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Inflation Monitor – March 2016


Inflation Monitor Summary – Composite Ranking

Inflation Monitor - March 2016 Summary

 

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


 

Inflation Monitor – March 2016 – Introduction

 

The first quarter of 2016 has been an interesting one. It started off with a significant bout of volatility and risk-off investing. Then after the stock market bottomed in mid-January and re-tested those levels a few weeks later, it has taken off like a rocket. It was almost as if the global economic troubles didn’t exist anymore. Unfortunately they do… It was almost as if someone (the Fed) waved their magic wand and all the problems of the world just disappeared.

Magic is a wonderful thing. Easter is coming soon. Kids are eagerly awaiting the day where they get chocolate eggs and toys from the magical bunny. What a wonderful thing to believe in magic and illusion.

While many of you don’t believe in the Easter bunny, you probably believe in magic. Earlier this year the markets swooned based on poor economic data, then the Fed told a magical story of how they are data dependent (but only when they want to be) and lowered rate hike expectations and without further consideration the market believed it and started to rise.

Spoiler Alert for those of you who still believe in the Easter bunny, he isn’t real, and neither is this stock market rally.

Sure the prices confirm that stocks and commodity prices have been rising in the past few weeks, but what has really changed? Have US or global economic conditions improved? The only thing that has changed significantly in the past 3 months has been the stock market. So does the Fed’s data dependency include stock prices? Maybe I missed that Fed meeting where they discussed how stock prices determined monetary policy.<end sarcasm>

The Fed’s stated target of four interest rate hikes in 2016 communicated to the public that US economic conditions were strong enough to attempt to return to historically normal rates… At least those were the expectations communicated by the Fed.

At the last Fed meeting, Fed Chairwoman and magician Janet Yellen indicated that the number of rate hikes may be closer to only two. Like magic, the markets rose to greet the new bullish expectations. Apparently four rate hikes was too much and two was just the right amount. The Fed has a notoriously poor track record of predicting the future of interest rates and inflation, but in this case there may be another motive.

The Fed has another magic trick in their act other than changing the fed funds rate and printing money. With a few carefully placed words they can change the direction of the stock market. All market participants want to know what the Fed says. They hang of every word uttered by Fed board members. Yet what the Fed actually does is very little. One meeting they predict 4 rate hikes and the next they reduce it to 2. They have not changed any of the underlying conditions, but like magic, they have made everything all right again in the markets.

This is one of the Fed’s greatest tricks…

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Inflation Monitor – April 2015

Inflation Monitor Summary – Composite Ranking

Inflation Monitor Summary - April 2015

 

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


 

Inflation Monitor – April 2015 – Introduction

Spring is finally here and with it comes the warm weather. Unfortunately the warm weather has not been able to thaw out deflation or the wintery economic chill that has gripped certain parts of the US economy and many European nations.

The CPI continues to hit negative territory on an annual basis for the second month in a row. The PPI is well into negative territory as well. This does not bode well for the US economy.

Commodity prices have also continued to show weakness. The bright spot in the US economy is housing which has been climbing for the past few months and started to pick up its pace.

There are many excuses that have been proposed for these numbers: the heavy snowfall in the North East this past winter, the significant drop in oil prices, the rising US Dollar, and more. These are all valid reasons for the drop in the CPI, PPI, and other economic data. However what I find amusing is the commentators who claim the high oil prices were a good thing for the economy, now say that low oil prices are good for the economy… Well which is it?

The stock market is not the economy”  – Author Unknown

This axiom is more important than any you will learn about the stock market. What it means is that the economy does not always lead or follow the actions of the stock market. While they are obviously related, they are not the same.

The US stock market is currently holding up well considering the negative economic data. While the two are highly correlated, they do not always act in unison. However I do expect the stock market to follow the economic trends in the second half of this year unless we see a sharp reversal in trend of the US Dollar and Oil.

In this months Inflation Monitor I have some very interested charts to share with you. Enjoy.

As always, please contact me to send your feedback on how I can make this monthly Inflation Monitor a better tool and resource for you. Thank you for reading and I hope you enjoy this month’s issue – Inflation Monitor – April 2015.

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Inflation Monitor Monthly

 

Kirk Chisholm

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Inflation Monitor – March 2015

Inflation Deflation Composite Ranking

Inflation Monitor Summary March 2015

 

* The Inflation Equilibrium is a quick summary for the whole data series of the inflation monitor. If you don’t like statistics, this is the chart for you.


 

Inflation Monitor – March 2015 – Introduction

It is March and as of today spring is finally here. It doesn’t feel like spring. I only hope that the weather warms up so I don;t have to wear a winter parka in April.

Boston finally broke the record for snowfall this year with 108.6 Inches. The prior record was 107.9 inches in 1872. This broken record was no reason to celebrate since the Governor had to call in the National Guard to help with the snow. Having experienced prior large snow storms in the City of Boston, I can tell you that the situation this year was mismanaged. There was no reason to call in the national guard.

Boston’s lack of preparedness is much like the financial markets with deflation. Deflation has caught a lot of people off guard. A number of European countries currently have negative interest rates, Germany and Switzerland rates are negative out to 6 and 10 years. What the future holds with negative interest rates is anyone’s guess, but the idea of negative interest rates is a dangerous one if the trend continues lower.

Is the US stock market safe from global deflation?

The S&P 500 and US Treasuries are an anomaly in the global equity and bond markets. The US Treasury has the highest interest rate compared to any other developed country. The S&P 500 continues to rise despite the global deflation effecting countries and equity prices around the world.

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Inflation Monitor October 2014

inflation monitor

Inflation Monitor October 2014 – Introduction

This is the first issue of the Innovative Advisory Group Inflation Monitor. We created this Inflation Monitor as a part of the research we do internally at Innovative Advisory Group. While we have always done this research, we felt that with the new upgraded website, we would add a few new features. Our plan is to publish one of these each month with the monthly updated inflation data. Each issue will be accompanied with a brief summary of ideas, concept having to do with inflation, and a few notable charts, have I have found interesting either in the past month or in general. Everything will be related to inflation, or rather what I call “flation”. Maybe if I need to spice things up a bit, I’ll add a bit of humor. Please contact me to send your feedback on how I can make this monthly Inflation monitor a better tool or resource for you.

Thank you for reading and I hope you enjoy.

Kirk Chisholm

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