Posts filed under “Inflation”

MIA: Bond Vigilantes

Following up on a previous matter, Karl Denninger  posted what is supposed to pass for a rebuttal to my recent post on government spending. To my eyes, as Jay Bookman so aptly put it, it looks like “the octopus trick, squirting black ink to cloud your retreat.” True enough. Anyway, done with that discussion.

Paul Krugman presents a chart in his new book, End This Depression Now, that just screamed at me for replication and a bit of enhancement, so here it is. Professor Krugman wrote about the ongoing cries of the bond vigilantes, who have been warning for about three years running that we were on the cusp of runaway inflation and skyrocketing interest rates any day now. I have documented this a bit myself over the past three years (in response to Bowyer and Laffer  here in July 2009, and again here last year), but Professor Krugman’s chart inspired me to revisit this topic.

Below is a chart of the US 10-year Treasury, including clearly marked points in time at which we heard from various vigilantes (including, regrettably, President Obama). The 10-year yield at the time of the comment is indicated.

Source: St. Louis Fed, Series DGS10. Markers placed on a best efforts basis.

In chronological order:

May 2009, The Wall Street Journal, The Bond Vigilantes. 3.67 10-year. Money shot:

It’s not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets. [Ed. note: Assuming the Journal still believes an investor's best bet is "on the markets," what would be its advice now with a ~1.84 (May 8 close) 10-year?]

June 2009, Arthur Laffer in The Wall Street Journal, Get Ready for Inflation & Higher Interest Rates. 3.81 10-year. Money shot:

Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It’s a catch-22. It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S.

July 2009, Jerry Bowyer, in National Review Online, We’re All Inflation Hawks Now. 3.63 10-year. Money shot:

But what happens when the [monetary] floodgates open? At some point the banks will have to release a river of liquidity. Consumers are demanding it, Congress is demanding it, and even President Obama is demanding it. (That last one may well be the clincher.)

November 2009, President Obama, Interview with Fox News. 3.33 10-year. Money shot:

“I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

December 2009, Morgan Stanley Sees 5.5% Note as U.S. Faces Deficits. 3.69 10-year. Money shot:

The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.

March 2010, Wall Street Journal (as a news story, not an editorial), Debt Fears Send Rates Up. 3.84 10-year. Money shot:

And some argue that the bond market has been too confident about these longer-term rates remaining low, at a time when the economy is slowly improving and the government is running huge budget deficits.

April 2011, Bond King Bill Gross, LA Times, Gross Boosts Bet That Treasury Bond Yields Will Surge. Even the best and brightest make mistakes. 3.52 10-year. Money shot:

As the U.S. Treasury gets set to issue another $66 billion in notes and bonds this week, Pimco bond guru Bill Gross has a message for potential buyers: Stay away.

August 2011, Standard & Poor’s downgrades the credit rating of the United States. ~2.50 10-year.

Now, there’s getting it wrong because you modeled it wrong, and getting it wrong because you’re a political operative first and economist or market pundit second. Both are on display above. The political operatives, who to this day are still making noise about Weimar in the United States tomorrow, simply refuse to acknowledge the mechanics of a liquidity trap. I know Gross, to his great credit,  has done some very public navel-gazing on this matter. Too bad the same can’t be said for the likes of Bowyer, Laffer, or the Journal.


Category: Contrary Indicators, Data Analysis, Economy, Inflation, Markets, Really, really bad calls

Wow! Bundesbank “accepts” higher inflation

Australia’s unemployment rate declined to a one year low of 4.9% in April, from 5.2% in March and as opposed to a rise to 5.3% forecast. However, the data reveals that the decline was caused by an increase in part time employment (+26k), with full time unemployment down (-10.5k). The A$ rose on the news….Read More

Category: Inflation, Think Tank

Great Britain as a case study: which sticky price?

Steve Waldman was a software developer who became fascinated by finance and started writing about it. He is now a doctoral student in finance at the University of Kentucky. He blogs at Interfluidity. ~~~ Richard Williamson offers a report from the UK. Combining bits via Tyler Cowen and Williamson’s own excellent blog: I think there…Read More

Category: Inflation, Think Tank

Questioning The Measurement Of Inflation

Click to enlarge: – CPI Conspiracy Theories Persist Even With Broad Checks Maggie Humphrey, a price collector for the Bureau of Labor Statistics, visits the same grocery store every month in the Chicago suburbs to punch the cost of a pound of bananas into her Lenovo tablet computer. “That price has not fluctuated since…Read More

Category: Inflation, Think Tank

Hours of Work Needed to Purchase: CRB, SPY, Gold, Oil

From Ron Griess and the always fascinating Chart Store, we see a very different read of inflation.

He shares this awesome selection from his weekly blog (subscription only) of commodities,  crude oil, copper, gold, silver, corn, coffee, cotton, and the S&P500 — all priced in terms of hourly earnings:

Click to enlarge:




Read More

Category: Commodities, Gold & Precious Metals, Inflation

The FOMC Minutes …QE3 And Inflation

Click to enlarge: ˜˜˜ The Wall Street Journal – John Hilsenrath and Matt Phillips: Fed Holds Fire on Stimulus The Fed is in no hurry to launch new measures to boost economic growth, minutes from the central bank’s most recent meeting showed, disappointing investors eager for more stimulus. Among the hints dropped in minutes of…Read More

Category: Bailouts, Federal Reserve, Inflation, Think Tank

Is Deflation the Biggest Risk to the Economy?

Wall Street legend Robert Prechter argues the biggest risk to the economy is deflation, not inflation

- 4:23 -

Mar 22, 2012

Category: Inflation, Video

Bernanke, Inflation And Unemployment

Click to enlarge: ˜˜˜ – Bernanke Seen Accepting Faster Inflation Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment. The Fed chairman told lawmakers last week that…Read More

Category: Federal Reserve, Inflation, Markets, Think Tank

Do Rising Rents Complicate Inflation Assessment?

Do Rising Rents Complicate Inflation Assessment? Brent Meyer 02.23.12 ~~~ In the face of falling house prices, decreasing rates of homeownership, and a glut of vacant homes, the Consumer Price Index’s measure of the cost of owner-occupied housing—owners’ equivalent rent of residences (OER)—has begun to accelerate, rising at an annualized rate of 2.3 percent over…Read More

Category: Federal Reserve, Inflation, Real Estate, Think Tank

Major Secular Bear Markets (Inflaion Adjusted)

Yesterday we looked at 4 Major Secular Bear Markets. Several people asked for an inflation adjusted version. Thanks to Lance Roberts of Street Talk Advisors, you will find that below: > Real Price S&P 500 with Shiller’s Data and recessions click for larger chart

Category: Cycles, Inflation, Markets, Technical Analysis