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Trading the Trend

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Examine what you like Old Sport; the fact is that basic food prices are inflated.
 
Chronos-Plutus said:
Examine what you like Old Sport; the fact is that basic food prices are inflated.
Click to expand...


Again, no attention to detail: CPI food prices are elevated:



Whereas PPI are not:



The market loves CPI inflation, hates PPI inflation. PPI is 'stagflationary', not CPI, which was the point of my previous post.

jog on
duc

 


Not sure what you're trying to highlight.

CPI and PPI are different metrics used for different aspects of economic activity monitoring:

"The producer price index is often used to calculate real growth by adjusting inflated revenue sources, and the consumer price index is often applied to calculate changes in the cost of living by adjusting revenue and expense sources."

(https://www.investopedia.com/ask/answers/08/ppi-vs-cpi.asp#:~:text=The CPI includes imports; the PPI does not.,these factors do not directly benefit the producer.)
 


This thread is about tracking the stockmarket, specifically the S&P500. What will it do?

Inflation I agree is a major issue for the market. It is inflation for the MARKET not the consumer. No-one cares overmuch about the consumer (as long as he spends). So PPI:



So our farmer is not doing so great currently. However the stages of production bringing that product to the consumer are clearly doing better because of CPI inflation.



The inter-relationship twixt food commodities and S&P500 over the last 6yrs. Massively disinflationary.

jog on
duc
 

Disposable income (DPI) has decreased over the decades:



Looking more closely over this year, CPI data indicates significant inflationary pressures have emerged in basic cost of living for food, housing and medical:


(https://www.zerohedge.com/markets/fed-wants-inflation-their-actions-are-deflationary)

As for PPI; energy has become cheap for farmers and wholesale producers, which would make up a major operational cost.

CPI is where we should be looking because that is reflective of the supply and demand pricing in the retail market.
 


PPI is currently a non-issue because of course the US is not the only Fiat inflating:



Currently, relative to other Fiat money, the US dollar sits pretty much in the middle of its historical range. In other words, there is no loss of purchasing power worth discussing.

The gold bugs, Schiff et al. fail to realise one significant issue, which is:



The actual cash creation is still (relatively) minor.



The actual Balance Sheet of the Fed. is not contributing to circulation currently:



Which is still in the toilet.

A significant number of variables will need to change before there is any significant inflation, against which the Fed. must lean.

jog on
duc
 

We have seen an inflation in the price of financial assets; that is without debate. If the world begins to move away from using the USD in trade; then the all those USDs will come flooding back to the USA and hyperinflation of goods will certainly eventuate.

There is no way the FED will be able to reduce/unwind their balance sheet, because much of the assets are toxic and nobody will buy them. Then the FED has another problem where they will never be able to increase rates if the inflation genie comes right out of the bottle, because it will induce a credit crisis.

There was talk amongst Obama's economic advisors for the USA to get its currency off reserve status; so that the USA could structurally reform and reset its economy and currency.
 
Chronos-Plutus,

1. We have seen an inflation in the price of financial assets; that is without debate.

2. If the world begins to move away from using the USD in trade;

2(a).then the all those USDs will come flooding back to the USA and hyperinflation of goods will certainly eventuate.

3. There is no way the FED will be able to reduce/unwind their balance sheet, because much of the assets are toxic and nobody will buy them.

4. Then the FED has another problem where they will never be able to increase rates if the inflation genie comes right out of the bottle, because it will induce a credit crisis.

5. There was talk amongst Obama's economic advisors for the USA to get its currency off reserve status; so that the USA could structurally reform and reset its economy and currency.

1. True.

2. While it is possible over time, it will require new infrastructure to actually allow this to happen. By new infrastructure I mean a new system of Correspondent Banks (non-US banking system).

2(a) If [2] were to occur and no-one wanted to hold US dollars (for any reason) and if then those dollars would be used to buy various home currencies (and/or whatever) which would weaken the US dollar in FX markets. Would that trigger a hyper-inflation? Only if in the resulting price rise of commodities/external debts created a situation where further fiat was printed to meet the additional cost repetitively. However there are so many moving parts I doubt anyone could predict the final outcome.

3. Of course they can. They unwound after 2008/2009. It takes time, but for a Central Bank, it can be done.

4. Rates can be raised. Would the outcome be pretty? No of course not. Volcker did it and there was an ugly decade for financial markets. I lived in the States (California) during the 70's and life generally was fine. Possibly the West coast was less affected than the East.

5. Talk is cheap.

jog on
duc
 
So next week:



We are close to all of the upper ranges. Can they sneak a little higher first? Possible. However I am more in the camp that we fail the 1'st test of the all-time-highs and have to regroup a little lower. Typically we open at or slightly above the high and sell-off.



I wouldn't expect the sell-off to to be significant (but we still have elevated VIX compared to levels prior to COVID) but at least to the resistance line, which might take (or last) a couple of days.

Then, once the internals have regrouped, we take shot #2.

As ever, the move lower will be attributed to some news item or marginal economic report. It is just what markets do. We had a really good run last week, this week will test the resolve of the late comers. C'est la vie.

jog on
duc
 
So earnings is a wrap barring a handful of companies.



So no more earnings news to upset the applecart until 3Q.

jog on
duc
 

The FED after 2008/2009 trimmed like ~25% of the trillions in Mortgage Backed Security junk, however they failed because the assets are largely toxic; that is why the FED had to buy this junk in the first place.



These toxic assets, in the trillions, will need to be written off. This write-off will shake financial markets to the core. So yes, the FED can fully unwind the balance sheet, but not without writing off the trillions in toxic assets, which will likely cause another financial crisis of some kind.

The FED is currently holding ~$1.9 trillion in Mortgage Backed Securities:

 
Last edited:

Should we ask Jolly Old Jay what returns the FED is currently receiving from the $1.9 trillion in Mortgage Backed Securities on their balance sheet , which have the comforting guarantee of being backed by Fannie and Freddie
 
Chronos-Plutus said:
Should we ask Jolly Old Jay what returns the FED is currently receiving from the $1.9 trillion in Mortgage Backed Securities on their balance sheet , which have the comforting guarantee of being backed by Fannie and Freddie
Click to expand...


Fannie & Freddie had implied, although not statutory backing from government. The Fed. needs no such guarantee. Essentially you have the relationship backwards.

jog on
duc
 
ducati916 said:
Fannie & Freddie had implied, although not statutory backing from government. The Fed. needs no such guarantee. Essentially you have the relationship backwards.

jog on
duc
Click to expand...

Well the issuers of the MBS are supposed to back the financial product!

The FED are merely just the investor! Buying the asset on behalf of the American people!
 
Same old, same old:



There is no 'free' lunch on Wall St. Order flow manipulation is as old as the hills. Market Makers love having access to that data, as, although they can move stocks where they want (short term) it is nice to know exactly how strong the position is that you will trade against.

jog on
duc
 

There is no free lunch Mr Duc.

The bill always falls due, as I have said from the start of our discussion.

If I worked in congress, intel, treasury; I would be asking the FED; where is the return for the MBS asset purchases?

Don't tell me the FED are buying toxic rubbish on behalf of the American people; Jay might end up in jail for treason!

An act of betraying the nation; a very fine line Jay is walking now.
 
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