us dollar

Inflation Monitor – December 2016


Inflation Monitor Summary – Composite Ranking

Inflation Monitor - December 2016 Summary

Inflation Monitor – December 2016 – Introduction


We have a lot to cover this month in the Inflation Monitor – December 2016. This is the end of 2016. It is a time for reflection for the year past and for pontificating the future. We all know no one can predict the future. And so much is up in the air with the recent populous trend changes, let’s focus on last year.

Let’s start with the US presidential elections. Donald Trump will be our next president (#45) in the US. Some people are happy, and others are sad. Regardless, we have a huge potential shift in the US with the results of the presidential election finalized. The first thing to address is that Trump may or may not pursue the same policies he campaigned on. Every presidential candidate has their platform, but not all of the promises actually happen. Let’s put these in the wait and see category up for discussion after his first 100 days. He will have about 100 days to prove his worth and keep the positive (market-related) momentum going.

While I have seen a lot of positive signs since Trump was elected, the US is overdue for a recession. The S&P 500 had a string of 5 quarters in a row of declining earnings. Apparently, no one noticed. I would consider this a recession, but the markets did not. The markets are always right regardless of what I think. It will be interesting to see what happens once the “new president hangover” wears off.

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Inflation Monitor – June 2016

Inflation Monitor Summary – Composite Ranking

Inflation Monitor - June 2016 Summary


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


Inflation Monitor – June 2016 – Introduction

If you are older than 30 years old, then you are probably scratching your head about negative interest rates. You have spent most of your life under the assumption that positive inflation is normal. You expect it. You probably treat it as a rule of nature rather than an assumption. Well, you are probably surprised to see negative interest rates around the world. While we have not yet seen them here in the US, it is only a matter of time till we see them here.

We have seen a strong push from the central banks around the world into negative interest rate territory. On June 5, 2014, the ECB introduced its negative interest rate policy (NIRP). On January 29, 2016, Japan introduced their version of NIRP. As of March 2016, the ECB dropped their deposit facility rate to -0.40. They are also started purchasing investment grade euro-denominated corporate debt. On June 14, 2016, Germany’s 10-year bund fell below zero to -0.033%. This is historic because it has never happened before.

As of now Switzerland, Japan, and Germany, all have 10 years sovereign bonds that are yielding negative interest rates. Where will this madness end? In case you didn’t think that was crazy, there’s more.

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Inflation Monitor – April 2016

Inflation Monitor Summary – Composite Ranking

Inflation Monitor - April 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 – April 2016 – Introduction


April Fool’s… every year people use this day to play practical jokes on others. This year it was the Fed’s turn to make fools of us all. Janet Yellen made a strong point early in her tenure as Fed Chair that she believed in more transparency with communications to the public about Fed policy. She must have a new years resolution this year that we are not aware of, because her transparency has taken a back seat to settling the market gyrations. The Fed has always claimed that their decisions are not driven by the stock market, however their recent actions might suggest otherwise.

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2015 Recap: High Yield Bonds, Instability, and Financial Contagion

2015 recap

“It’s tough to make predictions, especially about the future.” -Yogi Berra


Is this the start of a high yield bond rout that many bond experts have been predicting?

Is the S&P 500 performance this year a good indicator of the overall market?

Will instability in the bond market spread to other asset classes?

What is the blueprint for the next financial crisis?

These are all questions that clients have asked recently and I thought this would be a good chance to discuss these issues as a wrap up of 2015.

Lets start by taking a look at what has happened this year, where we stand today, and try to pass some judgement on what could happen in 2016. Normally I don’t write about “predictions”. Yogi Berra was a wise man. However I think this post is relevant to the nature of the markets and the growing instability that is occurring under the surface.

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Inflation Monitor – November 2015

Inflation Monitor Summary – Composite Ranking

inflation monitor november 2015 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 – November 2015 – Introduction

Looking at the past year I have to give a hearty laugh at the people to claim that the US Dollar is losing value. I wonder if these people own a computer, or have bothered to look at the US Dollar chart. It is included below along with the chart of gold (which is a long gold/short US Dollar trade) and a few other important  assets.

