David Stockman Lashes Out At Mainstream Media"s "Peak Fantasy Time"

Authored by David Stockman via Contra Corner blog,

If you want to know why both Wall Street and Washington are so delusional about America"s baleful economic predicament, just consider this morsel from yesterday"s Wall Street Journal on the purportedly awesome November jobs report.

Wages rose just 2.5% from a year earlier in November - near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November.... November marked the 86th straight month employers added to payrolls.

Whoopee!

Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the "jobs" counted by the BLS establishment survey. In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level.

The reason isn"t hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually.

In other words, the ballyhooed headline averages are essentially meaningless noise because the BLS counts all jobs equal----that is, a 10-hour per week gig at the minimum wage at McDonald"s weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

When the line is trending inexorably from the upper left to the lower right, of course, it means there are more of the former and fewer of the latter. Six more minutes of continuing worse----is still bad.

 

As a matter of fact, the November report showed 20.199 million goods-producing jobs in manufacturing, construction and energy/mining, which did represent about a 2% improvement from prior year.

The real story, however is not about the short-term monthly or annual deltas being generating by an economy barely crawling forward. Rather, at 102 months, the current business cycle is exceedingly long in the tooth by historic standards (the longest expansion was just 118 months under the far more propitious circumstances of the 1990s).

In fact, what has been the weakest expansion in history by far may now be finally running out of gas.

During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply---and it is ultimately Uncle Sam"s collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL---meaning they are not likely to be recovered before the next recession hits.

Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed,  we are still not even close to the  24.6 million figure which was posted  at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the "Bread and Circuses Economy" keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total.

Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers or 2.4X the four decade ago level.

Yes, there is nothing wrong with these jobs or the workers who hold them, but the fact that they constitute a rapidly increasing share of the mix is powerful proof that the job market is not nearly as awesome as it is cracked up to be; and that the monthly BLS report is surely no measure at all of a rising standard of living in Flyover America.

The larger point is that the monthly jobs report is really neither a report on true labor market conditions or a proxy for genuine economic growth. The fact is, without sustained growth of  full-time, full-pay "breadwinner" jobs there is no real economic recovery or progress.

And we literally mean, no progress. With an update for November"s results, the chart below would show 72.8 million "breadwinner jobs" in goods production, the white collar professions, business management and support, transportation and distribution, FIRE (finance insurance and real estate) and full-time government jobs outside of schools.

As it happens, that is virtually the same number posted by the BLS back in January 2001 when Bill Clinton was packing his bags to vacate the Oval office. In short, three presidents later---all of whom have claimed undying devotion to good jobs and rising living standards---and there is hardly a single new breadwinner job.

The above chart does not bring the concept of awesome to mind. In fact, it reminds of the same kind of stagnation that is evident in all the key metrics for real economic progress. For instance, an economy flat-out can not grow without steady gains in industrial production, which includes energy extraction and all facets of goods manufacturing from automobiles to furniture clothes, shoes and canned soup.

But like in the case of "breadwinner jobs", this so-called recovery has generated none of it. The index of industrial production stands at exactly the level of the pre-crisis peak a full decade ago.

There is a whole raft of these statistics,  but the following graph leaves little to the imagination.

Notwithstanding the Fed"s whacko claim that it hasn"t generated enough inflation in recent years, the truth is that even by the BLS" faulty measuring stick every single dollar of median household income gain has been eaten up by CPI inflation. Accordingly, there has been zero gain in real median household income for the entirety of this century!

What does our latest Oval Office occupant plan to do about this? Why nothing less than borrow $1.8 trillion from future taxpayers in order to enable corporations and other business to crank-out even bigger financial engineering distributions to shareholders in the form of dividends, stock buybacks and M&A deals.

This isn"t even "disruption" as per the Donald"s real job. It"s just dumb and fiscally irresponsible beyond measure - a message we have once again taken to the mainstream media in recent days.

 

 

Finally, An Honest Inflation Index – Guess What It Shows

Posted with permission and written by John Rubino, Dollar Collapse 

 

 

Central bankers keep lamenting the fact that record low interest rates and record high currency creation haven’t generated enough inflation (because remember, for these guys inflation is a good thing rather than a dangerous disease).

 

To which the sound money community keeps responding, “You’re looking in the wrong place! Include the prices of stocks, bonds and real estate in your models and you’ll see that inflation is high and rising.”

 

Well it appears that someone at the Fed has finally decided to see what would happen if the CPI included those assets, and surprise! the result is inflation of 3%, or half again as high as the Fed’s target rate.

 

New York Fed Inflation Gauge is Bad News for Bulls

 

(Bloomberg) – More than 20 years ago, former Fed Chairman Alan Greenspan asked an important question “what prices are important for the conduct of monetary policy?” The query was directly related to asset prices and whether their stability was essential for economic stability and good performance. No one has ever offered a coherent answer even though the recessions of 2001 and 2008-2009 were primarily due to a sharp correction in asset prices.

A new underlying inflation gauge, or UIG, created by the staff of the New York Fed may finally provide the answer. Its broad-based measure of inflation includes consumer and producer prices, commodity prices and real and financial asset prices. The New York Fed staff concluded that the new inflation gauge detects cyclical turning points in underlying inflation and has a better track record than the consumer price series.

The latest reading shows inflation of almost 3 percent for the past 12 months, compared with 1.8 percent for the consumer price index and 1.8 percent for core consumer prices, which exclude food and energy. Since the broad-based UIG is advancing 100 basis points above CPI, it indicates that asset prices are large, persistent and reflect too easy monetary policy.

The UIG carries three important messages to policy makers: the obsessive fears of economy-wide inflation being too low is misguided; monetary stimulus in recent years was not needed; and, the path to normalizing official rates is too slow and the intended level is too low.

