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inflation (14)

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S&P500 Highest Forward P/E Since 2004 But Oh, That Rule 20

I found this interesting (the rise) however I have my own reservations because of the possible change in rates and inflation in 2017.  When inflation rises, interest rates also normally rise to maintain real rates within an appropriate range. PE ratios need to decline to reflect the increase in the earnings discount rate. Another way to look at it is that equities then face more competition for money from fixed income instruments. The cost of equities must therefore decline to keep or attract investors.  Then there is the Rule of 20 to consider.  Rule of 20 equals P/E + long term interest rates (average of 10 and 30 yr bond rates).  If at or below 20 minus…

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Admin

Is The Fed About To Experience A Repeat Of 2016?

In the most recent Summary of Economic Projections, Fed officials penciled in three 25bp rate hikes for 2017. The reality, however, could be very different. We all remember how “four” became “one” in 2016. The median dots are neither a promise nor an official forecast. As 2016 progressed, forecasts associated with a lower path of SEP “dots” evolved as the consensus view of policymakers. Will the same happen this year? I don’t think so; it is hard to see the Fed on pause for another twelve months.

As a starting point, I think it best to assume the US economy is near full-employment. But the US economy was near full-employment at this time last year as well. I think the key difference between then and now is that then the after-effect of the oil price slide and dollar surge placed a drag on the US economy sufficient to ease hiring pressure. At the same time, labor force participation perked up, setting the stage for a flat unemployment rate for most of…

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Admin

It's Not What You Think. Market Myths Debunked

"A lie told often enough becomes the truth" - Vladimir Lenin

Imagine for a minute you lived centuries ago when people believed the earth was flat, or the earth revolved around the sun, or that planets were Gods, or that disease was angry spirits or supernatural powers. You'd have an explanation for everything ... only it would be wrong. And that "wrongness" would stand in the way of true understanding and true progress until they were discarded as falsehoods.

And so it is with the Stock Market. Let me explain.

First, let me be perfectly clear. I'm a statistician so I'm not referring to philosophical or political or gut feelings or anything other than Statistical Misrepresentations. Fact, not opinion.

I can hardly go a day without reading…

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Admin

Bonds Haven't Even Begun To Price In Trumpflation

Since the election the financial markets have been trying to price in “Trumpflation.” This is the idea that the combination of infrastructure spending, tax cuts, rising deficits, immigration curbs and protectionist policies could reverse the disinflationary trends we have witnessed over the past few decades and more dramatically since the financial crisis. The selloff in the bond market amid surging interest rates might be the single most important piece of evidence in this regard.

Over the summer I noted we were likely witnessing the final blow-off stage of the bond bull market (see this and this). Since then the long bond has fallen nearly 15% leading many pundits to conclude it has already begun pricing in…

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Admin

Don't Be Fooled The Bond Rally Continues

We’ve been bulls on 30-year Treasury bonds since 1981 when we stated, “We’re entering the bond rally of a lifetime.” It’s still under way, in our opinion. Their yields back then were 15.2%, but our forecast called for huge declines in inflation and, with it, a gigantic fall in bond yields to our then-target of 3%.

The Cause of Inflation

We’ve argued that the root of inflation is excess demand, and historically it’s caused by huge government spending on top of a fully-employed economy.  That happens…

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Admin

Five Reasons To Fear Deflation

The deflation scare is back, as Jon Hilsenrath and Brian Blackstone report on the front page of The Wall Street Journal. It’s worth taking a moment to contemplate why deflation is such a bad thing. After all, falling prices sound appealing to consumers, especially compared with the alternative of higher prices.

So why worry?

Here are five…

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Admin

Pretty much as I had expected.  Consumers are tapped out and you can blame inflation the Fed says doesn't exist the necessities, food and gasoline.  Certainly the packages have become small to mask the cost but we all know it's there, lurking.  We're getting less and less for our hard earned buck and $20 just doesn't buy what it used to....leaving less for dining out, electronics, clothing, vacations, etc.  

