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Inflation ate my homework?

You saw this coming after today’s release of the Personal Consumption Expenditure inflation index. “Core PCE” inflation, which excludes food and energy – the lowest lowball inflation index the US offers and which the Fed uses to track its inflation target – spiked by 6.4% annualized for the past three months. In May alone it rose by 0.5% from April.

Consumers got some remaining stimmies and extra unemployment checks and other stimulus funds from the government in May, which still puffed up their income, but less than in prior months. Consumers then spent this income in a heroic manner. But inflation ate a chunk out of their spending in May, and adjusted for inflation, it fell.

Adjusted for inflation, “real” consumer income from all sources fell 2.4% in May from April, and was down 1.1% from May last year, according to the Bureau of Economic Analysis today. Not adjusted for inflation, consumer income fell 2.0%. Each of the three waves of stimmies triggered a glorious WTF spike in income. Those stimmies are now petering out, but consumers are still receiving other payments from the federal government, including special unemployment benefits:

How this bout of inflation, the highest since the early 1980s, is starting to add up month by month, inexorably, and cumulatively, is depicted in the chart below. It tracks personal income from all sources, adjusted for inflation (red line) and not adjusted for inflation (green line), both expressed as an index set at 100 for January 2019. Note the sharply widening gap between the two lines. That’s the effect of inflation. I’m going track it that way going forward:

Inflation ate my homework?

American consumers are still trying to spend heroic amounts of money as fast as they can – they just didn’t keep up with inflation.

…click on the above link to read the rest of the article…

Transitory Inflation Takes Hold of the Economy – How Long Will It Last?

June 26, 2021

Transitory Inflation Takes Hold of the Economy – How Long Will It Last?

Cherry blossoms symbolize the fleeting nature of all things. Photo by Haoshuang Lou

Just a couple of weeks ago, Bloomberg reported that Federal Reserve Chairman Jerome Powell sold investors on the idea that rising inflation wasn’t going to last. Officially, as of May 2021, inflation had risen 5%, the highest since August 2008.

Here’s how we know investors bought it: while the CPI is running at 5%, the yield on the 10-year Treasury languishes around 1.5%. For comparison, back in 2008, the 10-year Treasury yield stayed above 3.5% from January through November (and even broke 4% on a few occasions).

Bond buyers do not want interest rates to rise. A 10-year bond yielding 1.5% looks pretty pitiful if interest rates rise to, say, 3.5% (like back in 2008). So clearly bond investors aren’t expecting interest rates to rise in response to this little blip of inflation.

Maybe you remember the specific term Powell used to describe a temporary period of excessive inflation?

“Transitory.”

Whew, that’s a relief! At least we won’t have to tolerate this way-over-target inflation situation forever.

Today’s inflation: how high is too high?

We know that real-world inflation is somewhere between 9-12%, depending on which Federal Reserve methodology is used to calculate it. Either way, it’s quite high.

That’s right, we can get a closer look at the realities of inflation using methods developed and employed by the Federal Reserve itself.

In the 1980s, the Fed was aware that Americans spent money to maintain their standard of living (in other words, your level of income, comforts and services like healthcare you purchase). Official inflation calculations took this into account.

Using the 1980s formula, you can see how today’s Fed “official inflation” stacks up on the chart below:

Consumer inflation, Fed official vs 1980s alternate method

Source

If you thought 5% inflation was bad, 13% is much worse.

…click on the above link to read the rest of the article…

How to Buffer the Fallout from America’s Third World Death Spiral

June 20, 2021

How to Buffer the Fallout from America’s Third World Death Spiral

“What the hell?!” – President Joe Biden, June 16, 2021

Out of Control

American workers are trying to make their way in an economy that’s rigged against them. We made this claim many years ago. Today, for fun and for free, we revisit this assertion…starting with the latest from those doing the rigging.

This week, after a two day meeting, the Federal Open Market Committee (FOMC) released their statement. Nothing material changed. The Fed will continue to hold the federal funds rate near zero. The Fed will also continue to create at least $120 billion per month from thin air to buy Treasuries and mortgage-backed securities.

