Pimco´s Bill Gross Must Read Piece On CPI

The following post from Bill Gross is worth reading every single sentence. While i´m with Mish on what Inflation is ( see Inflation: What the heck is it? ) it is very telling how the US is able in depressing the symptoms of inflation. But as long as foreigners are willing to destroy money in buying US treasuries and agency paper one has to congratulate the US for their excellent PR ( no sarcasm! )........ I´m staying with gold......

Ich empfehle dringend das komplette Posting von Bill Gross zu lesen. Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ). Es ist schon bemerkenswert wie die USA es schaffen die Symptome der Inflation auf äußert vielfältige Weise zu manipulieren. Der Irakfeldzug ist verglichen damit ein Lacher. Solange Sie es trotzdem schaffen genügend ausländische Investoren zu finden die Gelder besonders in Staatsanleihen und Papieren von Fannie & Freddie zu versenken kann man es den USA nicht einmal übel nehmen die kreative Berechnung jenseits von Enron & Co zu heben. Man muß hier ausdrücklich das herausragende PR loben ( das meine ich ehrlich ). Ich für meinen Teil bleibe da lieber beim Gold......

Thanks to Wall Street Follies

Hmmmmm? Gross / Pimco - What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois “rail-splitter” willing to tell the American people “what up” – “what really up.” We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

This, dear reader, looks a mite suspicious. Sure, inflation was legitimately much higher in selected hot spots such as Brazil and Vietnam in the late 90s and the U.S. productivity “miracle” may have helped reduce ours a touch compared to some of the rest, but the U.S. dollar over the same period has declined by 30% against a currency basket of its major competitors which should have had an opposite effect, everything else being equal. I ask you: does it make sense that we have a 3% – 4% lower rate of inflation than the rest of the world? Can economists really explain this with their contorted Phillips curve, output gap, multifactor productivity theorizing in an increasingly globalized “one price fits all” commodity driven global economy? I suspect not. Somebody’s been foolin’, perhaps foolin’ themselves – I don’t know. This isn’t a conspiracy blog and there are too many statisticians and analysts at the Bureau of Labor Statistics (BLS) and Treasury with rapid turnover to even think of it. I’m just concerned that some of the people are being fooled all of the time and that as an investor, an accurate measure of inflation makes a huge difference.
The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late 1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.

In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of calculation. The results are not pretty, but are undisclosed here because I cannot verify them. Still, the differences in my 10-year history of global CPI charts are startling, aren’t they? This in spite of a decade of financed-based, securitized, reflationary policies in the U.S. led by the public and private sector and a declining dollar. Hmmmmm?

In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now in a chart shared frequently with PIMCO’s Investment Committee by Mohamed El-Erian, the divergence is beginning to raise questions as to whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor as argued in El-Erian’s recent Secular Outlook summary suggest otherwise.

The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens. But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low CPI in the calculation of nominal bond yields in effect means that real yields – including TIPS – are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories – bonds, stocks, and real estate – would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.

A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right. Hmmmmm?

What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.

Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world. Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.

Jim Rogers Shifts All Assets Out of Dollar to Buy Yuan

I´m not sure if the Chinese are happy with comments like this...... But there is little doubt that the Yuan is significantly undervalued. I recommend to visit Brad Setser´s Blog to read more about this topic. Lets be clear a rise of the Yuan will change the landscape for lots of regions and will have big implications for all asset classes for years to come. In the meantime the Chinese have to deal with lots of hot money that is chasing Chinese assets.

Ich kann mir vorstellen das die chinesischen Offiziellen solche Kommenate nicht gerne hören.... Aber es besteht kaum ein Zweifel das der Yuan deutlich unterbewertet ist. Mehr Expertise zu diesem Thema gibt es regelmäßig auf Brad Setser´s Blog. Ein schneller Anstieg dürfte zu einigen Verwerfungen führen und dürfte kaum eine Region oder Anlageklasse unbeeindruckt lassen. In der Zwischenzeit müssen die Chinesen damit leben das eine Menge "Hot Money" chinesche Vermögenswerte regelrecht jagt .

Jim Rogers Shifts Assets Out of Dollar to Buy Yuan Oct. 24 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium.

The dollar has dropped against all the 16 most actively traded currencies except the Mexican peso this year as slowing growth and the first interest-rate reduction since 2003 last month dimmed the allure of dollar-denominated assets.

Since the Fed lowered U.S. interest rates on Sept. 18, the first cut in four years, the dollar has fallen 2.8 percent against the euro and touched a record low yesterday. Gold rose to a 27-year high and platinum jumped to a record.

``It's the official policy of the central bank and the U.S. to debase the currency,'' said Rogers, a former partner of George Soros.

