Sunday, January 5, 2014

Will 2014 Be the Year of the Great Price Inflation?

Michael Aronstein, a hedge fund manager with $18 billion under management, thinks so.

FT reports:
[Aronstein] and his team pore over price data from hundreds upon hundreds of commodities and manufactured goods, and he highlights proteins – shrimp, beef, chicken – and US lumber among the areas where price spikes are already developing. It is outwards from these pressure points, he says, that the world will finally move from asset price inflation to real consumer price rises.
He thinks the crash in the bond market (which I have been warning about in the EPJ Daily Alert) has already started:
[Aronstein has] bets that central banks will wait too long to end their crisis-era monetary expansion, triggering inflation spikes and a long bear market in bonds that might already be more than a year old.

“They never fail to make that error,” he says, “because they’re structured as bureaucracies and they have to wait until they have enough evidence to convince everybody in the room.

“The only period that may be comparable to this is after the discovery of the New World, when all the Europeans looted all the gold and silver, new money out of the sky, a la the Bernanke Doctrine. You had, basically, a century of inflation in Europe. The tulip bubble didn’t come out of nowhere; that wasn’t just people’s appetite for flowers.”[...]

“All grand excesses have the same form, with different content,” he says. “Japan was no different, in concept, than the ‘Nifty 50’ in 1972. We’ve got bonds now,” Mr Aronstein says.

11 comments:

  1. Aronstein isn't alone. Philadelphia Fed President Charles Plosser, an opponent of both QE2 and QE3 due to concerns about their long-term inflationary effects, yesterday said, "Efforts to use monetary policy to offset such permanent shocks [loss of wealth and output] and to close what appears to be a gap will likely be ineffective and perhaps even counterproductive." While being typically mealy-mouthed about the speed with which these programs need to end, he clearly sees the iceberg ahead.

    Interestingly, in a discussion yesterday, NY Fed President William Dudley admitted something we EPJ readers have known for years, thanks to Robert: the way Bernanke's schemes are working is a bit mysterious. "We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions. Is it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?”

    Although a champion of Bernanke's "tools", he even admitted, “There could be unintended consequences about moving to a more normalized state of monetary policy. We just don’t have experience with this kind of episode."

    I'm sure the Fed apologists will tell us there's no need to worry, though. After all, Ben's in the basement, cooking up something called a "fixed-rate overnight reverse repurchases agreement" that should soak up any liquidity that seeps out from those pesky excess reserves. Of course, who knows if he's calculated for Yellen's Super Soaker.

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  2. This is the make or break year for Austrian economics. If we don't see price inflation take off and economic chaos, then look for look for Mises to join Marx atop the ash heap of history.

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    1. Historic monetary inflation again sustained global Bubbles in 2013.

      But how about consumer prices? I actually believe there is a major misperception when it comes to the power of contemporary central banks to dictate an aggregate price level – a misconception with potentially important implications for securities prices. In contrast to the traditional central bank printing press that distributed paper currency throughout the real economy (generally raising prices), the contemporary electronic printing press injects liquidity directly into securities markets.

      The paramount inflationary impact is on securities prices and issuance.

      http://www.prudentbear.com/2014/01/issues-2014.html

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    2. Last I checked, Charles Plosser and James Bullard are not Austrian economists, yet both are deeply concerned about inflation on the horizon. Will you throw their theorists, whoever they are, atop the ash heap of history?

      You've been told this repeatedly but it doesn't seem to penetrate: ABCT is not a crystal ball that allows one to pinpoint a specific year when a crash will occur.

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    3. Speaking of the ash heap, you neglected to mention Keynes. Stagflation ensured his spot. His neo descendents' theories on the business cycle worked flawlessly in anticipating the 2007 bust, too.

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  3. How can that happen without wage inflation?

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    1. The Interventionist State

      Our age is in many ways remarkable. The average citizen can no longer really tell whether he is getting richer or poorer. In many areas of life, material wealth seems to be on a downward trajectory, as the inflationism of the past several decades has lowered the purchasing power of the incomes of the majority of the population. The common man is faced with soaring costs for education, health care (in the form of sharply rising insurance premiums), shelter (both home prices and rents are – with hiccups due to the bubble that burst in 2008 – inexorably rising), food and energy (the two famous 'non-components' of the official inflation measures) to name but a few. The rise in the cost of these necessities of life has vastly outpaced the rise in the real incomes of the middle and lower classes.

      http://www.acting-man.com/?p=27800

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  4. Another expert who predicts the big inflation in the next six months to a year. Been going like that for many years now. One expert or another.



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    1. And when inflation hits 20% yoy I suspect you will be just like the Wolfgang dolt and blame it on the "free market".

      Foolish tool. Begone.

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    2. Um, anonymous, you probably should read some of my comments before you make such sweeping generalizations. There is no free market in this country, however I've been hearing how the huge price inflation is just around corner since 2004. It's coming in 2005, no 2006,.... 2007 will be the year... 2008.... blahblah... the 2013 spring... then fall... now it's 2014 for when it's finally going to happen. It will probably happen eventually but face it, nobody has friggin' clue when.

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