Bond yields spiked and the price of gold dropped because 13 Fed officials now plot dots that project two hikes to the federal funds rate in 2023. Fed Chair Jay Powell also mentioned the Fed is “talking about talking about” bond tapering. These technocrats likely know – though they won’t admit – they’ve already lost control.

Consumer price inflation is ‘officially’ rising at a 5 percent annualized rate. However, the ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 13 percent. This rate of inflation is remarkably destructive to household budgets.

‘Talking about talking about’ tapering and telegraphing federal funds rate increases some two years from now will do little to contain consumer price inflation. The fact is, it has already veered out of control. We expect gas prices to top $5 per gallon in California this summer. Many Americans are not prepared for sustained, unrelenting price inflation.

Here’s the hard, back of the napkin math they are facing…

Sour Grapes

…click on the above link to read the rest of the article…

Translating Yellen-Speak into Golden-Speak

June 15, 2021

Translating Yellen-Speak into Golden-Speak

Given the increasingly politicized interplay (cancer) of central bank policy and so-called free market price discovery, it’s becoming increasingly more important to track the actions of central bankers rather than just traditional market signals alone.

Like it or not, the Fed is the market.

Toward this end, we’ve had some substantive fun deciphering the past, current and future implications of “forward guidance” from our openly mis-guided crop of central bankers, most notably Greenspan, Bernanke and Powell.

But let’s not forget Janet Yellen.

As we see below, translating Yellen-speak into blunt speak tells us a heck of a lot about the future.

The Open and Obvious Debt Crisis

Back in 2018, Janet Yellen (former Fed Chairwoman and current Treasury Secretary, eh hmmm) along with Jason Furman (current Biden economic advisor) observed in a Washington Post Op-Ed that, “a U.S. debt crisis is coming, but don’t blame entitlements.”

As I like to say, “that’s rich.”

As in all things economic, the motives and thinking coming out of DC are largely political, which means they are self-serving, partisan and predominantly disastrous.

As for translating Yellen’s political-speak into honest English, the motives for this 2018 warning were two-fold: 1) Yellen and Furman were making a partisan attack on Trump’s then $1T budget proposal, and 2) Yellen actually believed what she said and that the US was indeed careening toward “a debt crisis.”

In fact, we were already in a debt crisis in 2018, a crisis which has simply risen to much higher orders of magnitude in the three short years since Yellen’s “warning” was made.

Stated otherwise, Yellen will get her debt crisis. It’s ticking right in front of her.

Tracking the Debt Trail

Ironically, the most obvious metrics of the current and ever-expanding debt crisis began just months after Yellen’s infamous Op-Ed.

…click on the above link to read the rest of the article…

Two Pins Threatening Multiple Asset Bubbles

June 2, 2021

Two Pins Threatening Multiple Asset Bubbles

“Powell Says Fed Policies “Absolutely” Don’t Add To Inequality” -Bloomberg May 2020

The headline above is but one of countless times Fed Chairman Powell and his colleagues confidently said their policies do not result in wealth or income inequality. Their political stature and use of complex economic lingo give weight to their opinions in the media. Nevertheless, a deep examination of the Fed’s practices and their consequences leaves us to think otherwise.

In our opinion, the Fed’s contribution to wealth inequality is significant and grossly misunderstood. We have written articles explaining why QE and low interest rates generally benefit the wealthy and harm the poor. This article backs up those prior arguments with quantitative muscle.

Timely for investors, we also draw some lines between wealth inequality and financial stability and their relationship to monetary policy. We think it is becoming increasingly possible wealth inequality, and in particular, the outsized effect inflation has on the poor, could be the needle to pop many asset bubbles. The other possible needle is the Fed’s wanting for financial stability.

**Due to the importance of monetary policy from economic, societal, and market perspectives we are breaking this article into two. We will share part two next week.

