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Ben -
1) It is Poser, not Posner.
2) I am a technical analyst who happens to have a degree in economics.
With that out of the way, I can give you lots of on the one hand and on
the other hand.
First of all, before I get into all of my equivocating, be aware that I
do believe that inflation is likely to pick up. I would not be at all
surprised to see US CPI inflation reach 3.5% (core could only reach 3.0%
or so). Currently total is at 2.7% and core is around 1.9%. I doubt that
we can get as high as 4.0% total and 3.5% core. Given that the long bond
is at a real rate of 4.0%, which is relatively high historically, I
suspect that we could see a pinch sooner or later.
As far as the CRB goes, it does not have a sterling record as far as I
can tell predicting inflation. Studies have been done on it, and that is
what it has shown. Much of the CRB itself focuses on the non-core food
and energy sectors. The remainder is manufacturing based commodities.
The US is no longer a commodity based or manufacturing based economy. If
I remember correctly, US GDP is more than 60% services. Of course,
services by heat and electric and that is affected by energy inputs.
But, did your electric bill go down when oil fell? I do not think that
regulators will allow utilities to raise rates, and competition will
keep electric prices better in check. Heating oil and nat. gas are a
different story, but at least a correction, and a deep one, is due from
$30-$32 per barrel in oil.
Going quickly back to the CRB, there is a possible wave count that says
the bottom from last year was not the final bottom. It is not my
preferred count, but we only last week retraced even 38% of that fall.
The CRB is barely above where it was when the Russian debt crisis began
and caused a deflationary scare.
Of course, much of the inflation in the USA is wealth effect related.
But, if the stock market crumbles at some point this year, that will be
largely ameliorated. If it happens quickly enough, the psyche of the
consumer will not become inflation oriented and prices will stabilize. I
do not think we need a crash in equities for that, just a nice 30% or so
drop over a year or so to remind people that it is not a one way bet
(and enough to clobber some of the nasty equity borrowing habits going
on out there).
Note that it is not just the Fed. Yes, the US economy is stronger than
just about anywhere else, but rates are near nil in Japan and extremely
low in Europe (except the UK). We shifted from deflation scare to
inflation pretty quickly. But, much of what caused the disinflation of
the 1990s still exists:
Productivity gains, which are probably still under reported.
Competition from emerging markets.
Free trade.
The internet.
Overall, I am concerned and do expect that inflation has higher to go. I
do not believe that commodity prices are a fair measure. Also, look at
producer prices. You will see lots of time with deflation (falling
prices), but consumer prices did not fall. So, you have a situation of
lower raw materials and better productivity, but stable to slightly
higher prices. That means margins increased. Companies will likely be
able to hold prices steady a while longer before margins are
significantly pressured.
So, yes, inflation has bottomed for now. Yes, inflation is likely to
increase. Yes, the Fed has messed up. It never should have cut in
November 1998 and should have started raising rates sooner. But, no we
are not likely to get an inflation spiral, and a crash is possible in
equities, but unless you consider 30% a crash, my opinion is that it is
not super likely.
Steve
---
Steven W. Poser, President
Poser Global Market Strategies Inc.
url: http://www.poserglobal.com
email: swp@xxxxxxxxxxxxxxx
Tel: 201-995-0845
Fax: 201-995-0846
----- Original Message -----
From: <Proffittak@xxxxxxx>
To: OnWingsOfEagles@xxxxxxxxxxxxx <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, January 22, 2000 2:56 PM
Subject: [RT] inflation/implication on bonds
> Hello
>
> This is now the 9Th week in which inflation is showing in full
force
>
> Where?
>
> here are the Prof
>
> Baron's page MW 15 this weekend
>
> year ago last week today
> crb 190.50 208.01 211.51
>
> industrial 183.90 202.19 205.21
>
> grains/oils 172.7 169.78 171.69
>
> livestock 208.90 248.19 249.94
>
> energy 132.5 233.39 243.45
>
> precious metals234.7 243.88 250.15
>
>
> Steve posner and all other economist feedback welcome
>
> have a great weekend
> Ben
>
>
>
>
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