Richard Postma - The Doctor Is In – Fri 18 Nov, 2016

Are increasing rates foretelling inflation?

Doc is with us today to discuss the possibility that increasing rates are forecasting a return of inflation. He even mentions that core inflation has been above the 2% for a while. We also discuss how the continued breakout in the USD plays into this narrative.

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Featuring:
Richard PostmaAl KorelinCory Fleck

Comments:
  1. On November 18, 2016 at 12:49 pm,
    Paul L. says:

    Oil seems to be slowly fading away. MIght need a trip back to 42-43. I made some big gains on xop and uso today and sold out all. The oil stocks seem to be making lower highs and after 2 pm they have started fading away. The stock market will have trouble breaking out without the oil sector.

  2. On November 18, 2016 at 12:51 pm,
    Excelsior says:

    An interersting observation from Goldfinger at CEO:

    @Goldfinger – “Large speculators in $gold futures liquidated more than 15% of their total long position in the week ended Tuesday November 15th:

    http://cdn.ceo.ca/1c2uq2f-Gold_CoT_11.18.2016.png

    • On November 18, 2016 at 12:53 pm,
      Excelsior says:

      Another good chart on the US Dollar at $1.01:

      @Goldfinger – $Gold in US dollar terms limps to a close for the week as the US dollar continues to flex its muscle. The US Dollar Index is breaking out above 101 on the 3rd test of this level in the last two years:

      http://cdn.ceo.ca/1c2uq0l-US_Dollar_breakout.png

      • On November 18, 2016 at 1:18 pm,
        Matthew says:

        It is overbought and looks like it could give up the breakout easily:

        http://stockcharts.com/h-sc/ui?s=%24USD&p=D&yr=1&mn=1&dy=0&id=p87678245258&a=484923751

        • On November 18, 2016 at 1:20 pm,
          Matthew says:

          The U.S. long bond is very oversold and due for a bounce. That will not help the dollar.

          http://stockcharts.com/h-sc/ui?s=%24USB&p=D&yr=1&mn=0&dy=13&id=p15591668824

        • On November 18, 2016 at 4:03 pm,
          spanky says:

          I agree we could see a pullback, but 2014-2015 is on every ones mind, because the $USD put on a rally that was simply surreal from technical perspective.

          Yes, markets can move in straight lines, and the USD 2014-15 proved it.

          Of course we will get a rally in gold likely soon, but if we get much below the 100 WMA, this gold “bull” is doomed IMO. At a minimum there will be a retest of the lows, but I doubt even that. I think longer term we have a date with gold’s 200 month MA.

          • On November 18, 2016 at 4:12 pm,
            Matthew says:

            Actually, there were pullbacks that lasted 2-3 weeks during the ’14 rally. If you were to drill down into those weekly bars you’d see more pullbacks.

  3. On November 18, 2016 at 12:55 pm,
    Excelsior says:
    • On November 18, 2016 at 12:56 pm,
      Excelsior says:

      It seems to be a very fluid situation in the #DRC . I just a saw that news and it caught me off-guard. I do remember Friedland saying in a previous interview with Rick Rule that he was open to selling off partial ownership in each of their 3 assets. I guess he figures getting the government more involved and him less involved is the way to play it.

      It also may be paving the way for a better relationship with the DRC for their Kipushi project that is in development.

  4. On November 18, 2016 at 4:08 pm,
    Dick Tracy says:

    Al, a lot of people are talking about inflation, I think we have had inflation in Canada for about seventeen years, look at our housing and consumer market, I know that Toronto and Vancouver have been setting the pace but if interest rates start ratcheting up as they are now we are going to experience serious deflation. Once the bubble bursts I must agree with Rick Ackerman’s assessment at least for folks north of the border. The US also had inflation in 1927 and 1928 and then boom, crash. Too many people are predicting inflation or hyperinflation but an increase in interest rates is going to destroy a lot of debt liquidity. You can argue that all this money printing has been misdirected but it never seems to get where it needs to be with the invisible hands redirecting it. DT

    • On November 18, 2016 at 4:23 pm,
      Excelsior says:

      Dick Tracy. – Very interesting thoughts to consider about the potential of destroying debt liquidity and that becoming more deflationary.

