Where is the Inflation? Can Inflation Be Hidden or Stored?

Recently I discussed a generalized sequence of money flow between the different asset classes as the business cycle rolls along it’s way like a ripple passing over the different sectors of the economy.

Today I’m going to do the same, only different! I want to look at correlation sequences, reminiscent of last time, to be sure but not quite the same thing. I would like to see whether the Central Bankers have succeeded and inflation is indeed returning to the West and Japan.

I am not going to assume that inflation means growth.

(That last phrase contains a summary of so many mistakes currently being made by those in charge. Doesn't it?)

I propose that we will move from deflationary stagflation to inflationary stagflation for a period. There will be the  usual tripwires scattered out there to catch the unwary who attempt to game this. Liquidity will be pushed and pulled without warning to shake us off. And it is to be expected that the Too Big To Fails, the captor-buyers of the western nations governments, will be pre-advised by .. well ... the top echelon of countries who during their stay in power are beholden to and indebted to repay the banks generosity.

I like to imagine the world’s capital as an excited but novice bunch of gamblers in a casino for the first time. They are running from table to table looking for a win and always running towards the greatest noise emanating from whichever table might be where the next winning game is happening. The exciting noise and hubbub is assumed by capital to mean that people are beginning to get some winnings at that table and this is a signal to get in on the act.

Unfortunately the truth is that the rumour mill is the media, and media are controlled, and an attractive rumour is merely one more of a long trail of carefully laid traps going back decades. It is an in invitation to join a table where hardened pokerfaced players sit patiently waiting for their media to suck in more fresh public money for the taking. Individual fund managers are good, little guys are more hassle. Public money from the public's government is ideal and it comes in greater amounts, but whichever it is, one way or another, the public will get out of the casino with emptied pockets when these guys are done.

Well that’s just how it goes I suppose.

Meanwhile the public and their fund managers continue to walk into money traps, all the while measuring their “success” against a false inflation measure provided courtesy of policies put in place after the inflationary 1970s, and enhanced since right up until the CPI Inflation Index used to measure real investment returns and GDP have been transformed into non inflation indices.  Likewise the asset prices and valuations, are measured by comparison to the interest return of “safe sovereign assets” to wit the T-Bond JGB & long Gilt. But those bonds are priced to a yield lower, and a risk higher than any freely available measure of same reveals. That may have something to do with rating agencies captive to their dire historical performance leaving them vulnerable to regulatory hounds of justice, and negotiations to avoid dame hounds, which is itself another pretty large subject.

For the moment, the persecuted for trivia Egan Jones, who downgraded somebody big first deeply annoying Mr Big, and another Chinese ratings agency seem to have the better credibility. Unfortunatley that doesn’t mean that the managers of your pension fund are actually using these better variety of rating agency. It’s far more likely that they choose, in preference to quality, the more pliable rating bodies. Ownership and control is all, and the stuffing of funds with overvalued paper goes on as if subprime never happened.

So caveat emptor a thousand times those of you who walk upon Wall St’s trapdoor fitted stage. Many actors will take the big drop before the play ends and the final curtain comes down. The drama will continue for as long as the treasure exists.   This is the great treasure all scoundrels strive to steal - a staggering treasure - the retirement savings of the boomer generation. While some treasure remains the scoundrels will continue to steal. They want all of it.

Now let’s look at some charts.

1987 Crash Top In Stocks

First the sequence of highs for different assets at the 1987 crash top :

(bonds=blue; stocks=red; gold=green)

2000 Stocks high and Reservoir Storing Inflation

Next a look at the inflation reservoir effect, and how inflation becomes stored until a later time. The sequence of highs is also highlighted here at the 2000 stocks top:

Has this phenomenon happened before? Sure!

Next (below) is the 1970s stagflationary trading range high in stocks, and the low for gold in 1976.

I don't have bonds back this far so the sequence at bonds highs (the blue line) is unfortunately not shown for the full period shown.

