Login

Bonds & Interest Rates

The Problem With Small Surprises: The Inflation Paradigm Shift

Share on Facebook Tweet on Twitter

Posted by The Inflation Trader

on Monday, 16 April 2012 16:38

Written by: The Inflation Trader

The phrase "paradigm shift" is meant to sound dramatic. Like the sudden slipping of tectonic plates, a paradigm shift moves mountains (metaphorically). Deregulation of airlines caused a paradigm shift, transforming airplanes from airborne luxury cruises to cattle cars. Decimalization of equity bid/offers caused a paradigm shift, dropping bid/offer spreads about 90%.

Economic paradigm shifts can also be dramatic, as when the credit crisis of 2008 caused lending to contract almost overnight. But not all shifts are dramatic. The paradigm shift from horse-drawn carriages to 'a car in every garage' brought the world dramatically closer together. But it took a long time before it happened…before, anyway, it was obvious that it had happened. The paradigm shift was clear in retrospect, but not in prospect. It wasn't as if people were waiting for the world to change: Henry Ford famously said that if he'd asked his customers what they wanted, they'd have said "faster horses."

Core inflation, by its nature, rarely produces good surprises. Friday's release was a case-in-point. Forecasters were looking for a +0.2%, and got a +0.2%, but they were actually looking for about +0.17% and got +0.23% instead. It doesn't even look like a surprise, when the rounded data is announced, but it assuredly was one. The y/y core CPI, which decelerated last month for the first time in 16 months, rose back to 2.3% (although just barely, and shy of the high from January), after last month's decline had produced a chorus of predictions that core CPI for the year would end up being in the low-to-mid 1% range.

It is hard to imagine that, following the 2008 collapse of Lehman Brothers, there were very many who didn't see the paradigm shift. On the other hand, Henry Ford churned out millions of Model Ts before the wagon-wheel manufacturers went bust. Could we be in the midst of an inflationary paradigm shift without knowing it? Put another way, does the fact that many economists deny such a shift imply that there isn't such a shift? Well, would the fact that many analysts still projected record profits for buggy-whip producers, which could plausibly have happened if our current research structures existed back then, have implied that there was no revolution happening in locomotion? I personally think it would have been very remarkable if an analyst covering such companies had deduced that the Ford (F) development would change the demand/supply balance for automobiles in such a dramatic way.

To Read More CLICK HERE

inflation



Banner

Bonds & Interest Rates

Bond Market Matters

Share on Facebook Tweet on Twitter

Posted by Levente Mady

on Monday, 16 April 2012 15:35

The bond market traded in a fairly narrow range last week, as it held key support at 140 through the period.  The 10 Year Treasury Note yield is back below 2% again, kicking around the bond bears in the process.  There was no renewed talk of QE3 from any talking Fed Heads, but the nervousness in stocks coupled with rising European Sovereign yields was more than enough to provide solid support for bonds in spite of the heavy issuing calendar and negative seasonal influences.  The auctions last week were mediocre, but good enough not to cause any concern.  Traders were astute enough again to take down the 30 year tranche at the lowest prices of the week.  The bond market was relatively stable considering the roller coaster we had in stocks and a few other things.  Stocks and bonds are quite close to fair value. So there is no compelling reason to stick our neck out on that front other than the momentum that is rolling from stocks into bonds.

bond



Banner

Bonds & Interest Rates

The War for Spain

Share on Facebook Tweet on Twitter

Posted by John Mauldin

on Saturday, 14 April 2012 12:12

In my book Endgame, co-author Jonathan Tepper and I wrote a chapter detailing the problems that Spain was facing. It was obvious to us as we wrote in late 2010 that there really was no easy exit for Spain. The end would come in a torrent of misery and tears. Tepper actually grew up in a drug rehab center in Madrid – as a kid, his best friends were recovering junkies. (For the record, he has written a fascinating story of his early life and is looking for a publisher.) His Spanish is thus impeccable, and he used to get asked to be on Spanish programs all the time. Until the day came when the government created a list of five people, including our Jonathan, who were basically named "Enemies of Spain," and pointedly suggested they not be quoted or invited onto any more programs.

