Wednesday, May 2nd, 2012
April 27, 2012
- Despite an earnings season that has been much better than expected so far, investors appear to be again focusing on more macro concerns. Europe and China are dominant concerns but US growth sustainability is also being questioned. We remain optimistic on the ultimate direction of the stock market.
- The Fed meeting provided no changes but did show a slightly more hawkish tilt in their economic forecasts. Meanwhile, the US government continues to play a dangerous game of chicken as election season is already in high gear and the so-called “fiscal cliff” looms.
- Confidence is again waning regarding the ability of Europe to make the reforms needed to solve its debt crises, many of which we believe are structural in nature. But despite fears of a hard landing in China, growth continues and stocks have outperformed.
After an extended, and almost unprecedented period of relative calm, resulting in robust stock market gains from October 2011 through March 2012, we have seen some volatility return. Concerns over global growth have reemerged as Chinese economic data has disappointed, the European debt crisis again is gaining headlines as the merits of austerity are being questioned, and US economic data has been less impressive.
Volatility has picked up
Source: FactSet, Chicago Board of Trade. As of Apr. 24, 2012.
One potential benefit of this rise in consternation has been the long-awaited correction in stocks that many had been calling for. In fact, we have been comforted by numerous investor sentiment readings now showing elevated bearishness (remember that investor sentiment is a contrary indicator). The American Association of Individual Investors’ (AAII) bull ratio recently moved decidedly below the 50% mark for the first time in 2012. The percentage of respondents saying they are bearish has moved from just under 28% to nearly 42% between April 4 and April 11; and the percentage of bulls dropped to 28% from over 38% over the same time period. We believe this change in sentiment was needed in order for the market to reestablish a sustainable uptrend going forward.
The recent mild increase in volatility again reminds us that it’s important to maintain a long-term focus and to maintain a diversified portfolio. It’s vital that investors review their portfolio holdings on a regular basis, while also looking at how correlations among asset classes change over time. A well-diversified portfolio in one year may not be nearly so two years later, even if the positions are roughly the same—the interaction between asset classes changes over time. One final note on portfolio construction: The drumbeat of bearish bond commentary has grown over the past month as yields remain near record lows. While we again remind investors that investing in bonds for speculative or capital appreciation purposes has become more risky; it is also true that for diversification, income, and capital preservation purposes, bonds will still have a valuable place in many portfolios. Again, balance is the key.
Macro concerns again trumping micro story
Investors’ attention is again focused on the macro rather than the micro over the past couple of weeks—the height of first quarter earnings season. The reporting period has been much better than expected, although admittedly from a lower bar—83% of companies have beaten expectations so far, which is an all-time record high. But market reactions to good reports have been more muted relative to the punishments doled out to those that disappointed. It appears Chinese developments, European debt and growth concerns, and some softening in US economic data has led to increased volatility.
In the United States, the economic expansion continues, but we may be in yet another soft spot. This isn’t surprising given the likely pulling forward of some economic activity that was influenced by the unusually warm weather during the winter months. We believe this is a relatively modest and temporary phenomenon and that activity will again pick up in the coming months. Concern has grown that 2012 will be a repeat of the previous two years when the market declined beginning in April on softening economic data after decent starts to the year. We believe the story is different this time as jobs, lending and housing have improved and inflation has eased, allowing global central banks to keep policy loose; leading to our view that history won’t repeat this year.
Recently, we’ve seen regional manufacturing surveys disappoint, although remaining in territory depicting growth. The Empire Manufacturing Index fell from 20.2 to 6.6 and the Philly Fed Index dropped to 8.5 from 12.5. Encouragingly, the employment expectation component of Philly Fed jumped six points to its highest level in a year, while March retail sales increased 0.8%, above estimates, indicating that the American consumer remains engaged. Commodity costs have also leveled off recently, which should help to bolster discretionary income.
Lower commodity prices should help consumers
Source: FactSet, Standard & Poor’s. As of Apr. 24, 2012.
Despite this still-positive picture, recent job and housing data has weakened a touch. The March payroll report disappointed despite the unemployment rate dropping and recent initial jobless claims have crept a bit higher. We remain relatively unconcerned given that seasonal adjustments around the Easter holiday can be difficult and the level still remains well below the key 400,000 number. Jobs are a vital cog in the economy and we believe that increasing retail demand and a declining ability of companies to squeeze additional productivity out of existing workers should allow for continued improvement on the labor front.
Tags: Austerity, BRICs, Charles Schwab, Chicago Board Of Trade, Chief Investment Strategist, Dangerous Game, Debt Crisis, Earnings Season, Economic Data, Economic Forecasts, Election Season, Fed Meeting, Global Growth, Investor Sentiment, Liz Ann, Relative Calm, Roller Coaster, Sector Analysis, Senior Vice President, Stock Market Gains, Unprecedented Period
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Thursday, January 26th, 2012
By Scott Ronald, Steadyhand Investment Funds
I’ve read a few interesting books lately on some of the top technology visionaries of our time. They include Paul Allen (Microsoft), Larry Page & Sergey Brin (Google) and Steve Jobs (Apple). The books were all good reads (Idea Man, In the Plex, and Steve Jobs), although the Microsoft and Google tomes are a little too technical at times for those like me who know little about programming.
One thing jumped out at me about all of these trailblazers – they are/were extremely passionate about what they do. They’re geeks. They have an eccentric devotion to programming/creating/designing and are so engaged in their trade that nothing else matters to them. They don’t let traditional barriers get in their way, aren’t afraid of failure, and don’t compromise on what they believe in. Along the way, they’ve built some exceptionally cool stuff and changed the way we work and play. And there’s only more to come.
Google and Apple have been successful at developing software and products that are hugely complex at the back-end, yet simple and intuitive for the end user. This is a tremendous accomplishment. It’s something the wealth management industry should try to emulate every day.
Investing has its complexities at the back-end. Financial analysis is akin to the engineering that goes behind search algorithms or touch screen interfaces. Unlike Google and Apple, however, the industry does a poor job of making the user experience simple and efficient. There is no shortage of resources at the back-end (equity analysts, portfolio managers, etc.), but few firms put much thought or effort into making the customer experience simple and understandable.
Investing remains a complex activity to many people because the industry wants it to be perceived that way. It shouldn’t be. Investors don’t need hundreds of choices, undecipherable reporting and non-stop economic forecasts. They need a few sensible fund options, a clear investment approach, and plain-English reporting.