Retailers beginning to feel the pinch may shift to more coupons, clearance sales, preferred customer discounts.  Others will continue to tighten the belt internally moving more to cloud, temp agencies for personnel (a huge cost savings) and other cost-cutting measures.  Insurers for example have discovered that making …

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Admin

Because Demand Is What Drives Price, Sure........

Filling up at the pump yesterday, paying $3.79 for low grade made me wonder.  Aren't you supposed to be kissed before you get screwed over?  Captain Obvious over the last few years is the disconnect between gasoline demand/usage in the U.S. vs. price when it comes to the stinky stuff and that price chart certainly looks like a large, bull flag which should make your head spin at the potential increase ahead unless something changes.  Surely the gentleman next to me would have to sell a body part or small child to fill up his enormous SUV.  Fool with that huge tank but he thinks he looks slick.  The powers that be decided they wanted us to become accustomed to $3/gal and it seems that we have unfortunately but I have to keep saying it, the demand just does not justify the price of oil without a supply disruption or military crisis in the Middle East.  As much as I hate to say it, the Prius is beginning to…

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Admin

The Market Will Always Come Back? Do They?

Your hear the reassuring echos all of the time.  "Don't worry! The market will always come back."  But do they?  What about dividend reinvesting and adjusted for inflation?  Given the data, one can easily see why smart money continues to invest in bonds, annuities, universal life, etc.  Merely my .02 cents but remember, charts don't lie - people do.

Consider these two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which I usually just refer to as the CPI). The charts below have been updated through today's close.

The Big Three
The Big…

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Admin

When You Can't Even Afford To Rent

Numerous articles have noted a sharp rise in the price of renting an apartment or house across the U.S.  Many have also argued that the rise in rents disproportionately affects lower and middle class renters.

I know in my own situation, my rent increased 9% in 2013 and 10% in 2014.  Did our incomes increase by as much?  I wish.

Houseofdebt.org decided to take look by examining the great data available on rents from Zillow.

The chart shows general inflation (measured with PCE headline inflation) versus the increase in rents. Both series are indexed to be 100 as of November 2010 (the first month the Zillow data are available).

The pattern is…

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Admin

Turnaround Tuesday Reads

  • Saving down, lending up and tapering combine in a perfect storm.  One of our favorite bloggers CalifiaBeachPundit
  • More tech companies are experiencing DDoS cyber attacks including SAY Media (Typepad), Meetup, Basecamp, Vimeo, Bit.ly and others.…

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Admin

Education Cost Concerns Highest Among Young Adults

High cost of tuition and college loans ties with overall lack of money or low wages as the top concern of those aged 30 to 49. Housing costs also emerge as a relatively bigger concern for younger adults (14%)

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Admin

We Have No Inflation? What Of Cost To Rent?

It makes me insane when the Fed says inflation remains subdued.  Subdued?  idk where they live but my rent in 2013 went up 7% and this year, 9%.  A 2-liter bottle of CocaCola used to be .99 cents.  Now it's $1.99.  Don't even get me started on the ridiculous increase in crude oil versus a few years ago (doubled) and how small a bag of my favorite chips has become 1/3 the size for the same price.  Oh, that's right.  They don't include food and energy (the stuff that always goes up).

Last time I looked, housing cost was still included in inflation numbers but yet today a minimum wage person would have to work two weeks just to pay the rent.  Forget about the electric, cable, phone or food.  Oh wait, let's see…

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Admin

Daily Reads

  • The argument to lift the ban on crude oil exports Bloomberg
  • How big oil (and Senators) are positioning at the Senate Energy and Natural Resources Committee Bloomberg
  • A 3pm gold "fix"?  This study says it began in 2004. Bloomberg
  • That's what I've been saying.  Fed may have to let inflation run hot to meet goals. Reuters
  • Markets spooked as confirmation came of Russian troops taking over two airports in the Crimean area of the Ukraine.  UN to hold closed-door session this…

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