Category: Think Tank

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.

8 Responses to “From Inflation To Deflation … And Back!”

  1. Chief Tomahawk says:

    Wow, that’s a lot of readin’. Looks small on my 25″ monitor. I guess I could always enlarge it via the settings mode, though I didn’t think of that until now…

  2. b_thunder says:

    David Rosenberg, thank you for the warning.

    Thank you BR for posting this. I hope that the always busy Fed Governors find time to read this paper.

    My worry is that considering the speed of the most recent developments in the US Treasuries market, David will find it appropriate and necessary to update his “over 3% on the 10-year T-note yield a year from now and north of 4% by 2017″ forecast in a way that will totally dumbfound those who, as David noted, have not been through a real rising rates/inflation cycle.

    • RW says:

      Just curious, if the rate on the 10-year note is South of 4% in 2017, will you revise your worldview? What if it reaches 4% but then begins to fall again?

      The inflation “any day now” scare has been going on for five years and those who actually invested in that thesis lost their shirts.

      Here’s an alternative hypothesis: Rates will rise slowly (and moderately) because the economy is improving (moderately) so funds are rotating out of bonds into other assets including equities; inflation is likely to remain tame for the foreseeable future, in fact many folks will wish it was higher because unemployment is a bigger problem and more resistant to solution at very low inflation rates.

      • b_thunder says:

        “The inflation “any day now” scare has been going on for five years” – for five years? You didn’t get anything out of David Rosenberg’s paper, did you? He’s talking about a 30+ years *disinflationary* cycle that, in his opinion, has just ended. The wind is no longer in your back, and might turn into a headwind a lot sooner than the “consensus” thinks it will. When Mr. Rosenberg references people who never been through a rising rates/rising inflation cycle, he just might be talking about you…

  3. Frwip says:

    I don’t see how inflation can develop without sustained increases in nominal wages.

    And I don’t see how we can have sustained increases in nominal wages with the current and foreseeable labor market, where core employment is still a good 5% below its normal level.

    Rosenberg seems to buy into the notion of a structural skill mismatch. But if it was the case, wages would already be going up a lot. This is not the case. Yes, companies advertize a lot of open positions but they are clearly not very interested in filling them. And they are certainly not willing to pay for those positions, through higher offered wages or training of unqualified recruits.

  4. Willy2 says:

    O.M.G. For a long time I thought Rosenberg was a smart guy. But this document proves that there’re a number of things he “doesn’t get”.

    E.g.:
    - Rising Inflation IS NOT the driver pushing rates higher. !!! Did Rosenberg never hear/learn that the law of Demand & Supply also applies to capital ? When demand for capital is high (relative to demand) then the price of capital (a.k.a. “Interest Rates”) rises.

    The document contains some excellent research but – at least in one case – Rosenberg or his research staff is massaging the facts/charts to let it fit Rosenberg’s views. (Never heard of “confirmation bias” ??)

    Take the second chart in both chart sets 47 & 48: Rosenberg tries to prove that negative yields have caused the “Dot.com” bubble and he fails miserably. Chart #2 (in #48) ends in say february/march 2000 when REAL rates were still (strongly) positive. But chart #2 (in #47) ends in say february 2001.
    In other words: The Dot.Com bubble popped BEFORE real rates became negative.
    “Confirmation Bias” anyone ?

    The REAL litmus test is still up ahead for Rosenberg. If he’s right about inflation then along with long term rates short term rates will gradually rise as well. If he’s wrong then long term rates rise and short term rates won’t.

  5. Willy2 says:

    More flaws in Rosenberg’s thinking:
    - He fails to see that in EVERY recession interest rates go down. Both short term & long term, but short term rates move (much) faster than long term rates. So, falling/rising short & long term rates are on the same side of the coin and not on a different side of the coin as Rosie would like us to believe. If/when those rates would diverge then that would be the canary in the coal mine that something is seriously wrong.
    - What a lot of people (even the deflationists like Mike Shedlock and Rosenberg) overlook is that falling rates is actually Inflationary (rising bondprices) whereas rising rates are actually Deflationary (falling bondprices). Falling demand for capital leads to falling rates. Rosenberg (wrongfully) thinks that falling rates are Deflationary.
    - Rosenberg points to the fact that US employers can’t find qualified & skilled workers. This is a confirmation of how dismal the US educational system is.

  6. Willy2 says:

    More flaws in Rosie’s thinking:
    - It didn’t “take Volcker 3 years to kill inflation.”. It was a number of forces combined that killed the rise in rates. But it took “Mr. Market” 3 years to recognize that the demand for capital was waning and that shrinking demand led to more than 30 years of falling rates.