      On the Market Wrap there is a Gwen Preston video presentation from the Metals Investor Forum that just took place where she is postulating that a lowering taxes and increase in spending by Trump will be inflationary.

      I’ve thought it made sense that the money printing would be an inflationary process once it is circulating in the system and given out as loans and erodes the overall value of the dollar. However we have not seen that play out and the dollar has stayed quite strong the last few years and it has been a mixed bag (some things were quite inflationary – movies, food, education, health insurance…..) and others more deflationary commodities and energy.

      As always the deflation / stagflation / inflation debate remains entertaining, frustrating, mind-boggling, and interesting as ever….

      _____________________________________________________________________

      Here is an article that presents the standard view of inflation:

      M1 Money Supply and Inflation
      APRIL 9, 2009 – Tim McMahon

      “According to Austrian Economics an increase in the money supply should result in inflation as the value of each old dollar is “diluted” by the printing of new dollars.”

      http://inflationdata.com/Inflation/Inflation/Money_Supply_and_Inflation.asp

    • On November 18, 2016 at 4:33 pm,
      Dick Tracy says:

      Ex, I believe The US dollar is based on wind and the only thing that is supporting it is you are The World Reserve currency, the emperor is bankrupt but so are all the other currencies. It’s all a con game which will prove I believe that Rick Ackerman is right, you can’t open your billfold and pay off a $500,000 mortgage by peeling off inflated dollars. Deflation is the only scenario that makes sense otherwise the banks and the country are toast.DT

      • On November 18, 2016 at 10:04 pm,
        Excelsior says:

        Definitely a conundrum and a con game. Yes, I’ve listened to Rick Ackerman’s deflation thesis for quite some time, and lend it an ear, of course as he’s a very sharp guy. The Inflationists and Hyper-inflationists have been way off base since the 2008/2009 collapse and part of what drove the gold move up out of 2009, 2010, and 2011 was the impending fear of inflation from all the money printing. The radio ads and television commercials for gold companies sprouted up like weeds and all of them were warning of the coming wave of inflation.

        Obviously, that is not what played out, because the money supply created went to bail out banks, and they used the money to square off books and speculate in the markets by borrowing at near zero rates. The inflation we saw was actually in the stock markets as the banks and financial institutions juiced the general indexes, and companies borrowed money a near zero rates and bought back their own stock instead of investing in growth. The new money created did not get flushed out into the system as velocity and circulation through small business loans, home loans, and credit, and as a result, it really hasn’t diluted down the purchasing strength of the “World Reserve Currency”……yet.

        For the first time in 7 years since the 2009 bottom, I feel that things are setting up in the US to change that though. Thus far the Stagflation model of some areas inflating and other deflating has been the reality, so really Chris Temple called it years ago. Personally over the next few years I lean more heavily towards the dollars power and influence getting diluted and for real inflation to eventually rear it’s head, but am open to the deflationary scenario you describe as well.

        We’re in uncharted waters, and personally, I’m not getting married to any position as things are likely to get more turbulent. Regardless of what plays out, people are going to need “Stuff” and they are going to need “Energy” to power all this stuff. 🙂

  5. On November 18, 2016 at 4:40 pm,
    Glenfidish says:

    It’s been 28 plus years Maybe less of low interest rates and higher home price in toronto and it seems like it will never end. Sometimes I think I’m the lone wolf in the bunch and I’m getting a dose of I told you so. The system is out of whack and inflation is rampant all around me, yet low income people continue to purchase at a staggering rate. Maybe it’s gone down a bit but not enough for one to argue prices will collapse soon. I never imagined in all my years that we would still be in a boom in housing today as I speak. How much longer this can go is beyond belief but it maybout live me.

    What will eventually cause rates to finnaly go up not once but maybe two/three times per year? What will it be if ever

    • On November 18, 2016 at 10:14 pm,
      Excelsior says:

      Glenfidish, I feel like a lone wolf all the time…… That’s how you know you’re doing it right 🙂

      It has been stunning to see what happened in the Canadian housing bubble in cities like Vancouver and Toronto, but as someone that lived through the housing bubble in the US in 2007-2010, it isn’t pretty when things due eventually pop, and your friends and family are underwater on their homes and stuck, and new buyers (Gen Xer’s and Millenials) don’t feel like like playing the home ownership game any more.

