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

Sun, Jan 12, 2014 - 1:16pm

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?


Some of this discussion references a previous Blog called Gold & Business Cycle Relationships : https://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.

About the Author


Jan 12, 2014 - 1:21pm


rivet! rivet! kneedeep!

Jan 12, 2014 - 1:41pm


keeping the tradition alive


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

Jan 12, 2014 - 1:48pm


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

Jan 12, 2014 - 1:51pm

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.


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

Dagney Taggart
Jan 12, 2014 - 1:53pm

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.

Jan 12, 2014 - 2:16pm

somebody just sent me this - good for a laugh

Funny Italian What Time Is It - HD, Subtitles, [ORIGINAL]
Jan 12, 2014 - 2:17pm

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 ) 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

Jan 12, 2014 - 3:32pm

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


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
Jan 12, 2014 - 4:52pm

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.

Jan 12, 2014 - 4:57pm

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.

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

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Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

Key Economic Events Week of 9/30

9/30 9:45 ET Chicago PMI
10/1 9:45 ET Markit Manu PMI
10/1 10:00 ET ISM Manu PMI
10/1 10:00 ET Construction Spending
10/2 China Golden Week Begins
10/2 8:15 ET ADP jobs report
10/3 9:45 ET Markit Service PMI
10/3 10:00 ET ISM Service PMI
10/3 10:00 ET Factory Orders
10/4 8:30 ET BLSBS
10/4 8:30 ET US Trade Deficit

Key Economic Events Week of 9/23

9/23 9:45 ET Markit flash PMIs
9/24 10:00 ET Consumer Confidence
9/26 8:30 ET Q2 GDP third guess
9/27 8:30 ET Durable Goods
9/27 8:30 ET Pers Inc and Cons Spend
9/27 8:30 ET Core Inflation

Key Economic Events Week of 9/16

9/17 9:15 ET Cap Ute & Ind Prod
9/18 8:30 ET Housing Starts & Bldg Perm.
9/18 2:00 ET Fedlines
9/18 2:30 ET CGP presser
9/19 8:30 ET Philly Fed
9/19 10:00 ET Existing Home Sales

Key Economic Events Week of 9/9

9/10 10:00 ET Job openings
9/11 8:30 ET PPI
9/11 10:00 ET Wholesale Inv.
9/12 8:30 ET CPI
9/13 8:30 ET Retail Sales
9/13 10:00 ET Consumer Sentiment
9/13 10:00 ET Business Inv.

Key Economic Events Week of 9/3

9/3 9:45 ET Markit Manu PMI
9/3 10:00 ET ISM Manu PMI
9/3 10:00 ET Construction Spending
9/4 8:30 ET Foreign Trade Deficit
9/5 9:45 ET Markit Svc PMI
9/5 10:00 ET ISM Svc PMI
9/5 10:00 ET Factory Orders
9/6 8:30 ET BLSBS

Key Economic Events Week of 8/26

8/26 8:30 ET Durable Goods
8/27 9:00 ET Case-Shiller Home Price Idx
8/27 10:00 ET Consumer Confidence
8/29 8:30 ET Q2 GDP 2nd guess
8/29 8:30 ET Advance Trade in Goods
8/30 8:30 ET Pers. Inc. and Cons. Spend.
8/30 8:30 ET Core Inflation
8/30 9:45 ET Chicago PMI

Key Economic Events Week of 8/19

8/21 10:00 ET Existing home sales
8/21 2:00 ET July FOMC minutes
8/22 9:45 ET Markit Manu and Svc PMIs
8/22 Jackson Holedown begins
8/23 10:00 ET Chief Goon Powell speaks

Key Economic Events Week of 8/12

8/13 8:30 ET Consumer Price Index
8/14 8:30 ET Retail Sales
8/14 8:30 ET Productivity & Labor Costs
8/14 8:30 ET Philly Fed
8/14 9:15 ET Ind Prod and Cap Ute
8/14 10:00 ET Business Inventories
8/15 8:30 ET Housing Starts & Bldg Permits

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