“There is no practical way that QE can cease here or in Euroland without a total and final collapse of the
financial system.”
“The Federal Reserve Really Has No Practical Option To End
QE”
Jim Sinclair, jsmineset.com, 1/3/2013
The five year chart of the CRB Index (a
Broad Measure of Commodities Prices) shows three descending tops, which is
suggestive of Deflation. But to conclude that Deflation is likely to be The
Ruling Force in the Economy in 2013 would be a Dangerous Error.
Indeed, it is critically important for
Investors to understand whether or not we are in an Inflation or Deflation, or both (we later explain how this is
possible). Failure to understand The Reality about Deflation and Inflation is
likely lead to poor or even lethal Investment decisions.
Here we explain The Inflation/Deflation
Reality and indicate how to Profit.
Indeed, Contrary Anecdotal Evidence from
Increasing Food and Energy prices which many of us have encountered in recent
years suggests we are in a serious Inflation.
But how do we reconcile that fact with
the CRB chart above which shows a series of lower lows in recent months and
the 5-year Chart of Dr. Copper, the Premier Indicator of Economic activity,
which also appears to be Topping and apparently ready to
“Deflate.”
But if one takes a look at the very
recent CCI numbers or at Inflation since, say, 1930 (immediately
pre-Depression) one gets a very Different view. They indicate ongoing Price
Inflation.
The Solution to the Inflation/Deflation
Conundrum is to consider whether there is Inflation or Deflation on a Sector by Sector basis. When one does this, one finds some
Sectors are clearly Inflating and others Deflating, but that the overall Net Effect is Inflation (see below).
“Check out the chart of the Continuous Commodity Index or CCI
and note that it has managed to put in a weekly close above the 38.2% Fibonacci
Retracement Level of the move lower from its all time
recent high made last year. If the market pysche
remains the same, look for this index to now make an eventual run back
towards the 597-600 level.
We can look at these charts as subjects of interest to us as
traders/investors but what this particular stock represents is increasing
pain for consumers and the hard-pressed middle class in one of the worst, if
not the worst "recovery" since the Great Depression.
Think of this as increased frustration at the grocery store, at the
gas pump, at the hardware store, at the local restaurant, etc. While some of
this rally is the result of the drought and I will of course not lay that at
the feet of the Fed, it is a simple fact that the breakout on this chart
today, is the DIRECT RESULT of Mr. Bernanke's insistence on implying that
another round of bond buying is on the way.
When you pull into the gas station and fill up your car or truck, and
are sent reeling at the cost, you can lay some of the blame right at his feet
and the feet of his elitists on the FOMC who insist on pacifying Wall Street
instead of having concerns how their policies are destroying Main
Street.”
“More Pain for the Middle Class courtesy of Bernanke”
Dan Norcini, traderdannorcini.com, 8/31/2012
It is not just the skyrocketing prices
we pay for Food and Energy as reflected in the CCI, that demonstrate the Price-Inflationary effect of The
Fed’s (and ECB’s) ongoing Monetary Inflation. But it is the
prices for most of what we buy that have skyrocketed as a result of The
Fed’s decades-long Monetary Inflation. Consider the following chart
comparing the 1930’s cost in the U.S. for common goods and services,
with today’s costs in Purchasing-Power-Degraded Dollars.
Item
|
1930 Cost
|
2012 Inflation-Adjusted
Cost
|
2012 Actual
Cost
|
% Increase
Between Inflation-Adjusted & Actual Cost
|
Movie Ticket
|
$0.05
|
$0.65
|
$11
|
1,592%
|
Refreshments
|
$0.25
|
$3.26
|
$11.50
|
249%
|
Ford 4-Door
|
$985
|
$12,861
|
$26,333
|
104%
|
4-Bedroom Home
|
$3,800
|
$49,617
|
$163,278
|
229%
|
Live-in Maid
|
$22
|
$288
|
$2,916
|
912%
|
Insiders Strategic Review, 8/26/2012
And, regarding Inflation Prospects, perhaps most significant
of all is the recent statement by the CEO of Cargill, the Giant Grain Trader.