Reserve Currency
``The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange,'' he said. ``That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.''

The Chinese currency, known as the renminbi, or yuan, is ``the best currency to buy right now,'' Rogers said. ``I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple.''

> Here is short term outlook from Morgans Stanley on this topic Fasten the Seatbelt

> Hier ein aktueller Kommentar von Morgan Stanley zu diesem Thema Fasten the Seatbelt

China has followed a gradualist approach. In 2006, the renminbi appreciated against the US dollar by 3.4% but against the currency basket (i.e., the NEER) by only about 0.8%. As of last Friday, the cumulative appreciation against the US dollar so far this year was 4%, but against the currency basket only about 1.4%

Since I expect the pace of renminbi appreciation against the US dollar to accelerate markedly for the remainder of the year, I endorse our FX strategy team’s forecast that the USD/CNY rate will reach 7.30 by end-December (see FX Impulse, October 18, 2007). This year-end target implies about 2.7% appreciation of the renminbi against the US dollar for the remainder of the year and slightly less than 7% for 2007 as a whole.

Despite this seemingly aggressive USD/CNY forecast, I estimate – based on our FX strategy team’s forecasts of the exchange rates for China’s major trading partners – the cumulative appreciation of renminbi NEER for 2007 will be only about 3.9%

The yuan strengthened past 7.5 to the dollar today for the first since the central bank ended a fixed exchange rate in July 2005. The currency has gained 10.5 percent since the dollar link was abandoned.

China, growing faster than any other major economy, is ``going to be the most important country in the 21st century,'' he said. China's gross domestic product expanded 11.9 percent in the second quarter, and analysts surveyed by Bloomberg estimate the economy grew by 11.5 percent in the three months to Sept. 30.

> I recommend to read Is the credit squeeze a prelude to a China crash? from John Plender via the FT. I suggest to read the entire link.

> Hier ein weniger bullische Meinung von John Plender Is the credit squeeze a prelude to a China crash? via der FT. Ich empfehle den kompletten Link zu lesen.

The backcloth has invariably been a shift in global power whereby the growth of an immature creditor country wedded to protectionist trade policy has contributed to imbalances of savings and investment. Attempts to manage the currency volatility arising from imbalances have derailed monetary policy and created bubbles in asset markets, leading to crashes and financial distress.

Rogers also is buying Swiss francs and Japanese yen, which he said have been ``pounded down'' because of the so-called carry trades.

Unwinding Carry Trades
In the carry trade, investors borrow in countries with low interest rates, such as Japan, and invest the proceeds where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.

The carry trades in yen and francs will ``unwind someday,'' which will send the currencies ``straight up,'' Rogers said. ``I'm buying the yen.''

The bull markets in bonds and stocks are ``over,'' he said. ``Bonds will be a terrible place to be for many years and will in fact be going down for many years.''

Rogers said he remains bullish on commodities because ``that's where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.''

Commodity Prices
Commodity prices have surged as demand for raw materials, especially from China, rose faster than producers were able to increase output. Agricultural prices have led recent gains, including a record high for wheat last month and a three-year high in soybeans.

``The number of hectares devoted to wheat farming has been declining for 30 years, the inventory levels of food are at the lowest level since 1972,'' Rogers said. ``Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things.''

He added, ``I think I'm going to make more money in agriculture than I make in precious metals.''

Platinum, gold, silver and palladium will ``be much, much higher during the course of the bull market,'' he said.

If we are Rome, Wall Street's our Coliseum

Somehow Jack Nicholson in "A Few Good Men" with his famous speech "You can´t handle the truth" comes to mind. 50 trillion hole and growing 3 to 4 trillion annually......Please click on the headline to read the entire piece.

Irgendwie erscheint mir bei diesem Thema die inzwischen berühmte Rede von Jack Nicolson aus "Eine Frage der Ehre" über die Wahrheit vor dem gesitigen Auge. Eine Lücke von 50 billion die jedes Jahr 3-4 billion anwächst. Leider kein Tippfehler...Klickt bitte auf die Überschrift um den kompletten Bericht zu lesen.

Maybe you don´t need to handle the truth if you believe in forecasts like this The Triumph Of Hope Over Experience

Aber evtl. verdrängt man die Wahrheit einfach am besten mit Prognosen wie diesen The Triumph Of Hope Over Experience

Should be great news for the Greenback down the road..... Thank god that the Fed is vigilant in fighting inflation ( see chart ) ...... ;-)

Das alles sollten zukünftig "tolle" Neuigkeiten für den US$ sein.... Wie gut das die Fed stets ein entschlossener Inflationsbekämpfer ist ( siehe Chart) ...... ;-)

Thanks to Bud Wood for the excellent Chart!