Background

More inflation and financial stability (rising asset prices) are two of the three core tenets backing monetary policy. A strong labor market is the third objective. We focus on inflation in this article and financial stability in part II.

In our article Two Percent for the One Percent, we explain why inflation is detrimental to the poor, while rising asset prices (financial stability) primarily benefit the wealthy. The following paragraphs from the article explain:

…click on the above link to read the rest of the article…

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

May 30, 2021

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

The majestic inflation overshoot has arrived.

The Fed’s favorite inflation measure, generally the lowest inflation measure the US government provides — tracking a lot lower than even the Consumer Price Index which already understates actual inflation — and therefore our lowest lowball inflation measure, and therefore the Fed’s favorite inflation measure, was released this morning, and it was a doozie, despite being the most understated inflation measure the US has so far come up with.

The Personal Consumption Expenditures Price index without food and energy, the “core PCE” index, jumped by 0.7% in April from March, after having jumped by 0.4% in March from February, according to the Bureau of Economic Analysis today. Those two months combine into an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of the past two months, then the annual inflation would be 6.4% as measured by the lowest lowball measure the US has.

This was the highest two-months annualized rate since 1985. And it shows to what extent inflation has suddenly heated up in March and April.

Over the past three months – so April, March, and February – the annualized increase of core PCE inflation was 4.9%, the highest since 1990.

The annualized PCE index eliminates the legitimate issue of the “Base Effect” that is now getting trotted out to brush off the inflation data (I discussed the Base Effect in early April to prepare for what would be coming).

The Base Effect applies only to year-over-year comparisons. In March last year, the core PCE price index dipped by 0.1% from February, and in April it dipped by 0.4% from March. So comparing today’s PCE index to that dip in April (the lower “base”) would include the Base Effect.

…click on the above link to read the rest of the article…

Fed Drains $485 Billion in Liquidity from Market via Reverse Repos, Undoing 4 Months of QE, Even as QE Continues, Total Assets Near $8 Trillion

May 28, 2021

Fed Drains $485 Billion in Liquidity from Market via Reverse Repos, Undoing 4 Months of QE, Even as QE Continues, Total Assets Near $8 Trillion

It’s a crazy situation the Fed backed into as tsunami of liquidity goes haywire, banking system strains under $4 trillion in reserves, and General Treasury Account gets drawn down.

This morning, the Fed sold a record $485 billion in Treasury securities via overnight “reverse repos” to 50 counterparties, beating the prior record set on December 31, 2015. These overnight reverse repos will mature and unwind tomorrow morning. Today, yesterday’s $450 billion in overnight reverse repos matured and unwound, and were more than replaced with this new batch of $485 billion in overnight reverse repos.

Reverse repos are liabilities on the Fed’s balance sheet. They’re the opposite of repos, which are assets. With these reverse repos, the Fed is selling Treasury securities to counterparties and is taking their cash, thereby massively draining liquidity from the market – the opposite effect of QE.

In past years of large reserves following QE, banks shed reserves via reverse repos, reducing reserves on the balance sheet and increasing their Treasury holdings, to dress up their balance sheet at the end of the quarter, and particularly at the end of the year. Reverse repos declined after the Fed started reducing its assets during Quantitative Tightening in 2018 and 2019. But the current record spike is taking place in the middle of the quarter, a sign that the enormous amount of liquidity is going haywire:

This is a crazy situation that the Fed backed into.

Even as liquidity is going haywire, and as the Fed trying to deal with it via reverse repos, the Fed is still buying about $120 billion per month in Treasury securities and mortgage-backed securities, thereby adding liquidity.

…click on the above link to read the rest of the article…

Systemic Risks Abound

May 28, 2021

Systemic Risks Abound

If you wanted to design a system guaranteed to collapse in a putrid heap, you’d make moral hazard ubiquitous and you’d make the system 100% dependent on a hubris-soaked faux savior.