“…Greg Page, chief executive of global grains trading
giant Cargill Inc, joined a chorus of critics of
biofuels by urging the U.S. government to temporarily curb its quotas to
produce corn-based ethanol fuel.
Page said on CNBC that the U.S. biofuel mandate ‘needs to be
addressed’ through existing policy tools. Otherwise, the spike in U.S.
corn and soybean prices to record highs will ‘ration’ demand in
ways that will hurt food production too much.
“If all that is only on livestock or food consumers, it really
makes the burden disproportionate. What
we see are 3 or 4 percent declines in supply lead to 40 to 50 percent
increases in prices, and I think the mandates are what drives
that,” he said.
In 2011, almost 40 percent of the giant U.S. corn crop went into
making ethanol, and the United States still exported more than half of all
corn shipments worldwide….
On Monday, U.S. livestock groups appealed to the Environmental
Protection Agency (EPA) to curb or suspend the mandate, warning against the
ruinous impact of soaring feed costs. Corn and soybean meal make up basic
animal feedstuffs….”
“Drought deepens worries about food supplies, prices” ,
Bob Burgdorfer, reutersreprints.com ,
8/1/2012
Clearly, the Food Sector has been, is
and will likely continue to exhibit increasing Inflation. So The Answer to
the General Question: Which is it, Inflation or Deflation? is
“That Depends on the Sector”.
Most important, however, is the net, which, weighing Inflating
Sectors against Deflating Sectors, is Inflationary.
Indeed, John Williams’
(shadowstats.com) Real Numbers (as opposed to the Bogus Official Statistics)
confirm the foregoing (net)
ongoing Inflation.
Bogus
Official Numbers vs. Real Numbers (per Shadowstats.com)
|
|
Annual
U.S. Consumer Price Inflation reported December 14, 2012
|
1.76%
|
9.41%
|
|
|
U.S.
Unemployment reported December 7, 2012
|
7.7%
|
22.9%
|
|
|
U.S. GDP
Annual Growth/Decline reported December 20, 2012
|
2.60%
|
-2.10%
|
|
|
U.S. M3 reported December 19, 2012 (Month of November, Y.O.Y.)
|
No
Official Report
|
3.59%
|
|
The Reality is we are entering into a
period of rapidly increasing prices in many Sectors, but in a contracting
Economy with a NEGATIVE GDP of 2.10%.
That is, we are in Stagflation, and if Williams is correct, and in our view
he is, soon to move into a Hyperstagflation.
It is most important to emphasize the Net Effect of Inflation in some
Sectors and Deflation in others is that we are already Threshold Hyperinflationary overall at 9.41%.
Thus proper Sector by Sector Evaluation
and Selection is Critical when Investing in 2013 and beyond.
Indeed, The Key for Investors is to play
the Inflation Sectors to Inflate and the Deflating Sector to Deflate, and,
generally, to Invest for Inflation overall.
It is also important to see that much
that is claimed about Deflation is a myth.
Certainly consumer debt is not decreasing overall, as we demonstrated in an earlier
Article.
And the debt of most (already overindebted) Sovereigns is still increasing, except for that of Greece. And the ECB’s
and Fed’s recently announced, de facto, QE to Infinity programs (with
Japan likely to follow soon) are not
deflationary, but rather quite inflationary
and they will surely continue (see
below). The increase in the Money Supply morphs into Price Increases as
we are already seeing in Food and Energy and are likely to see in other
Sectors in the coming months.
Of course, The Fed claims they adopted
QE to Infinity to get unemployment down to 6.5%. In fact, QE does not create jobs, as Graham Summers
points out but rather, as he notes The Fed’s Action was intended to
address the following:
1. The US economy is nose-diving again and the Fed is acting
preemptively.
2. The Fed is trying to provide increased liquidity going into the fiscal
cliff.