Harvard University professor Martin Feldstein stated in a recent Wall Street Journal commentary that “The combination of overpriced real estate and equities has left financial sector fragile and has put the entire economy at risk.” If policy makers do not heed his advice odds of another boom and bust asset cycle will be high — and this time they will not have the defense mechanisms they had after the equity and housing bubbles burst.

To summarize, a true measure of inflation – one that is highly correlated with the business cycle – is not only above the Fed’s target but accelerating.

 

Note on the above chart that both times this happened in the past a recession and bear market followed shortly.

 

The really frustrating part of this story is that had central banks viewed stocks, bonds and real estate as part of the “cost of living” all along, the past three decades’ booms and busts might have been avoided because monetary policy would have tightened several years earlier, moderating each cycle’s volatility.

 

But it’s too late to moderate anything this time around. Asset prices have been allowed to soar to levels that put huge air pockets under them in the next downturn. Here’s a chart that illustrates both the repeating nature of today’s bubble and its immensity.

 

 

In other words, it is different this time — it’s much worse.

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

 

Finally, An Honest Inflation Index – Guess What It Shows

Posted with permission and written by John Rubino, Dollar Collapse 

 

 

 

Check out these other articles by our contributors:

 

Jason Liosatos via Rory Hall - Dr. Paul Craig Roberts – Why is England, Germany and France Ruled by Washington? 

Craig Hemke - Another Tradable Low Coming

Jeff Thomas - Tilt! Game Over

UK High Street Sales Suffer "Most Horrific" October On Record

The writing was on the wall two weeks ago when retail employment tumbled along with CBI-reported retail sales, but tonight"s BDO High Street Sales Tracker should be the icing on the cake for any looming rate hike as like-for-like sales crashed 5.2% - describe by BDO as "the most horrific" October on record.

It was the worst month since right before Brexit in April 2016.

Consumers resisted spending in October following the rise of the Consumer Price Index (CPI) to 3% in September. Recent confidence barometers have also suggested a creeping decline in economic and spending confidence amongst consumers.

As wage increases continue to be outstripped by higher inflation, and with the (now real) anticipation of higher mortgage payments, then it comes as little surprise that people are tightening their belts prior to the anticipated Christmas expenditure.

Fashion sales plunged 7.9% YoY and were the wost segment, but retailers aren’t alone; restaurant, pub and bar groups “also feeling the pinch” in recent weeks.

Rain Newton-Smith, CBI Chief Economist, blamed the weakness on higher inflation.

“It’s clear retailers are beginning to really feel the pinch from higher inflation. While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand.”

This collapse fits with what we noted previously, as the British Retail Consortium reported that retail employment dropped at the fastest rate since 2008.

From The Independent, UK retailers cut jobs over the past three months at the fastest rate since comparable records began in 2008, due to technological change and rising employment costs, the British Retail Consortium said on Thursday.

The BRC, which represents major retailers, said its members employed 3.0 per cent fewer staff in the third quarter of this year than during the same time in 2016, and total hours worked fell by 4.2 per cent year-on-year.

Both were the steepest falls since the BRC started collecting records in 2008, when Britain was in the middle of its sharpest recession in decades. This contrasts with the picture in the broader economy, where the unemployment rate is its lowest since 1975 and job creation has been strong, albeit partly at the expense of wages. Still, the BRC report chimed with a European Commission survey last month that showed British retailers’ expectations for employment sank to their lowest since late 2011.

“The pace of job reductions in the retail industry is gathering steam,” BRC chief executive Helen Dickinson said.

 

“Behind this shrinking of the workforce is both a technological revolution in retail, which is reducing demand for labour, and government policy, which is driving up the cost of employment,” she added.

Retail, which accounts for just under 10 per cent of jobs in Britain, has a lot of low-paid jobs that have been affected by rapid rises in the minimum wage in recent years, as well as a new government training levies and pension requirements.

Stupidity Well Anchored: Exposing The Absurdity Of Inflation Expectations

Authored by Mike Shedlock via MishTalk.com,

The amount of sheer nonsense written about inflation expectations is staggering.

Let’s take a look at some recent articles before making a mockery of them with a single picture.

Expectations Problem

On July 17, 2017, Rich Miller writing for Bloomberg proclaimed The Fed Has an Inflation Expectations Problem.

Expectations matter because they shape how households and companies act and thus can go a long way in determining where inflation actually ends up. Consumers accustomed to meager inflation will resist paying up for goods and services.

“Lower inflation expectations make it all the more difficult for the central bank to achieve its inflation objective,” Charles Evans, president of the Chicago Fed, said in remarks posted on the bank’s website on July 14.

Key Element

The Business Insider says The Fed is missing a key sign of economic weakness coming from American consumers.

Andrew Levin, a career Fed economist who was a special adviser to Fed Chairman Ben Bernanke, told Business Insider he was worried by a noticeable decline in inflation expectations, both as reflected in consumer surveys and bond-market rates.

“The reality is that the longer-term inflation expectations of consumers and investors have shifted downward by about a half percentage point. Thus, even with the economy moving towards full employment, it’s not surprising that core PCE inflation remains about a half percentage point below the Fed’s inflation target,” he said, referring to a closely watched reading indicator that excludes food and energy costs.

“If the FOMC continues to ignore the downward drift in inflation expectations and simply proceeds with its intended path of policy tightening, actual inflation is likely to keep falling short of the Fed’s target and might well decline even further,” he said.

Janet Yellen On Wednesday

In a brief speech following yesterday’s FOMC announcement Janet Yellen made these statements.

Turning to inflation, the 12-month change in the price index for personal consumption expenditures was 1.4 percent in July, down noticeably from earlier in the year.