For the past 22 years, every time the stock market whimpered, wheezed or whined, the Federal Reserve rushed to soothe the spoiled crybaby. There are two consequential results of the Fed as savior:

1. The Fed has perfected moral hazard: everyone from the money manager betting billions to the punters gambling their stimmy money is absolutely confident I can’t lose because the Fed will always push the market higher.

What happens when participants are confident they can’t possibly lose? They make ever-riskier and ever-larger bets. The entire nation is in the grip of a moral hazard mania, all based on the confidence that the Fed will always push every market higher–always, without fail.

2. Organic (i.e. non-manipulated) market forces have been extinguished. There is now only one consequential force, the Fed. All markets are now 100% dependent on the Fed responding to every bleat from every punter who’s recklessly risky bet is about to go bad.

The Fed is now the perfect union of quasi-religious savior and Helicopter Parent: oh dear, our little darling got high and crashed the Porsche? Quick, let’s save our precious market from any consequences!

Every day, Fed speakers take to the pulpit to spew another sermon about the Fed’s god-like power and wisdom. The true believers soak up every word: golly-gee, the Fed is better than any god–it’s guaranteeing I can get rich if I just leverage up any bet in any market!

…click on the above link to read the rest of the article…

Gold “Relatively Cheap” Compared to Other Assets: TD Securities Head

May 25, 2021

Gold “Relatively Cheap” Compared to Other Assets: TD Securities Head

Gold Price Relatively Cheap: TD Ameritrade

Image by istara

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Expert says gold is still at bargain price, how Basel 3 could boost gold and silver prices, and what’s next after gold’s breakout.

TD Securities: Gold is “relatively cheap” compared to what could come

On May 20^th, TD Securities’ head of global strategy Richard Kelly reviewed gold’s current price ($1887) compared to currencies in the current economic outlook. As Kelly noted, gold had quite a pullback from its $2,070 August high, falling to as low as $1,650 at certain points but mostly sticking to the $1,800 level.

Kelly believes this pullback might have frightened investors away from gold despite the metal’s tailwinds remaining in place:

Gold had a phenomenal run-up over the course of last year, and when that reversed, I think it scared a few investors off.

As he explains, the downwards pressure came along with a sudden rise in Treasury yields, one that seems to have caused investors to overlook the true state of the bond market. Optimism came quick as traders started believing that the Federal Reserve might start hiking interest rates as well as reining in its ultra-loose monetary policy in order to head off inflation.

Yet the Fed has consistently promised there’s no intention to start raising interest rates any time soon. Kelly himself believes that many of the top currencies, including the U.S. dollar as well as the euro, are showing undeserved strength (despite the dollar’s recent weakness). This is supported by the sheer scope of monetary supply expansion that has occurred over the past year.

…click on the above link to read the rest of the article…

Fed Drains $351 Billion in Liquidity from Market via Reverse Repos, as Banking System Creaks under Mountain of Reserves

May 23, 2021

Fed Drains $351 Billion in Liquidity from Market via Reverse Repos, as Banking System Creaks under Mountain of Reserves

This is the first time I’ve seen Wall Street banks clamor for the Fed to back off QE. The Fed is struggling to keep the liquidity it created from going haywire.

In the fall of 2019, when the repo market blew out, the Fed stepped in and bought Treasury securities and MBS and handed out cash via repurchase agreements. When these repos matured, the Fed got its money back, and the counterparties got their securities back. The Fed also did this during the market rout in March 2020. But by July 2020, the last repos matured and were unwound.

Now the Fed is doing the opposite, with “reverse repos.” Repos are assets on the Fed’s balance sheet. Reverse repos are liabilities. With these reverse repos, the Fed is now massively selling Treasury securities to counterparties and taking their cash, thereby draining liquidity from the market – the opposite effect of QE.

This morning, the Fed sold $351 billion in Treasury securities via overnight reverse repos to 48 counter parties, thereby blowing past the brief spike at the end of March 2020, and more than replacing yesterday’s $294 billion in Treasury securities that it has sold via reverse repos to 43 counterparties and that matured and unwound this morning.