Allen, Page, Brin and Jobs threw out the old blueprint. They brought innovative thinking, fearlessness, simplicity, and a focus on the user experience to the table, with a touch of craziness. We could all use a little more geek in us.
Copyright © Steadyhand Investment Funds
Tags: Developing Software, Economic Forecasts, Equity Analysts, Fund Options, Google, Interesting Books, Larry Page, Paul Allen, Poor Job, Portfolio Managers, Screen Interfaces, Search Algorithms, Sergey Brin, Steadyhand, Steve Jobs, Steve Jobs Apple, Technology Visionaries, Top Technology, Traditional Barriers, Wealth Management Industry
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Monday, March 28th, 2011
by John P. Hussman, Ph.D., Hussman Funds
Last week’s stock market advance placed prevailing conditions firmly back to an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile for stocks, on average. Our investment stance considers not only these factors, but also reflects the (present) accommodative stance of monetary policy, as well as a broad range of measures such as market internals, credit spreads, and economic statistics. I’ve noted before that as rules of thumb go, “the trend is your friend” historically performs better, with much smaller drawdowns, than “don’t fight the Fed” (regardless of how that rule is defined operationally). While the market tends to perform better when both are true, the exception is the overvalued, overbought, overbullish, rising-yields syndrome, which is uniformly negative regardless of the random subset of historical data one examines. There is certainly a tendency for “unpleasant skew” featuring a persistent series of marginal new highs for some period of time, but on average, those are ultimately overwhelmed by steep and abrupt losses that finally clear this syndrome.
It’s important to recognize that our present investment stance reflects these observable conditions, and is not driven by our views about the underlying state of mortgage debt, fiscal challenges, economic forecasts, expectations of credit strains, or any view about the appropriateness of Fed intervention. We do try to look ahead to some of the risks that may emerge in the quarters ahead, but our investment stance is not driven by this analysis. If we can clear some component of the observable, hostile syndrome of market conditions – probably either the overbought or overbullish feature – without a substantial breakdown in market internals (which would take us “out of the frying pan and into the fire”), we expect to quickly establish a moderately constructive investment stance. Our concerns regarding larger economic risks can be sufficiently expressed by holding a continued line of index put options to defend against any unanticipated continuation, but again, barring a breakdown of market internals (which would suggest a larger and possibly more durable shift toward investor risk aversion), I expect that clearing the present, hostile syndrome will be sufficient to accept a greater exposure to market fluctuations.
Our longer-term analysis remains that the S&P 500 is priced to achieve poor 10-year total returns, but that in itself doesn’t resolve into the requirement to carry a persistently defensive position over the short- and intermediate-term. Even if the market remains overvalued and economic risks persist for a long time, we do expect that the “ensemble” solution to the “two data sets” problem we struggled with in recent years will result in more frequent periods of moderate investment exposure than we observed during that period. Still, our dominant investment horizon remains the full market cycle, so our usual “anti-marketing” applies – the Hussman Funds are not appropriate for investors who have a strong desire to track market fluctuations or whose investment horizon is shorter than a full bull-bear cycle. That said, even for investors who prefer to track the market up and down to a reasonable degree, it is worth emphasizing that combining a long-only approach with less correlated approaches that still compete well over the full cycle can significantly improve the return/risk profile of the portfolio over time.
QE2 – Apres Moi, le Deluge
Last week, a number of Fed officials came out in tandem with essentially the same message – the Fed’s policy of quantitative easing is likely to end with QE2. It’s important to think carefully about the implications of this for the markets. My impression is that investors are still in something of a “momentum” mentality both with respect to the market and the overall economy, and it’s not clear that they’ve pieced out the extent to which this has been reliant on various stimulus measures that are now drawing to a close.
It is clear that the effect of QE2 has not been to lower interest rates, or to materially expand credit. Rather, QE2 has been built on two blunt forces. The first is that increasing the stock of non-interest bearing money in the economy toward $2.4 trillion, all of which has to be held by somebody, the Fed has created a market environment that has raised the prices and lowered the returns on all competing assets in order to accommodate that equilibrium. As asset prices are bid up, their expected future returns fall, and the process stops at the point where on a risk-adjusted basis, no asset is expected to achieve returns that compete meaningfully with cash (at least over some horizon of say, a year or two). The second force has been purely rhetorical. The opening salvo in QE2 was Bernanke’s public endorsement of risk-taking in the Washington Post. Strikingly, he has seemed to eagerly take credit for the speculation in the stock market, particularly in small cap stocks, while denying any culpability for the commodity hoarding and dollar weakness that predictably results from driving real short-term interest rates to negative levels.
Tags: Appropriateness, Apres Moi Le Deluge, Canadian Market, China, Credit Spreads, Economic Forecasts, Economic Statistics, Fiscal Challenges, Frying Pan, Gold, Hussman Funds, Market Advance, Market Internals, Moi Le Deluge, Monetary Policy, Mortgage Debt, New Highs, Period Of Time, Random Subset, Rules Of Thumb, Skew, Stock Market, Strains
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Monday, February 28th, 2011
This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.
Risk analysis firm Maplecroft just released its new fiscal risk index ranking of 163 countries. Europe trumps all other regions with 11 out of twelve countries rated as “extreme risk.” However, quite surprisingly, only one PIIGS country–Italy which takes the top spot–is in the top 12.
The others include many big economies in Europe – Belgium (2), France (3), Sweden (4), Germany (5), Hungary (6), Denmark (7), Austria (8), United Kingdom (10), Finland (11) and Greece (12). Japan at No. 9 is the only other country not in Europe within the highest risk category (See map below).
While high national debt and public spending are two common denominators, the study finds it is the aging demographics that puts these countries at extreme fiscal risk. An aging population will place increasing pressure on public expenditure such as pension and health care, while a shrinking working-age population means less productivity and less tax revenues to support public spending and debt payments.
High Dependency Ratio
Aging population also means high dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages. For example, according to Maplecroft, the dependency ratio in France is 1 to 47 (i.e. 47%), Germany at 59%, Italy with 62%, and Japan at the very top with 74%, while the ratio in UK is currently 25%, and is forecast to rise to 38% by 2050.
Low Senior Labor Participation Rate
Another problem within Europe is that it has a low labor participation rate in the 65+ age bracket. In fact, the labor market participation of age 65+ amongst the ‘extreme risk’ nations range from 1.4% in France, 7.71% in UK, to 11.7% in Sweden, vs. a 28% average across all countries ranked in the index.
