Speechless on Core CPI
I did a really crappy job last night responding to Jason Trennert's comments on inflation. Mostly because I was stunned that, at this point, anyone is seriously going to argue that inflation is benign.
I am paraphrasing, but Jason (an otherwise very nice guy) said words to the effect of "The Fed’s preferred inflation measure, Core PCE, showed little or no inflation (+1.4%)."
Meanwhile, Gold, Crude Oil, soft commodities and the CRB Index all rallied to new highs as the US Dollar $ declined to new lows. The front page of today's WSJ has an article: Historic Surge In Grain Prices Roils Markets . . . but there's no inflation.
I wonder what people will be saying when the September CPI comes out. It will be substantially higher due to soaring energy and food prices this month. Oh, wait, that's not in the core. (Nevermind).
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No Inflation here:
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Gee, I wonder why the Fed prefers Core PCE as an inflation measure -- instead of what is occurring in the real world?
Ironically, while Wall Street pundits and economists lap up obviously defective government data, the rest of the country is having none of it: According to this recent Gallup poll, public trust in the Federal Government -- across the board, on nearly every issue -- is at or near all time lows.
The government now ranks lower than it did post-Watergate:
"A new Gallup poll reveals that, as the organization puts it, Americans now "express less trust in the federal government than at any point in the past decade, and trust in many federal government institutions is now lower than it was during the Watergate era, generally recognized as the low point in American history for trust in government."
Among the findings: Barely half trust the government to handle international problems, the lowest number ever. And less than half express faith in the government handling domestic issues, the lowest findings since 1976.
Faith in the executive branch has fallen to 43% -- only 3% higher than it was just before President Nixon's resignation in 1974. At the same time, trust in Congress, at 50%, is its lowest ever.
Gallup has asked about trust in government since 1972. It conducted this year's poll Sept. 14-16 and found the following:
-- Barely half of Americans, 51%, say they have a "great deal" or "fair amount" of trust in the federal government to handle international problems.
-- Less than half of Americans, 47%, now have at least a fair amount of trust in the federal government to handle domestic problems."
The apportionment of this can be debated. I put about 60% of it on the White House -- primarily Iraq, Katrina, and the bifurcated economy -- and 40% on the Congress.
When the GOP controlled the legislative branch, they were either spending taxpayer money like drunken sailors on shore leave, chasing interns, or having gay sex in airport bathrooms. You know, the business of the people.
Now that the Democrats control Congress, they appear to this Independent to be nearly as bumbling and incompetent as the executive branch.
It almost makes you think Mark Twain was right: "Why Vote? It only encourages them!"
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Source:
GALLUP: Trust in Federal Government, On Nearly All Issues, Hits New Low
Even Less Than in Watergate Era
E&P, September 27, 2007 10:30 AM ET
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003647275
Low Trust in Federal Government Rivals Watergate Era Levels
Trust in state, local governments holding steady
Jeffrey M. Jones
GALLUP NEWS SERVICE, September 26, 2007
http://www.galluppoll.com/content/default.aspx?ci=28795
Historic Surge In Grain Prices Roils Markets
SCOTT KILMAN
WSJ, September 28, 2007; Page A1
http://online.wsj.com/article/SB119093856250042023.html
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» Exporting Inflation from China from The Big Picture
Speaking of Inflation, you can actually see the official inflation rate of China here: Some of the actual data: Food inflation is running 7.65% year over year, led by meat and poultry (17%) and vegetables (20%). Health care in China was flat (0.59%) --... [Read More]
Tracked on Sep 28, 2007 10:59:00 AM
Comments
I wonder how much resonance there is in the following statement: No matter which party's in power, I lose.
Posted by: P. K. | Sep 28, 2007 7:38:08 AM
The CPI wasn't always a political construct. In the 1970s it did by and large reflect peoples experience of inflation. But after the change to OER in the early 1980s it started a slippery slope that got us to the Boskin report of the mid 1990s. Now a low CPI is mostly a signal to the leverage class to start loading up on bonds.