(Marketwatch) Comptroller General warns (again), we're 'bankrupting America'

What do Cassandra, "Chicken Little," the "Boy Who Cried Wolf" and David Walker, America's Comptroller General and head of the U.S. Government Accountability Office, all have in common?

Nobody pays attention to them!

Except for a short piece in London's Financial Times, Walker's warnings were generally ignored by the American press, by the public and even by the very Congress that hired him and has the power to do something, yet still refuses to heed his warnings. ......

>Here a not so depressing interview with the Comptroller himself with Colbert :-)

>Hier zur Abwechslung ein nicht so ganz deprimierendes Interview mit David M. Walker von Colbert :-)


got gold.....?

The Biggest Dollar Diversifiers Are American / S. Jen

While i not agree that the US $ is sound Stephen Jen puts up some excellent points why the Greenback is facing some "hidden" headwinds. The obvious problems like a slumping US economy, the diversification from Foreign Central Banks away from the $, deficits etc are well known ... He points out several others reason why the $ is losing faith..... He blames the Fed and its "bailout" mentality under Greenspan and probably under Bernanke.... On top of this it isn´t helping the $ when the Fed is the only Central Bank that is targeting the useless "core rate" when others are fighting the headline CPI. Both are not very successful...... But the key point is that the big guys are fleeing or as Wall Street and others would say "diversifying" out of the dollar holdings at a accelerating pace........Make sure you read also this piece from Brad Setzer

Obwohl ich nicht mit der These übereinstimme das die Fundamentaldaten für den $ immer npch gut sein sollen macht Stephen Jen hier einen sehr guten Job und weist auf einige nicht so offensichtliche Punkte hin die einen Teil der aktuellen Dollarschwäche erklären. Die offensichtlichen Probleme des $ wie eine abschmierende Volkswirtschaft, Diversifikation der Notenbanken aus dem $, Defiizite usw. sind inzwischen selbst auf CNBC angekommen. Jen aber arbeitet andere nicht so offensichtliche Punkte heraus, wie z.B. das die Fed dank Greenspan zurecht eine Mentalität unterstellt das im Falle einer Krise immer die Geldschleusen großzugig geöffnet werden. Dazu kommt dann noch das die Fed die einzige Notenbank ist die lediglich die alberne "Core" Inflation "bekämpft". Der wichtigste Punkt aber ist das die Amis selbst aus dem $raum flüchten oder vornehmer ausgedrückt "diversifizieren"..... Kann Euch in diesem Zusammenhang noch empfehlen das von Brad Setzer zu lesen.

The dollar is very weak relative to most currencies. While cyclical factors have played an important role, I don’t believe that cable is trading at 2.05 and EUR/USD at 1.38 due only to these rather innocuous cyclical factors. Other structural factors may be at play. One possible structural reason for the dollar to have had a gradual downward trajectory since 2002 is, I suspect, portfolio diversification by US real money managers.

Cyclical explanations for the weak dollar
There are ample cyclical reasons for the dollar to have underperformed recently. First, the US economy is weaker than almost every other economy in the world. Though we may have seen the trough in the US business cycle in 1Q, the recovery trajectory is likely to be modest, after a surge in 2Q. The rest of the world, however, continues to surprise to the upside, showing no sign of lagged effects of the softness in the US economy from 2Q06 to 1Q07. No longer do investors doubt the ‘de-coupling’ thesis. Monetary policy between the Fed and other central banks is in direct correspondence to this expected divergence in economic growth. As a result, the dollar may sag as long as other central banks remain in motion.
Second, in addition to these central case expectations of the US and the rest of the world, due to the problems with the sub-prime market and the housing sector, the risk to the US outlook is biased to the downside, with limited spillovers expected for the rest of the world. Investors have the collective memory that the Federal Reserve eased interest rates by 75bp in 1998 in response to the failure of LTCM, despite the fact that the general macro conditions were positive and inflation was drifting higher. With this track record, investors believe that the Fed may have difficulties raising interest rates if the sub-prime problem persists.
Third, higher oil prices are positive for EUR/USD. Not only do oil exporters have a marginal propensity to consume European goods that is twice as high as that for US-made goods, but the fact that the ECB targets headline inflation while the Fed targets core inflation may also have encouraged investors to expect EUR/USD to rise with oil prices. ....

Diversification by US real money accounts
While the cyclical factors I mentioned above may help explain why the dollar has depreciated recently, they don’t give a satisfactory explanation as to why the current level of the dollar is so extremely low. In retrospect, since 2002, the dollar has had its ups and downs, but the underlying trend has been downward. I have long argued that the dollar is structurally sound, and provided reasons (such as the ‘de facto dollar zone’, valuation, geopolitical hegemony, dominance in the global financial markets, etc.) justifying why the dollar’s hegemony will be preserved. I am still convinced by many of my arguments. However, I am now taking more seriously the thesis that US real money investors have been steadily diversifying away from USD assets since 2003. ...The dollar may thus still be structurally sound, but not as sound as I had thought.