Maplecroft cited pensions and discrimination as two examples that would push people away from the work force.
U.S. – High Fiscal Risk
Although the United States is not ranked among the “extreme fiscal risk,” the nation is nevertheless classified as “high risk”, along with Spain, another PIIGS country, Turkey, Iraq, Australia, Canada and Russia.
Let’s take a look at the two metrics mentioned here.
The dependency ratio in the U.S. is 22 in 2010, but is projected to climb rapidly to 35 in 2030, according to the U.S. Census Bureau, mainly due to baby boomers moving up into the 65+ age bracket. The ratio then will rise more slowly to 37 in 2050.
The labor participation for age 65 and over in the U.S. is at 17.5 according to data at Bureau of Labor Statistics (BLS). This is better than most of the European countries, but below the overall average of 28%.
U.S. in Wave 2
Most people typically associate a country’s fiscal risk to its government’s monetary and fiscal policies, and Lehman Brothers has taught us that banking and housing crisis could push the entire world into the Great Recession.
While these are all definite risk factors, a highly productive labor force and relatively young population makeup tend to ensure more sustainable prosperity and better odds at climbing out of a hole.
The Maplecroft study concludes:
“…in high risk countries, it is increasingly likely that the private sector will be called upon to contribute in the form of pensions and private health care…. Without significant adjustments, such as raising taxes or reducing spending, countries risk going bankrupt.”
So, while Europe is being forced to do all that amid sovereign debt crisis in the middle of widespread protests over raised pension age and austerity measures, the U.S. and other “high fiscal risk” countries seem be set up as the wave 2 of this global fiscal chain of events.
Source: Dian Chu, Economic Forecasts and Opinions, February 25 2011.
Tags: Age Bracket, Age Population, Aging Population, Canadian Market, Common Denominators, Debt Payments, Dependency Ratio, Dian, Economic Forecasts, Europe Belgium, Extreme Risk, France 3, Labor Market Participation, Labor Participation Rate, Market Analyst, National Debt, Public Expenditure, Public Spending, Risk Analysis, Risk Category, Risk Index, Russia
Posted in Canadian Market, Markets | 2 Comments »
Tuesday, January 25th, 2011
This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.
The Euro closed up Friday`s session at 136.13, and looks poised to make a run up to test the 140 level in February. I, among many, was thinking the Euro would next test the 125 level, and things started heading well in that direction with the Euro moving down to 129, and appearing on a downward slope.
So what happened? Well, there have been quite a few new developments that prompted this reversal of the euro fortune.
PIIGS Bond Sale Surprise
First, Portugal and Spain had those long anticipated bond auctions, and they went well with a healthy dose of participation, and at lower than anticipated rates priced into the auctions. In other words, the bond vigilantes bid up expectations for a catastrophic auction, and the buyers stepped in and said thank you very much for these fabulous terms.
Furthermore, China and Japan had both publicly stated that they would be buyers of these risky European Country Bonds. So any shorts expecting a European collapse because of these much anticipated bond auctions failing miserably had to cover fast when the opposite occurred.
A Hawkish ECB
The second major turning point was Trichet who made some hawkish comments regarding inflation at his press conference after the ECB`s rate decision. That really caught a bunch of shorts off guard, and sent the Euro up 2 full points in one day.
This really illustrated the difference between ECB and the U.S. Fed–ECB`s sole mandate being to ward off inflationary pressures, versus the FED`s dual mandates of monetary policy being governed by unemployment levels and inflation concerns.
… And A Dovish Fed
As such, the Fed will be able to begin raising the Fed Funds Rate in 2011 as the unemployment rate most likely will not be under 8%, which is the starting point for even considering rate hike according to Bernanke`s remarks on the subject.
If you listen to all the language coming out of the Fed minutes, they have always stated that rates are going to be left extraordinarily low for an extended period of time. This type of phrasing has left many analysts with the opinion that the unemployment level would have to get somewhere near the 6.5% levels before Bernanke would even consider raising rates.
With a major election coming up in 2012, the focus of the Obama administration and everybody else trying to get re-elected will be lowering the unemployment rate at all costs, even if we have to stomach a little inflation along the way.
So, about as hawkish as the Fed will be in 2011 towards inflation concerns is not initiating a QE3 campaign. So it is quite logical that between the two central banks, ECB will most likely be the first to raise rates, and by far the more hawkish when it comes to monetary policy over the next two years.
Hot Money Flowing To Europe
The third major driver behind the resurgence of the Euro is an investment sea change by fund managers at the beginning of the year. In other words, where are the capital flows going in 2011?
After emerging markets had stellar returns in 2010 with the likes of Singapore and South Korea, it appears that the fund managers are moving some of their money into Europe with the belief that because of the over-hyped debt concerns of 2010, that European assets are currently undervalued and at a discount to emerging market assets.
Hot money coming into Europe is extremely bullish for the Euro.
Germany’s Really Kicking
The fourth factor affecting investor sentiment regarding the Euro are the strong economic reports coming out of Europe. At the forefront is Germany which is really firing on all cylinders, and looks strong enough to more than offset any budgetary shortfalls of the PIIGS, which actually make up a small percentage of the combined European GDP output.
Spain Cleaning The Banking House
The fifth reason the Euro bulls can point to is last week`s news that the Spanish government is shoring up some of the weakest banks with capital infusions which alleviates some of the concerns regarding Spain`s potential to be the next bond vigilante target.
This is the type of proactive governmental response that was lacking in 2010, which was always behind the curve, and only pushed into action by market forces. The fact that European leaders are learning their lesson and trying to get ahead of the bond vigilantes in 2011, which manifests itself in lower financing rates, is very encouraging and bullish for the Euro as well.
Euro United Bonds We Stand
Finally, there is the news that Germany is finally on board for supporting a unified European Bond, which would provide continuity, stability, and lower financing costs for the union as a whole (See Graph). Financial Times reported that a multi-billion-euro bond was launched in early January to raise money for the Ireland bailout. The triple-A rated bonds are expected to price at yields of about 2.5%, about 70 bps over German Bunds and well below those of Italian and Spanish debt. Asian and Middle Eastern investors could buy about 30% of the paper.
So, it appears that a common eurozone bond will finally occur sometime in the next few months, probably by March of 2011 at the latest, as the final terms are being worked out and negotiated behind the scenes, as well as the financing benefits that this accord will bring to the European Union.
Regain the Reserve Currency Status
More importantly will be the psychological benefits achieved that are supportive of the original concept for creating the European Union in the first place –as a conceptual structure with sound cohesive benefits realized and shared by all members of the common currency.