However compare this 1970s chart with the 1999 low for gold/2000 stocks high shown above which shows a similar sequence of capital flows between asset classes.

And my last chart for you is different. A riddle!

Remember that meeting between POTUS and certain bank CEOs in Q2 2013? And what happened in the PM markets only hours afterwards? Who says TBTFs don't get warned when the rug is going to be pulled?

Well here is another fascinating but unexplained moment in the charts of 2013, it concerns two dates which are marked in this chart. The chart shows the correlation between gold in USD and the FX rate for the Chinese Yuan. Lets call it " the purchasing power of Yuan for Gold", or even better, the "the price of hedging huge T-Bond portfolios":

Qui bono?

Sources:

Some of this discussion references a previous Blog called Gold & Business Cycle Relationships  :  http://www.tfmetalsreport.com/blog/5346/gold-business-cycle-relationships

.

Argentus Maximus

The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author & his work can be found here: RhythmNPrice.

50 Comments

treefrog's picture

first!

rivet!  rivet!  kneedeep!

silver66's picture

SECOND!!

keeping the tradition alive wink

Silver66

edit: now that I read the article, very good. Connect the dots

SilverDude's picture

Thurd!!

Forever lurker here....never get in on the silliness early enough...LOL

Zoltan's picture

Inflation is Alive and Well at the Grocery Store

Went food shopping with Mrs. Z yesterday.  Inflation is alive and well, thank you very much.  Mysteriously shrinking sizes, big jumps in prices for staple foods, fewer "sales" (coupons that were for $3 now for $1).

Luckily we live in a country and are in a financial situation where our food purchase budget is a small percentage of our overall expenses.

Z

PS Thuurrrrdd!... or fooouurrrthhhh (doesn't have the same ring to it though)

Dagney Taggart's picture

Iran-US Nuclear Deal

Begins on the 20th for 6 months. Explains our nuclear equities bought.

If the process is allowed without incident, what is the effect on Chinese gold and Iranian oil? I don't quite understand Turkey's role either.

What I do know though is I still love silver.

¤'s picture

Inflation starts....

...to pick up in the US. and become undeniably noticeable when...

1.) the minimum wage is raised significantly across the U.S. and the increased cost of labor (and healthcare) that small/medium sized businesses and corporations incur is passed on to consumers. This is about to unfold.

2.) The penny is soon eliminated from circulation. An automatic 5% inflation on  the pricing of goods happens immediately when this occurs.

3.) The rate on capital reserves that the big banks hold go negative and they're forced to loan out hundreds of billions into the economy in order to generate a higher rate of return on those reserves.

4.) The Fed continues to taper away QE which in turn eventually effects the US markets. The flow of investor hot money looking for better yield warmly flows towards China stoking higher inflation there.

Noticeable increased inflation (besides the current grocery store product content shrinkage angry) is on it's way while some elements of the economy (ex. Detroit) will experience widespread deflationary conditions in certain sectors.

Thanks for the post AM yes

redwood's picture

somebody just sent me this - good for a laugh

ivars's picture

Fully agree, inflationary

Fully agree, inflationary stagflation with negative real growth and high oil prices are coming in 2015. And  USD will store part of  inflation as capital flows out of stocks and bonds. Gold will be kept neutral vs. USD below 2011 highs till 2018 at least.

@Dagney- Turkey is simply fighting for its gold ( it has about 8000 tons distributed in hands of populace-I think 3rd -4th greatest hoard outside the West ( after India, China, and Saudi). The graft story is simply a story about Erdogan trying to hide capital from omnipresent Bankers of the West, and use it to buy gold to ensure its countries position. West did not like it, asked not to do so, got told to f off, now is running a subversion campaign. It so bloody serious for the West as gold flows East to get some back or stop flows. Turkey has calculated that it should not give in easily. Let us see how it develops. It has a potential for a huge scale shift and everyone will show his hand in this case. It will also allow to decide how strong the bankers are really ( with Western governments its executive force and western people its armies). 