3. The Fed is funding the US’s Government massive deficits.
“The Real Reasons the Fed Announced QE 4”
Graham Summers, Phoenix Capital Research, 12/23/2012
Summers points out that the motivation
regarding #1 is that the Economy
is contracting again as the November ISM report shows. And the Big Banks are
still not lending to Small Businesses
which account for over 70% of jobs in the USA.
Importantly, what Summers implies, but
does not expressly state, is The Fed’s (and ECB’s) Main
Motivation, that QE is aimed mainly at maintaining the Profits of the
Mega-Banks, several of which are shareholders of the private for-profit Fed.
In light of the foregoing, and
especially The Fed’s and ECB’s and (probably) the BOJ’s QE
to Infinity, the Mega-Trend is that we will likely see periods of
intensifying Asset Price Inflation, in 2013 and beyond. But this Price
Inflation will not necessarily reflect Value Inflation, because Price will be
reflected in value-degraded (i.e. Purchasing Power Degraded) Fiat Currencies.
Regarding Specific Recommendations aimed at Profiting and Protecting from
Intensifying Inflation see Notes 1, 2, and 3 below.
In this respect (but not others),
Evans-Pritchard’s analysis of Major Sovereigns and Central Banks’
Actions is correct.
“[They] …are actively driving down their currencies or
imposing caps.
…embracing the new creed of nominal GDP targeting…
The side-effects of this currency warfare -- or "beggar-thy-neighbour’ policy as it was known in the 1930s --
is an escalating leakage of monetary stimulus into the global system.
So don’t fight the Fed, and never fight the world’s
central banks on multiple fronts.
…so let me hazzard that the S&P
500 index of stocks will break through its all time
high of 1565 in early 2013 -- mindful though I am of flagging volume and a
wicked 12-year triple top.
The Shanghai Composite will continue its explosive rally as China
loosens the spigot again. The Politburo is reverting to its bad old ways of
easy credit for state behemoths, and an infrastructure blitz, with $60bn of
fiscal stimulus as well for good measure. Reform can wait.
Yes, we all know that China has added $14 trillion in extra credit
since 2009…
The more that investors come to think another cycle of global growth
is safely under way, the riskier it will be to hold corporate bonds, $8
trillion in the US alone. With yields priced for deflation,
that bubble is dangerous to own on 10-year maturities. The money will
rotate into equities and bullion, with China’s central bank driving
gold through $2,000 at last.
As a polar bear, I doubt that such a happy cycle is upon us. We merely
have a rally within a structural trade depression.
The headwinds of deleveraging will return with gale force. The glut of
excess global savings that lay behind the great crisis of 2008-2009 -- and
that has kept us stuck in the Long Slump ever since -- is still getting
worse. The international trading system remains badly out of kilter.
There is chronic overcapacity across global industry and not enough
demand to carry a full cycle of economic expansion, or to reach "escape
velocity" as they say these days.
Until that changes, every global rebound is
doomed to disappoint within a few quarters, and that includes the cyclical
upswing of 2013.
Japan’s new premier Shenzo Abe is
sweeping into office like Roosevelt in 1933, commanding the central bank to
do whatever it takes to defeat deflation, deliver 3pc NGDP growth, and drive
the dollar-yen rate to 90.
The Fed is no slouch either. It is printing $1 trillion in 2013, even
though the money supply is already catching fire. It is has cooked up a
jobless target of 6.5pc, meaning anything it wants. If this caps the dollar
in the process -- and safeguards America’s shale-driven manufacturing
revival…
And the poll that matters most is the rising support for the Front
National’s Marine Le Pen, champion of the French franc, already pulling
even with Gaulliste rivals.
The anomaly is why the Left -- in Spain, and
across Europe -- continues to back a reactionary EMU agenda that sets policy
in the interest of creditors and drives youth unemployment rise to 55pc. La trahison des clercs.”
“Stocks to soar as world money catches fire, Valvinst
Europe left behind”
Ambrose Evans-Pritchard, The Telegraph, 1/1/2013
Yes, the Eurozone is already suffering
from Stagnation and incipient Inflation.