US real money accounts consist of four key categories of funds: mutual funds, private pension funds, state and local pension funds and life insurers. The Fed’s Flow of Funds data track the sizes of these funds. As of 1Q07, the total assets under management by these four categories reached US$20.7 trillion, up from US$12.6 trillion in 1Q03. At more than US$20 trillion, real money under management in the US is close to four times the size of the world’s official foreign reserves. Any signs of diversification by these real money accounts would have great implications for the dollar. While I don’t have a breakdown of the asset allocation of all four categories, the Boston Fed’s Monthly Mutual Fund Report shows that mutual funds’ allocation to international equities has risen from around 15% in 2003 to 22.5% now. This trend diversification is gradual but determined.

If we apply this outward investment allocation ratio to the total stock of mutual funds, the cumulative outflows of mutual fund investment since 2003 are around US$400 billion. But if we apply this outward investment allocation ratio to the entire stock of real money accounts, the cumulative outflows since 2003 total US$1.16 trillion: US$190 billion in 2003, US$295 billion in 2004, US$324 billion in 2005 and US$352 billion in 2006. These outflows are indeed massive.

Bottom line
Contrary to popular presumption, US real money mangers are the biggest dollar diversifiers, not the Asian central banks. Controlling assets that are four times the size of the total global official foreign reserves, US real money managers have been steadily diversifying out of the US since 2003. My calculations show that cumulative outflows may have totaled US$1.16 trillion in the past four years. This may help explain the downward drift in the dollar in recent years, and why the dollar is so weak now.

Oil Inflation Adjusted / Chart Of The Day

On top of this i recommend Can the Fed control prices? from Mish

Passend zum Thema empfehle ich den o.g. Link von Mish

The price of crude oil is rising once again. Today’s chart provides some perspective to the latest price spike with a long-term view of West Texas Intermediate Crude.

One point of interest is that oil is trading near 25-year highs but still well below the inflation-adjusted highs of 1980. It is also interesting to note that most oil price spikes were a result of Middle East crises and often preceded or coincided with a US recession.

Bernanke Vs The CEO Of Nestle On Food Inflation

Who do you believe? I´ll go with the expert from the world largest food company and not with the spin masters from the FED who eats at the CPI cafe.

Wem würdet Ihr glauben? Ich halte mich da doch eher an den Experten des größten Nahrungsmittelkonzernes der Welt und nicht and den in einer parallelwelt lebenden FED Chef der im CPI Cafe essen geht....

Thanks to Wall Street Follies

This is taken from Herb Greenberg.

The head of Nestle doesn't see food inflation as a short-term issue, but part of "structural" changes in his world. So much for this "core inflation is in check" mumbo jumbo. Check, please.

At the same time Bernanke is living in his own "core world" and wonders why the inflation expectation are imperfectly anchored.....

Zur gleichen Zeit fabuliert Bernanke weiter über seine eigene "core" Welt und wundert sich das die Inflationserwartungen nur suboptimal verankert sind....

"Delivering a speech to the National Bureau of Economic Research, the Fed chief said "changes in energy [and food] prices should have relatively little influence on 'core' inflation, that is, inflation excluding the prices of food and energy."

Make sure you read Barry Ritholtz nice rant Un-frickin-believable

M3 in europe / Chart

the most worrisome is that the ecb has an official m3 target around 4-5% and m3 is part of their monetary policy.......

am übelsten stößt einem auf das die ezb ein offizielles geldmengenziel von 4-5% hat und das die geldmenge als zweite säule bei der betrachtung ezb politik betrachtet wird........

got gold...?

Three Strikes and Out / PIMCO on UK CPInflation

the only reason the mpc has to ease at the end of the year is the coming crises in housing.... click on the headline if you want read the rest.

der einzige grund warum die boe ende des jahres evtl. die zinsen senken könnte wird das platzen der immobilienblase sein. bitte auf die überschrift klicken um den rest zu lesen.


Over the last year the Consumer Price Index has risen from 1.8% to 3.1%, although excluding the volatile food and energy components the increase has been a more modest 0.6% (from 1.3% to 1.9%).

>they should have talkes to the fed how to "dampen" cpi....
>hätten sie bloss die fed gefragt wie man sich den cpi schönrechnen kann.......

here is more on the individual calculation of inflation from tim http://tinyurl.com/2zx44g

Allison Lauder, a 32 year old solicitor had a calculated personal inflation rate of 7.4 per cent versus the ONS figure of 4.4 percent. John Yates, age 77 and retired, registered 7.5 per cent versus the ONS's estimate of 3.9 per cent. And Niki Chesworth, a 44 year old freelance journalist and her partner, Guy, a 45 year old engineer, posted a personal inflation rate of 8.7 per cent, double the figure from the ONS.

