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Inflation/Deflation Question

Why I am suspicious

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#1 MaryAM

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Posted 18 April 2018 - 02:16 AM

The inflation/deflation question puzzles me with data like these.  I follow the M2 multiplier more than M1 but the data are suggesting hyperdeflation - and ultimately a major decline in the stock and bond markets. If the FED was not pumping money into the system by purchasing private debt (specifically mortgage debt), the stock market would be in the tank.  Its all artificial and theater at best but then, they are creating new money – but its only going into the hands of a few – and the many are further in debt with no way to continue to service debt much less retire it.  Until lending long is profitable and predictable, and debt can be both serviced and retired, I don’t see this market as anything more than a historic and potentially catastrophic bubble.  There is no historical precedence for a central banking system purchasing private debt at any percentage of GDP and long term economic stability and predictability.  The M2 multiplier is lower than it was during the great depression.   How can this sustain a continuously rising stock market?

 

 

 

 

 

https://fred.stlouis...org/series/MULT



#2 kaiser soze

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Posted 18 April 2018 - 03:32 AM

The answer on the fund flows side is foreign money which is still being printed by the BOJ and the ECB last time I checked.  I saw a recent interview with non-US managers of some large funds who were still hyper bullish on the US economy and Tech stocks in particular.  

 

On the valuation side, the notable underperformance of bank stocks and homebuilders might be pointing to incipient stress due to the reasons you outlined. However, tech stocks are still going strong and reporting record earnings.  Industrial stocks will also likely put up very good numbers. Only when financial and economic stresses show up in a serious way in the earnings and balance-sheets of even the most innovative companies will Macro get priced in.  Until then, any problems will be dismissed as stock-specific or sector-specific, and market participants will bid up FANGMANIA to the moon and beyond.  



#3 LarryT

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Posted 18 April 2018 - 05:35 AM

Velocity of money indicates we have been in a depression since the 2000 market top. Take away unemployment insurance, food stamps, welfare in all its forms and it would be the worst of times in all of history.

https://fred.stlouisfed.org/series/M2V


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#4 MaryAM

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Posted 18 April 2018 - 08:05 AM

Very funny Larry - I was going to include that chart.  Your right - I also like this chart on GDP - which if they don't like the results they simply fiddle with the way they calculate it.

http://www.shadowsta...-product-charts



#5 Data

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Posted 18 April 2018 - 09:18 AM

M1 has more than doubled since 2009. 



#6 pedro

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Posted 18 April 2018 - 03:07 PM

What the CBs are doing is economic socialism writ large.

If the private sector won't borrow more money into the system (given the glut of productive capacity and zombie corps),

   govts will do it for them.   And CBs will aid and abet, by buying the govt debt.

That keeps rates down, but its its effectively official counterfeiting, as the value of fiat is further diluted with each F9 stroke used to buy/rollover that debt.

So those with merely paychecks (and no assets in size) keep losing ground.   Effectively, that's the 99%.

Anyone in bonds or real assets sees their NOMINAL wealth going up.   (But its also hollowing out in real terms since TANSTAAFL).

KS is correct though ... for the whole picture, better be analyzing this on the global scale, not just via FRED.