The Slip ‘n’ Fail Mutts

By Grant Williams

June 23, 2014





Now the news has arrived
From the Valley of Vail
That a Chippendale Mupp has just bitten his tail
Which he does every night before shutting his eyes
Such nipping sounds silly. But, really, it's wise.



He has no alarm clock. So this is the way
He makes sure that he'll wake at the right time of day.
His tail is so long, he won't feel any pain
'Til the nip makes the trip and gets up to his brain.
In exactly eight hours, the Chippendale Mupp
Will, at last, feel the bite and yell "Ouch!" and wake up.







Theodore Seuss Geisel was a master of anapestic meter.

An anapest is a metrical foot used in poetry which comprises two short syllables, followed by a long one. More familiarly (particularly in the world created by Seuss), it consisted of two unstressed syllables followed by a stressed one:

"Twas the night before Christmas and all through the house..."

Seuss%20Stamp.psd


Or, in keeping with this week's theme:

"The sun did not shine.
It was
too wet to play.
So we
sat in the house
All that
cold, cold, wet day."

Simple, but at the same time extremely difficult to pull off effectively.

Geisel was an English major at Dartmouth who eventually became the editor-in-chief of the college humor magazine, the Dartmouth Jack O' Lantern; but after being forced by the dean to resign his post after being caught drinking gin in his dorm room, he rather cunningly adopted the nom de plume "Seuss" in order to continue to be able to write for the magazine.

Apparently, nobody at the Ivy League college figured out the identity of the mysterious "Seuss."

When banned from his post for a gin-drinking crime
The scribe picked a name and then bided his time.
In a different guise he remained on the loose
By pretending to be the mysterious "Seuss."

Geisel graduated from Dartmouth and left the USA to pursue a PhD in English literature at Lincoln College, Oxford; but, whilst there, he met a lady named Helen Palmer who persuaded him that he should give up his dream of becoming an English teacher and pursue a career as a cartoonist.
Returning home without a degree but with a fiancée (named Helen Palmer), Geisel found that his drawing ability allowed him to earn a rather handsome living as a cartoonist after he succeeded in getting his first cartoon published in the Saturday Evening Post on July 16, 1927.

Geisel took a job as a writer and illustrator at the humourous magazine Judge in October of 1927, married Palmer a month later, and five months after that, his first work was published and credited simply to "Dr. Seuss."

A successful career as an illustrator allowed Geisel and his wife to travel extensively. According to Geisel himself it was on the journey home from an ocean voyage to Europe that the rhythmic noise of the ship's engines inspired him to write his first book, the anapestically titled And to Think That I Saw It on Mulberry Street.

While at Oxford (in England) a lady supposed
To suggest he choose drawing instead of his prose.
When the young man relented his future unfurled
And he ended up famous all over the world.

And that, Dear Reader, is how Theodore Geisel became Dr. Seuss.

Thirty-five years after the publication of And to Think That I Saw It on Mulberry Street, Seuss wrote The Sleep Book, the brilliant story of a contagious yawn, started by a small bug called Van Vleck, that would lull even the most spirited toddler successfully off to sleep.

On page 32 of The Sleep Book, we are introduced to the Chippendale Mupp, a curious creature with an extraordinarily long tail. The Mupp bites the end of that tail when he goes to sleep every night, and its length ensures that the sensation of pain only reaches him eight hours later, causing him to wake up. It's a brilliant and flawless alarm clock.

Mupp%20Cropped.psd 


Of course, once the Mupp has bitten his tail, the end resultin this case, a rather nasty, sharp pain — though delayed for quite some time, is assured; and there is nothing he can do about it.

I was discussing the Chippendale Mupp with Steve Diggle recently as we pondered the actions of central banks in recent years and, more specifically, the great inflation/deflation debate that has raged constantly ever since the dawn of QE. As the ECB battles to stave off what looks like deflationary pressures, Japan continues to struggle to generate the promised 2% inflation, and the US continues to pretend to the world that the cost of living from sea to shining sea is rising at just 1.46% per annum, it's abundantly clear to me that the day QE was unleashed into the world was the very same day that the world's central bankers — the Slip 'n' Fail Muttsbit their own tails.

The pain from that bite is now working its way towards the brain and will, at some point, manifest itself in an almighty "OUCH!" that will wake the entire world; BUT there is one X-factor at this point: none of us knows exactly how long the Slip 'n' Fail Mutts' tail actually is.

