How Is Inflation Measured; Focus on how to win
Here is something interesting; the Fed has just confirmed that inflation might not be an issue; translation the era of rate hikes might be over. Yellen acknowledged that inflation is well below the Central Bank’s target of 2%
Yellen, as she has in other statements recently, told lawmakers that she expects low inflation to be transitory. “Temporary factors appear to be at work. It’s premature to reach the judgment that we’re not on the path to 2% inflation over the next couple of years,” Yellen said.
“As we indicate in our statement, it’s something we’re watching very closely, considering risks around the inflation outlook.” Full Story
How Is Inflation Measured? Who cares focus on the trend instead
She is just waffling about the transitory effect; she knows just as well as anyone with common sense there is no real economic recovery. The bond market is also offering early signs that there could be a turnaround soon; if Bonds rally then interest rates will drop. Note also that the two rate hikes this year did not have the desired effect on the bond market.
Secondly, deflation could remain an issue for years to come in certain sectors. Take the electronic sector for example; prices continue to drop, but components continue to improve. The smartphone sector is eventually going to get hit very hard as Chinese made phones with specs that rival or exceed those of Samsung and Apple hit the US. Let’s not forget that Nokia is trying to make a comeback; their new phone looks pretty impressive, and the price is probably going to be much lower than Apple’s I phone. There is also a strong possibility of wage deflation in many sectors as automation starts to kick in. China is investing billions in robots; if they are doing so, it means they are aware of this trend and are adapting to it.
Amazon will also push to automate Whole food stores, and if they succeed, then other grocery stores will follow suit. As Amazon sells everything, it is just a matter of time before Amazon starts to sell more than Groceries in Wholefoods. Amazon is probably going to have the same effect on the food business as it did in the Book business and electronics sector. Price wars are going to start, and that means lower costs; lower costs mean lower inflation according to the new twisted definition of inflation. The old definition of inflation was an increase in the money supply.
If this outlook sounds far-fetched, take a look at what Uber and Lyft did to the taxi sector in the US, especially in New York. The once-coveted yellow medallions would fetch up to 1.2 million dollars, now many individuals are struggling to sell their medallions for $500,000. Many have to settle for less than $300,000.
Three New York-based credit unions that specialize in loaning money against taxi cab medallions, the hard-to-get licenses that allow the city’s traditional cab fleet to operate, have been placed into conservatorship as the value of those medallions has plummeted. Just three years ago, cab owners and investors were paying as much as $1.3 million for a medallion. Now they are worth less than half that, and some medallion owners owe more on their loans than the medallions are worth. Full Story
Copper Appears To Be Bottoming
And this more important than the How Is Inflation Measured argument:
Finally and we will look at this in more detail in the next update, Copper appears to be putting in a top on the monthly charts after mounting what appears to be a strong rally. The market was so extremely oversold that a relief rally was all but warranted. The rally looks strong, but if one looks at the devastating correction this market has experienced over the years, this rally is mediocre at best. If the subsequent pullback drives copper to new lows, it will not only validate that this economic recovery is bogus, but it will also indicate that the global economy is stuttering and that without a massive infusion of new cash, this Goldilocks economy will turn into the Nightmare on Elm Street type economy.
Deflation not Inflation is Going to be the Issue going forward
At least for now. Additionally, Gold is also trading in the overbought ranges on the monthly charts.
Factors such as rent, medical insurance, drugs, etc. that continue to rise will suddenly experience a massive free fall. The cure for high prices is higher prices, and greedy landlords will soon have to deal with a new trend; suddenly the trend in the rental market will change direction, and it will become a renter’s market again and not a landlords market. One or several online firms will make the process of importing drugs so devastatingly simple that the average Joe will almost immediately opt to purchase their drugs from this company as opposed to going to CVS, especially with savings as high as 70%. AI and technology are going to transform the landscape dramatically in the years to come. Believe it, or not insurance companies will be pushing for such developments in their bid to cut down costs.
The next thing insurance companies will start to do, is open the market for surgeries; no longer will surgeries take place in the US only. We will have a global marketplace, for example, you can get open heart surgery in Singapore and at a hospital that is ranked far higher than most in the US for half the cost. Or if you go to Thailand or the Philippines the savings can jump to as high as 70% and we are only talking about top-notch hospitals. We remember running into an Australian in Cuenca who came there for heart surgery.
He stated his deductible in Australia was 20,000, but the surgery in Cuenca cost him 5,000, saving him 15K. He had nothing but good things to say about the hospital that performed the surgery. Thus, in the years to come, it appears that deflationary forces in many sectors are going to gather traction and inflation might remain a non-event for quite some time. Does this mean Gold is dead? We are in wild times, and Gold will eventually rally on its own merits.
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