This notion was seriously questioned by many pundits and analysts alike during the height of the 2010 debt crisis. Many believe the entire notion of the European Union was flawed because they could never act as a cohesive body, and implement structural reform measures to address individual weaker member countries financing needs.
This euro bond solution appears to be meeting this criticism head on, and will go a long way in reinstating the Euro as the second reserve currency. This bullish is very bullish for the Euro, and will ultimately push it well beyond the 140 level once this confidence in the Euro is solidified and sustained for a period of time.
This is why we are experiencing a trade out of gold in terms of the Euro, as investors who were worried that the Euro was going to collapse went into Gold as a safe haven trade. This trade reversal is also bullish for the Euro, and has really only begun.
Stronger Euro = Weaker Dollar
If the Euro is going to get stronger…guess what?…the Dollar is going to get weaker. So you can expect more investors and hedgers to pile into the Euro. And this fact should further reinforce the idea originated in 2007 that the Euro was a strong second reserve currency to the Dollar, and even had many in the middle east clamoring for transactions to be conducted in Euro as opposed to the depreciating US Dollar.
From Parity To 160 in Six Months?
Expect these same sentiments to reappear as the Euro gains strength against the US Dollar over the next two years. Moreover, as the US starts to address some of its own debt issues, which the European Union finally faced up to in 2010, the 160 level is not that far fetched.
In fact, the 160 may come much sooner than was ever envisioned back in the summer of 2010 when all the experts were calling anything from complete dissolution of the currency, to parity, or at best the 115 level to the US Dollar. (See Technical Chart)
It is amazing how financial perspectives can change in as little as six months in the investment marketplace. Nonetheless, here are some ETF ideas for individual investors to go with the new euro trend – WisdomTree Dreyfus Euro (EU), CurrencyShares Euro Trust (FXE), Market Vectors Double Long Euro ETN (URR), Ultra Euro ProShares (ULE).
Source: Dian Chu, Economic Forecasts and Opinions, January 24, 2011
Tags: Bernanke, Bond Auctions, Collapse, Country Bonds, Currency, Dian, Dovish, Downward Slope, ECB, Economic Forecasts, Emerging Markets, ETF, Fed Funds Rate, Gold, Inflation Concerns, Inflationary Pressures, Major Turning Point, Market Analyst, New Developments, Rate Hike, Reversal Of Fortune, Trichet, Unemployment Levels, Unemployment Rate
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Friday, January 14th, 2011
This post is a guest contribution by Dian Chu, market analyst, trader and author of the Economic Forecasts and Opinions blog.
Ever since the Great Recession, inflation has been put on the back burner, and deflation is seen as the greatest risk to the U.S. economy. Even as recent as Friday, Jan 7, Federal Reserve Chairman Bernanke told the Senate Budget Committee that low inflation/deflation was a concern, as well as unemployment (more on the jobs situation here.)
Deflation Concern Lead To QE2
In fact, Bernanke said the continuing high unemployment and low inflation had prompted the Fed’s decision to purchase another $600 billion of U.S. government debt (QE2) to further stimulate the economy.
So far, the two inflation measures—Consumer Price Index (CPI) and Producer Price Index (PPI)—have not proven him wrong yet, as both indexes have been subdued in recent months.
Well, expect this nice peaceful trend to change as early as the December CPI and PPI releases this week.
Pent-up Inflation Pressure Up The Supply Chain
During the past decade, Finished Goods PPI has risen roughly 35% while the CPI was up about 30%, which seems to suggest producers typically pass through most of the cost increases to the end market.
And news such as the following could only mean that there’s pent-up inflation pressure up the supply chain just waiting to be passed through:
Commodity prices jumped to two-year high on expectations for global economic growth and lower U.S. forecasts for agricultural inventories.
The Food Price Index (See Charts Below) compiled by the U.N. Food and Agriculture Organization (FAO) surged 25% in 2010 and hit an all time high in December, at the level even worse than the food crisis in 2008. FAO acknowledged that this is unlikely the peak yet.
And if you think the 25% spike in food prices seems extreme, wait till you check out the Non-Food Agriculture (NFA) prices. The chart below from The Economist shows that the NFA prices were up almost 80% in 2010! NFAs are agricultural materials with heavy industrial applications such as cotton and rubber.
Fixed-Price Terms Gone For Good
Now, many (including Bernanke) posit that since raw materials now account for a smaller percentage of input costs, the record commodity price inflation will not necessary translate into price increases in end markets.
However, I believe that argument was valid in the pre-China era when commodity prices were relatively predictable, easier to hedge, labor costs were low in the developing countries where most of the manufacturing activity took place, and fixed-price and/or fixed-escalation clauses were the norm in contract terms.
Commodities Weigh on Cost Structure
With record surging commodity prices, raw materials are becoming a bigger component of company’s cost structure. Many goods and services producers are now starting to index their supply contracts to input materials to adapt to this New World Order of Commodity.
For example, the latest such movement involved rare earth metals, which are key materials in Fluid Cracking Catalysts (FCC) used in the refining process to produce gasoline.
WSJ reported that due to the skyrocketing rare earth metals prices, chemical companies have started indexing the cost of their catalysts to rare-earth price movements. WSJ further noted that the added costs from rare earth metals, is not enough to make consumer notice, but enough to make some refiners to think about cutting production.
This just illustrates either the cost gets passed through, or there could be production cuts as a result–both translates into higher prices for consumers. .
Raising Prices Could Mean Losing Business
Basically, Fed’s QE has devalued the dollar while propping up everything from stocks to commodities, but with very little impact on the labor market. This has resulted in two totally disjoint pictures between the corporate profit and the general consumer/labor market.
The Standard & Poor’s GSCI Spot Index of 24 commodities has rallied 21% in the past year, and is expected to stay on the uptrend partly on expectations for global economic growth. Meanwhile, the spread between the 10-year note and Treasury Inflation Protected Securities (TIPS) which represent expectations for consumer prices, widened to 2.40%, near an eight-month high.
As inflation expectations and commodity prices are rising, corporations could face headwinds when they need to start raising prices, and lose business, due to a still weak consumer market, or face margin and the subsequent stock price pressure.
Respect the New World Order By Commodity
In today’s environment, the best way to hedge inflation is probably to invest–through patience and discipline–in commodities (See here for investment options) and stocks (via a broad index fund) on pullbacks.