And with the U.S. recently increasing
Taxes but not cutting Spending,
the U.S. is headed in that direction as well.
Agora Financial Guru Bill Bonner sums up
the effect of “the Cliff” Resolution well:
“Neither the debt ceiling nor serious long-term spending cuts
were addressed.
…the problems in 2013 are the same as those in 2012. Nothing has
been done to solve them.”
“New Year; Old Problems”
Bill Bonner, 1/2/2013
The Key Takeaway from all the foregoing
is that it is essential to identify which Sectors are Inflating and which
Deflating and to realize that the net effect is Inflationary.
And, make no mistake, the Fed, ECB, BOJ,
and others will continue QE for the foreseeable future. Consider Jim
Sinclair’s sound reasoning in response to some Fed Governors opinions
they may stop QE in 2013.
“The implication of stopping QE is so dire to the economy that
it is in a practical sense impossible. When gold was being sold by central
banks during the 1970s market announcements were made constantly with the
bias to depress metals.
There is no practical way that QE can cease here or in Euroland without a total and final collapse of the
financial system. Just go back to the IMF report on OTC derivatives I posted
this morning. If QE ceases, the US bond market collapses and the Fed must
debt monetize all required debt, which means if QE stops, it starts up again
immediately and in a crisis mode.
The statement that QE can stop is simply MOPE. QE cannot stop or the
world ends as you know it.”
Sinclair, ibid
Indeed Jeff Clark (Agora Short Report)
correctly characterizes these Fed Governors comments, “That’s
Funny.” Yes, “Funny” as in ludicrous.
Best regards,
Deepcaster
January 05, 2013
Note 1: *Shadowstats.com
calculates Key Statistics the way they were calculated in the 1980s and 1990s
before Official Data Manipulation began in earnest. Consider
Bogus Official Numbers vs. Real Numbers (per Shadowstats.com)
Annual U.S. Consumer
Price Inflation reported October 16,
2012
1.41% / 9.64%
U.S. Unemployment reported October
5, 2012
8.3% / 22.8%
U.S. GDP Annual Growth/Decline
reported September 27, 2012
2.21% / -2.15%
U.S. M3 reported October 16, 2012
(Month of September, Y.O.Y.)
No Official Report / 3.32%
Note 2: The $US dropped nearly
200 basis points at one point in the last three weeks. No surprise since the
Fed’s U.S. Dollar-Destructive Q.E. to Infinity Action, coupled with the
ECB’s Similar Action the week before, boosted the Euro vis-à-vis
the Dollar, as we earlier Forecast. The very recent $US bounce does not
change its weakening Trend.
This Debauchery of the
$US weakens its Purchasing Power and thus increases Burdens on the agonized
disappearing Middle Class.
The Bernanke claim that
buying $40 billion per month in Mortgage Backed Securities would Stimulate
the Economy and help the Housing Market is just a Fictitious Cover Story. In
fact, it is just another Gift to the Mega-Banks who hold Underwater Paper,
and to Wall Street which proceeded to rally on The Fed-sugared High.
Both the Continuous
Commodities Index which show Average Annual Price
Inflation of 15% and the Real Inflation Number (9.3% per year from
shadowstats.com) reveal Serious Inflation is with us and it Intensifying.
And Especially Food
Price Inflation.
To increase Yields,
Farmers increasingly employ Fertilizer.
And a recent Reco – a Fertilizer Producer – was trading
near its 52 week low at under 40¢ per share when we first recommended
it. It has moved up nicely since we recommended you buy in. But it has such
great potential that we raise our original “buy under” price to
45¢ per share.
To see our recent Buy Reco aimed at Profiting from the Fed’s Inflation
Rocket, read Deepcaster’s recent Alert,
“Buy Reco (under 40¢/share) to Ride
Inflation Rocket; Forecasts: U.S. Dollar/Euro, U.S. T-Notes, T- Bonds, &
Interest Rates, Gold, Silver, Crude Oil, & Equities,” recently
posted in ‘Alerts Cache’, on deepcaster.com.
|