We will find out.


2303.png 


Back in 2012July 26th to be preciseMario Draghi, in a speech at the Global Investment Conference in London, uttered those famous words which put an end to the seismic volatility roiling European debt markets once and for all for the time being:

(Mario Draghi): ...the third point I want to make is in a sense more political.

When people talk about the fragility of the euro and the increasing fragility of the euro, and perhaps the crisis of the euro, very often non-euro area member states or leaders underestimate the amount of political capital that is being invested in the euro.

And so we view this, and I do not think we are unbiased observers, we think the euro is irreversible. And it’s not an empty word now, because I preceded saying exactly what actions have been made, are being made to make it irreversible.



But there is another message I want to tell you.

Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.

Almost instantaneously, the clouds seemed to part, the oceans calmed, and the storm abatedall based on an ephemeral promise from a man under immense pressure who, let's face it, if he was prepared to DO whatever it took, would most certainly SAY whatever it took.


Compression.psd 
Source: Bond Vigilantes


As the chart above clearly demonstrates, Draghi's words marked the absolute apex of peripheral European yields; and from that day to this, the convergence trade has been the moneymaker — as it was always designed to be.

Prior to Lehman's collapse, spreads between core and periphery stayed within a handful of basis points of each other; but after the Eurozone crisis erupted in late 2009, they spiked to several hundred basis points. Since then, it has taken a Herculean effort on behalf of Draghi's ECB to bring them back into line.

The REAL question, however, is whether they should have been trading so closely in the first place.

When addressing the crowd Draghi sounded the bell
"Whatever it took" he would quiet and quell.
The markets were happy, the Chairman was feted,
But
Europe's economy stalled and deflated.

Now, with barbarians stood at the gates,
It was time to impose on them negative rates.

Two weeks ago, Draghi was both back in front of the world's press and struggling under the weight of yet another creeping burden which had been haunting him for some time — the spectre of deflation currently manifesting itself as disinflation (in some places).
Like Kuroda in Japan, Yellen in the USA, and Carney in the UK, Draghi has been struggling to get the rising prices he needs in order to help ease the crippling debt burden that has piled up not just in Europe but across the globe over the last four decades.


2331.png 

Taking the US as an easily graphable example, the world has seen ever-decreasing rates pump up an ever-increasing mountain of debt; and now we have reached the end of the road for one of those variablesnamely the falling interest-rate component, which has reached zero.


Zero%20Rates.psd 


As a countermeasure to the wickedly deflationary forces which the collapse of Lehman set loose, rates were slashed to (almost) unprecedented levels (as you can see from the chart, above, US rates were set at roughly zero once before — in the early 1930s, funnily enough), which effectively leaves no room for further maneuver.

Not only that, but with all the focus on the running change in CPI measurements around the world, it's perhaps a good idea to take a step back and take a look at the actual indices themselves for a change, to get a better perspective on what the cumulative effects of inflation have been over the last 50+ years... 1.46% per annum sounds so innocuous, right?

There's your cost of living. Right there.


2357.png 

When we do that (chart above), we see two things: the relentless climb in the cost of living (a curve that has steepened considerably since the closing of the gold window) and the infrequent nature of deflationary periods (in the West at least). I chose the UK, US, and Australia as examples of Western, debt-fueled nations and Japan as the poster child both for what is facing the West and for what happens when persistent deflation in the aftermath of a huge credit expansion sets in. That gently downward sloping green line represents two lost decades in Japan and shows you just WHY the Western central banks are throwing everything they have at the prospect of deflation.

One look at the red line representing the US shows you that, after a brief shock in 2008, the CPI has just kept right on trucking just as intended when QE was unsheathed.

All of this helps explain Draghi's latest promise, given to the world on June 5th after months of speculation about what the ECB might (or might not) do to combat a somewhat stubborn case of... let's call it "disinflation," shall we?

Draghi finally crossed the Rubicon and took decisive action, imposing negative rates in Europe.

(UK Daily Telegraph): Are we finished? The answer is no,” said Mario Draghi, the ECB’s president. If required, we will act swiftly with further monetary policy easing. The Governing Council is unanimous in its commitment to using unconventional instruments within its mandate should it become necessary to further address risks of prolonged low inflation.”

