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Contrarian Alert: “Is Inflation Dead?” Makes The Cover Of Businessweek
Contrarian Alert: “Is Inflation Dead?” Makes The Cover Of Businessweek
In the financial world, those who subscribe to the contrarian school of thought (including myself) keep an eye out for certain cues or indications that a trend has become overcrowded and is nearing its end. Some examples of these contrarian indicators are investor sentiment indexes, fear gauges such as the CBOE Volatility Index or VIX, the construction of record-breaking skyscrapers, and also the topics that are chosen for finance and business magazine covers. The last example is called the Magazine Cover Indicator and the logic behind it is that, by the time a trend has gained enough momentum or attention to justify its own cover story, it is about to become passé. In an infamous example, Businessweek published the cover story “The Death Of Equities” on August 13, 1979, right before the secular bull market began.
Bloomberg Businessweek’s latest cover story is called “Is Inflation Dead?,” which should make contrarians question whether the actual risk is higher inflation (or hidden inflation, as I will explain).
Here are the first few paragraphs from this piece –
If economics were literature, the story of what happened to inflation would be a gripping whodunit. Did inflation perish of natural causes—a weak economy, for instance? Was it killed by central banks, with high interest rates the murder weapon? Or is it not dead at all but just lurking, soon to return with a vengeance?
Like any good murder mystery, this one has a twist. What if the apparent defeat of inflation blew back on the central bankers themselves by making them appear expendable? Far from being lauded for a job well done, they’re under populist attack.
…click on the above link to read the rest of the article…
Janet Yellen Suggests Strengthening The ‘Fed Put’
Janet Yellen Suggests Strengthening The ‘Fed Put’
In a speech in Hong Kong this week, former Fed chair Janet Yellen stated that “global central banks don’t have adequate crisis tools.” According to that logic, she believes that launching additional multi-trillion dollar rounds of quantitative easing and cutting interest rates into negative territory – two aggressive and controversial monetary tools that are currently available – are simply not enough. Yellen’s comments this week echo comments that she made in September 2016 when she was still Fed chair:
The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday.
Speaking via video conference with bankers in Kansas City, Yellen said the issue was not a pressing one right now and pointed out the U.S. central bank is currently barred by law from buying corporate assets.
But the Fed’s current toolkit might be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.”
“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” she said, adding that buying equities and corporate bonds could have costs and benefits.
If the Federal Reserve is ever allowed to buy stocks and corporate bonds, it will create an extremely dangerous situation in which investors, speculators, and business leaders will feel that they can take virtually unlimited risk and will still be backed by the Fed. This phenomenon is known as a moral hazard or the Fed Put.
…click on the above link to read the rest of the article…
