Wednesday, June 25, 2014

Michael Milken Warns on Inflation...

...well, sort of.

After getting out of the slammer, Milken formed something called the Milken Institute.

The Institute is chiefly Milken's propaganda machine. You can tell that this is so by the characters he has running the place, such as Director of Communications, Conrad Kiechel.

What the Institute is really about is keeping a bunch of what Friedrich Hayek called, second-hand dealers in ideas, on the payroll so that there is always good spin in the media about Milken, which will keep him a far distance from the threat of ending up back in the slammer.

But, if you want to know what Milken really thinks, forget about the Institute and follow his real money and the people around it. Milken reportedly has at least $800 million with Guggenheim Partners.

That's the place where Milken respects the thinkers. So what is going on at Guggenheim?

Scott Minerd, the Global Chief Investment Officer at the firm, just put out an investment note that says in part:
U.S. Federal Reserve Chairwoman Janet Yellen’s press conference last week came just hours after Consumer Price Index data revealed inflation of 2.1 percent year over year. Nevertheless, she was exceptionally dovish and sanguine on inflation. Yellen contended that even though the U.S. economy is near the Fed’s objectives of full employment and price stability, recent data on inflation was “noise” and there continues to be considerable underutilization in the labor market. This was only the most recent demonstration of a willingness among Fed policymakers to highlight any number of economic data points to support accommodative monetary policy. It came even though labor conditions are improving toward a level associated with the non-accelerating inflation rate of unemployment (NAIRU); a tipping point of around 5.5 percent unemployment which has historically corresponded with a period of Fed tightening.
I am increasingly of the view that the Fed and investors are complacent about inflation. While a broad-based secular increase in inflation is most likely a problem for the next decade, there are a number of technical and cyclical forces working to push consumer prices higher...

Another inflation factor at work is shelter. With rental vacancy rates hovering near 13-year lows and new home sales soaring by 18.6 percent to an annualized pace of 504,000 units in May, we can expect a continued rise in shelter costs for the rest of the year and possibly into early 2015. As a result of these technical issues and the cyclical factors associated with the economic expansion and employment growth gathering pace, we are likely to see inflationary pressures continuing to build. It is clear that we have now passed the days of low inflation growth.

This is pretty much the same theme I have been pounding away at in the EPJ Daily Alert.  We are extremely close to a very rapid increase in price inflation. There is no chance the Fed is going to be able to stop it. Yellen is in a cloud where she sees none of the signs that are obvious to careful watchers of the economy.

Be prepared, my friends.


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