So does the MPC have a problem or not? Price expectations suggest cause for concern, and indeed the MPC is worried. Pricing expectations for firms are at multi-year highs and consumer- and market-implied inflation expectations all suggest that the MPC’s credibility is on the line.



As chart 1 shows, manufacturers’ price expectations correlate well with actual output prices – i.e., expectations explain current prices coming from manufacturers, not future prices. So if they are coincident with prices of products coming off the factory floor, how do these price expectations compare with prices on the high street?

However the forward indicators, most notably wages and input prices, suggest this latest blip in inflation is relatively transitory and will pass. If that is the case, the second half of the year should see inflation ease and expectations fall, allowing the MPC to refocus on aggregate demand. With the impact of the MPC’s cumulative interest rate hikes likely to come through over the second half of the year, we could be faced with falling inflation and falling growth rather than rising inflation and respectable growth. In that environment the MPC’s management of aggregate demand would imply that the year would end with monetary policy moving toward supporting rather than restraining growth. In that environment the outlook for the bond markets should be much better, and two and five year bonds, with the greatest sensitivity to the MPC’s rate decisions, should be the prime beneficiaries of a policy reversal.

The Fate of the Greenback—Have We Lost Control of Its Fate? / Minyanville

good that the fed is so tough on inflation........... click on the headlines to see other $ charts.

ein glück das die fed sich so der inflationsbekämpfung verschrieben hat..... bitte auf die überschrift für mehr $ charts klicken.

got gold....?

disclosure: long gold, goldbugs/hui

Inflation in Saudi Arabia / Brad Setzer

after questioning the us quality of measuring cpi i think was to harsh... (click labels)

here comes saudi arabia!

thanks to brad setser and his excellent blog. http://www.rgemonitor.com/blog/setser/

nachdem ich ja in der vergangenheit die eigenarten der us erhebung des cpi kritisiert habe relativiert sich die kritik wenn man sieht wie kreativ saudi arabien vorgeht.

empfehle zudem den link und den blog von brad setser.


The details reported in the Sfakianakis paper left me more convinced that the Saudi data – which shows a 3.5% y/y increase in prices – understates actual inflation. Some tidbits:

• The price of a schawarma sandwich is up 30% in the last 18 months.


• Fresh fruit prices are up between 50 and 80% (y/y), and vegetable prices are up 20-40%, according to an informal survey. It seems that higher paying construction jobs are pulling imported labor out of agriculture (cement factories are at 100% of capacity).


• Beef prices are up 15%, Fish prices are up 20-35% (all y/y).


• Rents in Riyadh are up 20-25% y/y


• Wages for high-end construction jobs are up 50% -- and Saudi contractors are complaining of a shortage of imported labor at the low-end.

All in all, that doesn’t sound to me like an economy with 3.5% inflation, even if the price of a telephone call is falling. A cut in fuel prices (yes, a cut -- nothing like sitting on a big pool of oil) in 2006 did help hold down 2006 inflation, but no further cuts are expected in 2007 ...

spin, spin, spin.....

bonds are up, stock futures are up, everything is bullish...... except the $......

anleihen rauf, aktien rauf, alles bullish........ bis auf den $.......

U.S. housing starts down 23% year-on-year
U.S. building permits down 26% year-on-year
but still higher than expected…....thanks to

Starts increased 0.8 percent mom to a seasonally adjusted 1.518 million annualized rate following a rate of 1.506 million in February, downwardly revised from 1.525 million.

more on the bullish news from paper money http://tinyurl.com/29r2v5
U.S. March CPI up 0.6% vs 0.7% expected
U.S. March CPI largest gain since April 2006
U.S. March core CPI up 0.1% vs. 0.2% expected (see cartoon)

Core prices were up 2.5 percent in the 12 months ended in March, the smallest year-over-year gain since May. Overall prices were up 2.8 percent from the same time last year, compared with a 2.4 percent gain in February

thanks to http://www.wallstreetfollies.com/

UPDATE:

U.S. March median CPI up 0.3%: Cleveland Fed

U.S. median CPI up 3.5% in past year, vs. 3.6%

Michael Bryan and Stephen Cecchetti (from the cleveland fed) have found a measure that forecasts inflation better than either the CPI excluding food and energy or the all-items CPI: a weighted median of the CPI. The weighted median CPI is easy to calculate and has a higher correlation with past money growth than other inflation measures, resulting in improved forecasts of future inflation.

