The Fed vs. 4.6% Deflation?

I thought we’d begin this morning with an update because reader Bruno was shocked when I wrote down how much the M1 (seasonally adjusted) money supply had been slammed by the Fed recently.

Since the H.6 Money Stocks report is updated every Thursday (except Holidays, of course) we wanted to give you the latest figures.

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Yes, as you can see the “non-partisan” Fed was inflating away at the M1 level just under 12% annualized in the final 13-weeks leading up to the election.

Ask yourself “Why would they do that?”

I think the answer should be obvious: If they had not inflated, there would not have been enough money around, rates would have started a move-up in a serious way and the bond market would have collapsed (and rather inconveniently) just ahead of elections.

Can’t have that.

So out comes the easy money.

I understand it, of course. But as Colombo (the TV detective played by Peter Falk) would have noted “Ders juss on ting bahtharing me, Sir.”

That is that the “money has to go somewhere.”

The place it seems to have gone in the stock market, so when subsequent weeks come out, we expect to see the Fed not only stamping on the brakes, but going into a full ABS controlled stop of paper printing.

And yes, rates will have to go up.

Wednesday the 10-year bond was hitting 2.28% and that means to really pace the Market, the Fed COULD raise a half point. I doubt they will, but look at the rates and see what the market is saying.

Meantime, there is the problem of estimating where the economy really is in all this.

If we take the Money Supply, we can estimate as follows:

  • Growth of Money Supply: 11.7%
  • (Less GDP growth generously: 2.2%)
  • (Less annualized CPI 4.9%)
  • Which leaves deflation of? 4.6%

The good news is the increase in the money supply from November 2014 to October 2016 now pencils to +15.74% which is still a bit more than 7% per year and at some point things will have to catch up. Bruno should sleep better now. It’s not a runaway train. Just a switch engine with some LP tankers.

Today’s Action Plan

Things are settling down into boring, what with the election over.

The “Trump Effect” continues with the Baltic Dry Cargo Index at +1231. In the depths of recessions it runs much lower – about half that level.

On the other hand, the Port of Long Beach reports October inbound cargo was down 3.7% year-on-year while loaded outbound was down 1.2%.

The good news is that over the viaduct, the Port of Los Angeles reported a smoking inbound up 16.37% and loaded outbound up 23.3%.

This is October data remember, but could it be that US outfits are doing a bit of stockpiling of inventory ahead of a rate hike at the Dec. Fed meeting?

The futures are up a tiny amount prior to the open, but we want to see if our Peoplenomics Aggregate – already at new all-time highs – will close the week that-a-way.

Election Fall-Out Continues

Yes, when comes right down to it, sure looks to me like a bunch of sore-losers who are being paid to foment revolution. See Police: Anti-Trump Protester Punched Officer in Face in San Diego.

Peaceniks, yeah?

Power of the Trumpy-Pulpit

Already we can see the globalists beginning to cave to the idea that Globalism may have peaked. Two stories show movement in the Trumperian direction:

More Winning – Ford CEO Calls Donald Trump: Lincoln Plant Will Stay in Kentucky…

And Apple is exploring making iPhones in the US — ‘the cost will more than double’.

No, the costs won’t be double.

1. If they really were, Apple wouldn’t do it.

2.More likely this is reminiscent of an old EBITDA (*earnings before interest, taxes, depreciation and amortization) way of spinning things.

Since the President-elect has given so many people the idea that maybe on a net-net basis it’s still possible to make billions in America some of the internationalists are rethinking and – most importantly – recalculating.

Sessions for A..G.?

Yep – looks like the Alabama republican may be tapped.

Media Crawlback?

After being unabashedly pro-Clinton in their election coverage, we now see the NY Times offering policy advice in “Trump-Size Idea for a New President: Build Something Inspiring.”

How long as Ures truly been telling you we need a National Dream to follow? Finally, the NY Times seems to “get it.”

I’ll hold the Hallelujah Choir until January 21st, though.

I’ll tell you the project that might come: There is lurking around on the web somewhere, a plan to build a fresh water transportation system that would bring water from Canada down the backside of the Rockies and which would touch off a huge growth spurt in the West the likes of which has never been seen.

Since it might make sense – and it’s big – you might want to at least read this part of the Wikipedia entry on the Great Recylcing and Northern Development Canal:

The Great Recycling and Northern Development (GRAND) Canal of North America or GCNA is a water management proposal designed by Newfoundland engineer Thomas Kierans to alleviate North American freshwater shortage problems. The plan has been promoted by Kierans since 1959, but its cost and potential environmental impacts have prevented serious consideration of the idea.

This plan arose as water quality issues threatened the Great Lakes and other vital areas in Canada and the United States.[1] Kierans proposes that to avoid a water crisis from future droughts in Canada and the United States, in addition to water conservation, acceptable new fresh water sources must be found.”

The main point of this is that 20% of North America’s fresh water flows into Hudson and James bays of Canada where only 1% of the population lives.

So yes, there are plenty of huge (think canals of Mars) ideas out there.

But is a nation with our kind of debt really able to fund this large – and do we have the ability to execute?

Stay tuned.

See you Monday.

Comments

The Fed vs. 4.6% Deflation? — 12 Comments

  1. Trump is a globalist. There’s no denying it (interests all over the world, hiring foreigners, product made overseas). He probably just has a public position and a private position. The private position relates to him lining his own pockets. The public position…

  2. The billions that go overseas go with strings attached. Money has to be spent on industries in the US. A nice way of subsidizing local companies without political oversight. Some of it is repackaged and comes back as a campaign contribution.

  3. “Bruno should sleep better now.” I do thanks to my long walks through Central Park every day, where I keep noticing ‘pedicabs’ that charge $4.00 per MINUTE and they do find customers!! (I do remember haircuts that were max. $0.75 before I was married). I’ve given up on URE’s fancy math 20 years ago, to-day I judge inflation by restaurant prices that have skyrocket during the last 2 years.

  4. Hey George, do me a favor. Devote some space to the national debt. Where it’s going, what it means, etc. No one, including you, talks about it anymore. Is the $11 Trillion estimate for Trump in Fortune a hoax? Or, are we finally in the clear now? Or was all the prior debt fear mongering by the Right just a hoax to make Obama fail? (If so, kudos, they really fooled me.) Mike

    • I agree how come there is no accountability of the 11 trillion that disappeared into oblivion. All that money spent with absolutely no difference in the infrastructure, military, in fact many things
      have contracted. I guess it is just small change today.

  5. We don’t seem to have a problem funding endless war and a 1000 military bases world-wide. Dumping money into airplanes the military doesn’t want. God only knows how much we are spending on biological weapons when those same micro-biologists could be finding a cure for disease.

    Everything is a business model. We need to change ours from destruction to construction.

    • Exactly; we don’t seem to have a problem finding billions for illegals each year, funding them over our veterans and citizens. We don’t seem to have any problem donating to the UN to the tune of billions each year, for everyone, but ourselves. We just spent several trillion on a war to nowhere, which is still paying murderous dividends. Time to get out of foreign entanglements.

  6. The Lincoln Plant was never going to Mexico in the first place. They made this decision over 4 months ago…Trump had nothing to do with it…however…in a savvy marketing move…Ford recognizes that Trumps key demographic fits in real well with with Fords…so…this announcement is more of riding the emperor’s coat tails than anything else.