These reverse repos are a sign that the banking system is struggling to deal with the liquidity that the Fed has been injecting via its QE. And that’s in part why there is now some clamoring on Wall Street for the Fed to taper its QE purchases because the banking system is now drowning in liquidity that banks have as reserves on their balance sheet. By buying Treasuries in the repo market, the banks lower their reserves and increase their Treasury holdings.

…click on the above link to read the rest of the article…

Surging Inflation Might Be the Rumblings of an Economic Tsunami

May 22, 2021

Surging Inflation Might Be the Rumblings of an Economic Tsunami

神奈川沖浪裏 or The Great Wave off Kanagawa, by Katsushika Hokusai, 1831

Inflation in the U.S. is on the rise, may have started heating up last year, and is now on the cusp of spiraling out of control.Gasoline prices pushing $5 per gallon are concerning bad, and will strain family budgets across the country following on the heels of the COVID-19 pandemic.

The 400% increase in lumber prices isn’t helping either, and as Business Insider reports: “Certain food items, household products, appliances, cars, and homes are all seeing prices surge” thanks to supply chain issues.

So the economic situation is already pretty dicey.

But what if the situation is much worse?

What if the Fed has played such a good “shell game” with inflation that something bigger is actually brewing?

Former Treasury Secretary Larry Summers is worried because of how fast inflation is heating up:

“I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers said in an interview with David Westin on Bloomberg Television’s “Wall Street Week.” “That has to make us nervous going forward.” [emphasis added]

And this fast-rising inflation still seems to be flying under the Fed’s radar. Robert Wenzel didn’t mince any words, calling Chairman Jerome Powell’s Federal Reserve “clueless.”

Based on Powell’s previous track record, Wenzel’s comment might be reasonable. That Powell seemed to be “ignoring” parts of the entire story behind inflation last year further supports Wenzel’s argument, and adds uncertainty.

Inflation surging and the Fed failing to even acknowledge it, let alone live up to their inflation-control mandate? This is a recipe for a frightening situation. Bloomberg spotlighted one fact that raises at least one serious question:

…click on the above link to read the rest of the article…

Peter Schiff and Tucker Carlson: The Financial Crisis Will Be Worse Than the Pandemic

May 19, 2021

Peter Schiff and Tucker Carlson: The Financial Crisis Will Be Worse Than the Pandemic

Consumer Price Index (CPI) data for April came in much hotter than expected. Year-on-year, inflation is up 4.2%. The big number even prompted Federal Reserve Vice Chairman Richard Clarida to say, “We were surprised by higher than expected inflation data.”

Peter Schiff appeared on Tucker Carlson’s show to talk about the consequences of more printed money chasing fewer goods. Peter said inflation is going to hit the middle class harder than the pandemic.

Peter said this hot CPI print is a cause for concern and ultimately it is a tax.

It is the inflation tax. And if you look at how much the cost of living went up, measured by the CPI in the first four months of this year, it’s 2%. So, if you triple that to annualized it, we have consumer prices rising at 6% annually. But if you look at the monthly numbers, every month it accelerates. So, if you extrapolate the trend of the first four months of this year for the entire year, you’re going to get a 20% increase in consumer prices in 2021.”

VIDEO

Tucker asked a poignant question. If the value of the US dollar is falling as quickly as the CPI suggests, why would any country want to invest in US bonds? Doesn’t this threaten to cause a shake-up?

Peter said they won’t want to invest. They’ll be selling US Treasuries.

Anybody that can connect these dots is going to be selling US Treasuries. And the problem is there’s a lot of US Treasuries to be sold.”

Peter noted that a lot of people are talking about a shortage of goods.

…click on the above link to read the rest of the article…

“Heads, Gold Wins; Tails, Gold Doesn’t Lose” – Jim Rickards

May 19, 2021

“Heads, Gold Wins; Tails, Gold Doesn’t Lose” – Jim Rickards

A set of gold and silver chess pieces. Credit Luis Muzquiz

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: How gold could soon break out, U.K.’s Royal Mint experiences peak bullion demand, and why silver can go up much higher.