here the link to the cleveland fed http://tinyurl.com/2mraql

and when all the vacant housing units will lead to a softer "owners' equivalent rent" (makes 40% of the basket) they don´t need to spin that much in the future to "create" a low cpi number

und wenn in naher zukunft all die leerstehenden immobilien die "oer" drücken (machen 40% des warenkorbes aus) brauchen die sich zukünftig nicht mal sonderlich anstrengen um die inflation niedrig zu rechnen

please click on the labels for more on the often "unique" us cpi/inflation calculation.

für mehr infos zu der oft eigenwilligen cpi/inflationsberechnung bitte unter den labels nachlesen.

i highly recommend the post from mish / ich empfehle zudem den nachfolgenden link

"Inflation: What the heck is it?"

http://tinyurl.com/msno7

disclosure: long gold/goldbugs

An Inflation Heat Map / business week

click on the headline to read the full piece

bitte auf die überschrift klicken um den vollen bericht zu lesen

.....A look at recent and upcoming data shows the Fed has little wiggle room as it tries to figure the balance of risk between inflation and growth ......



>remember this map when the media and wall street is spinning that consumer price inflation is no problem (even with the creative and unique fed formula....see graph..). especially with the fed minutes out today......

>behaltet diese auflistung vor augen wqenn es demnächste wieder auf cnbc und wall street heisst das inflation kein them ist ( selbst unter zuhilfenahme der kreativen fedformel....) besonders wichtig da die fed minutes heute veröffentlicht werden....

thanks to http://www.wallstreetfollies.com/

got gold....?

what inflation...? colbert :-)

click on the headline to see how a old man went mad on the increase in his electric bill .....

bitte auf die überschrift klicken um zu sehen wie einige gegen die erhöhung der stromrechnung protestieren.....

thanks to http://tickersense.typepad.com/ticker_sense/

if you want to read more on inflation (the math could also be from colbert/comedy channel....) click on the label.

wenn ihr mehr zur inflation in den usa wissen wollt bitte auf das label klicken (die rechenkünste sind teilweise auch lachhaft...)

The Case for Gold

thanks to http://www.minyanville.com/n and http://www.wallstreetfollies.com/

good that the fed is so tough ( when you buy their definition ) on inflation......

gut das die fed so wachsam im bekämpfen der inflation ( wenn man die definition der fed glaubt) ist........


this sums it up.... funny when experts try to explain the gold price with the demand from jewellery. real experts.......

das fasst es perfekt zusammen. lustig wenn sogennante experten die bewegung im goldpreis mit steigender und fallender schmucknachfrage erklären wollen.

health care costs and the inflation basket

http://tickersense.typepad.com/ rocks!

In the first chart below, we highlight the percentage of GDP contributed by personal spending of durable goods, non durable goods and services on a yearly basis. Breaking up the services category, we see that medical costs continue to make up a greater portion of GDP.

mhhh, so medical costs are soaring. i know that this is not quite comparing apples to apples but the disconnect is obvious. look how this has effected the "inflation basket" .................

der gesundheitssektor und die kosten stiegen stetig. versteht sich von selbst das dies keinerlei auswirkungen auf den inflationskorb hat........


Expenditure category
---------------------------------
Food and beverages 15.7
Housing 40.9
Apparel 4.4
Transportation 17.1
Medical care 5.8
Recreation 6.0
Education/communication 5.8
Other goods & services 4.3
---------------------------------
Total, all items 100.0



and when you have read this excellent piece from busineww week you know that the health care complex has to grow to support the us economy.
http://immobilienblasen.blogspot.com/2006/09/whats-really-propping-up-economy.html

und jeder der das meisterwerk von business week gelesen hat wird übereinstimmen das dieser bereich zukünfztig der einzige richtige wachstumstreiber der usa sein wird.

Fed's Inflation Analysis Ranks With Zimbabwe's: Caroline Baum

harsh words..... to the defense of bernanke and the fed one can argue that they are not alone. the liquidity is exploding around the globe. even in the eu were the ecb watches (unlike the fed) the money supply very closely the growth is close to double digits and far above the ecb taget. and it looks like the central banks have lost control over the creditexplosion that causes inflation. but that should be enough of fed defense from this writer...... :-)

i highly recommend what congressman ron paul has to say on this topic! (thanks to mish
Monetary Policy and the State of the Economy - Ron Paul http://forum.themarkettraders.com/read-m/26/1803/1814#msg-1814

ziemlich harte töne.....zur verteidigung der fed kann man anführen das die weltweit nicht allein sind. nahezu überall explodiert die geldmenge. selbst die ezb die ja im gegensatz zur fed die geldmenge als wichtig einstuft wächst diese fast zweistellig und damit deutlichst über dem gewünschten level. mehr wird man von mir in sachen fedverteidigung aber nicht hören..... :-)
empfehle den o.g. link von einem kongressabgeordneten zu diesem thema.



