The 'Helicopter
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
Economics Investing
Guide' is meant to help
educate people on how to
make profitable investing
choices in the current
economic environment.
We have coined this term
to describe the current
monetary and fiscal
policies of the U.S.
government, which
involve unprecedented
money printing. This is the
official blog of the New
York Investing meetup.
 | |  | |  | |  |
| Jameslist James Spotting |
Daryl Montgomery,
October 19, 2011
Britain shocked the markets on October 18th when it reported an inflation rate of 5.2%
for September. This was up from 4.5% the previous month and well above government
projections. Inflation isn't just rising there, but higher prices are a global phenomenon.
The world seems to be entering a new period of stagflation similar to the 1970s.
Stagflation is high inflation and low GDP growth. This is very evident in the UK where
GDP growth for the second quarter was only 0.2% — a full 5% lower than the current
CPI (the difference between the UK Retail Price Index is even greater). The only
surprising thing about the UK inflation rate is that the official rate is so low given the
amount of money printing done through quantitative easing in 2009 and 2010.
Despite the low growth and high inflation that has resulted from it, the Bank of England
(BOE) has just started another round of QE. BOE Governor Mervyn King recently stated,
"Without monetary stimulus — low interest rates and large asset purchases — there is a
risk that growth will stall and inflation fall below our symmetric 2 percent target." As of
September, the UK inflation rate has been above the bank's target rate for 22 months
in a row. This is happening even though unemployment is also at a 17-year high.
Central bankers have consistently maintained the inflation can't be elevated if the
economy is weak. They have apparently managed to do so because they don't let
real world observations intrude on their thinking.
Inflation is also rising elsewhere as well. On the European continent, the official EU rate
rose from 2.5% in August to 3.0% in September. GDP increased by 0.2% there in the
second quarter. Inflation has already been elevated in China and India for some
months. China's inflation rate in September was 6.1% with food prices increasing at
13.4%. The price of necessities is rising faster there than the price of other goods. This is a
common pattern in a number of countries. The yearly inflation rate in India was 9.0% in
August.
In the U.S., the CPI for September indicated a 3.9% year over year rise in consumer
prices. This rate severely underestimates actual inflation. According to the alternative
numbers produced by Shadow Stats, the current U.S. inflation rate is approximately
11% (Shadow Stats calculates its numbers with the formulas utilized by the U.S.
government in the 1970s and this is the only way to get valid comparisons of U.S.
inflation numbers across time). Official U.S. GDP growth for the second quarter of 2011
was 1.3% — well below even the government's reported inflation rate.
Even though a clear picture of stagflation is emerging globally, expect this to be
continually denied by mainstream news sources. Even yesterday in its reporting on U.S.
producer prices, one of the major news services stated, "the strong rise in wholesale
prices last month is unlikely to prompt a broad increase in inflation pressures given the
weak economy." This is actually pure misinformation. There is a long, long history of high
inflation throughout the world during periods of low economic growth or even severe
decline. One of the most recent cases historically was in the 1970s when inflation
skyrocketed in 1974 during the worst economic downturn since the 1930s depression.
Both Fed Chair Ben Bernanke and BOE Governor Mervyn King were around at that
time, but apparently can't seem to recall it. Perhaps if central bankers had better
memories, they wouldn't be repeating the mistakes of the past today.
Disclosure: None
Daryl Montgomery
Real e Finance means business
Author, "Inflation Investing: A Guide for the 2010s"
| Jameslist James Spotting |
© 2011 real e finance media.corp - all rights reserved
October Consumer
Confidence Well Into
Recession Territory
Daryl Montgomery,
October 24, 2011
Confidence Well Into
Recession Territory
Daryl Montgomery,
October 24, 2011
The October Consumer Confidence number fell to 39.8. It is once again approaching
the all-time lows that occurred at the bottom of the Great Recession. The number has
never reached the 90 level since 2009, which is the cutoff for a healthy economy. The
continually poor levels of consumer confidence bring into question whether the last
recession ever really ended.
While U.S. consumers are gloomy about almost all aspects of the economy, they are
most pessimistic about employment prospects. Only 3% of U.S. consumers think that
jobs are plentiful. While it is true that this number could have been lower during the
1930s Depression when millions of ordinary Americans went hungry and were homeless,
the lowest possible value is only zero. And the current reading could actually be zero
since zero lies within the statistical margin of error for the survey. In contrast, those who
say jobs are hard to get came in at 47% and that would definitely had been much
higher during the 1930s.
