Will Inflation Make A Comeback In 2014 When The Consensus Worries About Deflation
The Incrementum Inflation Signal started showing rising inflationary momentum after a period of 19 month of disinflation. Is Inflation making a comeback just as the consensus worries about deflation risk? That was the subject of Incrementum’s first Advisory Board in which much respected names have a seat, including James Rickards, Heinz Blasnik, Rahim Taghizadegan, and Zac Bharucha. The Board was led by Ronald Stoeferle, managing director of Incrementum Liechtenstein, and its partner, Mark Valek. This article summarizes Incrementum’s Advisory Board meeting. The full transcript is at the bottom of this article.
The direction of inflation is important in Incrementum’s Inflation Signal, not the absolute figure. At the moment, especially central bankers and mainstream economists are scared of deflation. Further easing by central bankers could be expected going forward. Related to the Fed’s policy, Rickards expects a pause in the taper by July and perhaps increased asset purchases later this year. “They tapered into weakness. They should have not tapered in December by their own metrics, specifically inflation, employment and a few other things. I expect the sequence as follows: I think they will taper another $10 billion in April, pause in June and July, and then probably increase asset purchases later in the year (maybe August or September). That should be bullish for equities but also signal to commodity investors that inflation is on the way, because it just says that the Fed will do whatever it takes to get inflation.”
In particular the commodity complex shows a significant divergence: industrial metals (especially copper) are weak while agriculturals are very strong, just like precious metals and aggregate commodities. Heinz Blasnik points to China for a better understanding of the industrial metals weakness. “Broad money supply in China (M2) is now growing at 13.2%. That is at the low end from the range of the post decade. M1 has actually collapsed to 1.5% growth from almost 40% in 2009. I think that is where the weakness of industrial metals is coming from. It’s definitely China, because money supply growth is declining and also bank-lending and total lending are declining. It actually seems that house prices are beginning to turn down as well.”
The interesting thing about this breakup in commodities is that “nobody” is talking about it. This seems very reminiscent of the commodities rally that started in 2000-2002.
Monetary Base Skyrocketing and Bail-Ins Already Well Under Way
The central planners as a whole are boxed into a dead end street. If they are truly trying to fight their way out by reversing the policies of the past 12 years, they run the risk of collapsing global economies & financial markets.
Yuan’s Drop Threatens to Alienate US, Ignite Currency War With Asia
Chinese authorities have been intervening since last month to push the yuan down, & the move threatens to upset the U.S. & ignite a currency war with Asia.
The dollar has gained 2.4 percent against the yuan since Feb. 14. The Chinese currency had been gradually appreciating, amid pressure from Washington, over the past nine years.
The People’s Bank of China (PBOC) believes that the yuan’s downturn was necessary to punish speculators who gambled on a continued appreciation for the currency, people with direct knowledge of the central bank’s thinking told The Wall Street Journal.
Welcome to the Currency War, Part 13: China’s Turn
It’s amazing how quickly China went from being the world’s savior to its biggest danger. To recap:
When the developed world stepped off a cliff in 2008, China responded by borrowing about $15 trillion and spending most of it on infrastructure. Roads, bridges, skyscrapers, power plants, whole cities went up around the country. The resulting demand for everything from iron ore to wind turbines helped offset contractions in the US and Europe, turning an incipient global Depression into nothing more than a severe recession.
But government-directed growth on this scale produces a mountain of misallocated capital which eventually comes back to haunt its owner. Lately, Chinese manufacturing has begun to contract:
USDA Expects Higher US Food Price Inflation in 2014
Various measures of U.S. food price inflation are expected to rise by 2.5 to 3.5 percent in 2014, roughly in line with the historical norm after price increases were tepid in 2013, the U.S. Department of Agriculture said on Tuesday.
What Inflation Shortfall?
Fed’s Plosser – Worried About Risks Of Exit
“I think our balance sheet is very large,” Philadelphia Federal Reserve Bank President Charles Plosser told CNBC on Tuesday. “I am worried about the exit & sort of what the unintended consequences may be.”
US now spending 26% of available tax revenue just to pay interest – Simon Black
This is an unbelievable figure. The only thing more unbelievable is how masterfully they understate reality… &the level of deception they employ to conceal the truth.