And keep in mind there are two things for certain–inflation will be steadily rising no matter what time frame you are looking at…and prices of commodity and stock will have pullbacks.
Source: Dian Chu, Economic Forecasts and Opinions, January 12, 2011.
Tags: Commodities, Commodity Prices, Consumer Inflation, Consumer Price Index, Deflation, Economic Forecasts, Federal Reserve Chairman, Federal Reserve Chairman Bernanke, Food Agriculture, Food And Agriculture Organization, Food Crisis, Food Price Index, Food prices, Global Economic Growth, Index Cpi, Inflation Measures, Inflation Pressure, Market Analyst, Producer Price Index, Producer Price Index Ppi, Senate Budget Committee
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Wednesday, December 22nd, 2010
James Bullard, President of the Federal Reserve Bank of St. Louis was on CNBC Monday, December 20, 2010 mostly defending the Fed’s controversial $600 billion Treasury purchasing program (QE2) announced in Nov.
What struck me as totally self-contradictory were Bullard’s statements regarding the QE2, treasury yield, inflation expectations, and inflation, which I will outline and rebuff below.
Bullard – Higher Treasury yield = QE2 success
During the interview, aside from the usual Fed PR spin that QE2 has been ‘modestly successful so far’, he also states:
“People who see the rise in Treasury yields as a sign the Fed’s purchases were not having their desired effect should look at other measures, especially the improvement in the economic outlook and the rise in inflation expectations in the market for Treasury Inflation-Protected Securities (TIPS). These are the ultimate goals of the Fed’s policy.”
Bullard – QE2 unrelated to rising commodity prices
But when Fred Smith, Chairman, President and CEO of FedEx asked whether QE2 was related to the run-up in commodity prices, fuel prices in particular, which has been up 15% in the last 90 days and acted as a tax on American consumers, Bullard had this to say:
“…Is there some independent effect coming from monetary policy other than supply and demand conditions globally…I haven’t seen very much evidence of that, but would like to keep an eye on that.”
So, basically Bullard touts QE2 as building up inflation expectations, driving up treasury yields (thus averting a potential deflationary cycle), which was the goal of the Fed QE2 initiative. Furthermore, Bullard contends that global demand and supply factors are behind the record high prices across almost all commodities, which he believes is unrelated to QE2.
Higher Treasury yields – kills housing et al
First of all, the ultimate goal of the Fed’s securities purchases (QE2), as outlined by Chairman Bernanke in his speech at Frankfurt, Germany on Nov. 19, is to “lower interest rates on securities of longer maturities” to support household and business spending.
On that measure, QE2 has failed miserably. Interest rates, instead of declining, are rising rapidly driven by the bond markets and the bond vigilantes. The 10-year yield was at a low for the year of 2.4% in early October, and has shot up to a seven-month high of 3.56% the week of Dec. 12, before easing back to around 3.34% on Monday Dec. 20. (Fig. 1)
The yield on the U.S. Treasury is used as a benchmark to set interest rates on many kinds of loans including mortgages, and business borrowing rates in the capital market. So, the sharp rise in yields on Treasurys since the QE2 announcement in early November not only kills any flickering recovery sparks in the housing and other related sectors, but also raises the borrowing costs and interest payments of Uncle Sam.
Higher borrowing costs for Uncle Sam
The Congressional Budget Office (CBO) on Dec. 14 projects that under current law, debt held by the public will exceed $16 trillion by 2020, reaching nearly 70% of GDP. The CBO also projects the combination of rising debt and rising interest rates to cause net interest payments to balloon to nearly $800 billion, or 3.4% of GDP, by 2020 (Fig. 2).
U.S. debt downgrade – more than a warning
Now, the U.S. is at a stage where the downgrade of U.S. sovereign debt rating seems closer to reality than ever before. Although most have dismissed the downgrade initiated by China’s Dagong Credit Agency back in July, CNBC reported that this time around the U.S. Treasury Dept. is going to meet with Moody’s and other agencies in January, 2011 to make its case to prevent a downgrade from the current AAA status.
CBO’s debt and interest payment projection assumes that US borrowing cost will remain reasonable. However, a credit downgrade and/or further loose monetary policies along with continued over-spending will only prompt bond markets and bond vigilantes to demand even higher interest rates resulting in much higher interest payment than the current projections, reminiscent of the 80’s when bond yields were in double-digit.
Expectation drives inflationWhen it comes to inflation expectations, I’m actually in agreement with Bullard that the Fed has been successful in driving it up, which is reflected in the TIPS yield as well as the steepening yield curve (Fig. 3). However, as Bernanke himself puts it:
“The state of inflation expectations greatly influences actual inflation and thus the central bank’s ability to achieve price stability.”
Since the Fed hinted at QE2, commodity price inflation has surged at a record pace during the past six months (Fig. 4) The manifestation of inflation is a combination of many factors including but not limited to expectations, which drives behavior, as well as supply and demand factors.
So, for Bullard to “take credit” for driving up inflation expectations, but ignore its inflationary effect on commodity prices is illogical as well as self-contradictory.
QE liquidity not flowing where it’s needed most
The bottom line is this: Unlike China where its central government can mandate banks to actually lend to business and individuals, Fed’s two rounds of QE liquidity did not go to where it’s intended; it is instead trapped on banks, and corporations’ balance sheets.
U.S. banks have been holding about $1 trillion of excess reserves for the last two years, while American corporations are flush with $3 trillion in cash.
What do they use this money for? Banks and institutions with access to the Fed’s cheap money are pumping up commodities and stocks to make their quarters, while corporations, facing higher input costs in the form of runaway commodity prices, are busy engaging in M&A’s (which typically means “job rationalization”), and share buybacks to juice up earnings per share.
Meanwhile, stagnant wage and hiring trends failing to keep pace with skyrocketing food and energy costs for consumers, coupled with higher input costs, such as fuel, hitting companies’ bottomline, will only further cut into growth prospects, and the purchasing power of consumers and even their overall standard of living.
QE = wealth redistribution
The concern of deflation is entirely overblown (thanks to Bullard’s research paper warning of a Japanese-style deflation in the U.S.) and the Fed jumped the gun. In a way, the Fed’s QEs are a form of wealth redistribution from taxpayers to banks, institutions and corporations.
The liquidity has created an artificial financial market where a disproportionate minority is benefitting through higher stock and commodity prices (without producing much output and benefit to the real economy); while the majority suffers higher input costs for essential items like food and energy.