      I would still argue that commodities and energy have been quite deflationary since 2011, while other areas like food, entertainment, education, health insurance, and the stock markets have been quite inflationary. As a result the tug-o-war has resulted in overall muted GDP growth and small business growth in this Stagflation environment.

      Which way is the trend going to break? (Inflation/Deflation)? Who knows?

      I’m just trying to identify good businesses in the Resource and Energy sector that will do well regardless, and some that will do well if their underlying commodities get a boost. If we ever get runaway inflation, then the companies we all hold will go up so many multiples, that we can all buy Greek or Spanish islands and have conferences on a KER cruise liner. 😮

      Cheers mate!

      • On November 18, 2016 at 10:15 pm,
        Excelsior says:

        That should have said – housing bubble “collapse” in 2007 -2010….. The bubble was 2001-2007.

  6. On November 18, 2016 at 5:14 pm,
    confused says:

    It sounds to me like everyone is on one side of the trade regardig the dollar. I wonder DOC,
    Italy is NOT happy and might do a “Brexit” soon. Do you think that is a deeper reason the USD is eying that 111 mark? I guess, if that were the case, gold would be much higher than it is now. Thoughts??

    DOC??.

    • On November 18, 2016 at 10:17 pm,
      Excelsior says:

      EXITALY

      • On November 19, 2016 at 6:52 am,
        confused says:

        or SPLITALY

  7. On November 18, 2016 at 5:14 pm,
    Ozibatla says:

    Yeh this inflation talk is interesting. Official interest rates are still historically low the world over, yet many sectors are accelerating in “value”. Property prices are indicative of such examples. House prices in Australia are ridiculous in many regions. In Sydney cbd, the average house price is $1million, Melbourne is around $800,000. That is just ludicrous. Especially when one factors in wage growth at its lowest level in 50 years. I know low interest rates encourages increased loan approvals but at this rate, one seriously has to question the principals of money lending

    • On November 18, 2016 at 7:58 pm,
      Skeeta says:

      Its interesting to listen to some of the youth today (in Melbourne, Australia) all whinge & bitch that home ownership is currently unaffordable.
      Yet they themselves chase prices higher & hope (expect) for the same capital gains the previous vendor has had in the past ?
      Its pretty funny how uneducated most of these university grads are whilst thinking themselves all smart & self righteous whilst enjoying their smashed avocado on toast & their soy latte for breakfast at the cafe down the road from their rental apartment before attending a real estate auction in their area.

  8. On November 18, 2016 at 5:35 pm,
    Ozibatla says:

    I couldnt help but laugh when i read an article on reuters stating the US dollar surge is partly driven on increased inflation rumours. So the value of a US $ is considered more valuable when it is exposed to inflation…. Inflation doesnt mean we need more money to cover costs after all… ha. Gold isnt considered an inflation hedge then. The US dollar goes up during inflation, deflation, stagflation and any other economical environment. No wonder its on a tear, people are all in on a sure bet. So if and when inflation takes off, the $ will be more worthless yet more valuable… yeh right, makes perfect sense because Donald will fix the economy that doesnt need fixing. Oximorans and lies are now the accepted outcome. Bring on bizaaro world!

  9. On November 18, 2016 at 5:56 pm,
    Chris in the Philippines says:

    Rick was right on the USD. And bully for him for a change in direction. Good analysis by Doc, Cory and Big Al.

  10. On November 18, 2016 at 5:58 pm,
    Chris in the Philippines says:

    The EM property bomb is going of in Thailand. Here in PI…. booming economy.

  11. On November 18, 2016 at 6:00 pm,
    Chris in the Philippines says:

    yeh right, makes perfect sense because Donald will fix the economy that doesnt need fixing. Oximorans and lies are now the accepted outcome. Bring on bizaaro world!””

    Ozibatla are you a Hillary bootlicker?

