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Risk of “Deflation” Is High: Key Inflation Indicators At Support That Could Break At Anytime And It Will Surprise The Majority!


Risk of “Deflation” is high and will surprise the majority!

CLICK ON CHART TO ENLARGE

In 2007, when stocks (S&P 500) and commodities(CRX Index/Copper) were peaking there was little talk about deflation from the media (inset chart point 1), around the globe.  Results going forward…The majority was surprisedas S&P 500 fell 50% and Commodities fell further.

In 2009, after a large decline in stocks and commodities the talk of deflation was very high (inset chart point 2). Results going forward….The majority was surprised as the S&P 500 and Commodities rallied over 100% in the upcoming few years.

Present times….Since May of 2011, the broad based Commodities index (CRX) and Copper have declined over 25% each.  Wouldn’t you expect with these type of declines in these commodities and in the Gold & Silver complex the talk of deflation would be picking up? IT’S NOT!!!  (see inset point 3)

Where is the deflation talk/concerns after a 25% decline, with key inflation indicators at support that that could break at anytime???

CLICK ON PICTURE TO ENLARGE

My mentor Sir John Templeton believed that outside of the bible, the most important book he had ever read was the “Extra Ordinary Popular Delusions and the Madness of Crowds!”  Even though he was an outstanding fundamental investors, he was an equal when it came to understanding crowd behavior/group think.

Is it a stretch to think we could have a period of deflation in the near future, despite the efforts of the Central Banks to stimulate the economy? I understand and appreciate concerns/arguments towards the inflation/hyper inflation side of the equation.

Joe Friday… If support in the CRX and Copper give way, increased selling pressure will ensue, suggesting a new round of deflation is at hand and it will surprise a good deal of the crowd!

 

The Fed Could Engineer A Major Sell-Off In The Bond Market When It Exits

 

BofA Merrill Lynch economist Ethan Harris has been banging the table about the risks that disinflation (falling, but positive inflation) poses to Federal Reserve monetary policy for a while now.

As the chart below shows, several measures of inflation are trending lower on a year-over-year basis. With each new data release, it seems like the amount of annual inflation in the United States economy is moving further and further away from the FOMC’s 2% target.

 

Measures of inflation

Business Insider/Matthew Boesler, data from Bloomberg

 

  1. Fed’s Balance Sheet Tops $3.3 Trillion
  2. Record Risk Discounted as Bonds Pass 110 Cents: Credit Markets
  3. Violence flares as protesters ‘besiege’ Spanish parliament
  4. China Top Leaders Warn on Financial Risks as Rebound Falters
  5. Spain Says Deficit Target Must Wait 2 More Years Amid Slump

 

 

DEFLATION:  We’re Witnessing The Biggest Contraction In Defense Spending Since The Korean War

Real GDP grew at a 2.5% rate in Q1, which was below economists’ expectations for 3.0% growth.

 

The biggest disappointment in the report was clearly defense spending.

“The unexpectedly large drag from defense spending was likely due in part to the first effects of sequestration, but could also be explained by constraints imposed by operating under a continuing resolution, which funded the government through March 27,” said Goldman Sachs‘ Jan Hatzius.

Real defense spending contracted at an 11.5% rate in Q1, following a 22.0% rate of contraction in Q4.

 

 

 

The World’s Hottest Trade Is Getting Destroyed Today

The Japanese yen continues to surge against the dollar this morning.

One of the most consensus trades on the planet is betting that the yen will decline against the dollar as Japan implements aggressive monetary policy designed to reflate the economy.

Yet last night’s Japanese consumer prices release revealed that deflation is getting worse. And while the Bank of Japan upped its economic forecasts at its policy meeting overnight and said it would hit its lofty 2% inflation target within two years, the market appears to be expressing serious doubts over the BoJ’s ability to further weaken the yen today.
USDJPY

Thinkorswim

China’s March inflation eases to 2.1 percent

BEIJING (AP) — China’s inflation declined in March, easing pressure on consumers but fueling questions about the strength of recovery in the world’s second-biggest economy.

Government data Tuesday showed consumer prices rose 2.1 percent, down from the previous month’s 3.2 percent and well below the official target of 3.5 percent for the year. Wholesale prices declined by 1.9 percent compared with last year.

Mixed data show the world’s second-largest economy is limping out of its deepest slump since the 2008 global crisis but more slowly than Chinese leaders want. Analysts say the rebound could be vulnerable to a downturn in investment or trade.

 

 

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