THE PATH TO DEFLATION: JAPAN VS THE USA
by ilene - November 22nd, 2010 11:56 pm
The Pragmatic Capitalist looks at THE PATH TO DEFLATION: JAPAN VS THE USA
Here’s a longer perspective of the chart I’ve often referenced in the past showing how similar our current inflation trend is to Japan’s in the 90′s. As the housing double dip takes hold in the coming months, it’s likely that inflation will remain very low and concerns about deflation will reemerge (via the NY Times):
“The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core
inflation rate — excluding food and energy — rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.
As the accompanying chart indicates, the core inflation figures are charting a path roughly similar to one shown in
Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.Deflation is feared for several reasons. If consumers come to expect it, as happened in Japan, there is a strong incentive to delay purchases while waiting for a lower price. That can restrain economic activity and increase unemployment. In addition, deflation places downward pressure on asset prices, worsening the situation of those who are indebted.”
Source: NY Times
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DiggTelling Signs-of-the-Times: Layaways, Off-Brands, Goodwill Stores, Consignment Sales, Frugality, all Thrive in Middle-Class Suburbia
by ilene - November 9th, 2010 6:51 pm
Telling Signs-of-the-Times: Layaways, Off-Brands, Goodwill Stores, Consignment Sales, Frugality, all Thrive in Middle-Class Suburbia
Courtesy of Mish
Telling Signs-of-the-Times: In grocery stores, "No-Name" sales are up 2% and now represent 22% of total sales. Some full priced stores now offer consignment sections, an unheard of practice a couple years back.
Layaway sales are back in vogue at Toys-R-Us and jewelers alike. Layaways are a depression era phenomenon that all but died with the mass marketing of credit cards.
Old Stigmas Become New Badge of Honor
Frugality is the new "badge of honor" says the Yahoo!Finance report In a tough economy, old stigmas fall away
The Goodwill store in this middle-class New York suburb is buzzing on a recent weekend afternoon. A steady flow of shoppers comb through racks filled with second-hand clothes, shoes, blankets and dishes.
A few years ago, opening a Goodwill store here wouldn’t have made sense. Paramus is one of the biggest ZIP codes in the country for retail sales. Shoppers have their pick of hundreds of respected names like Macy’s and Lord &Taylor along this busy highway strip.
But in the wake of the Great Recession, the stigma attached to certain consumer behavior has fallen away. What some people once thought of as lowbrow, they now accept — even consider a frugal badge of honor.
At the supermarket, shoppers are buying more store-labeled products, like no-name detergents and cereal, and not returning to national brands.
And in a telling trend, Americans are turning to layaway more often when they buy expensive items such as engagement rings and iPads. The wealthy are also using layaway more often, a drastic change from the past.
"The old stigmas are the new realities," says Emanuel Weintraub, a New York-based retail consultant. "Now, people don’t have a problem saying, ‘I can’t afford it.’ It’s a sign of strength."
Two years ago, having second-hand clothes in the same store that sells regular-priced goods might have driven well-heeled shoppers away. Today, the concept works. The new consignment area, called My Secret Closet, has brought in new customers. Shoppers browse both the retail and consignment areas without hesitation.
"We are seeing a permanent change in how people shop, and we have to respond to that," says Tom Patrolia, who has owned the store for 24 years.
The growth in layaway also reflects Americans’ new willingness to set aside
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Paul Farrell On The One Thing Buffett, Gross, Grantham, Faber, And Stiglitz All Agree On: “Bernanke Plan A Disaster”
by ilene - November 2nd, 2010 2:50 pm
Paul Farrell On The One Thing Buffett, Gross, Grantham, Faber, And Stiglitz All Agree On: "Bernanke Plan A Disaster"
Courtesy of Zero Hedge
By now it is more than obvious except to a few economists (yes, we realize this is a NC-17 term) that QE2 will be an absolute and unmitigated disaster, which will likely kill the dollar, send risk assets vertical (at least as a knee jerk reaction), and result in a surge in inflation even as deflation on leveraged purchases continues to ravage Bernanke’s feudal fiefdom. So all the rational, and very much powerless, observers can do is sit back and be amused as the kleptogarchy with each passing day brings this country to final economic and social ruin. Oddly enough, as Paul Farrell highlights, the list of objectors has grown from just fringe blogs (which have been on Bernanke’s case for almost two years), to such names as Buffett, Gross, Grantham, Faber and Stiglitz. And that the opinion of all these respected (for the most part) investors is broadly ignored demonstrates just how unwavering is the iron grip on America’s by its economist overlords. Which brings us back to the amusement part. Here are Farrell’s always witty views on the object which very soon 99% of American society will demand be put into exile: the genocidal Ph.D. holders of the Marriner Eccles building.