Remember the financial vocabulary:

Transparency and fight against corruption in OTHERS- control  that no capital is hidden from the Western bankers

Income taxes- control that no capital is hidden from the ones who are allowed to hide. 

Free trade- mechanism to extract all gold and silver from Gentiles via debt since only trade requires the dominance of mercantile capital and money and its role as swing capital becomes crucial only if trading is dominant profession on the Earth, glorified

Democracy- political system where the only continuous and accumulating power can be the one controlled by wealth

Two party system- system with maximum uncertainty requiring maximum swing capital ( financial capital) to manage risks

Limited terms in office for elected representatives- system under which no one could achieve enough power to be safe to challenge the MONEY power

etc.

The rest is just MOPE. 

I would suggest limited term in office for bank owners..or in fact nationalization of banks or placing them in regulated  utility status with limited term officers and owners. 

The game or endgame the bankers have engaged in..progressively in last 900 years ..its price may be the Western civilization. I think its too high price to pay. They have to be stopped before that. Which means Money as God needs to be deposed.

sierra skier's picture

Inflation is all around us

Inflation is all around us already.

Great post. The market casinos, the printing of currency, the theft of value through inflation, the theft of our labor through increased taxes, the final destruction of our already shaky health care system, the continued support of illegals,,,,,,. The transfer of wealth through all of these means and more will continue until they feel they have bleed as much wealth from us as possible.

The only real question is when it all falls apart.

Maximillion's picture

MOPE and loss of control

It is all too apparent that the historic western powers are just starting to realize how well Russia and China have played the game of 'Go', and the West are now busily adjusting their game play, perhaps too late, though I truly hope not!

Here in the UK, after years of allowing near unfettered immigration, complete with an overgenerous benefits system, allowing inflation to be exported, the inflation genie is now coming home to roost in the form of increased food, utility bills, and Russians/Chinese demand for real estate driving prices up. An additional, but unreported consequence, of filling UK poor paid manual jobs, with harder working eastern europeans, is also starting to appear nationally. The UK employers, no doubt as a result of eagerness of EE's to work hard, have, over the last few years increasingly replaced UK nationals with EE workers, to such an extent that in many supermarket distribution centers and other labor intensive factories the EE's represent 90+% of the workforce. To my direct knowledge, the consequential representative monopoly of the EE's numbers, whilst frequently having no union, has resulted in them nevertheless being able to effectively negotiate wage rises and better working conditions, with the employers hands being nicely tied. And so IMO, the MOPE begins!

As if on cue, the UK media and government proclaim, that benefit entitlement for EU persons coming to the UK need to be controlled and restricted. Add in the convenient current public outcry resulting from the TV documentary series currently being screened called 'Benefits Street', about how unemployed survive through theft, drugs, and scamming the system, and the MOPE preparation is quite easy to identify IMO, something along the lines of 'Damn, the EE's are asking for more money and starting to spend it here rather than sending it home! We'd better create a bit of hatred towards the UK / EE unemployed / disabled, as that way we can cut their benefits, get them back to work and suppress wage increases for a bit longer'. 'And internationally, we've  f**ked up in Iraq and Syria, so we better make friends with Iran!'  

The Chinese and Russian approach is somewhat different. Russia is a friend of Syria and internationally, as Putins' actions averted a possible war, whilst China this week announced $33 million of aid to Syria (might as well do something with their surplus $'s). China is buying Iranian oil, and Russia this week done a deal with Iran also.  

Only problem for PM's as I see it, is that without a quick $ devaluation, we're all in for a rough ride financially, and I can't see how individuals are going to be able to afford higher prices as we'll need the fiat for the increased living costs.    