Once again, Draghiflushed with the success of his "whatever it takes" statement (something he NEVER had to legitimize with action) — threw out a veiled threat to everyone thinking about betting against him, in the hope that such a threat would be enough to once again hold hostile action at bay.

Draghi.psd


Maybe it will be. I suspect the Law of Diminishing Returns may come into play at some point here, though...

"Are we finished?", he asked then he answered himself:

"If required, we've plenty more left on the shelf."


Rather amazingly, Draghi made a big deal of the fact that the ECB would cut the benchmark rate by 10 bp to 15 bp (the way he spoke, it really did feel like he thought that cut might actually spur some lending... yeah, really), introduce a negative rate of -10 bp on its excess deposit facility to encourage banks to lend (yeah, that'll do it. The banks will NEVER figure out a way around THAT, Mario), and introduce targeted LTROs (TLTROs) — because, well, the world is just a little acronym-light right now...

David Stockman summed the farce up perfectly:

(David Stockman): How could any adult believe that a benchmark rate cut of 10 bps from an already microscopic level of 25 bps would move the needle in an economic zone that is already groaning under of the weight of $60 trillion in public and private credit market debt?

Similarly, what exactly is the point of negative rates on excess bank funds deposited at the ECB when there will never be any takers? After all, Euro banks do have alternative parking lots for idle cash. Likewise, how does inventing a grand new acronym called TLTRO hide the fact that it's essentially a free toaster program for clever loan book managers? As instructed by this swell new ECB writ, they will presently shuffle some funds out of mortgages, sovereign debt or other speculative purposes yet to be defined and into approvedproductiveloans. And then they will passgo”, collect some cheap TLTRO funding from the ECB and collect their own performance bonus for all the bother.

At this point, let's take a look at Euro Area CPI (which only goes back around 20 years):


2390.png 


See any persistent deflation there? Me neither. The trajectory is set. Bottom left to top right.
Japan has been a huge outlier, but the fear is that other nations will go the way of the Land of the Rising Sun — and we can't have that, can we?

Every action taken by the central banks since September 15th, 2008, has been wildly inflationary.

WILDLY inflationary.

The only problem is, that inflation hasn't shown up yet — in many places quite the reverse.
However, when trying to understand the lack of inflationary pressure, please remember the Chippendale Mupp. The inflation, just like the pain, is working its way down the tail and towards the brain.

Central to the problems facing the Slip 'n' Fail Mutts is their focus on the shocking deceleration in the velocity of money all around the world. This is an area they are targeting aggressively, feeling that, if they can drag it higher, inflation will increase by juuust the right amount.

It has to be said — the chart is an absolute shocker:


2405.png 


Many have argued that, should we see signs of a turn in velocity, inflationary pressures will be right behindnot only that but, given the low base from which that velocity will bounce and the sheer weight of additional money now in the system thanks to the Fed's actions, those pressures will be of the kind that has led, in the past, to shhhhhh..... hyperinflation.

The above chart has been doing the rounds recently, and plenty of people have weighed in on itpeople such as Michael Snyder:

(Investing.com): This is a highly deflationary chart.

It clearly indicates that economic activity in the U.S. has been steadily slowing down.

And if we are honest, we have to admit that we are seeing signs of this all around us. Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.

... and we all know what a visceral reaction the Slip 'n' Fail Mutts have to ANY whiff of deflation, don't we?

However, many, including the great Henry Hazlitt, have concerns as to whether the velocity of money is all that important. Hazlitt's studies found that the level of speculation in places such as Wall Street would have a strong effect on the velocity of money and that there was no consistent pattern. Occasionally it would surge on falling prices and other times it would surge when they rose

Either way, posited Hazlitt, it is far too sweeping a generalization to claim that higher velocity definitely equals higher inflation:

Monetary theory would gain immensely if the concept of an independent or causal velocity of circulation were completely abandoned. The valuation approach, and the cash holdings approach, are sufficient to explain the problems involved.

Either way, there's something that just can't be ignored, I'm afraid... and it's this:


2420.png 


See anything a little strange? Over there. On the right-hand side of the chart. THERE!

Yes... that's what it looks like when outside agencies interfere with market forces and corrupt the signals that have historically driven little things like the S&P 500, just to make people feel better.

I'm sorry to be the one to tell you, folks, but divergences like that one do NOT get fixed quietly over time. They revert suddenly, and usually for entirely obvious reasons that absolutely nobody saw as potential catalysts at the time.