From Paul Farrell’s latest: Sell bonds now, Fed’s QE2 is doomed to fail.
Warning, Fed Chairman Ben Bernanke’s foolish gamble to stimulate the economy will backfire, triggering a new double-dip recession. Bernanke is “medding” too much in the economy, say Marc Faber, Bill Gross, Jeremy Grantham, Joseph Stiglitz and others.
The Fed is making the same kind of mistakes Japan made that resulted in its 20-year recession. The Washington Post says Larry Mayer, a former Fed governor, estimates that to work it would take QE2 bond purchases of “more than $5 trillion …10 times what analysts are expecting.”
Bernanke’s plan is designed to fail. And, unfortunately, that will make life far more dangerous for American investors, consumers, taxpayers and voters.
“I’m ultrabearish on everything, but I believe you’ll be better off owning shares than government bonds,” said Hong Kong economist Marc Faber at a recent forum in Seoul. He sees a repeat of dot-com-bubble insanity today. Faber publishes the Gloom, Boom & Doom Report.
And Warren Buffett agrees,
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Obama No Longer Bothering to Lie Credibly: Claims Financial Crisis Cost Less Than S&L Crisis
by ilene - October 29th, 2010 3:29 pm
Obama No Longer Bothering to Lie Credibly: Claims Financial Crisis Cost Less Than S&L Crisis
Courtesy of Yves Smith at Naked Capitalism
I’m so offended by the latest Obama canard, that the financial crisis of 2007-2008 cost less than 1% of GDP, that I barely know where to begin. Not only does this Administration lie on a routine basis, it doesn’t even bother to tell credible lies. .And this one came directly from the top, not via minions. It’s not that this misrepresentation is earth-shaking, but that it epitomizes why the Obama Administration is well on its way to being an abject failure.
On the Jon Stewart Show (starting roughly at the 1:10 mark on this segment) Obama claims the cost of this crisis will be less than 1% of GDP, versus 2.5% for the savings and loan crisis (hat tip George Washington, sorry, no embed code, you need to go here):
The reason Obama makes such baldfacedly phony statements is twofold: first, his pattern of seeing PR as the preferred solution to all problems, and second, his resulting slavish devotion to smoke and mirrors over sound policy.
The savings & loan crisis led to FDIC takeovers of dud banks and the creation of a resolution authority to dispose of bad assets. That produced costs which were largely funded by the Federal government. I’ve heard economists repeatedly peg the costs at $110 to $120 billion; Wikipedia puts it at about $150 billion. This approach, of cleaning up and resolving banks, has been found repeatedly to be the fastest and least costly way to contend with a financial crisis.
The reason Obama can claim such phony figures is that many of the costs of saving the financial system are hidden, the biggest being the ongoing transfer from savers to banks of negative real interest rates, which is a covert way…
No Children, You Cannot ALL Be Export Economies
by ilene - October 20th, 2010 3:41 am
No Children, You Cannot ALL Be Export Economies
Courtesy of Joshua M Brown, The Reformed Broker
Children, children, please! Stop your bickering and sit down in a circle. China, have a seat, you too Brazil.
Japan, you get a Time Out. That kind of aggressive currency behavior simply will not be tolerated – you lose arts and crafts privileges for one week. Origami swans count, put that paper down!
The simple fact is that although you’d all like to be export-driven economies, this is a logical impossibility. If everyone in the G20 is to be a net exporter, then we’ll either have to convince Mongolia to start buying a lot of stuff or find alien life elsewhere in the galaxy to market and sell to.
Ah! Now you’re quiet! Very good children. Dropping your currency will be punished the same way as dropping your pants in this classroom – it is strictly forbidden.
And picking on Brazil will also not be put up with. Brazil is a growing boy and needs to be able to export, too. Stop snickering, Timmy, I saw right through your ‘Strong Dollar’ speech the other day. And China, your cosmetic rate hikes are just as phony, none of us are fooled.
Here’s the deal, children…If we can go the rest of the day without any more jawboning, saber-rattling or currency manipulation I will reinstate milk-and-cookies time this afternoon.
Do try to behave.
Read More:
Market Break into G20 (Points and Figures)
FX Wars Escalate: Brazil Cancels G20 Participation (Zero Hedge)
Brazil Boosts Firepower…but is it Shooting Blanks? (beyondBRICs)
Rosie On The Fed’s Intent To Get Everyone Onboard Its All-In Bet On Stocks
by ilene - October 18th, 2010 11:30 am
Rosie On The Fed’s Intent To Get Everyone Onboard Its All-In Bet On Stocks
Courtesy of Tyler Durden at Zero Hedge
Just in case there is someone living in a cave who still doesn’t understand that the Fed’s one and only mandate (forget that crap about inflation and jobs) is to give everyone one last shove into the all inponzi before the diarrhea hits the HVAC, here is David Rosenberg explaining, for the cheap seats, what the Fed’s terminal intent is.