Howard Roark's picture

Kim.Com and Bitcoin

I would like to share with Turdville a way to see bitcoin in the future (I tend to see it the same way). It´s one of Max Keiser interview with KimDotCom. Max would like Kim to say much more on the subject, but he said enough. For me that is (and much to Max sadness). See here: 

And to me that is why the TPTB are trying to follow suit.

Beware.

Nice piece, as always AM.

Salut,

HR

AlienEyes's picture

A conversation overheard....

....at a restaurant.

kid : Dad, can I have a dollar?

dad : I need to explain something. A dollar is not really money.

kid : Well what is it?

dad : We call it a dollar bill because that's what it is, a bill to the government for one dollar.

kid : I don't get it?

dad : Who pays the government's debts?

kid : Ah, I guess we do.

dad : That's right. In taxes. There is even a tax on spending a dollar called sales tax. My point is, that if I give you a dollar, you will be further in debt instead of richer.

kid : Ah, I still don't get it.

dad : That's right kid, you don't get the dollar. I'm just trying to keep you out of debt.

kid : Well, can I have a 1921 silver dollar?

dad : Eat your food. While you still have teeth.

Zoltan's picture

ND Sunday Night Silver Open

Silver tried to go up in price but 19k, 15k and 10k NDU in the first three minutes made sure there would be none of that.  Been a while since there has been that kind of volume on Sunday night.

Nothing to see here, please move along folks. /s

Z

SilverRunNW's picture

@Zoltan

If you want a true indication of volume for any metal on the COMEX, use this link:

http://www.barchart.com/commodityfutures/Metals

If you click on the march silver contract, you can see the running total of contracts traded since open for the day.

http://www.barchart.com/quotes/futures/SIH14

If you click on the chart icon for the march silver contract you'll see a basic chart with daily volumes.

http://www.barchart.com/charts/futures/SIH14

If you change the chart parameters (frequency to intraday)(time period to one day)(minutes to 5)(chart size to 900 by 450) (bar type candlestick), you will get a real nice chart.   Good for tracking volume.  The chart is delayed by 10 minutes.

Pretty light trading so far.

http://www.barchart.com/chart.php?sym=SIH14&style=technical&template=&p=I&d=L&im=5&sd=&ed=&size=L&log=0&t=CANDLE&v=2&g=1&evnt=1&late=1&o1=&o2=&o3=&sh=100&indicators=&addindicator=&submitted=1&fpage=&txtDate=#jump

Zoltan's picture

@SilverRunNW

Thanks for the link, added to my favorites.  Different market though.  NetDania (ND) tracks Forex transactions.  This is a completely different market that some believe dwarfs the Comex as far as volume and manipulative effect.

Listening to Jim Willie now, thanks for the link.

Z
 

SS121's picture

inflation... A N D deflation

? Trying to figure the economic effects of fake monetary inflation... when you've got Main St. and Wall St. separated by the fake markets...    

and  "this" close to the end of this Monetary cycle, with Silver just a Bitcoin'erother failure away from returning to it's world monetary role...

hmm...

Main St. will be fine, and those who stacked will be great, with their appreciation for real money greatly inflated!

The Wall St.  paper markets are going away...  leaving all the hopes of the paper crowd deflated!

k e e p  s t a c k i n'  i t u p. . .

daveyboy's picture

Max, from someone who lives

Max, from someone who lives in the UK, too, the UK is done, heck, the west is done.

It's not that I disagree with the premise of what many on here are saying, I just simply disagree with the timing of this.

They (the bankers, the technocrats, the politicians, the sociopaths, the psychopaths) well, the sociopathic and psychopathic sum up many of the former, but they, also being the social engineers, will bleed the west dry for decades.

Whereas so many people are expecting an overnight collapse, it's been collapsing for over a decade.

Inflation is nothing new, it's just it was largely ignored because there was a substantial income too, which mitigated this.

5 years from now, the UK, will look bad, 5 years on from then then it will look really bad, 5 years further and it's really really bad.