As it turns out, the real enemy was the past government. We knew (and wrote) that the situation was worse than the public data revealed, but until the new government came to power and started to disclose the true condition of the country, we had no real idea. The prior government had cooked the books. So far, it seems it even managed to do so without the help of Goldman Sachs (!)

In about ten days I will be sending you a detailed analysis of all this, courtesy of some friends, but let's tease out some of the highlights. True Spanish debt-to-GDP is not 60% but closer to 90%, and perhaps more when you count the various and sundry local-government debts guaranteed by the federal government, most of which will simply not be paid. Spanish banks are miserably underwater, and that is with write-offs and mark to market on debts that totals not even half of what it should be. If Spanish housing drops as much relative to its own bubble as US housing has so far (and it will, if not more), then valuations will drop 50%. The level of overbuilding was stupendous, with one home built for every new every person as the population grew. We know that unemployment is 23%, with youth unemployment over 50%. Etc, etc. We could spend 50 pages (which is what I will get you access to) detailing the dire distress that is Spain.

To Read More CLICK HERE

spain



Banner

Bonds & Interest Rates

Artemis On Volatility At World's End: Deflation, Hyperinflation And The Alchemy Of Risk

Share on Facebook Tweet on Twitter

Posted by ZeroHedge

on Tuesday, 10 April 2012 10:02

"Artemis Capital Management, whose latest epic letter is an absolute must read for all" - ZeroHedge

Imagine the world economy as an armada of ships passing through a narrow and dangerous strait leading to the sea of prosperity. Navigating the channel is treacherous for to err too far to one side and your ship plunges off the waterfall of deflation but too close to the other and it burns in the hellfire of inflation. The global fleet is tethered by chains of trade and investment so if one ship veers perilously off course it pulls the others with it. Our only salvation is to hoist our economic sails and harness the winds of innovation and productivity. It is said that de-leveraging is a perilous journey and beneath these dark waters are many a sunken economy of lore. Print too little money and we cascade off the waterfall like the Great Depression of the 1930s... print too much and we burn like the Weimar Republic Germany in the 1920s... fail to harness the trade winds and we sink like Japan in the 1990s. On cold nights when the moon is full you can watch these ghost ships making their journey back to hell... they appear to warn us that our resolution to avoid one fate may damn us to the other.

....read it all HERE

Screen shot 2012-04-10 at 9.57.15 AM



Banner

Bonds & Interest Rates

Sovereign Bond Yields Sharply Higher in Spain, Italy, Portugal

Share on Facebook Tweet on Twitter

Posted by Mike Shedlock - Mish's Global Economic Trend Analysis

on Thursday, 05 April 2012 05:33

Sovereign Bond Yields Sharply Higher in Spain, Italy, Portugal   Curve Watcher's Anonymous has an eye on European sovereign bond yields. In the absence of another huge LTRO program from the ECB, and perhaps even with another LTRO program, yields in Spain, Portugal and Italy should head North. The LTRO is not going to trump long-term fundamentals which are downright horrible.

Here are a few charts to consider.  

Spain 10-Year Yield    

sovereign debt  Spain 2012-04-04

Italy 10-Year Yield  

sovereign debt  Italy 2012-04-04

Portugal 10-Year Yield    

sovereign debt  Portugal 2012-04-04



Banner

<< Start < Prev 201 202 203 204 205 206 207 Next > End >> Page 202 of 207

Free Subscription Service - sign up today!

Exclusive content sent directly to your Inbox

  • What Mike's Reading

    His top research pick

  • Numbers You Should Know

    Weekly astonishing statistics

  • Quote of the Week

    Wisdom from the World

  • Top 5 Articles

    Most Popular postings

Learn more...



Our Premium Service:
The Inside Edge on Making Money

Latest Update

If It Ain't Broke, Don't Fix It

This month I update two long-time favourite stocks from our Canadian Growth Stock Research -  Boyd Group Income Fund (BYD.UN:TSX) and Enghouse...

- posted by Ryan Irvin

Michael Campbell Robert Zurrer
Tyler Bollhorn Eric Coffin Jack Crooks Patrick Ceresna
Josef Mark Leibovit Greg Weldon Ryan Irvine