For quite some time, inflation has been running below the committee’s 2 percent longer-run objective.

One-off reductions earlier this year in certain categories of prices such as wireless telephone services are currently holding down inflation, but these effects should be transitory.

Such developments are not uncommon, and as long as inflation expectations remain reasonably well anchored, are not of great concern from a policy perspective because their effects fade away.

Complete Nonsense

One can find thousands of such references, all of them idiotic.

Let’s prove that with a single picture and a few comments.

CPI Percentage Weights

The idea behind inflation expectations is that if consumers think prices will go down, they will hold off purchases and the economy will collapse.

The corollary is that is consumers think inflation will rise, they will rush out and buy things causing the economy to overheat.

With that backdrop, let’s have a Q&A. I believe the answers are obvious in all cases.

Inflation Expectations Q&A

Q: If consumers think the price of food will drop, will they stop eating out?
Q: If consumers think the price of food will drop, will they stop eating at home?
Q: If consumers think the price of natural gas will drop, will they stop heating their homes and stop cooking to wait for the event.
Q: If consumers think the price of gas will drop, will they stop driving or not fill up their car if it is running on empty?
Q: If consumers think the price of gas will rise, can they do anything about it other than fill up their tank more frequently?
Q: If consumers think the price of rent will drop, will they hold off renting until that happens?
Q: If consumers think the price of rent will rise, will they rent two apartments to take advantage?
Q: If consumers think the price of plane tickets, taxis, and bus tickets will drop, will they hold off taking the plane the train or the bus?
Q: If consumers think the price of plane tickets, taxis, and bus tickets will rise, will they rush out and buy multiple tickets driving the prices even higher up?
Q: If people need an operation, will they hold off if they think prices might drop next month?
Q: If people need an operation, will they have two operations if they expect the price will go up?

All of the above questions represent inelastic items. Those constitute 80.254% of the CPI. Commodities other than food and energy constitute the remaining 19.746% of the CPI. Let’s hone in on that portion with additional Q&A.

Q. If someone needs a refrigerator, toaster, stove or a toilet because it broke, will they wait two months if for some reason they think prices will decline?
Q. If someone does not need a refrigerator, toaster, stove or a toilet will they buy one anyway if they think prices will jump?
Q. The prices of TVs and electronics drop consistently. Better deals are always around the corner. Does that stop people from buying TVs and electronics?
Q. If people thought the price of TVs was about to jump, would they buy multiple TVs to take advantage?

For sure, some people will wait for year-end clearances to buy cars, but most don’t. And if a car breaks down, consumers will fix it immediately, they will not wait for specials.

Stupidity Well Anchored

The only thing that’s “well anchored” is the stupidity of the belief that inflation expectations matter.

Asset Irony

People will rush to buy stocks in a bubble if they think prices will rise. They will hold off buying stocks if they expect prices will go down.

People will buy houses to rent or fix up if they think home prices will rise. They will hold off housing speculation if they expect prices will drop.

The very things where expectations do matter are the very things the Fed and mainstream media ignore.

No Reliable Measures

“There is no single highly reliable measure” of longer-run inflation expectations, Fed Governor Lael Brainard told The Economic Club of New York on Sept. 5.

Lovely. She’s also correct. Yet, she proposes to know what to do about it! How idiotic is that?

Economic Challenge to Keynesians

Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.

I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.

1. My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.


2. My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Finally, and as a measure of insurance against the Fed’s clueless tactics, please consider How Much Gold Should the Common Man Own?

"Lies, Lies, & OMFG More Lies!"

Authored by Jim Quinn via The Burning Platform blog,

“There are three types of lies — lies, damn lies, and statistics.” – Benjamin Disraeli

Every month the government apparatchiks at the Bureau of Lies and Scams (BLS) dutifully announces inflation is still running below 2%. Janet Yellen then gives a speech where she notes her concern inflation is too low and she needs to keep interest rates near zero to save humanity from the scourge of too low inflation. I don’t know how I could survive without 2% inflation reducing my purchasing power.

This week they reported year over year inflation of 1.9%. Just right to keep Janet from raising rates and keeping the stock market on track for new record highs. According to our beloved bureaucrats, after they have sliced, diced, massaged and manipulated the data, you’ve experienced annual inflation of 2.1% since 2000. If you believe that, I’ve got a great real estate deal for you in North Korea on the border with South Korea.

“Lies sound like facts to those who’ve been conditioned to mis-recognize the truth.” ? DaShanne Stokes

Ignore that silly Shiller PE ratio far surpassing 1929 and 2007 levels. Ignore every historically accurate valuation method showing the stock market 70% to 129% overvalued. Wall Street shysters like Jamie Dimon, faux financial analysts, corporate media talking heads and even Donald Trump tell you this time is different. Tax cuts, amnesty for illegals, more wars, and eliminating the debt ceiling will surely spur massive economic growth. Trillion dollar deficits are always bullish. Making America Great with More Debt should drive the stock market to 30,000 in no time.

All is well. Real median household income just surpassed the level achieved in 1999. Think about that for a second. It took seventeen years for the average American family to get back to a household income of $59,000. The $59,000 of household income in 2017 doesn’t quite go as far as it did in 1999, with even BLS manipulated inflation showing an 87% increase in medical costs, 80% increase in energy costs, 51% increase in food costs, 53% increase in housing costs, and a 115% increase in college education. And of course the BLS changed their methodology, boosting household income by $1,700 in 2013. So, in reality it is still below 1999 levels.

When you consider 50% of all households make less than $59,000, have not benefited one iota from the Fed/Wall Street debt engineered stock bull market, have less than $1,000 in savings, and less than $50,000 of retirement savings, you realize your Deep State masters must propagandize economic data and manipulate inflation and unemployment figures to keep the masses confused, deluded, and misinformed. The Big Lie is their strategy of choice.