Feb. 20 (Bloomberg) -- Maybe it was the repetition, the iteration of the same monetary policy testimony on back-to-back days last week, that did it, that left the words grating on my consciousness.

Here was Federal Reserve Chairman Ben Bernanke, one of the outstanding monetary economists of his time, talking about inflation as if it were the result of some pesky exogenous forces.

``A waning of temporary factors that boosted inflation in recent years will probably help foster a continued edging down of core inflation,''.......

What's more, the contribution ``from rents and shelter costs should also fall back,'' he said.


There's a big difference between an inflation measure, which Bernanke was talking about, and the inflation process. Policy makers -- Bernanke, Alan Greenspan before him, the Fed governors and bank presidents -- talk about the effect oil prices or imputed rental costs have on inflation gauges, such as the consumer price index. That's not the same as the inflation process, which is always and everywhere a monetary phenomenon.

If oil prices rise because cold weather boosts demand, the relative price increase may manifest itself as a rise in the CPI in the short run. But with appropriate growth in the money stock, the demand for, and price of, something else should fall. (unfortunately the fed has "created" some methods to suppress this number (hedonic, core, substitution, oer etc......)/ zudem hat die fed in kreativer weise ganz eigene wege gefunden selbst den cpi zu drücken..... thanks to http://www.wallstreetfollies.com/ )


Cause and Effect
So when Bernanke talks about temporary ``factors'' boosting inflation, he is really talking about temporary ``effects'' of higher oil prices on the CPI. Oil prices don't cause inflation. Nor do wages, even though you'd never know it from discussions on the subject. The Fed causes inflation all by itself, creating too much money relative to the supply of goods and services.

If the inflation-as-effect posture is just a shorthand way of communicating with Congress, that's one thing. If it's the Fed's analytical framework for inflation, then we're in trouble. The tenor of the discussion of inflation in the minutes of the Fed's policy meetings, which are in line with the comments in the testimony, makes me wonder.

To his credit, Bernanke did give members of Congress a rudimentary lesson in the inflation process: not the Fed's role in it but an intermediate step along the way.....

Out-of-Everywhere
For example, anyone reading the Feb. 7 New York Times article http://tinyurl.com/2ebq5e on the ravages of Zimbabwe's hyperinflation (1,594 percent in January, and that's month-over-month) would be confused about what causes inflation. After stating that hyperinflation is ``eroding the government's control over every aspect of public life'' -- as if it were the control, not the lives, that mattered -- the Times quotes Harare economist John Robertson on the problem at hand.

The government says ``they can fix prices, but the things that cause price increases come from so many different directions that the government can't control them all,'' ...

Funny thing about those multidirectional price-increase emanations. They may come from so many different directions, but they all originate with one source: too much money.

Mute On Money
The Zimbabwe government recently outlawed inflation, arresting a number of senior executives in recent months for breaking the law: raising the price of flour and bread without the express approval of the Ministry of Industry and International Trade.

Venezuelan President Hugo Chavez adopted the same inflation- fighting tactic, threatening jail sentences and even nationaliztion if grocery store owners defy price controls.

The 1,331 word New York Times article on Zimbabwe's economy never mentions money. Rarely does the Fed refer to money -- in its public statements and apparently in its internal discussions. There are no mandated targets for the monetary aggregates, fewer aggregates (reporting on M3 was discontinued last year much to the chagrin of conspiracy theorists), no agreement on how to define money and no good way to measure it, we're told. thanks to john williams shadow stats http://www.shadowstats.com/cgi-bin/sgs


But excess money creation is the cause of inflation, and it would be better if the Fed could make the public understand that the rise in the price level is not a result of higher commodity prices, aggressive labor union demands for wage increases or greedy businessmen trying to milk the public.


It may not sell in Zimbabwe, where anyone trying to explain the roots of inflation might be arrested on the spot. But in the U.S., with inflation running at about 2.5 percent ( watch the alternative inflation number from john williams shadow stats http://www.shadowstats.com/cgi-bin/sgs, the public can handle the truth. (well maybe the fed should start to report a honest cpi number ...evtl. sollten die zumindest mal den anfang machen und ehrliche cpi nummern veröffentlichen)

"China Consumer Prices Rise Most in 20 Months on Food "

"core" rate excluding the 30% foodportion of the basket sound like the fed. add to this that china controll the eneryprices and you wonder why anybody looks at the "inflation" numbers and the all the talk about low inflation etc.

kerninflation die satte 30% des warnekorbes (essen) ausklammert und zudem noch energiepreise die staatlich festgesetzt werden.... warum nimmt überhaupt einer diese niedrigen "inflationszahlen" ernst.