The important thing to know about the US Dollar is that putting a value to it is complicated because it is a fiat currency. This means there are more than one moving variables that need to be accounted for to determine whether it is rising or falling in value.

Take gold for example. Gold is a chunk of metal. People put a price on it of what they are willing to pay for it, but that is it. Its price is only determined what someone with a specific currency is willing to pay for it. Pricing an asset like gold is easy. Prior to being removed from the gold standard, the US Dollar was pegged to the price of gold, so there was an easy relationship which could be determined.

Now let’s take a look at the current version of the US Dollar in comparison. The US Dollar is a piece of paper, but also a whole lot more.

What is a US Dollar worth?

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Inflation Monitor – September 2015

Inflation Monitor Summary – Composite Ranking

Inflation Monitor Summary 09.15

* 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 – September 2015 – Introduction

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”   – Milton Friedman

This is the 12th issue of the Inflation Monitor. During the entire year that we have published this report, the trend has been deflationary. This is contrary to what many economists and fear mongers are claiming. the US has created an enormous amount of money and this should have caused inflation, yet other than the stock market, this is not the case. There are a number of reasons for this, but one thing is clear, the deflationary forces are strong and persistent.

This past month, The stock market swooned and dropped a bit more than 10% during the month…

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Inflation Monitor – June 2015

Inflation Monitor Summary – Composite Ranking

Inflation Monitor 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 – June 2015 – Introduction

It is officially summer and most markets are becoming more quiet. This is of course excluding the ongoing crisis in Greece. They must love the attention because they have been dragging out this “crisis” since 2011. Everyone involved in this mess (on both sides) has a reason to kick the can down the road forever, but forever will not last that long. Greece has call for a referendum vote from the people. We will find out what the people want next week.

While the US markets have been quite, there have been some disturbing signs cropping up in some of the economic indicators that we follow. These are: the velocity of money, PPI, and market cap to GDP. While many of the numbers listed above show deflation, these three are especially concerning. One interesting and potentially inflationary sign is a sharp pickup of the Baltic dry Index.

Enjoy this month’s Inflation Monitor – June 2015.

Kirk Chisholm

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Inflation Monitor – May 2015

Inflation Monitor Summary – Composite Ranking

Inflation Monitor 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 – May 2015 – Introduction


This month we were a bit slow getting this out due to some website upgrades. We expect that this June version of the Inflation Monitor will be out in 2 weeks so you will get a double dose of information.

May was a month of mixed results. Some data is showing some signs of life with inflation, but others show the decline of inflation continues… albeit slowly. Based on my estimates,2 Q3 and Q4 of this year should start to show some signs of economic slowdown. While we have started to see this in the earnings numbers, due to a lot of the hedging done by large public companies, the earnings may be less impressive when those hedges expire.

The quick rise in the US Dollar and lack of QE in the US may be too much for the US economy to handle. It typically takes a few months before these effects filter down into the economy. But I xpect later this year to see the results of those changes. There are many interesting data points to consider, but the PPI is one of the most interesting this month.

Other issues which are concerning…

The effects of debt have been slowly accumulating in the US over time and have put an increasing amount of weight on the growth of the US economy. It is hard to grow out of a recession when a large amount of your revenues go to paying off interest on your debt. Maybe this can put some perspective on the balance sheet of the US.

According to the GAO, the US has net worth of -17.7T, which is higher than the -16.9T last year. If you include the 42T in unfunded liabilities, this brings the total net worth of the US to -60T. That is not small amount of money to pay back. This is a little over $188,000 per person in liabilities. I think it is unlikely that this will get paid back in anything but inflation. What if the US cannot inflate away their debts like other countries have in the past? That will put the US in an interesting position. The available options are not pretty.

While there is constant discussion about how big of a problem this it… and it is, the reality is that this won’t be a problem until it is. By this I mean that the US, as the world’s reserve currency, has a special position in that they cannot default on their debt unless they choose to. Other countries do not have that luxury.

As long as the US Dollar is desirable to the rest of the world, we can continue to play this charade as long as we want. Then one day that will change and we will be in trouble. Until then, party like its 1999.