The lies built into the politically motivated CPI figure are designed to screw senior citizens, bond investors, and average hard working Americans who depend upon annual salary increases to keep their heads above water. Corporations are able to point to the low levels of CPI as the reason they don’t need to provide higher salary increases. The government can get away with providing little or no Social Security increases to senior citizens by purposely under-reporting inflation based upon academic theories put forth by captured Ivy League pinheads paid off by the Deep State.

The chart below provides the government reported cumulative increases in key categories since 2000. Not only does the government purposely under-report the increases in these costs, they also purposely under-weight the significance of particular categories in order to reduce the reported level of inflation. Some of these categories show significant increases, but they are far lower than what average Americans are actually experiencing in the real world.

One of the outrageous examples of how the government uses academic gibberish about product improvements to drastically under-report CPI is how they report new vehicle inflation. The average price of a new car in 2000 was $22,000. Today, the average price is $34,500. That’s a 57% increase. The BLS bullshit artists have the gall to report new vehicle inflation of a whopping 2% since 2000.

They have “adjusted” away 55% of the actual increase by saying airbags and other unnecessary technological baubles improved automobiles to such an extent, prices didn’t really go up. What a fucking joke. Having your ass warmed with the push of a button didn’t put the extra $12,500 in your bank account to pay for that car. And new vehicles account for 3.6% of the CPI calculation, while health insurance accounts for 1% of the weighting. Yeah, that reflects reality.

Another outrageous example of under-reporting inflation is in the highest weighted category of housing. It is supposed to reflect the cost of rent and home ownership. The owners equivalent rent calculation is purposely opaque in order to suppress the true cost increase. Median home prices were $165,000 in 2000 and are currently $317,000, a 92% increase. The average rent of $475 in 2000 has risen to $910 today, also a 92% increase. So it makes total sense for the BLS drones to report a 53% increase in housing since 2000. I’m sure their academic model adjusted the true increase downward by 39% due to some obscure algorithm created by a Princeton economics professor.

Medical care advancing by 87% since 2000 sounds substantial, but that only equates to annual inflation of 3.5%. I’d love to find anyone in this country who has only seen their medical costs rise by 3.5% per year. The blatantly shameful falsification of medical inflation is evident to anyone living through the current Obamacare nightmare. According to these BLS prevaricators, health insurance has only risen by 21% since the passage of the Obamacare abortion bill. That lie is beyond comprehension as anyone living in the real world has likely experienced insurance premium increases exceeding 100% since 2009.

I work for the largest employer in Philadelphia, with the most leverage in negotiating insurance premiums with the health insurance complex. I also have tracked my expenditures by category since the 1990’s with Quicken. I know exactly what my medical costs and health insurance costs were in 2009 and what they are today. Let’s do a reality check on the BLS inflation figures of 26% for medical services and 21% for health insurance premiums.

Back in 2009 we had no individual or family deductibles, no co-pays for lab work, and low co-pays for doctor visits. Today, with $1,500 individual deductibles and co-pays 70% higher, our annual medical expenses are 140% higher than they were in 2009, with one less person in the house. That’s slightly more than the BLS fraudulent figure of 26%. Our annual health insurance premiums aren’t 21% higher than 2009. They are 90% higher. And I work for an employer that has negotiating leverage. Many Americans are experiencing 200% to 400% increases. This is the real world, not some excel spreadsheet model world created by academics, politicians and bureaucrats.

Could the BLS be as incompetent in capturing medical inflation as they appear or are they massively under-reporting the true inflation and the weighting for the average American family on purpose? I would contend it is purposeful and directed by those in power as a last ditch effort to keep the masses from revolting and hanging them from the nearest lamppost. The Federal Reserve and their Deep State co-conspirators must massively understate true inflation because reporting the truth would require interest rates to be raised, Social Security payments to be increased, and wages to be elevated – blowing a gaping hole in the federal budget and initiating a stock, bond and housing market collapse.

Those in power know their decades of propaganda and social engineering in public schools have dumbed down the masses to such an extent not one in ten could even tell you what CPI stands for, let alone how it is measured. Any critical thinking intelligent person aware of their daily costs knows their true annual inflation rate isn’t 1.9%. It exceeds 5% and has exceeded 5% since 2000.

Anyone reading and understanding this article is a dangerous man to the government. We know they are dishonest, insane and intolerable. Our job is to spread discontent until a tipping point is reached. I don’t think we are too far away.

“The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is very apt to spread discontent among those who are.” ? H.L. Mencken

Why Janet Yellen Is About To Hate Bacon

For 99.9999% (our estimate) of Americans, there is great news on the way - retail bacon prices are about to plummet. However, with food accounting for 14% of CPI, we suspect the pork-price-pounding is about to become Janet Yellen"s new "transitory" problem.

In the first half of the year, the best performing commodity in the tradable universe was the USDA Boxed Pork Belly Cut 200lb, which had risen 87% year-to-date, with the media reassuring that the demand was not just seasonal.

For months, many market participants talked of a new paradigm for US pork prices, suggesting that in the future, (like avocado toast) bacon would be added to everything and the public"s appetite for it was insatiable (which makes perfect sense).

However, in the last few weeks, the bacon price has plunged 30%...

Which implies the price of a "rasher" at your local convenience store is about to tumble!!

And as the bacon price collapses, food in general is way down. The CRB FOOD index (US spot foodstuffs) has collapsed (dropping for 8 straight weeks)

(The index consists of: butter, cocoa, corn, hogs, lard, soybean oil, steers, sugar and Minny and KC wheat.)

More good news for Americans with stagnant wages!!