However nothing will collapse, living standards will collapse, but the poorest countries still function, it's just those that flourish will be a very small pocket of people and most people will instead know abject poverty.

The asset stripping that has taken place in this country has done wonders for the queens serfs.

It is more than possible that precious metals will not rocket simply because I hear the attitude of fellow work colleagues, they either don't want to think about the plight we are in, or they are resigned to it. Again, this is something which draws some people into a state of rage for daring to question many of these bulls.

2014 has been billed as the year where there are great tremors and thus the year where metals explode, so let's see what happens. While I continue to purchase a little silver here and there I have realised that I could be stacking for the long term i.e. 10-15 years away which given that, while it's a good idea to buy now, the window to buy more, for me, is only at these price levels.

Dagney Taggart's picture

Ummm.... no, boy

We here in Western Canada are going to own your "arse" and stick the barbarous relic Royal's crowns up theirs.

God, I get giddy just thinking about it.

daveyboy's picture

Ah, juvenile and delusional,

Ah, juvenile and delusional, it's what I have to come to expect from you, no constructive response to the points I have made, there is a surprise.

As for Canada, the Queen owns Canada, you have no triumph to look forward to for as long as society maintains it's hierarchy, then nothing changes.

unwired's picture

Riddle

That really is an important question..... are those two inflection points related to some triggering event? Sure seems like it. China confirmed later last year that it was no longer interested in allowing its foreign reserves to grow.... and part of that is allowing the yuan rise. However.... we all know there is one reserve they are growing at an extremely rapid rate. Who knows if a deal was struck to give away the gold in exchange for not wholesale dumping treasuries. I lean toward the USA being informed that a change in the gold market structure was coming... and a polite head's up was given. I think what we are witnessing is BB's working feverishly to eliminate liabilities, close leases by returning gold, and maybe even getting into position to profit when control is taken away from the west.

I know there is a tendency to extrapolate this grinding status quo of western control over everything far into the future. I think that's a mistake. Last year... western weakness was revealed in the handling of Syria etc. Perhaps the weakness has been known for a while in the East... and test came and the east was able confirm that western behavior on the international stage can now be influenced.

There are sooo many things that can start happening...literally at any time.... and they're all game changers.

s1lverbullet's picture

@ Daveyboy

I agree with your sentiments.  This is a long game, 10-20 more years I believe.  I think it will be a slow fade just because the country politically is not ready for a government that loves freedom again.  It will take many events to shift the public perspective over the next couple of decades, if it ever happens.  Europe might tend to change violently in short periods of time, but America tends to slowly bleed into change over decades.   We must win the intellectual battle for my generation.  If that doesn't happen, we very well could be fighting over boarder lines in a decade or two.  Sad to think about. 

I Run Bartertown's picture

daveyboy

"5 years from now, the UK, will look bad, 5 years on from then then it will look really bad, 5 years further and it's really really bad."

Hanging on in quiet desperation is the English way...stiff upper lip and all that.

But the UK is much less English now than when those phrases applied. You've allowed MultiKultists to create fractures in your society. Fault lines that will change everything. Otherwise, I might agree with your prediction that the UK would muddle through without crisis. But you've ensured that the collapse below a certain level of shared prosperity will get nearly as ugly as it will in America.

Dagney Taggart's picture

Ah, proper and queer.

Doesn't ownership come with the right to freely enjoy that which is owned? I would pay to see queenie out here enjoying what you say she "owns". The ownership you mention is simply an empty formality that has no chance of being honored. Much like how Americans believe they are so free. Thanks for the laugh though.

Now off to the trashbin of history you and the rest of the prison island go. kiss

Dagney Taggart's picture

Oops, sorry Argentus

I meant to comment earlier that the stored inflation IMO is in the form of the trillions outside the US trying to find a way back in. It will too somehow. We're watching the situation between Iran, China, Russia, and Turkey for clues.

brokerk22's picture

statement

Gold will be kept neutral vs. USD below 2011 highs till 2018 at least.  

