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Digg
Facts. They’re so inconvenient.
Especially for those out there who have been screaming that U.S. was on the verge of a Weimar Republic/Zimbabwe style hyper inflation due to the unconventional approaches — money printing, basically — that the Fed engaged in to try to jolt the economy back to life after the financial crisis.
To wit, look at the 10-year yield, below 3.00% Tuesday morning. Proof positive that inflation is not even near being a worry for the markets at the moment. (Inflation is the main enemy of bond investors as it eats into their return over time.)
This is the main take away from our chat Tuesday morning with Ian Shepherdson, chief U.S. economist at High Frequency Economics. Of all the economists polled in April’s Wall Street Journal forecasting survey, Shepherdson was the most right about where Treasury yields would go. His target for June was 3.25%, the lowest among the econowonks The Journal polled. By December 2010 he has it at 2.50%.
Shepherdson acknowledges that the European debt crisis — which he didn’t predict — helped push investors towards Treasurys. But the larger issue is the fact that inflation has really collapsed over the last few months. For instance in January core CPI was 1.48% from the prior year. By May core CPI was at 0.97. “It’s more about the inflation story,” he told MarketBeat in a quick chat Tuesday morning, explaining why Treasury prices have continued to grind higher and yields lower. “I don’t think that market fully appreciated that inflation would undershoot expectations.”
Months back, Shepherdson remembers getting emails from those worried about extreme inflation scenarios that recalled the worst of the Weimar Republic, when you’d need a wheel barrow of Deutsche Marks to buy a loaf of bread. “It all was nonsense and it was very fashionable view,” Shepherdson said, adding “they were completely wrong.”
Interestingly, the emails he receives now have a distinctly different tenor, in which people worry about a complete collapse of economic growth. “Expectations have swung too far in the other direction now,” Shepherdson said, adding that he expects slow growth, but not a double dip recession.
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Do you know how ‘inflation’ is computed ? Look up the details first. If ‘Oranges’ become so expensive that no one buys oranges, then it is taken off the list, and inflation actually goes ‘down’!! These silly rules were concocted by some old woman in the Bureau of Labor Statistics, and the government does not change them because they are so convenient. Gasoline, Housing, Education, Food…. are all excluded. Inflation, in the USA, is a measure of how expensive Cars or MP3 Players are. And since these keep adding new features, according the Bureau of Labor, their prices keep going down…. although you pay the same or more.
True inflation is measured by the quality of life of the people. People eat more junk food these days (because fresh fruits and veggies are more expensive0, drive longer hours paying more for gas, and have less medical coverage (also not covered in inflation) or less education.
So, unless you live off of MP3 Players, true inflation is far higher than that reported by the Government of the United States.
So you take one economists’ analysis. Now because he was correct in estimating Treasury Yields you assume he is some guru that can predict the future. Suppose you polled 50 economists… im sure one or a few would be correct just based on probabilities.
Read Nassim Taleb’s material… Fooled by Randomness or The Black Swan. Maybe then you will understand your fallacy.
Additionally, to describe something so complex with just two variables is ridiculous.
It ain’t over till it’s over. And it ain’t over, yet.
Comment monger.
“After having tried for years to support and maintain these notes, the people had no longer any confidence in them, and were positively afraid of them. The payment for government purchases was made in paper. The fund of the salt manufacturers consisted of paper. The salaries of all the officials were paid in paper. The soldiers received their pay in paper…So it was natural that the price of commodities rose, while the value of the paper money fell more and more. This caused the people, already disheartened, to lose all energy. The soldiers were continually anxious lest they should not get enough to eat…All this was the result of the depreciation of paper money.” -Ma Duanlin Chinese historian and encyclopaedist (348 vols.!) 1245-1322
The Chinese abandoned paper money in 1455. I guess it’s all in the timing.
You are jumping on the “inflation scare mongers” a little early. The inflation hawks I read predict continued economic contraction or at least very slow growth first, resulting in decreased government revenues (among other effects), which then results in more stimulus and printing of fiat currency which then will result in even more inflation than is already in the pipeline. The continued economic downturn is happening now, the inflation comes later unless someone has the poitical will to raise taxes and interest rates and stop the overspending in time to stop it. It’s OK not to believe the inflation hawks but don’t misrepresent what the thoughtful ones are predicting, they may be right. By the way there is still plenty of time for you to invest in the dollar if you really believe they are wrong but this may be the last time to get a good deal on gold and silver if they are right. Good luck, either way it is going to be a rocky ride.
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