But, given that Janet Yellen and her merry band of piss-poor-prognisticators are desperate for transitory lowflation to pick up (remember they blamed the current downturn on unlimited phone plans), she may have a problem. With food accounting for 14% of the US CPI basket, it is not completely devastating, but does not help Yellen"s cause.

Goldman Cuts Rate Hike Odds After 5th Consecutive Inflation Miss

The Fed is becoming increasingly trapped: despite the FOMC"s "best intentions" to telegraph that the economy is improving with the unemployment rate at a paltry 4.3% - because otherwise it clearly wouldn"t be hiking, right - CPI has now missed consensus estimates for 5 consecutive months, and what worse, the biggest historical driver of inflation in recent years, shelter and rent inflation, appears to have peaked and is now declining. Worse, wage inflation is nowhere to be found, much as one would expect from a bartender and waiter-led "recovery."

Of course, never one to miss a scapegoat, earlier today Dallas Fed president Robert Kaplan blamed the lack of inflation on technology, saying at an event in Texas that technological disruption is "a new and powerful structural factor that is influencing inflation" and finally noticing that "technology is increasingly replacing people in the jobs market" while "allowing consumers to change shopping habits, and is limiting the pricing power of businesses. That - in addition to global factors - has an impact on inflation."

Predictably there was no discussion of how it is the Fed"s trillions in excess liquidity that has allowed VCs to invest tens if not hundreds of billions in money-losing ventures, which have made this tech-driven deflation possible.

As an aside, while the BLS-reproted CPI continues to deteriorate, the Atlanta Fed reported that its own sticky-price consumer price index —a weighted basket of items that change price relatively slowly—rose 2.6% annualized in July, following a 2.2% increase in June. The 12-month percent change in the index remained at 2.1%. Then again, the Fed is known to avoid any indicator that defies the prevailing groupthink, which now seems to be that inflation is lower than the Fed would like it to be.

So while the Fed ponders how to escape this trap it has created for itself, in which zombie companies refuse to die and where cash burning tech companies push inflation ever lower, at least until rates rise enough to crush the VC party once and for all, here is Goldman which moments ago once again cut its forecast for a rate hike possibility in 2017.

The consumer price index rose 0.11% in July in both the headline and the core, missing expectations for the fifth consecutive month. The primary sources of weakness were lodging away from home and new vehicle prices, and we suspect the former will rebound in coming months. Nonetheless, we now estimate that the core PCE price index rose just 0.08% month-over-month in July, or 1.40% from a year earlier, down from +1.5% in June. Accordingly, we now place the subjective odds of a third hike this year at 55% (vs. 60% previously).

The details:

1. The consumer price index (CPI) rose 0.11% month-over-month in both the headline and the core (excluding food and energy), below expectations for the fifth consecutive month. Food prices rebounded (+0.2%) but energy prices edged down (-0.1%), providing offsetting impacts for the headline CPI, where the year-over-year rate moved up a tenth to +1.7% (vs. consensus of +1.8%). Relative to our expectations, the sources of weakness in core inflation this month were lodging away from home (-4.2% mom) and new car (-0.5%) prices, which together reduced month-over-month core inflation by -0.07pp. The lodging decline was the largest on record (back to the 1960s) and appears at odds with continued firmness in the PPI and industry measures. Despite the overall weakness, month-over-month inflation was generally firm in the large and persistent housing and medical care categories, with increases in medical services (+0.3%), medical commodities (+1.0%), and owners’ equivalent rent (+0.27% vs. +0.28% in June) prices, despite the sequential deceleration in rent of primary residence (+0.24% from +0.35% in June).


2. Based on details in the PPI and CPI reports, we estimate that the core PCE price index rose just 0.08% month-over-month in July, or 1.398% from a year earlier (vs. +1.505% in June). Additionally, we expect that the headline PCE price index rose 0.08% in July, or +1.392% from a year earlier.


3. Despite encouraging component detail, the overall CPI report was clearly disappointing. We lowered our Fed probabilities accordingly, with subjective odds for a third hike this year at 55% (vs. 60% previously). In terms of timing, we place the odds of the next hike at less than 5% for September (vs. 5% previously), less than 5% for November (vs. 5% previously), and 55% cumulatively by December (vs. 60% previously).

At the current rate of economic disappointments, that 55% will hit zero in about 4-6 weeks.

"It's The Economy, Stupid... Not Drugs & Demographics"

Authored by Jeffrey Snyder via Alhambra Investment Partners,

The mainstream media is about to be presented with another (small) gift. In its quest to discredit populism, the condition of inflation has become paramount for largely the right reasons (accidents do happen). In the context of the macro economy of 2017, inflation isn’t really about consumer prices except as a broad gauge of hidden monetary conditions.

Therefore, if inflation behaves as it is supposed to after so many years of “stimulus”, then the political opposition to the status quo really is about racism and xenophobia. If, however, inflation underwhelms for now the sixth year and counting, there just might be something to this economic anxiety element of grand and growing political discord.

In many ways this isn’t a point of contention at all, merely a misreading of what policymakers are actually doing and why. The global economy really has suffered some horrible fate, but what? Inflation underwhelms because the economy does and has, but policymakers in 2017 are trying to figure out why in a way that leaves them blameless.

Any long-term GDP chart for any place shows clearly that it is small wonder political and social devastation took so long to start manifesting. That speaks to the power of Economics and the tremendous benefit of the doubt it began with, and then squandered. People largely believed Ben Bernanke when he said he knew what he was doing with QE2 (without ever accounting why he felt there needed to be a second) or Mario Draghi when he made his promise. The public did so because they wanted to believe such a big awful thing was fixable.