The govetnment has a problem though. It is fighting geometric growth. They can manage inflation expectations for a while but in the longer term they are bound to fail.
Posted by: Fullcarry | Sep 28, 2007 7:48:11 AM
BR,
Dont beat yourself up. You did fine with your 90 seconds. Even Jason had a slight smirk on his face when he said the CPI was low. I admit, I do like watching Kudlow, my only comment is, have 2, or 3 guests at the most on at a time and let them speak more. Larry is very knowledgeable, but he does tend to take over the conversation and talk his points a bit too long.
Posted by: Brian B. | Sep 28, 2007 7:56:51 AM
Vote Ron Paul. His platform ought to shake things up.
Posted by: Loren | Sep 28, 2007 8:10:11 AM
Breaking it down further, I blame the elites. Forget about a politcal Party, President or Congress. The elites are the modern day aristocracy. One day soon the assclowns will eat cake.
Posted by: SPECTRE of Deflation | Sep 28, 2007 8:15:12 AM
Larry Kudlow is a blowhard. The greatest story never told has left this country broke, it's citizens broke and our entire economy dependent on trade partners that may at some point want to do us harm. Of course if you run with elites, you wouldn't know just how bad it really is because you are associating with the top 1% in this country. Larry you are my assclown of the day!
Posted by: SPECTRE of Deflation | Sep 28, 2007 8:19:56 AM
The Congress's approval ratings are about 11%, while the Bush's ratings are about 25%. It seems to me the people hate the Democratic Congress more than the Republican president. I personally think both parties are terrible. BTW, why no mention of what the last Democratic president was doing with interns in the White House?
Posted by: Bob Estes | Sep 28, 2007 8:22:34 AM
Barry, if the "true inflation" (including energy, agriculturals, etc) is so much higher, why are people willing to buy the long bond at <5%?
Posted by: Dimitri | Sep 28, 2007 8:22:50 AM
While the elites tell us how wonderful everything is, the dollar sits at 78.04 this AM. They will say it will help exports, and to a degree they are right, but imports always seem to strip any gains we ever make on exporting our goods.
It's almost like a plan with a script.
Posted by: SPECTRE of Deflation | Sep 28, 2007 8:23:58 AM
Dmitri
The bond market is dominated by foreign central banks who have ulterior motives and leveraged hedge funds that care about financing cost.
You can no longer expect the bond market to reflect inflation expectations.
Posted by: Fullcarry | Sep 28, 2007 8:25:19 AM
I guess it don't matter what we see with our eyes as long as the bond buyers believe the CPI, all is well. I would not be intersted in being a buyer at 4.5% for 10 years. That would have to be the ultimate contrarian play. But what if they are right?
Posted by: Barry M | Sep 28, 2007 8:25:35 AM
In the mean time we have to dechipher what, and when is going to trigger some overall reality into the market? Remember, don't fight the FED? At some point the FED will be seen as boxing all of us into a corner. Anyone have any clues to what/where that bit of news, or piece of statistic might originate?
Posted by: justin | Sep 28, 2007 8:28:37 AM
Dennis Gartman is on Squak Box now and he said he belives Inflation is more like 11% and can't belive the Goverment is saying low 2's
Posted by: rubberbandman | Sep 28, 2007 8:28:46 AM
When thinking about inflation worldwide the best explanation on behalf of the central banks is a self nurturing paradox
« A horse for one is expensive but one horse for two is twice cheaper »
Posted by: Philippe | Sep 28, 2007 8:30:23 AM
It's a form of economic hypnosis isn't it? The Fed heads are always talking about how anchored inflation expectations are--which is just a euphemistic expression for "how much are people buying into our BS that inflation is under 2%."