The Fed’s intent is not to create consumer inflation, but rather asset inflation — primarily in the equity market. By pulling longer-term bond yields lower, the Fed hopes that this will alter how investors value equities relative to the fixed-income market. Moreover, the Fed will be actively pushing up the value of bonds that exist in investor portfolios, and as such the intent is to induce these investors to rebalance their asset mix towards equities in order to maintain their current allocation. The Fed is also trying to incentivize fund flows into the equity market. This in turn would theoretically boost household wealth and as such make consumers, who now feel richer, to go out and spend more. So the theory goes — we shall see how it works in practice.
The Fed’s intent is also to lower both the debt and equity cost of capital so that companies will, at the margin, compare that to expected returns on newly invested capital and begin to spend more on new plant and equipment. The hope here is that the investment spending multiplier will kick in and that stepped-up job creation would occur in tandem with the renewed capex growth.
In essence, the Fed wants to avoid what happened in Japan over the last two decades — have a look at Japan Goes from Dynamic to Disheartened on the front page of the Sunday NYT. The comment in the article to the effect that back in 1991, the consensus was looking for the Japanese economy to begin surpassing the U.S. economy in size by 2010. Nice call. Instead, Japan’s economy has not expanded at all since that time whereas the U.S. economy, despite all its problems, has grown 65%.
That said, the U.S. has already experienced a lost decade in many respects, especially as it pertains to the labour market, while Japan has lost two decades. Also have a
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Inflation Targeting Proposal an Exercise in Blazing Stupidity; Fed Fools Itself
by ilene - October 15th, 2010 3:36 pm
Inflation Targeting Proposal an Exercise in Blazing Stupidity; Fed Fools Itself
Courtesy of Mish
Wrong animal, damn!
Lower interest rates are not typically synonymous with rising inflation, but Bernanke foolishly thinks he can get that magic pair with the power of persuasion in conjunction with Quantitative Easing.
Please consider Fed Considers Raising Inflation Expectations to Boost Economy
Federal Reserve policy makers may want Americans to expect inflation to accelerate in the future so they spend more of their money now.
Central bankers, seeking ways to boost flagging growth after lowering interest rates almost to zero and buying $1.7 trillion of securities, are weighing strategies for raising inflation expectations as well as expanding the balance sheet by purchasing Treasuries, according to minutes of the Fed’s Sept. 21 meeting released yesterday.
Some Fed officials are concerned that expectations of lower inflation will become self-fulfilling, damping demand by increasing borrowing costs in real terms, the minutes said. By encouraging Americans to believe prices will start rising at a faster pace, the Fed would reduce inflation-adjusted interest rates and stimulate the economy. Chairman Ben S. Bernanke said in 2003 that Japan could beat deflation by using a “publicly announced, gradually rising price-level target.”
“The Fed is on the verge of actively targeting a higher inflation rate,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. U.S. stocks advanced, sending benchmark indexes to five-month highs, the dollar fell and gold declined for the first time in three days after the minutes were released.
Trying to raise inflation expectations is untested in the U.S. The policy may backfire if actual inflation drifts higher than the Fed would like, potentially eroding gains won in the early 1980s by former Fed Chairman Paul Volcker, who raised interest rates as high as 20 percent to subdue prices.
Jim O’Sullivan, global chief economist at MF Global Ltd. in New York, said in a Bloomberg Television interview that the biggest risk is “boosting long-term inflation expectations more than they lower real interest rates.”
The FOMC could adopt a combination of inflation targeting and price-level targeting to get inflation expectations up, said Mark Gertler, a New York University economist and research co-author with Bernanke.
The Fed could restate its commitment to keep inflation rising annually at around 1.7 percent to 2 percent. At the same time, the FOMC could announce some
…
Want a Manufacturing Renaissance? Here’s How
by ilene - October 7th, 2010 4:38 am
Want a Manufacturing Renaissance? Here’s How
Courtesy of Charles Hugh Smith, Of Two Minds
The keys to launching a renaissance in manufacturing and industry in the U.S. are not just financial.
Given the widespread angst over the dwindling role of manufacture and industry in the U.S. economy, you’d think commentators and pundits might actually know something about manufacturing. Remarkably, they don’t.
I see precious little evidence that anyone on either side of the issue--those bemoaning the loss of industry, and those who brush aside the whithering as a positive consequence of globalization, wage arbitrage and free capital flows--has ever worked in a factory or even toured factories in various countries to see for themselves.