The media is still stuck on the idea of the economy being fixed, however, though policymakers have more than a year ago shifted to figuring out why it won’t ever be. Inflation for them is now the measure of who’s to blame, not what will happen.

Again, if inflation continues to underperform the 2% target here and elsewhere, even textbook Economics makes it a monetary reason. If it gets back to and above 2%, drug addicts and Baby Boomers would have been a legitimate structural drag, meaning QE failed because it stood no chance of ever working. You can see the stakes for central bankers as they have this year practically resorted to outright pleading, as if saying the thing over and over will increase the chances of it happening.

So it must have been some relief when earlier this year oil price base effects raised the CPI to above 2% for three months starting last December (and the HICP for only one month in Europe). It would stay above 2% for a total of five, but those last two were on the way back down again, clearly showing that it was oil not the opioid epidemic the public should turn to for answers.

Given the nature of its annual comparison, WTI was this July on an upswing whereas in July 2016 falling again. Crude oil’s contribution to consumer price inflation last month is once more significantly positive, meaning that in all likelihood on Friday when the BLS reports the CPI for July it will be accelerated from four straight months of “unexpected” weakness. There will certainly be much crowing and rejoicing.

But it won’t matter for more than just a single news cycle, not the least of which because of the bond market that policymakers and especially economists (therefore the media) just can’t (or refuse) seem to understand.

“The market has paid a lot more attention to inflation than in recent years, simply because that has the potential to be what changes the Fed’s mind on further rate hikes,” [said Gennadiy Goldberg, an interest-rate strategist at TD Securities]. This week’s report “has a pretty substantial amount of power to push rates to annual lows or getting us off those lows and pushing rates higher.”

Once again, no, no, and no. The bond market takes no cues from monetary policy except if it views that policy to be effective. Interest rates rise because of opportunity, not because the Fed attempts to command it with the federal funds rate as in 2016, 2004, or even 1994. There is no “hawkishness” or “dovishness” by itself, instead the interpretation of “hawkishness” if things are actually getting better or “dovishness” if they aren’t. This other convention where the Fed is at the center of everything just doesn’t wash.

It presupposes infallibility which has been proven not to exist. Presumably the Fed’s “hawkishness” derives from its proficiency in economic interpretation. Therefore, bond rates would rise not based on monetary policy action per se, but rather agreeing with the Fed’s interpretation of what “hawkishness” means as far as economic opportunity. To claim that the bond market must follow monetary policy is to simultaneously claim that the FOMC is always right; and further that bonds must always defer in that judgment to these economists.

The bond market does not do this, though it does take into consideration central bank judgment as part of its stream of information. Before the summer of 2011, the bond market largely agreed with FOMC assessments. By and large, though, ever since 2011 the bond market which is always free to disagree with them about the economy or even the state of monetary function has exercised that freedom and in convincing fashion. From 2013 forward, nominal rates should have risen and curves steepened as economists and policymakers declared QE3 a resounding success, with particular emphasis on the unemployment rate. The bond market was correct, not economists.

What drives UST yields or eurodollar futures prices is therefore not “hawkishness” or “dovishness”, but rather perceptions about whether “hawkishness”, “dovishness”, Trump, or even Paul Krugman’s fake alien invasion scenario will amount to anything positive and the significance of it. It is the translation of current conditions into considerations about the future, captured in prices and yields – the actual discounting of information, of which monetary policy is only a (variable) part.

And oil prices factor to a much higher degree than Janet Yellen for these reasons. It is oil that moves the CPI (or PCE Deflator) which is a very negative commentary on the economy tomorrow as well as today. Unless oil prices really break higher, then the bond market gives far more weight to what the FOMC members would all rather never consider – the problem really is money and economy rather than drugs and demographics.

O Inflation, Inflation! Wherefore Art Thou Inflation?

A lot of eyes were on Janet Yellen’s testimony in front of the Senate Banking committee last week, as investors wanted to hear more clues about a potential change in the economic and monetary policy of the Federal Reserve. People seemed to be particularly interested in finding out more about the expected rate hike pace and the reduction of the size of the Fed’s balance sheet.

Alas, no new statements were made on these topics (Yellen rarely provides ‘scoops’ in official hearings and testimonies), but she did confirm the inflation expectations remained on track thanks to the ‘strong’ labor market and the rising prices of imported goods (undoubtedly helped by the weakening US Dollar versus the Euro, as you can see on the next image).

Source: stockcharts.com

Surprisingly, the mainstream media jumped all over this quote to point out why  the gold price was going down that day. Morningstar (copied from the Dow Jones newswires) went as far as using as title: ‘Gold Falls After Yellen Says Inflation May Rise‘ . Most news outlets tend to forget a lot of people actually buy gold as a hedge against that very same inflation as it’s one of the best ways to maintain a certain purchase power (it’s a hedge against inflation and economic and geopolitical shocks).

Literally the next day, an updated Consumer Price Index and so-called real earnings report was released by the Bureau of Labor Statistics. Yellen might have to do her homework again, as the CPI data points out the situation remained completely unchanged in June. Not only does this de-rail Yellen’s previous statement, connecting the rate hikes to the inflation rate, it also means there’s a bigger problem.

Whilst everybody was focusing on the CPI data, we compared those with the Real Earnings data. This taught us two different things which are completely contradicting each other. On the short term basis (Month on Month), the average hourly earnings for all employees increased by 0.2%. Is that surprising? Yes, considering the higher (hourly) income did not result in a higher inflation rate.

Source: stockcharts.com

One potential explanation could be there will be a ‘delayed reaction’ and we will see the inflation rate picking up again in July, but we think the recent weakness of the US Dollar is to blame here. As you could see on the chart we previously used in this article, the US Dollar has lost approximately 10% of its value versus the euro in the past year and this makes it more expensive for the average American to pay for imported products. So whilst this might not lead to an increase in the CPI results, it’s definitely possible people are spending as much money as before as the total dollar index is moving down as well.