Dec. 11 (Bloomberg) -- Inflation in China, the world's fastest-growing major economy, accelerated more than expected in November as food costs increased at the quickest pace in almost two years.

Consumer prices rose 1.9 percent from a year earlier, the National Bureau of Statistics said today. That was the biggest gain in 20 months, ....topped all estimates among 21 economists surveyed .....

Chinese stocks and bonds rose as non-food inflation held at 1 percent (the chinese "core"?!/die chinesiche "kerninflation"?!), damping expectations that the central bank will respond by raising interest rates. Central bank Governor Zhou Xiaochuan last month said pressure to add to two lending rate increases since April has lessened. (what a rational..../was ne logik....)

``There's nothing major to worry about,'' ........ It's mostly driven by food prices.''

Food costs, which account for a third of the consumer price index, jumped 3.7 percent after climbing 2.2 percent in October, driven by a 4.7 percent surge in grain prices. Clothing prices gained 0.1 percent, the first increase since at least 1999. For the first 11 months, consumer prices rose 1.3 percent from the same period last year.

Food prices are ``volatile'' (sound like fedtalk...) and aren't likely to cause inflation to skyrocket, .....

Trade Surplus
The Shanghai and Shenzhen 300 Index rose 2.3 percent as of 1:01 p.m. local time. The yield on the 3 percent local-currency bond due in December 2008 fell 5 basis points to 2.95 percent

As China today reported its second-largest trade surplus ever, the central bank sold 120 billion yuan ($15.3 billion) of one-year bills to lenders in the biggest sale this year, draining cash from the financial system. The November surplus was $22.9 billion.

http://immobilienblasen.blogspot.com/2006/12/china-is-putting-on-breaks-bank-reserve.html

``Headline inflation is not much of a problem right now for ...... ``It is quite benign and mostly affected by agricultural products.''

Energy Prices
The central bank last month forecast consumer inflation will ease to 1.5 percent for 2006 from 1.8 percent in 2005.(good call with the 1,9% number reportet..../hat ja wunderbar hingehauen....)

Even so, it said inflation could quicken as China deregulates energy prices and boosts welfare spending. In addition, a possible rebound in investment could send raw material costs higher, the bank said. (how do you than come up with an low inflation estimate? could only be if the yuan wil strenghten significantly/ wie kann man da mit ner niedrigen inflation rechnen? geht wohl nur wenn der yuan weiter deutlich aufwertet.)

....China, which controls gains in the yuan, should allow faster currency appreciation to prevent export-driven money inflows from fanning inflation, .....(china is not alone with this kind of problem. watch the problems in the middle east oil exporters "prices are rising in the UAE at an annual rate of 7%, but independent estimates put it at 15%."

``By allowing the currency to appreciate, China could help lower the import cost of food,'' (and of course oil!!)

Interest Rates
Zhou raised interest rates in April and August and has ordered lenders to set aside more money as reserves three times this year. http://immobilienblasen.blogspot.com/2006/12/china-is-putting-on-breaks-bank-reserve.html

On Dec. 7, Zhou and his colleagues said they plan to achieve a ``stable'' monetary policy and ``adequate'' money supply growth next year and seek to balance international payments. M2 money supply rose 16.8 percent ( always a matter of perspective what "adequate" means. / alles ne frage der definition von "adequat" )

China's stocks had the biggest fall in almost five months on Dec. 8, after state media suggested the government may raise rates to cool the property market. ( sound familiar/ klingt vertraut)

enron acounting to keep inflation low

more examples of enron style acounting......./ mehr beispiele für kreative erhebungsmethoden

http://immobilienblasen.blogspot.com/search?q=statistik

hat tip to barry ritholtz! make sure you read the full story

http://bigpicture.typepad.com/comments/2006/11/ppi_hedonic_adj.html

plus http://housingdoom.com/ for the hint.

PPI Hedonic Adjustments

“Prices for light motor trucks fell 9.7 percent following a 3.5-percent gain in the preceding month. From October 2005 to October 2006, the index for light motor trucks dropped 12.4 percent…In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October. (See Report on Quality Changes for 2007 Model Vehicles, USDL 06-1973.)” Quality changes produce hedonic adjustments to prices. Ergo the large drop in vehicle prices is fiction. It’s the work of BLS bureaucrats, the Winston Smiths from “1984”.

The ‘quality’ or hedonic adjustment to light vehicles is $392.10/vehicle. The BLS reduced the actual costs of these vehicles by $392.10 ERV. For autos the BLS adjusted the real price $139.96 lower. So as we have maintained for years, PPI and especially CPI are constructed so that they can’t show actual inflationary changes or pressure." (emphasis added)