Sharply higher velocity of money which will lead to sharply higher inflation (I seldom disagree with Hazlitt, but I shall take the liberty of doing so on this occasion), or a sharply lower S&P 500?

Pick one. Sorry, but you can't have both.

But back to that whole inflation/CPI thing...

As I was putting together this week's Things That Make You Go Hmmm..., the US CPI for May was announced; and it relegated the argument about the importance of velocity to what a dear friend of mine who, thanks to the World Cup, happens to be a new convert to "soccer" might call "the subs' bench." Instead, the discussion switched rather rapidly to whether forward guidance (the most important plank of Fed policy now that ZIRP has been reached) might actually be rather useless.

(Incidentally, if anyone out there can explain to me why forward guidance is listened to by ANYBODY, I'd be extremely grateful. I mean, is there anything higher than a 0% chance the Fed will NOT raise rates when required to no matter WHEN that day may arrive because they'd previously promised they wouldn't? People... please...)


2433.png 


(Capital Economics): With core CPI inflation rising to 2.0% in May, from 1.8% in April, the Fed will have to acknowledge in tomorrow’s policy statement that price pressures are building. The chances that it will hike interest rates before the middle of next year are increasing.

The 0.4% m/m increase in consumer prices in May was twice as large as the consensus forecast of 0.2% m/m, and it pushed the annual inflation rate up to 2.1%, from 2.0% in April. Both food and energy prices played a part.

The 0.5% m/m rise in food prices was the biggest since August 2011 and followed large increases in each of the previous three months. Given that food producer prices fell in May, this will probably be the last of the big gains in consumer prices caused by the earlier extreme weather and the outbreak of disease. The 0.9% m/m increase in energy prices was due to gains in both gasoline (0.7% m/m) and utility (1.4% m/m) prices.

The 0.3% m/m gain in core prices was also larger than expected (consensus +0.2%). The speed at which core inflation has risen from 1.6% in March to a 16-month high of 2.0% is remarkable. The three-month annualised rate has shot up to 2.8%.

Hedgeye took up the baton:

(Hedgeye): Shelter inflation (~31% weight), which almost singularly supported the headline number most of the last year, accelerated +10bps to +2.9% YoY while protein (meat, poultry, fish, eggs) price growth accelerated another +130 bps sequentially to +7.7% YoY...


Hedgeye%201.psd 



But it's not just the inconsequential little things like food, energy, and shelter that are seemingly setting a course for higher ground. No.




Hedgeye%202.psd 


Right across the spectrum, since the turn of the year, there has been a very sharp turnaround in the number of items that are beginning to reflect the pressure which whilst felt by everybody who drives a car, eats food, or has a roof over their headpolicymakers insist is nonexistent:

(Hedgeye): Indeed, the percentage of components registering sequential acceleration made a new multi-year high in May and is looking similar to the commodity price cycle-catalyzed acceleration in 2011.

Even everybody's favourite former disinflationist, David Rosenberg, is sounding the alarm:

(Breakfast With Dave): US consumer prices have risen at a 2.6% annual rate year-to-date. The comparable trend at the end of 2013 was 1.4%. This is the second fastest start in the past six years.

The core CPI has accelerated to a +2.3% annual rate in the first five months of the year versus 1.6% at the end of 2013. So no, this is no longer just about food and fuels. This is actually the fastest start to any year for core inflation since 2006, when the Fed was about to complete its two-year tightening cycle, as opposed to being quarters away as seems to be the case today.

Fortunately, in a conversation with CNBC's Steve Liesman, Janet Yellen explained why we shouldn't worry:

(Zerohedge): So I think recent readings on, for example, the CPI index have been a bit on the high side, but I think it's — the data that we're seeing is noisy.

I think it's important to remember that, broadly speaking, inflation is evolving in line with the committee's expectations.

The committee has expected a gradual return in inflation toward its 2 percent objective. And I think the recent evidence we have seen, abstracting from the noise, suggests that we are moving back gradually over time toward our 2 percent objective, and I see things roughly in line with where we expected inflation to be.

So... it's just noise? Phew!

"Don't worry, it's nothing" said Chairwoman Janet.
"Everything's happening just as we plan it.
Ignore all the pundits (the girls AND the boys)
Have faith when I tell you, forget it, it's noise."