A second explanation could be based on the second variable of a monthly or annual income. Whilst a wage per hour is one part of the equation, the total amount of hours worked obviously is as important and even though the wages increased, it’s absolutely not impossible this was connected to a lower amount of hours per employee.

Was Yellen too optimistic? And if she is; gold traders seem to like low inflation rates more than high inflation rates these days!

>>> Click here to read our Guide to Gold, FOR FREE!

Chinese Producer Prices Miss, Slide For Second Month As Burst Commodity Bubble Spills Over

With the entire world"s focused on the last remaining reflationary dynamo in the world, China, today"s inflation data out of Beijing, fabricated as it may be, was closely watched.  After all, just one month ago, UBS declared China"s reflationary phase over, and a dark, deflationary era of negative credit impulse-driven deflation would soon be unleashed on the world. Again.

It wasn"t quite so dramatic.

After surging to almost 8% at the start of 2017, the fastest pace in 9 years, PPI declined for a second consecutive month, slowing to just 6.4% YoY in April, down 0.4% from March, and missing expectation, confirming (as if it was needed) that China"s commodity boom is now in the rearview mirror.  The accelerating producer price plunge has been all too obvious to those who have watched the recent crash (most recently previewed here) in Chinese iron ore and coal prices, which tumbled after rising sharply on a construction boom, or rather bubble, that drove China"s strongest economic growth since 2015.

At the same time consumer prices rose fractionally more than expected, although CPI remained at just 1.2% YoY, up from 0.9% in March. This was driven entirely by non-food inflation which jumped 2.4%, while food inflation plunged 3.5% from a year ago.

And in the backward logic of the "good is good and bad is great" world, the burst commodity bubble (declining PPI)  and lower purchasing power (rising CPI) allowed the  PBOC to be a little more generous with its liquidity, ending the three drought of no reverse repos, even if the central bank still drained a net of CNY80 billion today, and so Chinese stocks are higher... for now.

Ring The Alarm: UK Entering Meltdown Mode

Last week, the Office for National Statistics released the inflation results for the British economy. Even though most analysts weren’t expecting any huge differences, the numbers (updated until February) paint a completely different picture. In February, the inflation rate increased rather sharply. On a month-on-month basis, the CPI increased by 0.7% (whereas January was a month with deflation). The current YoY inflation rate based on the CPI is 2.3%.

‘No big deal’, you might think. But in this case it is.

Just one year ago, in February 2016, the annual inflation rate was just 0.3%. This means the inflation rate has almost EIGHTFOLDED in the past year, with a very clear acceleration since October.

Source: RBC, ONS Data

Could it be worse?

Yes, definitely.

Not only does the ONS release an update on the CPI numbers, it also releases a RPI update. That’s the Retail Price Index, which basically measures the cost increase of goods and services. And in February, this index revealed some shocking numbers.

In just one month, the retail prices of a basket of normal goods and services became 1.1% more expensive. When compared to the results of the previous year, the retail inflation rate is in excess of 3%. That’s right, life has become more than 3% more expensive for the average UK citizen!

And this proves how fast and quiet inflation can come back in our lives. Forget about deflation, the only way is up. That’s why the Federal Reserve is hiking the interest rates, and it’s why the ECB has been hinting at a higher benchmark rate as well.

But this might actually cause a huge problem in Great Britain. Not only is the inflation increasing – and will the Bank of England undoubtedly have to increase its interest rates again, the total debt in the United Kingdom is increasing. Fast.

In fact, several politicians and officials have been ringing the alarm bell, as the savings ratio in the United Kingdom hasn’t been this low since the Global Financial Crisis, and in its latest update, the Office of Budget Responsibility (OBR) has confirmed the savings ratio in the UK has now turned negative.

Source: Bank of England

Indeed, the British citizens are spending more than they are earning. This means it won’t be just the government debt level which will increase, but the total amount of household debt will increase as well. The average British household has almost 13,000 GBP in debt (on top of the mortgage) and the Office for National Statistics confirmed the total unsecured debt has increased to almost 350 billion pounds.

This also means the ratio of unsecured debt as a percentage of the average household income has increased to almost 30%, which is once again the highest ratio since the global financial crisis.

Even if you would exclude student debt (although there’s no good reason to do so), the total amount of unsecured debt would be close to 200B GBP, of which 1/3^rd is credit card debt. Meanwhile, the total market share of ultra-long mortgages (30 years or longer) is increasing as well.

Source: Bank of England

That’s a very worrisome situation; the gross and net debt position of the households is increasing whilst the savings ratio continues to drop. And that’s a deathly combination which can’t end well.

> Gold is your best insurance policy against a failing monetary system. Read our Guide to Gold right now, and be prepared!

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Americans Will Be The Loser In The Fed's Dangerous Game Of "Chicken"

Via Birch Gold Group,

The Federal Reserve just raised rates once again, by 0.25%.

The move implies that the central bank has confidence in the economy, and markets are riding that confidence to push upward. But analysis of the fundamentals reveals that both markets and the Fed are missing something. How long can they keep egging each other on without facing facts?

What You’re Being Told

Based solely on official government data, the economic situation today looks pretty rosy.

Unemployment is supposedly sitting at 4.7%, a “healthy level by historical standards” according to the New York Times. And the Labor Department reported a 235,000 gain of new jobs in the past month.

Then there’s inflation… which the Bureau of Economic Analysis (a sub-branch of the U.S. Department of Commerce) has great things to say about. According to the agency, prices rose by 1.9% over the last 12 months (the period ends in January). That’s just one-hundredth of a percent below the Fed’s target rate of 2%.