  12. On November 18, 2016 at 6:19 pm,
    Chartster says:

    It won’t be inflation or deflation.
    Reflation is what we will see.

    noun
    1.
    restoration of economic activity, consumer prices, etc., to higher levels by manipulating monetary policy.

    Also, bond yeilds should go down in the monetary policy change. But bonds will retain value, as they are originally intended.
    Bond yeilds are an enticement to buy fiat bonds.

  13. On November 18, 2016 at 6:21 pm,
    Dick Tracy says:

    Janet is yellen that she will bring on an interest rate increase, so many people here are up to their eyeballs in debt that they don’t care because everyone else is doing what they have been doing. That is heard mentality , nothing will happen because we are all in debt, such is life for them until the reaper repo man shows up at the door, the wolf can only be ignored until it can’t be anymore. This lifestyle has fooled a lot of stupid people who think they are smarter then all the rest. DT

  14. On November 18, 2016 at 6:54 pm,
    Ozibatla says:

    A Hillary bootlicker!!! Haha i like that. Why is it that so many people instantly resort to name calling and insults when they dont agree with an opinion online??? Is it because of cyber anonymity, you arent bound by any responsibility of your mouth shootin off before you think??? Cmon guys, its immature and pathetic really. What ever happened to rational, civil strangers giving each other a fair go? Dog eat dog world i suppose… And for the record, i am not a fan of Hillary, Donald, Barack, or any other central puppet figure. The whole system is corrupt and of no help to the little guy.

  15. On November 18, 2016 at 7:16 pm,
    Ozibatla says:

    Reflation definition is interesting Chartster

  16. On November 18, 2016 at 7:18 pm,
    Ozibatla says:

    Here here Dick Tracy!

  17. On November 18, 2016 at 8:27 pm,
    Jason says:

    Would be nice to see the G-fund at 5% in my TSP.

  18. On November 18, 2016 at 10:28 pm,
    Excelsior says:
    • On November 18, 2016 at 10:30 pm,
      Excelsior says:

      Here’s an excerpt from that article above:

      “In this case, the debt of developing economies is positioned uniquely for pain, which will most likely intensify in coming weeks. While bonds globally are posting some of the biggest losses on record, debt of U.S., Germany, Japan and other large economies will eventually have natural buyers that can swoop in and support values. That’s already happened to some extent with riskier corporate debt in the U.S.

      But that’s less of the case for emerging markets, which investors flooded into during years of searching for higher yields. Companies in these more-vulnerable economies have $340 billion of debt coming due through 2018, and they are going to have a hard time paying all that back if investors keep withdrawing their cash.

      The explanation behind the exodus from something that was the darling of many money managers just months ago is twofold.

      After the election of Donald Trump as the next U.S. president, many expect his infrastructure spending programs and trade policies to lead to higher consumer prices in the world’s biggest economy. Bonds tend to do poorly when inflation accelerates, especially because such an environment would prompt the Fed to raise benchmark interest rates faster than many expect.

      That would bad for all types of debt but particularly for notes in emerging markets. That’s because investors will migrate back to higher-rated bonds in developed economies instead of those in less-proven nations.

      Also, more U.S. growth typically means a stronger dollar, which is a significant problem for emerging-market nonbank borrowers, which have accumulated more than $3 trillion in dollar-denominated debt, according to Bank for International Settlements data. The higher the dollar rises, the more expensive it becomes to pay back the debt….”

      • On November 18, 2016 at 10:33 pm,
        Excelsior says:

        Anyone have any thoughts on how this is going to go with Emerging Markets?

        I think it depends on if we’re talking the Asian Emerging Markets or West African Emerging markets that are booming, versus the stagnating South American, Middle Eastern, and North & South African markets.

        Overall, the point I got was that many Emerging Markets that can not support their dept loads are in deep doo-doo.

        • On November 18, 2016 at 10:34 pm,
          Excelsior says:

          dept = debt

  19. On November 19, 2016 at 2:19 am,
    Ozibatla says:

    Surely foreign policy, trade relations and globalisation dictates that these poor fellows are just as susceptible to market crashes. Especially when their land harbours many of the natural resources that we the western world rape and pillage off them