In her press conference, Yellen then went on to insist that there is she saw no bubble in the equity market:

(WSJ): On a day when the S&P 500 set yet another all-time high, Fed Chairwoman Janet Yellen said she isn’t particularly concerned about stock prices at current levels.

In her press conference Wednesday afternoon, Ms. Yellen said she and her committee look at several different metrics to gauge stock valuations relative to earnings and dividends, and how they stack up against historical comparisons.

When asked whether the market is trading outside of those norms, she responded: “I still don’t see that for equity prices broadly,” while adding she currently doesn’t see bubble-like conditions in the market.

(There are some things people say that you just KNOW you're going to be hearing them talk about again one day... just sayin'.)


2480.png 


Is she not seeing, or not looking, I wonder?

Meanwhile, across the pond in Dear Old Blighty, some rather strange goings-on were... well, going on.

Remember when Mark Carney (like Ben Bernanke before him) tied UK forward interest-rate guidance to unemployment statistics? No? OK, well here's a refresher from August of 2013:

(Business Insider): "The MPC [Monetary Policy Committee] intends at a minimum to maintain the current exceptionally accommodative stance of monetary policy until economic slack has been substantially reduced," said Carney.

"That means the MPC intends not to raise Bank Rate above its current level of 0.5%, at least until the Labour Force Survey headline measure of unemployment has fallen to a threshold of 7%...

Suh-weet!

To paraphrase S. E. Hinton, though, that was then, this was six months later...

(UK Daily Telegraph): Bank of England Governor Mark Carney has revised the forward guidance he gave at his first inflation report ... in August by dramatically broadening the number of economic indicators used by the Bank to decide when it will be appropriate to raise interest rates....

He has done this to reassure markets that a rate rise is not imminent even though unemployment is fast-approaching the 7pc level which he named as a threshold for the Bank to consider an increase.


2496.png 

Back in August, when he introduced the guidance, the Bank did not expect unemployment to dip below 7pc for three years, but just six months later the rate had fallen to 7.1pc....

In other words, the UK economy has picked up steam faster than the Bank of England forecasters had anticipated. But policymakers are concerned that although the headline figures look strong, the economy has not yet reached "escape velocity" and could not withstand a rate rise. This is in part because the headline unemployment, taken alone, gives a falsely upbeat picture of the economy, since more jobs do not necessarily lead to more output. The Bank of England had wrongly predicted that productivity would pick up in line with jobs growth, but this has not yet happened.

The headline unemployment rate therefore has failed as an effective gauge for the fundamental strength of the economy, so it is no longer much use as a forward guidance tool.


Now Yellen and Carney have both been caught short
By numbers refusing to do what they ought.
"No matter" says Carney. "Agreed", says the Fed,
"We'll just pick another statistic instead."



(FT): Mark Carney has defended the Bank of England’s decision to abandon guidance linking interest rates to unemployment, saying persistent obstacles to a lasting economic recovery mean that policy makers can “responsibly take their time” before raising borrowing costs.

The BoE governor issued upbeat forecasts for rapid growth and low inflation in the UK economy last week, but said interest rates might nonetheless need to remain low for some time. A change would depend not on the headline unemployment rate already near the level that policy makers had previously said would justify action — but on more complex measures of slack in the labour market.

Yeah... "complex" measures"Complex" in the sense of "too difficult for the likes of YOU to understand, so just leave it to us. Trust us. We're on this."

Uuuuuuuunfortunately, along with the US CPI numbers, the BoE's MPC minutes were released this week, and... well... let's just say things are starting to get a little awkward for the central bankers when it comes to that nonexistent inflation they keep talking about:

(UK Daily Telegraph): Bank of England policymakers are preparing for a rise in interest rates before the end of this year, minutes from their latest meeting showed on Wednesday.

The nine-member monetary policy committee (MPC) were revealed to have held an intense discussion over the possibility of a 2014 rate hike and expressedsurprise” that markets appeared unprepared for such an event.

They said there was a risk that stronger than expected growth in coming months could drive sharper wage growth and trigger a rate rise to curb inflation.

“In that context, the relatively low probability attached to a Bank Rate increase this year implied by some financial market prices was somewhat surprising,” the minutes of the June meeting said.

Now, when the MPC expresses "surprise" at the actions of the market, take note. Seriously.


Business Secretary Vince Cable did — the very same day:

(UK Daily Telegraph): An early rise in interest rates could put the economic recovery in jeopardy, Vince Cable warned on Wednesday.