They are at an advantage for several reasons. First, inflation is a big word for a lot of normal people. Too big to bother understanding. Secondly, regardless of Gallup polls, most people still believe the government, so if they say it's 1.4%, it must be 1.4%.
I think we need to reframe the whole subject. Manage the expections ourselves with a campaign like, "This dollar don't buy sh!t"
Posted by: Global Savings Slut | Sep 28, 2007 8:35:36 AM
Mr. Sunshine:
http://news.bbc.co.uk/2/hi/business/7017568.stm
Posted by: Wally | Sep 28, 2007 8:51:29 AM
Barry:
Would you prefer that the FED raised interest rates in response to an oil shock?
Unless the answer to that is yes the FED should not be considering oil prices in its inflation calculation.
If oil prices are driven by monetary factors then they will spill over into core prices and you will see the effect anyway.
If oil prices are driven by a supply shock then output will tend to slow. Is that the time the FED should be raising rates?
Posted by: Karl Smith | Sep 28, 2007 8:56:17 AM
Incidentally, my son was watching the cartoon "Arthur" over the weekend and there was a dog on there with really thick glasses named "Greenspan" and every time he spoke the other characters looked at each other and said, "I have no idea what he is saying."
I don't know why that was on a kid's show, but it was funny to see it there.
Posted by: Global Savings Slut | Sep 28, 2007 9:01:13 AM
It isn't the end of the world to have a recession. It is this obsession to avoid a recession that led to the obscene credit expansion we had.
The FED shouldn't be accomodating Oil price increases. If Oil prices go up the price of something else needs to come down. But the FED wont let that happen because they want to avoid economic slowdowns.
Oil price increases per se aren't inflationary. It is the FEDs reaction to them that leads to lasting increases in inflation.
Posted by: Fullcarry | Sep 28, 2007 9:05:33 AM
The dollar decline has been about 10% over the past year and is accelerating its decline at a rate of about 1% per month. The question is; when does this perceived orderly decline in the dollar turn into an all out rout? The dollar index is again hitting an all-time low and getting ready to break 78. But no worries mate—the government said inflation is tame, so get out those sunglasses the future is just too bright!!!!
Posted by: gunthestops | Sep 28, 2007 9:07:06 AM
It was Jeff Saut who said excluding non core items is like watching a skinny homeless naked guy walking to work! Gotta love the headlines about inflation. Journalism/urnalism...Samo samo.
Posted by: Ross | Sep 28, 2007 9:08:33 AM
As mentioned before, I think the government's bizarre miscalculation of inflation starting in 2002 [led by the OER problem] is a huge issue.
Eventually, the plummeting dollar, SS deficit, Medicare deficit, and cheap money Fed Reserve will force rates much higher. Markets can stay wrong a long long time--but usually not forever.
The March/April 2007 FAJ has an article entitled: "DO the Markets care about the $2.4 Trillion U.S. Deficit?" The authors pretty well conclude that currently, the answer is no, but someday they will. I don't know if it is available to non CFA's online...
Posted by: Jay Weinstein | Sep 28, 2007 9:09:44 AM
I'm wondering what the numbers would be if we measured inflation and unemployment the way they were measured in the 1970's. I can't run the numbers myself, but from what this site says we should be looking at might higher numbers in both cases. Are we in a stagflation situation that is simply masked by overly optimistic government numbers?
Posted by: Neil Harris | Sep 28, 2007 9:18:40 AM
Dimitri, I found this informative:
http://www.portfolio.com/views/blogs/market-movers/2007/06/20/the-newly-normal-treasury-curve-good-news-or-bad-news
Posted by: justin | Sep 28, 2007 9:24:29 AM
They really listen to you regarding inflation ex-inflation at Marketwatch:
From http://tinyurl.com/2rj5ok
"Consumer prices including inflation have also risen 1.8% in the past year, the lowest inflation in two years"
It's good to distinguish one from the other. :-)
Posted by: raft | Sep 28, 2007 9:27:15 AM