The Present Situation Index — how consumers see the state of the economy currently —
was a very dismal 26.3 in October. This number has remained at fairly low levels for four
years now. What has caused the overall consumer confidence number to rise has
been expectations for a future improvement in the economy. The government and
mainstream media has continually told U.S. consumers the economy is getting better
and will continue to get better. So, consumers have told the survey takers that don't
see things as being in good shape now, but they were hopeful about the future.
Consumers are starting to lose hope however. The future expectations number fell from
55.1 in September to 48.7. Apparently, you can only fool the public for so long.
The "don't believe what you see with your own eyes, but believe what the government
tells you" efforts are still going strong however. Media reports cited better retail sales
and a big stock market rally since early October as indications that the U.S. economic
situation is improving. Retail sales may have indeed gone up since they are not
adjusted for inflation and higher prices make them look better even if fewer units are
being purchased. As for the wild behavior of the stock market, explosive rallies are
common in bear markets and not in bull markets. They can also occur at any point
because of liquidity injections into the financial system from central bankers in Europe,
the UK, and the U.S. as would happen during a banking crisis like the one currently
taking place in the EU. They don't last for long however.
No matter how you look at the consumer confidence, the numbers are ugly. They are
not just indicating recession, they are shouting recession. Only 11% of Americans think
that business conditions are good. The Present Situations Index has dropped six months
in a row. Some of the components are at rock bottom levels. Yet, the government and
mainstream media keep reporting that the economy is on track for improved growth in
the second half of 2011. How can such diametrically opposed views be reconciled?
The simplest way to explain the discrepancy is that someone is lying. Any guesses as to
who that might be?
Disclosure: None
Daryl Montgomery
the all-time lows that occurred at the bottom of the Great Recession. The number has
never reached the 90 level since 2009, which is the cutoff for a healthy economy. The
continually poor levels of consumer confidence bring into question whether the last
recession ever really ended.
While U.S. consumers are gloomy about almost all aspects of the economy, they are
most pessimistic about employment prospects. Only 3% of U.S. consumers think that
jobs are plentiful. While it is true that this number could have been lower during the
1930s Depression when millions of ordinary Americans went hungry and were homeless,
the lowest possible value is only zero. And the current reading could actually be zero
since zero lies within the statistical margin of error for the survey. In contrast, those who
say jobs are hard to get came in at 47% and that would definitely had been much
higher during the 1930s.
The Present Situation Index — how consumers see the state of the economy currently —
was a very dismal 26.3 in October. This number has remained at fairly low levels for four
years now. What has caused the overall consumer confidence number to rise has
been expectations for a future improvement in the economy. The government and
mainstream media has continually told U.S. consumers the economy is getting better
and will continue to get better. So, consumers have told the survey takers that don't
see things as being in good shape now, but they were hopeful about the future.
Consumers are starting to lose hope however. The future expectations number fell from
55.1 in September to 48.7. Apparently, you can only fool the public for so long.
The "don't believe what you see with your own eyes, but believe what the government
tells you" efforts are still going strong however. Media reports cited better retail sales
and a big stock market rally since early October as indications that the U.S. economic
situation is improving. Retail sales may have indeed gone up since they are not
adjusted for inflation and higher prices make them look better even if fewer units are
being purchased. As for the wild behavior of the stock market, explosive rallies are
common in bear markets and not in bull markets. They can also occur at any point
because of liquidity injections into the financial system from central bankers in Europe,
the UK, and the U.S. as would happen during a banking crisis like the one currently
taking place in the EU. They don't last for long however.
No matter how you look at the consumer confidence, the numbers are ugly. They are
not just indicating recession, they are shouting recession. Only 11% of Americans think
that business conditions are good. The Present Situations Index has dropped six months
in a row. Some of the components are at rock bottom levels. Yet, the government and
mainstream media keep reporting that the economy is on track for improved growth in
the second half of 2011. How can such diametrically opposed views be reconciled?
The simplest way to explain the discrepancy is that someone is lying. Any guesses as to
who that might be?
Disclosure: None
Daryl Montgomery
The truth and nothing but....