Food and energy are some of the things that affect every consumer’s daily life and pocket book, but are excluded from the core inflation calculation, a key measure on Fed’s watch list. This bias would only further misrepresent true inflation pressures, misguiding Fed’s future policies, and result in a net loss for the economy over the long haul.
Source: Dian Chu, Economic Forecasts and Opinions, December 21, 2010.
Tags: American Consumers, Cnbc, Commodities, Commodity Prices, Demand And Supply, Economic Forecasts, Economic Outlook, Federal Reserve Bank, Federal Reserve Bank Of St Louis, Fedex, Fred Smith, Fuel Prices, Global Demand, Inflation Expectations, Inflation Protected Securities, James Bullard, Market Analyst, Supply Factors, Treasury Inflation Protected Securities, Treasury Yields, Wealth Redistribution
Posted in Commodities, Credit Markets, Markets, Outlook | Comments Off
Thursday, November 11th, 2010
By Dian L. Chu, Economic Forecasts & Opinions
While most are anxiously anticipating a grand currency showdown at the G20 summit in Seoul this month, rare earths is bound to be one act of the G20 high Korean Drama amid the mounting worries among corporations and governments around the world about China’s recent export restrictions and embargo,
Seventeen Metals Make the World Go Around
Rare earths or rare earth minerals / metals (REMs) represent a group of 17 metals. Among them, “heavy” rare earth such as europium — used to produce color in TVs and other screens — are becoming increasingly scarce, while “light” REMs such as cerium – used in enamels and glasses — are plentiful.
|Rare Earths Consumer Products|
They are considered strategic resources since they are essential in the manufacturing of a wide array of products ranging from cell phone, laptops, to military equipment. (See the Consumer Products image)
Low Concentration & Radioactive
These metals are rare partly due to the low concentration in the typical rock formations. That is you have to mine lots and lots in order to get the quantity you need.
Another reason it has become rare is because of the great amount of radioactive waste produced during the REMs mining and refining process.
Outsourced to China
During the 1980’s, the United States, once the world’s leading producer of the minerals, gradually shifted the production to China, mostly due to its lower environmental standards, and lower labor costs.
Rising production of electronics such as Apple Inc.’s iPhone and ipod in recent years have driven up demand for rare earths. So inevitably, China has come to controls 97% of the global supply of rare earths (see chart), mostly from its Inner Mongolia region.
Japan Embargo Still On
It is this supply monopoly that raised global concerns in recent weeks when China swiftly banned exports to Japan of REMs following a fishing boat mishap in the East China Sea, which subsequently escalated into a global geopolitical event.
The “unofficial embargo” later also got extended to all countries, but shipments to the United States and Europe did resume, after a brief suspension in October. Japan–on the other hand– is not so lucky as Beijing is continuing to ban exports to Japan, according the latest NY Times account.
However, even before the boating incident with Japan, China has increasingly restricted rare earths exports in the past two years with reductions in export quotas. The export quotas apply only to the raw REMs, and not the processed minerals.
The total Chinese export quota for 2010 is 30,258 tons, 40 percent less than that for 2009. Its most recent reduction could cut up to an additional 30 percent of supply in 2011.
Recent Price Spike
The sudden supply shortage has forced some companies to shut down operation, and sent the REMs prices soaring. (See price chart).
China Ahead of the Rare Earths Curve
You might wonder how we could have been in this position in the first place. It has a lot to do with China being decades ahead of the global curve when it comes to understanding the strategic importance of rare earths.
Since the 1960’s, China has placed great emphasis on research and development on improving efficiency to recover REMs. That increased the nation’s competitive advantage over time and propelled China into the virtual sole provider of REMs of the world.
“The Middle East has its oil, China has rare earth.”
Deng Xiaoping predicted in 1987 that the Inner Mongolia Autonomous Region would very likely be ‘in the front ranks’ of development. Deng was quoted as saying “中東有石油，中國有稀土.” (The Middle East has its oil, China has rare earth) in a speech he made in January 1992 during his Southern Tour.
Deng also made the following remark in the same speech:
“…..it is of extremely important strategic significance; we must be sure to handle the rare earth issue properly and make the fullest use of our country’s advantage in rare earth resources.”
Risk of Single Sourcing
Obviously, Deng’s vision has been quite successfully executed…..while the rest of the world fell asleep at the wheel, so to speak, by allowing a critical resource to become single-sourced.
Now, the Chinese government warns that it possesses just 15 to 20 years worth of medium and heavy minerals, and must act to protect the resource from over-exploitation, and to preserve its own supply as well as environment.
Yale Global Online quoted consultancy Industrial Minerals Company of Australia that out of the REMs China’s currently producing, about 60% is for domestic use….and that trend line is going up!
Substitute or Produce Thyself…in 15 Years?!
So instead of sitting around for some kind of resolution from the WTO or G20 (don’t hold your breath), the rest of the world needs to either seek alternative or substitution of REMs, and/or take on the responsibility of producing and securing the supply of REMs in its own backyard.
However, rebuilding the REMs supply chain, i.e., mining, extraction, fabrication and refining, is that easy since a lot of the skill labor, expertise and infrastructure has been long gone from the field during the past 20 years.
In a report released in April 2010, the U.S. General Accountability Office (GAO) calculated it will take up to 15 years to re-establish sufficiently to meet the domestic demand.
Reserves Not So Rare
The good news is that unlike the production side, China does not have a complete lock on the rare earths reserves. China does hold the largest share of world reserves at 38%, but there is still plenty around in other parts of the world, including the U.S., Australia, and the CIS, based on the latest U.S. Geological Survey (USGS) data. (See Reserves Chart)
Supply Response Coming
And with the heightened attention, and the recent price spike, a lot of new capital has gone into this once obscure sector, which could accelerate the estimated time table.
For example, Molycorp, a U.S.-based rare earths miner, was able to raise $380 million through an IPO in July. In the U.S., there are also government subsidies and loan programs (e.g. H.R. 6160 ) in the legislative pipeline.
According to Molycorp, the only major rare earths mine in the U.S. at Mountain Pass, CA, which was mostly shut down in 2002, is on schedule to be operating at the full production rate of 20,000 tons of rare earths per year by the end of 2012. That level would be sufficient to meet domestic needs of the moment. U.S. consumption of rare earths is currently estimated at between 15,000 and 18,000 tons a year.