The standard-issue pundit/academic may well have glanced through the viewing window at some high-tech factory with robots and workers in clean jumpsuits, and this one slice of manufacturing colored their scanty experience: this must represent all factories nowadays.
Only it isn’t so.
Others (again, with no direct experience with manufacturing) are quick to point out the huge wage differential between Chinese workers (who have received substantial raises in previous years) and U.S. workers and pronounce the eventual death of all U.S.-based manufacturing just on the basis of wage arbitrage.
It isn’t that simple. And what exactly is that wage differential? Few note that the dorms and food services provided to workers at large-scale factories in China are subsidized and thus constitute an additional "wage."
Today we look at issues which rarely if ever see the light of day in the mainstream media.
I happened to see two video clips filmed inside Japanese and German factories on TV recently, on the Japanese English-language channel NHK and on the German English-language channel DW.
As we all know, Japan and Germany are the world’s powerhouse exporters of advanced machine tools and other high-technology equipment and goods.
In the Japanese plastics factory in Nagano Prefecture, neatly uniformed workers were shown cleaning plastic parts by hand.
In the German packaging factory, neatly uniformed workers were shown guiding cardboard boxes onto a conveyor by hand.
To the observer who knows something about either nation, both personally and as a mercantilist culture/economy, there is a wealth of information in these two short videos.
1. A staggering amount of "manufacturing" in advanced mercantilist economies still involves human labor.
2. Factory work is respected and not denigrated culturally.
factory work in the U.S. is widely viewed…
Hugh Hendry Interview With King World News: “If Inflation Is A Monetary Phenomenon, Hyperinflation Is A Political Phenomenon”
by ilene - September 28th, 2010 8:27 pm
Hugh Hendry Interview With King World News: "If Inflation Is A Monetary Phenomenon, Hyperinflation Is A Political Phenomenon"
Courtesy of Tyler Durden
In which we learn that that outspoken iconoclast has now taken on a $2 billion short position in Japanese credit, although presumably not cash-based as Ecclectica is well under that in AUM. For those who wish to recreate this position synthetically, we refer you to Dylan Grice’s ATM swaption in the 10Y10Y forward which is the cheapest way to follow in Hugh’s footsteps, and, ahem, may we remind you of Takefuji’s recent bankruptcy…).
His bet is in essence a gamble against the "China will never fail" bandwagon: "I am just intrigued as to the optionality, as to the profits that could be made, should that revert. And because it’s deemed to be impossible, the trade is actually asymmetric. By golly if I am right, I can make a lot of money." Another topic is the already much discussed malinvestment in China, which was the centerpiece of the argument between Hendry and Faber from some time ago (link for clip). But back to what actual things Hugh is doing, he gives the following specifics: "I am shorting 10 year industrial corporate debt with 1% yield. Should this ricochet, which began in America, should the west be grappling with fears of recession, it goes to Asia, it goes to China, and I do not believe they have the vitality and consumption to pull the global economy out." And just in case there is any doubt how Hendry views the endgame, here it is: "At these immense levels of yen strength, Japan is bankrupt. And when it’s bankrupt it has given up hope, and there is huge political legitimacy to then do quantitative easing, which leads to the debauchery of the system." In other words: the nuclear response of monetary debasement is certainly coming. We won’t spoil what Hendry says on gold (suffice to add the following quote: "We will see a joint meltup in US Treasrys and gold") – for his insights on where the metal will go, for a shoutout to all Zero Hedge Hugh Hendry fans, and for much more, listen to the whole interview.
Full King World News interview.
And for those who may have missed it the first time around, here is arguably the most succinct and comprehensive interview with…
The Road to World War III – The Global Banking Cartel Has One Card Left to Play
by ilene - September 28th, 2010 2:19 am
The Road to World War III – The Global Banking Cartel Has One Card Left to Play
By David DeGraw (h/t ZH)
The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.
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Editor’s Note: The following is Part I to David DeGraw’s new book, “The Road Through 2012: Revolution or World War III.” This is the second installment to a new seven-part series that we will be posting throughout the next few weeks. You can read the introduction to the book here. To be notified via email of new postings from this series, subscribe here.
I: Economic Imperial Operations
When we analyze our current crisis, focusing on the past few years of economic activity blinds us to the history and context that are vital to understanding the root cause. What we have been experiencing is not the result of an unforeseen economic crash that appeared out of the blue with the collapse of the housing market. It was certainly not brought on by people who bought homes they couldn’t afford. To frame this crisis around a debate on economic theory misses the point entirely. To even blame it on greedy bankers,…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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