The Business Secretary cautioned the Bank of England against increasing rates solely to cool the booming housing market.

He made his remarks after the Bank’s Monetary Policy Committee gave another signal that rates could start rising earlier than many economists had expected....

Speaking in the City of London, Mr Cable said he was worried that rapidly rising property prices could destabilise the economy by leading the Bank to raise rates early.

If these incipient inflationary pressures lead to a rise in interest rates sooner and further than is warranted by the economy as a whole, it could place in jeopardy our hopes for a sustained and balanced recovery,” he said.

God forbid that Cable should allow the prospect that rates might rise sooner than expected to percolate for even 24 hours — that could be dangerous to confidence levels. A BIG no-no.


VIX.psd


When the hiking of rates was a likely next shoe
For Carney and Yellen (to name only two),
The warnings came flying from anyone able,
From Krugman (of course), from Lagarde and from Cable.
The market was sanguine, no panic was seen,
The VIX was as low as it had ever been.
Refuse to believe me? Then look to your right.
The VIX couldn't rally try as it might.


Are the markets ready (and, more importantly, able) to withstand higher rates? Well, with the Fed tapering another $10 bn this week to a chorus of "meh" from the markets, it certainly seems to suggest that this whole taper thing is going to trundle along harmlessly until it's been completed without disruption, BUT I have a very nasty feeling about all this.

Those higher rates will not be something the Slip 'n' Fail Mutts will CHOOSE — but inflation could force them into a rather nasty corner. That must be avoided at all costs, and these people genuinely believe they can do so.

Essentially, the central bank heads all around the globe are engaged in a must-win confidence game. They HAVE to make people believe that everything is under control and getting better, BUT at the same time they must ALSO make them believe that the accommodative policies currently in place will be here, essentially, forever (forever in market-time is normally about 18 months to two years).

If the general consensus becomes that they are wrong about either of those statements (or, God forbid, both) then they — and by extension, weare in for a world of hurt.

On the other hand, if they do manage to convince people they are right and that they will ultimately be successful, then the inflation genie will burst forth from the bottle in which it has been imprisoned as the great credit deflation runs its course; and with the massive amount of kindling heaped on the fire in the shape of QE, the conflagration will be enormous.

But just in case you were still harbouring (yes I put a u in harbouring. I'm English. That's how we roll) a misguided faith in official CPI statistics, check this out:


Living Expense
Jan 2000
March 2014
% Increase
Barrel Of Oil
$24.11
$100
314.80%
Fuel Oil (Per Gallon)
$1.19
$4.07
242.00%
Gallon of Gas
$1.27
$3.51
176.40%
One Dozen Eggs
$0.97
$2.00
106.20%
Annual Healthcare Spending (Per Capita)
$4,550
$9,300
104.40%
Ground Beef (Per lb)
$1.90
$3.73
96.30%
Movie Ticket
$5.25
$10.25
95.20%
Average Private College Tuition
$22,000
$37,000
68.20%
Electricity (Per Kwh)
$0.08
$0.13
59.50%
New Car
$20,300
$31,500
55.20%
Coffee (Per lb)
$3.40
$5.20
52.90%
Natural Gas (Per Therm)
$0.71
$1.08
51.40%
Avg. Home Price (Case Shiller)
$161,000
$242,000
50.30%
Postage Stamp
$0.33
$0.49
48.50%
Avg Monthly Rent (Case Shiller)
$635
$890
40.20%
CPI
$168.80
$234.78
39.09%
PCE Deflator (Fed's Preferred Measure)
$81.78
$107.66
31.65%
Source: David Stockman


Bernanke gave us ZIRP; now Draghidamned by his own lack of earlier action — has been forced to add NIRP to the acronym lexicon of modern finance.

One central bank is fighting deflation by forcing banks to pay interest on their deposits, another is fighting the same (potential) battle by doing the exact opposite.

Think both strategies can be successful in fighting the same enemy?

Inflation whispers are EVERYWHERE right now, and those whispers are all it may take to fuel expectations of future rate hikes — and THAT is the road to perdition.

The Slip 'n' Fail Mutts know that.

In reality, it's not about Zero Interest Rate Policy or, for that matter, Negative Interest Rate Policy.

It's about Broken Interest Rate Policy.

BIRP!