Enjoy this month’s Inflation Monitor – May 2015.

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Inflation Monitor – February 2015


inflation monitor


Inflation Monitor – February 2015 – Introduction

It is now February and it is off to a good start with the New England Patriot winning the Super Bowl… Sorry the big game. Even if you were not a fan, it was a great game to watch up until the last play. The win helped warm the city from the cold chill of deflation setting in around the US. It has been a few months since I have started the Inflation Monitor and each of those months has been marked with deflation. I have been saying for the past few years that deflation is in our future despite all the money printing by the Federal Reserve. It appears as if this is now become apparent to everyone else. Although there are many deflation deniers out there who think it cannot happen and wont happen.

I just got back from the TD Ameritrade conference in San Diego. One of the keynote speakers was Craig Alexander, the Chief Economist at TD Bank. Normally this is one of my favorite speakers at the conference each year, however this time I noticed something different…

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Inflation Monitor – January 2015


inflation monitor

Inflation Monitor January 2015 – Introduction

I hope you had a pleasant holiday season. Now that the eggnog has run out (although probably more likely the rum), your trees and menorahs have been put away until next year, and you are getting back to work in this cold weather (what else is there to do when it is this cold except work). Lets see what the new year has brought for us as a present. In this month’s issue I will mainly be discussing oil prices and the US Dollar. The two areas which are generating the most interest.

To start the year I am going to play around with the format a bit to see what works best for people. In this months issue I am planning on breaking the bottom section of the Inflation Monitor into separate excerpts through out the month based on thoughts or ideas that I have had rather than wait until the end of the month. I will try to spread this out a bit more a see if this is a more desirable setup. While this might be a bit scatterbrained, it might get back to what this section was supposed to be: inflation monitor data, then some ideas, not a lengthy dissertation. This month was difficult to focus on much else since oil has played such a large part of the public’s interest. So we will focus more on oil and the US Dollar.

This is the first issue of the Innovative Advisory Group Inflation Monitor in 2015. We continue to receive a lot of positive feedback on our first few issues of the Inflation Monitor. As you will notice, we have taken some of this feedback and make some minor adjustments to our issues each month. As always, 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 this month’s issue – Inflation Monitor January 2015.

Kirk Chisholm

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Where is the Price of Oil Going?

 shale vs sheik

US Shale vs Saudi Sand?

For Christmas I asked Santa to get me a crystal ball. He rarely disappoints. Hopefully after reading this post you will have some insight into my thoughts and the future direction of oil prices.

Commodity prices in general have been declining for years. According to the Rogers International Commodity Index, the commodity super-cycle peaked in Jun 2008. While it is still possible that we could break those all time highs, it is highly unlikely given the deflationary forces at play in the global markets. If you have been reading the inflation monitor for a number of months you know which side of the inflation-deflation fence I sit on. The future of commodity prices will most likely continue on the path that they are currently on. There does not seem to be inflation on the horizon of commodity prices.

Investing in a commodity is a difficult task since it produces no cash flow. So how do you price a commodity? Many smart investors have raised this point before. You cannot say what is the correct price of a commodity unless you have a free market determining the price based on supply and demand. This is basic Economic 101. While reality should be driven by data and facts, in some cases it isn’t. One of these cases in Oil.

Oil the “Political Commodity”

Oil is what I would call a political commodity. What this means is…

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Inflation Monitor December 2014

inflation monitor

Inflation Monitor December 2014 – Introduction

This is the third issue of the Innovative Advisory Group Inflation Monitor. As you will notice, we have made some additional changes to the inflation monitor based on your feedback. Keep the feedback coming, since this will ultimately benefit you.  As always, please  contact me to send your feedback on how I can make this monthly Inflation monitor a better tool or resource for you.

This month I have added the following indicators:

  • US Population

In this month’s issue I will be discussing interest rates, gas prices, Gold and Silver, and more. Given the recent sell off in the price of oil and drop in interest rates, I think it would be a good time to discuss the effects on the US economy.

Thank you for reading and I hope you enjoy this month’s issue of the  Inflation Monitor.

Kirk Chisholm

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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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