Saturday, August 3, 2013
Japan's Inflation
Over at one of the blogs I follow on Japan, they put out a piece today looking at the inflation numbers for that country that were released on July 26th. Much was made about the +0.2% increase YoY (the first such increase in many months), signalling perhaps that Abenomics is getting its desired result. But, digging into the numbers a bit, if you back out energy and food, the number becomes -0.2% - in other words, the inflation that is happening is more of the cost push variety (i.e., the weaker yen is causing manufacturing costs to go up) rather than demand pull (i.e., consumers are becoming more active). They want the latter, which is somehow considered the good type because it implies higher wages, but are setting themselves up for a whole lot of the former, which correlates to stagflation or something worse.
More Parlor Tricks
The GDP number came out this week - the first iteration since certain changes were made to how it would be calculated. It's all about goosing the outcome. Take one shining example that seems particularly absurd given recent events.
Pension fund benefits are now classified as investments rather than as an expense. Moreover, the value to be attributed for GDP is the future proposed benefit, not just today's cash outlay. What does that mean? So, let's assume that Microsoft has some sort of pension plan. The company contributes $10 today with the expectation that the money can earn 8% per year, so that in 20 years the employee stands to get something like $40. That future benefit of $40 is now what the GDP number will incorporate.
That decision takes ridiculousness to another level.
All you have to do is occasionally read some financial papers or websites to get smacked upside the head with an article about how practically every corporate and government pension plan is underfunded. Which means they are not hitting their return targets such that they will be able to pay out the expected benefit. Which makes the choice of promise over actual contribution silly.
And, if you don't believe me, just ask Detroit.
Pension fund benefits are now classified as investments rather than as an expense. Moreover, the value to be attributed for GDP is the future proposed benefit, not just today's cash outlay. What does that mean? So, let's assume that Microsoft has some sort of pension plan. The company contributes $10 today with the expectation that the money can earn 8% per year, so that in 20 years the employee stands to get something like $40. That future benefit of $40 is now what the GDP number will incorporate.
That decision takes ridiculousness to another level.
All you have to do is occasionally read some financial papers or websites to get smacked upside the head with an article about how practically every corporate and government pension plan is underfunded. Which means they are not hitting their return targets such that they will be able to pay out the expected benefit. Which makes the choice of promise over actual contribution silly.
And, if you don't believe me, just ask Detroit.
Friday, August 2, 2013
July Jobs
Not much to be excited about…
-162,000 jobs came in below expectations of 185,000
-The May and June numbers were revised down by a combined 26,000 jobs
-Average hourly wages ticked down by .1%
-Weekly hours worked ticked down by .1 hours
-The Participation Rate was down by .1% to 63.4%
-The Employment to Population ratio was unchanged at 58.7% (it is often considered the best measure of what to expect when it comes to future government transfer payments – needless to say, it is not very promising)
-Full-time jobs actually ticked up this month by 92,000, but part-timers continue to be the lion’s share with 174,000 added
But, hey, not all is lost – at least the unemployment rate went from 7.6% to 7.4% (sigh).
-162,000 jobs came in below expectations of 185,000
-The May and June numbers were revised down by a combined 26,000 jobs
-Average hourly wages ticked down by .1%
-Weekly hours worked ticked down by .1 hours
-The Participation Rate was down by .1% to 63.4%
-The Employment to Population ratio was unchanged at 58.7% (it is often considered the best measure of what to expect when it comes to future government transfer payments – needless to say, it is not very promising)
-Full-time jobs actually ticked up this month by 92,000, but part-timers continue to be the lion’s share with 174,000 added
But, hey, not all is lost – at least the unemployment rate went from 7.6% to 7.4% (sigh).
Thursday, August 1, 2013
Discussing Bernanke
A little more from his testimony. Bernanke also said that the gold price is not a good predictor of inflation. I’m not sure what he’s basing that on. It’s only been unpegged from the dollar for 40 years, and it did well in the ‘70s (a period of acknowledged inflation) and over the past 15 years (a period of multiple bubbles, high financial asset inflation, and significant money-printing).
But, when you marry that comment with the subject of my last post, his premise makes a bit more sense (at least, from the convenience it provides him). If, by seeming stipulation, gold doesn’t track inflation well, it would also imply that it does not tell us much about deflation either. Therefore, by process of elimination, a lower gold price can only mean one thing – less fear. And at a moment where it is critical to control the narrative and maintain the confidence level, who wants to imagine that the other possibility of a lower gold price is a deflationary crash?
Anyway, whatever the motives, I think the Fed is hoping for an outcome without any idea of whether it will come.
But, when you marry that comment with the subject of my last post, his premise makes a bit more sense (at least, from the convenience it provides him). If, by seeming stipulation, gold doesn’t track inflation well, it would also imply that it does not tell us much about deflation either. Therefore, by process of elimination, a lower gold price can only mean one thing – less fear. And at a moment where it is critical to control the narrative and maintain the confidence level, who wants to imagine that the other possibility of a lower gold price is a deflationary crash?
Anyway, whatever the motives, I think the Fed is hoping for an outcome without any idea of whether it will come.
Tinfoil Musings
It happened two weeks ago, but I still want to comment on it belatedly. As you’ll recall, Bernanke testified before Congress and the topic of gold came up. The gist was that he doesn’t, nor does anyone else really, understand the gold price. Fine. But, within that larger point, he also said something else which I think is worth quoting directly:
“I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords...Gold price going down is not necessarily a bad thing from that perspective. It suggests people have somewhat more confidence, and are less concerned about really bad outcomes.”
Now, generally, I am not one who falls into the conspiratorial camp when it comes to precious metals. But, since the April takedown, there have too many anecdotes and data points that have to leave you scratching your head. And commentary like that from the Fed Chairman only feeds the beast in my opinion. It’s fine to be confused by gold (even though the U.S. is largest sovereign holder of the barbarous relic as a reserve asset, and Mr. Bernanke knows that), but then to impute some logic from a lower price at the same time, and to suggest a preference for that outcome, strikes me as something of a reveal. This whole “recovery” concept is about smoke and mirrors and convincing people to maintain confidence in the system and political leaders. But the jobs numbers are weak, the GDP numbers are weak, trillions of monetary units have been created without a satisfactory result – but, gold is down, so no need to worry.
Maybe holding the price down does serve a political end. Just a thought.
“I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords...Gold price going down is not necessarily a bad thing from that perspective. It suggests people have somewhat more confidence, and are less concerned about really bad outcomes.”
Now, generally, I am not one who falls into the conspiratorial camp when it comes to precious metals. But, since the April takedown, there have too many anecdotes and data points that have to leave you scratching your head. And commentary like that from the Fed Chairman only feeds the beast in my opinion. It’s fine to be confused by gold (even though the U.S. is largest sovereign holder of the barbarous relic as a reserve asset, and Mr. Bernanke knows that), but then to impute some logic from a lower price at the same time, and to suggest a preference for that outcome, strikes me as something of a reveal. This whole “recovery” concept is about smoke and mirrors and convincing people to maintain confidence in the system and political leaders. But the jobs numbers are weak, the GDP numbers are weak, trillions of monetary units have been created without a satisfactory result – but, gold is down, so no need to worry.
Maybe holding the price down does serve a political end. Just a thought.
The Red Pill
I find it difficult to watch financial television any more because practically every commentator is a cheerleader. Well, that's why this recent interview with Lakshman Achuthan on Bloomberg was so much fun. He performs an absolute ass-whooping on Tom Keene and Sara Eisen as they try to spin every data point to the most bullish case.
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