No Threat to the Pentagon
The GAO report also noted for now, there are no effective rare earths substitutes for defense systems. But Bloomberg quoted Australian rare earth developer Lynas Corp. estimating the military would need only about 10 tons to 20 tons of REMs, and that its $545 million Mount Weld rare earths project in Australia, due to go into operation next year, will be able to fully meet the U.S. Defense Department’s needs.
This is most likely part of the reasons that the U.S. Defense Department concluded that China’s REMs monopoly poses no threat to national security, a person familiar with a yearlong study by the Pentagon said Oct. 31.
The Lesser Evil – Oil or Rare Earth?
Nevertheless, the demand and supply projection is still worrisome. Molycorp estimates that total worldwide demand for rare earths is expected to double to 225,000 tons by 2015, not accounting for the burgeoning green energy industry, e.g., EVs, wind turbines, solar panels, etc.
For instance, one 2.5-megawatt permanent magnet generator (PMG) wind turbine requires half a ton of rare earths. China alone plans to spend two to three trillion yuan in the renewable energy sector in the next decade and deploy 300 gigawatts of wind turbines by 2020.
Apparently, supply chain planning must not have been part of the Green Energy Movement. While trying to wane ourselves off oil, we ended up with rare earth dependency instead, and still have to deal with the environmental consequence even worse than oil or oil sands mining, for that matter.
Nobody’s Immune, Including China
What that says is that we will need to pull in everyone’s resource in the coming years–China, U.S. Australia, etc. Some estimate that China’s own demand for some of the minerals (See Forecast Chart) could outstrip its supply in two to five years; and will drive production in other countries, and development of other known and new reserves, similar to the current rising exploration and mining activities in the base metal sector.
Quid Pro Quo Backlash
That means China would, in the not so distant future, depend on external sources for its REMs needs, very much like iron ore, copper and crude oil. From that perspective, Beijing likely will be reasonable and not “hold the world hostage” with rare earths, as the potential quid pro quo could be far more unpleasant.
For now, it looks like we could have a supply shortfall probably by 2014 or 2015 leading to higher prices due to the leadtime needed to develope resources and alternatives. The recent price spike, although not entirely speculative, is nevertheless more an end product of panic and hype rather than the actual market condition.
According to Thomson Reuters, the Stuttgart Stock Exchange’s MV Rare Earth PR Index has risen 69 percent just since May this year. This pace of appreciation is clearly unsustainable as no demand could be that inelastic.
Rare Earth Bubble?
The sector landscape is still very fluid and could change very quickly depending on government policy. That in turn could drastically impact those junior mining companies’ valuation. For instance, China might drop quota and tariff, the U.S. could open up more mines, not to mention there could be some breakthrough technology coming online.
So, my advice would be to skip the exotic rare earths sector for now, and put your money into the more traditional base metals or other commodities or commodities producers.
Dian L. Chu, Nov. 11, 2010
Tags: BRIC, BRICs, Cerium, China, Commodities, Economic Forecasts, Enamels, Environmental Standards, Export Restrictions, Fishing Boat, G20 Summit, Global Concerns, Global Supply, Inner Mongolia, Iphone, Korean Drama, Military Equipment, Oil Sands, Radioactive Waste, Rare Earth Minerals, Rare Earths, Refining Process, Rock Formations, Strategic Resources, Typical Rock
Posted in China, Emerging Markets, Energy & Natural Resources, Infrastructure, Markets, Oil and Gas | Comments Off
Sunday, November 7th, 2010
By Dian L. Chu, Economic Forecasts & Opinions
These are the highest inventory levels for crude in 2010 and are just shy of the 370 million mark, which will be punctuated next week with another build in crude stockpiles. (See Stocks Chart from the U.S. EIA)
OPEC Compliance – 61% and Going Lower
Oil imports fell to 8.6 million barrels per day from the prior week’s 9.5 million (See Chart). So we even had a build with lower imports, and this trend will not continue as even before the recent price spike, OPEC members were producing beyond quotas (OPEC average compliance rate was at 61 percent in Oct.)
With elevated oil prices and the need for revenue in these challenging times for countries struggling with increasing debt burdens, expect the over producing to only get worse. .
Contango Tankers & Non-OPEC
Another factor that is eventually going to put downward pressure on crude oil prices is that at $87 a barrel, any oil that was being stored in container ships is going to be dumped on the market at these elevated prices. Not to mention the fact that non OPEC countries will be producing as much oil as they possibly can with these higher price levels.
Seasonal Low Demand & Reduced Refinery Run
Then, there’s the reduced refinery utilization rate . U.S. refineries cut utilization rates to 81.8 percent, the lowest since March, as refiners try to lower swollen inventory levels in the products market. We are also in the middle of the refinery turnaround season, which would further reduce the run rate.
Moreover, we are currently in the slower part of the demand side for crude oil products with the summer driving season coming to an end. So, historically, this is the weak part of the oil market from a calendar perspective, and it is not just in the U.S.
Quantitative Tightening – China, et al
If we take a look at China and India, they will be using less oil as well since both are struggling with escalating inflation levels. Both countries have raised gasoline and diesel prices the past month, lowering the subsidies for these products, which will only hurt demand.
As China, India and other emerging countries are implementing fresh “quantitative tightening”, including raising interests rates, among other measures to rein in inflation, “hot money”, and partly to combat Fed’s QE2, growth is expected to drop for the next couple of quarters….and longer. That means the emerging markets are not going to be a factor in eating into these swollen inventory levels for the next couple of quarters either.
Econ 101 – Supply, Demand & Prices
Evidently, we have a problem, and the problem is that we have more supply of crude oil in the market than demand, and this isn`t going to improve over the next couple of quarters, especially with higher prices which only incentivizes more crude to come to the market, and dis- incentivizes consumption or demand for oil and oil products.
This is economics 101, and evokes the old adage there is no cure for high prices like high prices. In other words, when you have rising levels of supply that is more than demand, prices have to come down, this is sound economic theory.
Rollover or Take Delivery
So expect crude oil to reverse some of these gains and trade back in the $75 to $85 range after the initial hoopla surrounding Mr. Bernanke`s QE2 initiative wears off and reality starts to set in come physical delivery time at Cushing.
The December 2010 crude oil contract expires trading on the 19th of November, and in an over-saturated market with limited storage capacity, crude oil is likely to go lower over the next couple of weeks due to the fact that nobody will want to take physical delivery at these prices.
And given the record number of historic longs (See CFTC Chart), the Commodity Futures Trading Commission (CFTC) report released on Friday shows cumulative net long positions at a record of 194,128. There were nearly 18,000 new net long positions against 2,551 new net short contract positions added in the week up to November 2.