Heads, Gold Wins; Tails, Gold Doesn’t Lose

As The Daily Reckoning contributor Jim Rickards notes on Zero Hedge, the worst-case scenario for gold appears to be running its course. It’s often stated that the stock market is gold’s primary competitor, but the inverse correlation between the markets has been absent for some years. Instead, bonds position themselves as gold’s archnemesis as investors look at the two and ask themselves: which is the better safe haven?

When the $900 billion December bailout was followed by a $1.9 trillion one and promises of $3 trillion more to be printed, investors were quick to expect inflation, and with good reason. Taking a look at the two safe-havens, Rickards hypothesizes they believed Treasuries were preferable with rates climbing off the floor of 0.508% in August 2020, and bought bonds instead of zero-yield gold.

To Rickards, this is what caused gold to remain rangebound over the past few quarters, (though it’s a pretty good range). The problem is that investors were too hasty in their inflation expectations, while placing too much faith in government bonds.

Rickards believes 10-year Treasury yields peaked at 1.74% on March 31 and are unlikely to spring back up. That view isn’t difficult to corroborate given the dire straits of the global bond market.

…click on the above link to read the rest of the article…

The Secret

May 17, 2021

The Secret

The secret is out. It can no longer be denied and it’s up to each and everyone of us to help bring the secret to the forefront of public awareness.

For the mainstream financial media won’t do it, indeed they allow the guardians of the secret to continue to deny its existence.

For years those of us who have been critical as to the negative consequences of easy money policies, QE in particular, were dismissed and mocked as “QE conspiracists” and even as “swashbuckling pirates of free market capitalism” by central bankers directly including yours truly:

It’s easier to mock and ignore with a Tweet and then go into hiding versus engaging in substantive debate.

But the lid just got blown off the false narratives that have been propagated by central bankers from Powell on down with his now infamous claim that “Fed policies absolutely don’t add to inequality“.

Of course QE adds to inequality. Even the Bank of Canada just sheepishly admitted it:

But the real hammer just dropped by one of the most successful investors ever, billionaire Stan Druckenmiller. Not only does QE add to inequality it is the main driver:

“I don’t think there has been a greater engine of inequality than the Federal Reserve Bank of the United States”.

Watch this clip for it lays bare not only the brutal reality of how the Fed has reshaped the country for the benefit of the rich, but also who will pay for the consequences:

The data Druckenmiller is referring to is as obvious as the light of day:

…click on the above link to read the rest of the article…

Karl Marx’s Road to Hell is Paved with Fake Money

May 15, 2021

Karl Marx’s Road to Hell is Paved with Fake Money

“The way to Hell is paved with good intentions,” remarked Karl Marx in Das Kapital.

The devious fellow was bemoaning evil capitalists for having the gall to use their own money for the express purpose of making more money.

Marx, a rambling busybody, was habitually wrong. The road to hell is paved with something much more than good intentions. Grift, graft, larceny, corruption and fake money are what primarily composes the pavement. Good intentions are merely dusted in to better the aesthetic.

If you want to understand what’s going on with exploding price inflation then you must understand this…

Right now in the United States we have a scam currency that’s controlled by central planners. Specifically, we have what Marx envisioned in Plank No. 5 of his Communist Manifesto:

“No. 5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”

The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed a ‘national bank’ and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States.

Without the Fed’s policies of mass credit creation the U.S. government could have never run up a national debt over $28 trillion. Without the Fed’s policies of extreme credit market intervention the U.S. trade deficit for March of $74.4 billion – a new record – would have never been possible. Without the Fed’s printing press money the U.S. government could have never run annual budget deficits over $3 trillion.

The fact is centralized credit in the hands of a central bank always leads to money supply inflation. Asset price inflation and consumer price inflation then follow in strange and unpredictable ways.

…click on the above link to read the rest of the article…

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