In time this statement will sound rather idiotic IMO.  Ivars.

unwired's picture

Stored Inflation

I think that is really the key... $ held outside the US in reserves and hoards. 

Same thing happened in Weimar Germany. They were printing Marks like crazy for several years after WWI. The ROW still had confidence in the German economy even with war reparations etc.... and willingly accepted Marks. There was a gradual loss of confidence over a period of a few years and prices were rising. Then it suddenly dawned on the ROW that the economy was weakening and the CB was printing to compensate. Foreigners decided they had enough Marks... and no one else wanted them either. The only place they would spend was back in Germany. So the Marks all came home.

I shudder to think what would happen if the same thing happened to a reserve currency. With the corruption and foolishness in Washington... who knows what further damage can be done to the dollar.

My guess is that they'll break the dollar into two systems... and will not allow the foreign held dollars to come back... provided of course that they are prepared before any such event happens.

Dyna mo hum's picture

Could be something to this...

¤'s picture

This should get interesting...

 

China Plans To Seize South China Sea Island From Philippines, Says "Battle Will Be Restricted"

Submitted by Tyler Durden on 01/12/2014 19:00 -0500

Following Japan's proclamations that it will take over another 280 'disputed ownership' islands...

_71374663_chunxiao_gas_624map.gif (624×520)

...it appears the increasingly dis-approved of Prime Minister Shinzo Abe's path of militarism and provocation is working. As China Daily Mail reportsciting experts, China intends to take back Zhongye Island - 'illegally' occupied by the Philippines, according to the Chinese. The Chinese navy has drawn a detailed combat plan to seize the island and the battle will be restricted within the South China Sea. Philippines military is building up on the island and the Chinese see as 'intolerable' the "arrogance" relying on US support.It seems the Obama administration may have to 'not take sides' in another fight soon.

Background on the build-up...

 
 

Eugenio Bito-onon Jr, mayor of the Kalayaan island group, part of the contested Spratly islands administered by the Philippines,recently confirmed that the Western Command of the Armed Forces of the Philippines has deployed new air force troops in rotation to the disputed island of Thitu, according to Jaime Laude in a report for the Manila-based Philippine Star on Jan. 5.

Known as Pag-asa in the Philippines and Zhongye island by both China and Taiwan, Thitu is the second largest in the Spratly island chain in the South China Sea and the largest of all Philippine-occupied Spratly islands.

Laude said that the air force troops were deployed to Thitu island by naval aircraft, which will give the residents of the island a chance to visit Kalayaan aboard the returning plane. He added that China's maritime expansion into the South China Sea continues to put pressure on the Philippines, and the Philippine Navy have also been stationed in the area to defend the islands.

...

Six countries - Taiwan, China, the Philippines, Vietnam, Malaysia and Brunei — claim in whole or part to the South China Sea and its island chains and shoals.

And the Latest Tensions...

Via China Daily Mail (translated from Chinese media),

 
 

Relying on US support, the Philippines is so arrogant as to announce in the New Year that it will increase its navy and air force deployment at Zhongye Island, a Chinese island that it has illegally occupied for years.

It will be an intolerable insult to China

According to experts, the Chinese navy has drawn a detailed combat plan to seize the island and the battle will be restricted within the South China Sea.

The battle is aimed at recovery of the island stolen by the Philippines from China.

There will be no invasion into Filipino territories.

A report in the Philippines Star confirmed the Philippines military buildup on the island.

Source: qianzhan.com “Sudden major move of Chinese troops this year to recover Zhongye Island by force”

Of course, claims that "battle will be restricted" are nothing but taunting and should China launch an offsensive here, we suspect the already dry and brittle tinder box in the South (and East) China Sea could rapidly escalate.

 

http://www.zerohedge.com/news/2014-01-12/china-plans-seize-south-china-sea-island-philippines-says-battle-will-be-restricted

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