Over the next couple of weeks, these record number of long contracts have to be either rolled over or take physical delivery of the commodity, and given that a low number of market participants actually take physical delivery, the large number of rollovers will entail selling the Dec. 2010 futures contract and buying the Jan. 2011 futures contract.
These two factors of physical delivery and contract rollovers will be bearish for crude oil prices over the next couple of weeks.
Much Ado About Inventory, Credit & Housing
There is definitely an inflationary argument for higher crude prices (e.g. QE2) sometime in the future for the crude oil market, but not till inventories start going down, not when they are at record levels, and will only continue to build over the next couple of months based on the discussion so far.
The bottom line is demand has to improve considerably just to keep current supply levels at equilibrium, and this is just not going to occur in this economy with higher prices. The supply model was established at the peak of the credit bubble where you had a healthy housing market, healthy state and local budget revenue streams, and a robust credit market where small businesses, entrepreneurs, and individuals could easily attain credit.
The private contraction in the credit markets from the 2007 highs is still a major drag on the economy, and will not return to those levels for some time. So don`t expect crude oil demand to really start picking up steam till the housing market starts recovering, maybe by March 2011 is when both markets will start showing some improved demand fundamentals.
Swimming In Crude?
Crude, unlike gold and silver, which do not have weekly transparent inventory reports, and has much higher storage costs and capacity issues, actually has to adhere to the economics of supply and demand, and despite future inflation concerns, in the near term prices must go down due to swollen supply in the market.
Otherwise, we literally will be swimming in crude oil.
Dian L. Chu, Nov. 6, 2010
Tags: Challenging Times, China, Compliance Rate, Container Ships, contango, Crude Oil Prices, Crude Oil Products, Debt Burdens, Downward Pressure, Economic Forecasts, India, Inventory Levels, Oil Imports, Oil Inventories, Opec Countries, Opec Members, Price Surge, Refiners, Silver, Turnaround Season, Utilization Rate, Utilization Rates, Weak Dollar
Posted in China, Energy & Natural Resources, Gold, India, Markets, Oil and Gas, Silver | Comments Off
Monday, November 1st, 2010
By Dian L. Chu, Economic Forecasts & Opinions
The United States economy grew at a sluggish annual rate of 2 percent in the third quarter, the Commerce Department reported last Friday. On the bright side, the economy is growing faster than the 1.7 percent growth in the second quarter and has registered the fifth straight quarter of expansion.
But here comes the dark side – the growth rate is far from sufficient to impact jobs. And the most disturbing piece of information is that the U.S. economy is still smaller than it was when the recession began–more than a year after the recession officially ended, which makes even a “jobless recovery” seem uncertain.
QE – The Silver Bullet?
Doubts about the scale and effectiveness of an expected Federal Reserve second quantitative easing (QE2) has roiled financial markets of late. So, the latest dismal GDP data probably will cement an official kick-off of Fed’s buying long-term U.S. Treasury debt when they meet on Nov. 3.
However, will the long awaited QE2 be the silver bullet as the market expects?
90% Debt-to-GDP Threshold
As of October 10, 2010, the total public debt outstanding reached 94 percent of the annual GDP, and will be larger than U.S. GDP, around $14.2 trillion a year, in 2012, according to the International Monetary Fund (IMF).
Obviously, the U.S. debt level has already crossed the ominous 90% GDP threshold–part of the findings of a recent study published by C.M. Reinhart and Kenneth Rogoff. The two economists’ study on the relationship between debt and growth finds that when public debt exceeds the 90% threshold, a country’s growth is significantly less–4% on average–than its lower debt counterparts.
That suggests the debt level of the United States seems to have reached a saturation point where more monetary easing would have very limited effect, and could even retard growth.
QE Unlikely to Cure Credit Crunch
Asset purchases by the central bank theoretically would push down real long-term interest rates and spur more lending, boost stock prices, and business confidence thus fueling growth.
However, we have learned from the first round of QE – record-low interest rates, and $2.05 trillion in securities holdings on Fed’s balance sheet, while benefiting the biggest U.S. companies, aren’t trickling down to the smaller business—i.e. no spending, no hiring.
In the 12 months through August, banks pared commercial and industrial lending—loans typically used by companies without access to the bond market—by 11.3 percent. It is still under debate whether the decline is driven by the supply issue–the balance sheet constraints of lenders, or from the demand side–simply the lack of it.
Regardless, I believe the private lending decline seems mostly a manifestation–from both the supply and demand side–of business confidence lost, and the uncertainty over new regulatory rules, which QE2 along is unlikely to rectify, and thus would have limited positive impacts on the economy.
Where’s The Inflation?
There’s also a distinct risk of inflation associated with back-to-back QE’s on a global scale. I think the prevailing deflation fear is quite misguided, and the Fed could be caught ill-prepared when inflation erupts.
As the liquidity works through the system, the time lag between the increase in the money supply and inflation rate is generally 12 to 18 months. Typically, the following are two instances where more money printing would not turn into rampant consumer inflation
- When the liquidity goes into creating asset bubble(s) (e.g. the Dot Com bubble, and the current U.S. bond bubble)
- Able to buy cheap imported goods to essentially export inflation
In addition, as describe in the previous “credit crunch” section, there’s a lot of the cash being held at banks to shore up their balance sheet, and corporations are also hoarding cash as ‘safety net” due to the gloomy and uncertain business climate.
So, these are some of the reasons that the U.S. has not seen much inflation spilling over to the consumer side yet, to the point that the policy makers are even having high anxiety over deflation.
Ripe for Stagflation
Well, heads up, Mr. Bernanke.
With wages rising in almost all low-cost exporting countries, it will become more difficult for the U.S. to contain inflation via cheap imports. Then, as more quantitative easing could further dilute the value of the dollar, pushing up the commodity prices, the system could be pushed beyond its limit into a possible “Demand-pull stagflation” scenario.
Tags: Asset Purchases, China, Commerce Department, Commodities, Credit Crunch, Debt Level, Dian, Economic Forecasts, ETF, ETFs, Gdp Data, International Monetary Fund, International Monetary Fund Imf, Jobless Recovery, oil, Public Debt, Qe, Qe2, Reinhart, Saturation Point, Silver, Silver Bullet, stagflation, Straight Quarter, U S Treasury, United States Economy
Posted in China, Energy & Natural Resources, ETFs, Gold, Markets, Oil and Gas, Silver | Comments Off