To top it all off, officials say that consumer spending spiked 3% in Q4 of 2016.

That’s all well and good. And it would be fantastic if we could know, beyond the shadow of a doubt, that those numbers were true. Unfortunately, it’s not that simple.

Why Government Numbers Can’t Be Trusted

The U.S. government’s official story on the economy is hardly unbiased. With a vested interest in keeping markets calm and appeased, government entities tend to “massage” economic numbers to paint the best picture possible.

According to Mike Bryan, vice president and senior economist at the Atlanta Fed’s research department, the rubric for calculating official inflation numbers has a history of getting changed as often as every month, depending on which pieces of inconvenient input data bureaucrats want to leave out for that given cycle.

Labor statistics are just as susceptible to corruption. In 2014, census survey collectors — whose work goes toward calculating not just general population statistics, but unemployment and economic insights as well — were caught filling in bogus data simply to meet their quota, irreparably tainting any later assertions based on the collection work.

The New York Post writes:

Rather than collect fresh data each month as they are supposed to do, Census workers have been filling in the blanks with past months’ data. This helps them meet the strict quota of successful interviews set by Labor.

That’s just one of the ways the surveys are falsified.

Further, according to John Williams, presidential administrations over the past several decades have all fought to weaken and revise the measures used to calculate CPI and GDP.

What the Economy Is Really Doing

While the Fed ramps up for more rate hikes and the government keeps peddling false hope, is there a way to see what’s actually happening in the economy? Yes, thankfully there is, and it’s called fundamental analysis.

When we analyze the fundamentals, there’s very little room for manipulation. Assuming we respect the numbers and evaluate them objectively, the truth has nowhere to hide.

That said, consider what’s happening to the consumer retail sector. Despite the positive tone coming from the Fed and U.S. government, the latest numbers show retail sales getting clobbered, especially department stores. Massive outdoor retailer Gander Mountain filed for bankruptcy just last week, and the Financial Times reports non-food retail sales are dropping like a stone.

This stands in complete contradiction to what Fed and government officials are telling you. If the official numbers on consumer spending are this glaringly false, how can we trust anything else they say?

How We All Lose in this Game of “Chicken”

Aside from being grossly misleading, here is the real problem with the gap between the Fed and government’s outlook versus reality: the more they push to convince markets of the economy’s strength, the more they set us up for a crisis.

When Americans finally wake up and realize the Fed and U.S. government were bluffing all along, there will be no safety net to keep the economy from crashing down.

So we’re essentially caught in a twisted game of “chicken.” The Fed raises rates, and the economy edges upward - with neither paying any mind to what’s really going on.

A crisis is inevitable, and there’s only so much you can do to protect yourself. Securing your savings with precious metals like gold is one of the best ways to insulate yourself from this fallout. The Fed’s fantasy will have its day of reckoning, and it looks as though it may come soon.

It's 1937 All Over Again: Weak GDP, Soaring Inflation, and the Fed Hiking

The US economy continues to implode as inflation ignites.

GDP Now has collapsed from 3.4% in early February to 1.3% today. It will be revised even lower based on the awful deficit numbers (the US trade deficit hit a five year high in January).

Meanwhile, inflation is soaring.

The Fed tracks FOUR inflation metrics. They are Core CPI, Core PCE, Trimmed Mean CPI and Cleveland Median CPI.

Roughly all four are now at or above the Fed’s so-called “target” of 2%.

·      Core CPI is growing at an annualized rate of 2.1%.

·      Cleveland Median CPI is growing at an annualized rate of 2.2%.

·      Trimmed Mean CPI is growing at an annualized rate of 2.1%

·      Only Core PCE is just below the Fed’s target rate at 1.9%.

Weak economic growth and soaring inflation… there’s a word for that… it’s called STAG-flation.

The Fed is going to repeat its 1937 mistake of hiking rates into a weak economy. Now, like then. CPI is soaring while GDP growth flatlined.

Inflation soaring.

Year	% Change in Avg CPI Year over Year
1929	0.00%
1930	-2.30%
1931	-9.00%
1932	-9.90%
1933	-5.10%
1934	3.10%
1935	2.20%
1936	1.50%
1937	3.60%
1938	-2.10%

GDP flatlining.

The Fed aggressively hiked into this mess. The outcome?

The US plunged into recession and stocks nearly halved.

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Inflation Is Back: Biggest Increase In 4 Years

Image source: Pixabay.com

NEW YORK — Inflation is on the rise and driving the biggest price increases seen in four years.

Inflation rose .6 percent in January, the highest one-month increase since February 2013, according to the Bureau of Labor Statistics’ Consumer Price Index. Over the previous 12 months, prices were up 2.5 percent.

“Consumer prices have gained momentum in recent months,” Chris Christopher, an economist at IHS Global Insight, told CNBC. “This is not the best thing in the world for lower-income households living paycheck to paycheck.”

The price of gasoline has helped drive the increase. The gas index increased 7.8 percent in January and the overall energy index was up 4.0 percent.

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Among other highlights in the report:

• Transportation prices rose by 2.2 percent.


• Clothing prices rose by 1.4 percent.


• Prices for nondurable consumer goods increased by 1.2 percent.


• Prices for commodities (raw materials) increased by one percent.


• Prices for all consumer goods increased by .6 percent.


• Medical care prices increased by 3.2 percent.

The speed at which inflation is growing has more than doubled in the last year, rising from .3 percent to .7 percent, Market Mad House reported. Steen Jakobsen of Denmark’s Saxo Bank believes inflation could be much higher by the end of the year. He predicted that prices for Bitcoin, which many investors use to protect their assets from inflation, might increase by 165 percent by the end of 2017.

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