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This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/economics--politics-education/fed-vp-williamson-destroys-inflation-hawks?post=135958&uid=4798

Inflation hawks have ratcheted up inflation expectations with limited results. They are like the guy whose ship came in while he was at the airport. They base inflation expectations on CPI when the Fed measures PCE. Dr Stephen Williamson destroyed the inflation hawks back in April of 2017, but most of the pundits were not paying attention.

The Consumer Price Index (CPI), measures the cost of living by measuring a pre-chosen basket of goods. The CPI includes everything, including food and energy. The Personal Consumption Expenditures (PCE) index does not include the cost of food and energy because they are volatile and change often. The Fed seeks to measure underlying inflation.

The Fed looks, as Dr Williamson has said, at PCE, not at CPI. And since the Fed looks at PCE, the St Louis Fed Vice Preside…

This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/bonds/fed-choice-destroy-stocks-or-destroy-housing?post=135926&uid=4798

If we are to believe reports regarding stocks and the housing market, the Fed could be in a box. It could destroy stocks, or destroy the housing market depending on which way interest rates go.

The recovery in stocks has been driven by financials. The reflation/inflation trade was all the rage when Donald Trump took office. But it is starting to look like this was just another bond tantrum that kind of came and went. Lots of people staked their reputations on this inflation trade.

JP Morgan has warned that a decline in rates could severely impact the stock market. It wants some inflation at this late date. But the Fed is not cooperating, as Tim Duy has said that inflation and unemployment are too low and are preventing the Fed from reaching its goals.




And it looks like we are seeing some problems on the demand side. Reta…

This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/global-markets/where-does-japans-economy-stand?post=135762&uid=4798

Where does Japan's economy stand? Well, we know from Scott Sumner that employment is high, unemployment is very low, and stimulus appears to be working. We can see that capacity utilization is quite high in Japan compared to the mid 70's for the United States:

So, based on low unemployment and high capacity utilization, where does Japan stand? Edward Lambert of Effective Demand Research said this in general about economies:

Let me boil this down… There is an equilibrium point between supply and demand that determines the scale of output and employment, all at the aggregate level. As Keynes saw it, supply and demand both increase as output increases, with more demand than supply. But demand increases at a slower rate than output, so that there is a point at which they cross and are in equilibrium. At this point, output…

Update: Donald Trump's antiSemitism was muted so that he could gain favor with Israel. He gave Israel the embassy in Jerusalem, and Zionism appeals to POTUS as it is a powerful regime. Trump seems to like powerful regimes, mostly either undemocratic or lacking compassion, and Netanyahu posted a dreadful tweet on the official site that fits what Trump wants. Netanyahu said on August 29, 2018:

The weak crumble, are slaughtered and are erased from history while the strong, for good or for ill, survive. The strong are respected, and alliances are made with the strong, and in the end peace is made with the strong. This, of course, is a dreadful statement. Fascistic in tone. It was published to the official PM Twitter account on August 29, 2018.

So, there is a current Trump coup. Israel got what it wanted from Trump, an embassy. But Trump is a criminal in his own right, and it appears that Israel is staying clear of the controversy. With the conviction and guilty plea of Paul Manafort, t…

I sent this email to Ellen Brown's public banking group. She had asked how I knew that the Fed tested counterparties by raising rates a bit. That was in response to this article I shared. http://www.talkmarkets.com/content/financial/feds-andolfatto-powell-and-the-secret-goal-of-the-fed?post=173896&uid=4798

It was a good question.

In response, I shared this. It doesn't answer all the issues, but gives an understanding of them and maybe a few questions that need to be discussed are revealed:


Good question, Ellen. Well, it is (testing the counterparties) because 1. the Fed is raising rates slowly, and 2. the long bond operates within a strict channel. Get much above 3 percent on the 10 year and it drifts lower. Art Cashin has said that going over 3 percent is a worry, and historically, he was very concerned about collateral in the past. I write about it here: http://www.talkmarkets.com/content/bonds/bond-vigilantes-liberty-street-fed-collateral-study-and-art-cashin?post=1675…

This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/services/should-cable-tv-fear-att-directv-now?post=134589&uid=4798

Should cable TV fear AT&T's DirecTV Now? Well, the answer is probably. If people need around a hundred dollars per month in savings, it makes sense to go with DirecTV Now. After all, it is not expensive anymore like the pure satellite service once was. It is a streaming service.

However, it streams to devices. If you don't have a device for your TV, it won't stream to your TV. But AT&T, which took over DirecTV in 2015, is not adding satellite fees to the service as long as you are under contract.

But there are a few issues with DirecTV Now. The service is only a few months old and there have been bugs. Frozen screens are a possibility. Improvement is likely. But for people who can afford the constant rise of cable prices, it may not be the best choice. That is not to say that cable is perfect when it comes…

This article was first published by me on Talkmarkets: http://www.talkmarkets.com/content/economics--politics-education/interest-rates-are-not-a-leading-indicator?post=133305&uid=4798

Interest rates are not a leading indicator. Or at least they are not a dependable leading indicator. Scott Sumner posts that that bond market was a leading indicator of the 1st quarter GDP decline to .7 percent. He went on to comment about hard data. More on that later.

However, we should take a look at the graph showing the overlapping 10 year and the real GDP:


It is certainly true that in the Great Recession and in other recessions, the decline in real GDP was in no way preceded by a decline in the 10 year yield. And it is true that in in the Great Recession, the decline in the 10 year was a lagging indicator. And, the decline in the 10 year yield between 1980 and 1998 took place while real GDP was actually increasing.

Sumner would have difficulty making a case for the 10 year yield being a leadin…