Category Archives: The Fed

Inflation

There is much noise that the Fed will raise interest rates to combat “inflation.”

Over the last year to the end of February, wages are up 2.8% (nominal). The price of oil, as a metric for energy prices, is up 32%.

Guess what is driving “inflation.”

The Saudis are still pumping as hard as they can, but justifying it on the grounds that they are storing the above-quota output, not selling it internationally. It seems to me that a tank in Saudi and a tank in Oklahoma are pretty much fungible, except that we at least think we know how much is in the Oklahoma tanks.

The bottom line is that global inventories of oil are continuing to expand to new records, more or less on a daily basis. The EIA is forecasting that US shale is set to expand production by 109k barrels from March to April, rising from 4.853mmbpd to 4.962mmbpd, and offsetting OPEC’s entire February production cut.

At some point we are going to see a reaction and that will be the end of “inflation.” For a while, anyway.

Your Bubble Goes Here

From Bill Hester of John Hussman’s staff.

Unsentimental

The Atlanta Fed GDPNow forecast for Q1 GDP now stands at 1.2% annualized growth. This despite outrageously bullish sentiment everywhere you look.

1937, anyone?

Pension Tsunami Sighted

NY Teamsters Pension Fund becomes first to run out of money.

Oh, and after the close the API announced that crude and product inventories continue to set new records. Not to worry, speculative buying continues. GLWT.

 

Same Old

Per Bloomberg, house flippers have pushed the share of sales that are flips, or properties sold twice in 12 months, to its highest level since 2006.

Home flippers, who buy homes as a speculative bet on short-term price appreciation, accounted for 6.1 percent of U.S. home sales in 2016, according to Trulia, which defines a flip as a property sold twice in a 12-month period in arm’s-length transactions. That’s the highest share since 2006, when flips accounted for 7.3 percent of sales.

House prices are, of course, now above the last bubble peak. This is not likely to end any differently than the last time. Thanks, Janet.

Unbalanced

So let’s see. Janet Yellen, at least as of yesterday, sees three or more interest rate increases in 2017 and wants the dollar higher. The Trump team, reportedly, will seek large cuts to government spending.

So… tighter monetary policy + tighter fiscal policy + unfavorable export pricing = market euphoria? Sorry, that equation doesn’t make sense.

Twin Peaks

Pictures At An Exhibition

Sorry, Модест Петрович Мусоргский.

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Welcome to 2017

Happy New Year. Well, probably not for a lot of people. Today is the first employment report of the year, and the bottom line is that the most optimistic view one could take from it is stagflation. The weakening employment trend does not support the bullish growth meme, especially as the “not in labor force” reaches a record 95.1 million. Adding back the “unemployed,” there are 102.6 million people not working – 0.675 for each employed person. Think about it.

Anyhow, the bubble lives on. US property prices are back to the previous bubble peak, and of course there are many other property bubbles around the world. The US stock market is by many measures the most over-valued in history. I could go on, but what’s the point. It will pop when it pops.

As previously explained in this blog, we are witnessing the death throes of liberal socialism. President-elect Trump is merely a symptom, as are the other “populist” political figures around the world. The liberal establishment that has benefited from the largesse is fighting back with every available weapon, but it is fated to be a losing battle. Que sera, sera.

Ding!

Jeremy Grantham’s 2250 is here. Now an “official” bubble.