO gives a better picture for manufacturing firms. It will increase COGS which shows the higher expenses which gives a better picture looking foward. Financial statements are snapshots and should be viewed accordingly. A firm using FIFO in an inflationary environment will at first look better but after awhile those financial statements will be worthless because they wouldn’t provied eht ability to project (without significant adjustements) foward.

  63. SPECTRE of Deflation says:

    >> Do you have anything to say concerning inflation? Let’s get back on point.

    Spectre, my polite response to your now-removed political row with MS was offtopic? You’re correct.

    As for inflation, I think it’s biflation, as described by other posters. I’m betting with Ross. Let the hoarding begin.

    Posted by: wunsacon | Feb 20, 2008 1:23:38 PM

    I thank you for your polite response. I really do want to stay on point, and hopefully learn some things from other intelligent posters at this site. My only goal is to make sure I have a return of capital at this point which these days means really staying on one’s toes.

    Concerning politics, there are plenty of sites that we can all go to for those type topics. Let’s stick to financial stuff, and help each out through this mess. None of us can change the system on this site, so why bother arguing amongst ourselves. In other words, by all means go to the Ballot Box and choose as you see fit, but trying to convince others is a losing prop. JMHO.

  64. flow5 says:

    “Crude oil shot up to its first close above $100 a barrel this afternoon, gutting a stock market rally and leaving investors wary about what may come next.”

    This is how the pundits explained it:

    Crude’s big jump came on a slew of bad news: cold weather in the Midwest, worries that the Organization of Petroleum Exporting Countries may cut output, a refinery outage in Texas and more unrest in Nigeria.

    The “Holy Grail”: As M1, MZM & M2 took off, with the 3/4 drop in the FFR, so did oil (see FRED database, St. Louis Fed)

    Some people prefer the devil theory of inflation: “It’s all OPEC’s fault.” This approach ignores the fact that the evidence of inflation is represented by actual prices in the marketplace.

    The “administered” prices of OPEC would not be the “actual” market prices were they not “validated” by monetary flows (MVt).

    http://research.stlouisfed.org/fred2/

    Then click “New! Customize with FRED Graph” change the first date to 2007-01-01
    You’ll get a better perspective on the money supply figures this way.

  65. flow5 says:

    Although there is a price-wage spiral, or even a wage-price spiral, the spiral is the consequence of, and is “validated” by, ever increasing monetary flows. The spiral is not the cause of inflation; it is the evidence of inflation.

  66. Pat G. says:

    “I feel like the US and its citizens are losing control of their destiny.”

    Actually, our destiny has been sold to others and we feel powerless to effect change in order to get it back.

    “Is inflation a leading or lagging indicator?”

    Both.

    “If they continue down the course that they are going nothing will happen except we will get deflation later”

    What if they knew exactly what they were doing, posing behind the charade of trying to jump start the economy by lowering rates, while their goal was hyperinflation?

  67. Ritchie says:

    JustinTheSkeptic: “Why does there always have to be this obfuscation?”

    Obfuscation is a way of gaining an advantage over your competitors. Non-human use of camouflage is a form of obfuscation. I once had a dog that could make evasive moves that almost looked like optical illusions when he was chasing squirrels. It worked more often than not. My current dog can’t catch squirrels worth a darn–not even the one that fell on her and was knocked senseless for a moment. Its like that with people everywhere.

  68. wunsacon says:

    >> Concerning politics, there are plenty of sites that we can all go to for those type topics.

    True. But, I like this board and reading the thoughts of the people who post on it, not just on finance. (E.g., you, Spectre.) And, for the most part, we’re pretty civil. :-)

    >> Let’s stick to financial stuff, and help each out through this mess. … so why bother arguing amongst ourselves. In other words, … but trying to convince others is a losing prop. JMHO.

    Does this mean you’re not coming to the rally???