There isn't a bubble in equity prices,
Nor
housing, nor bonds — there will be no surprises.
The Slip 'n' Fail Mutts have their eyes on the ball,
There's
no need to worry, there's no need at all.


But wait just a second here, what if they're wrong?
What if they've had no idea all along?

The tech bubble fooled them, the market got caned,
remember when Ben said subprime was "contained"?


These people are clueless I'll venture to say,
Not that they'll listen (to me, anyway).
But time after time when they face a new bubble,
They
never once think they're the CAUSE of the trouble.

This time, however, the Mutts are in peril,
And
Citi, and Morgan, Wells Fargo, and Merrill.
Inflation/deflation, the argument rages
For pages and pages (and pages and pages).


The argument's moot, thoughthere's no point engaging,
The
Mutts have no hope in the war that they're waging
They've bitten their tails and that means just one thing:
Somewhere a fat lady's starting to sing.


The pain from the bite is now making its way
From the tail to the brainit'll get there one day.
A
matter of time now? A fait accompli?
Inflation is coming believe meyou'll see.


Try as they might (they can use all their tools)
Inflation is going to clobber these fools.
And
when it arrives there'll be no ifs or buts;
Time will be up for the Slip 'n' Fail Mutts.



*******

Ok... so at the risk of pushing things too far, I may as well finish off this week's introduction as I began it, so here's what you can expect to find as you turn the pages of this week's Things That Make You Go Hmmm...Seuss-style:


This week is a doozy, the greatest of shows,
With Merkel and Cameron coming to blows.
The reason? It's Junker — the vilest of bugs,
Cameron hates him, but Merkel just shrugs.

In Hong Kong they're angry, Iraqis are pissed,
Maliki is off Barry's Christmas card list.
And what of the hard drive in Lois' locker?
Coincidentally wiped? What a shocker!

In Germany, Snowden has caused an eruption,
While China is facing endemic corruption.
Rocketing metals and charts on inflation,
Chinese cement, and the growth of a nation.

Russia is playing a tactical game,
While in Buenos Aires it's more of the same.
A positive ruling, a hedge fund assault,
And once more the country is set for default.

Nigel Farage is on one of his rants,
And Yellen? She flies by the seat of her pants.
Lastly yours truly (a long overdue)
Gold presentation that might interest you.

Starring Goldfinger, it looks at the friction
That happens when suddenly fact springs from fiction.
That's all I have for you, I'm out of rhyme
So it's farewell from me...

Charts That Make You Go Hmmm...

Cement.psd 

Concrete has been the foundation (literally) for the massive expansion of urban areas over the past several decades, and it has been a big factor in cutting the global rate of extreme poverty in half since 1990. In 1950, the world made roughly as much steel as cement (a key ingredient in concrete); by 2010, steel production had grown by a factor of 8, but cement had gone up by a factor of 25...

*** bill gates' blog / link


Incrementum%202.psd 


My good friend Ronni Stoeferle of Incrementum in Liechtenstein is all set to publish his latest In Gold We Trust report, and as anyone who follows the gold space knows by now, Ronni's annual masterpiece is an absolute must-read.

This year's is 100 pages of pure information, and Ronni was kind enough to give me a sneak preview, which I'm passing on to you.

Click on the link below to request your own copy when it is published in the next week or so.

In the meantime, over to Ronni:

We are convinced that inflation is a monetary phenomenon. Because of the dynamics of “monetary tectonics”, inflationary and deflationary phases can alternate.

To measure how much monetary inflation actually reaches the real economy, we utilize a number of market-based indicators, which result in a proprietary signal. This method of measurement can be compared to a “monetary seismograph”, which we refer to as the “Incrementum Inflation Signal”. In order to achieve this, we combined different quantitative factors, one of them being the Gold/silver Ratio.

For the fund we manage, we take according positions for rising, neutral or falling inflation trendsHistorically we found there where time periods of about 6-24 months during which disinflationary forces were dominant. These phases were particularly painful for the holders of inflation sensitive assets. Right now it looks as if we could be moving towards the end of such a phase. By mid June, the signal has reversed to rising inflation."

*** Incrementum AG / request in gold we trust

Silver has just broken through its long-term downtrend line and broken out with gusto with a $1 move. Gold at $1320 is about to do the same. Today's price rises on strong volume are indicative that the PM's have bottomed & are now set to rise & are now "back in play" to the long side...

*** nick laird (sharelynx) / link

Silver%20Wedges.psd