Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20
Silver's Massive Undervaluation Relative to Gold Makes It Irresistible - 14th May 20
Bitcoin Halving Passes with no Fanfare, but Smart Money is Accumulating - 14th May 20
Will Job Market from Hell Support Gold? - 14th May 20
The Tragedy Of Missed Covid-19 Opportunities - 14th May 20
Worst Jobs Report In US Economic History - And The Stock Market Continues To Rally - 14th May 20
NASDAQ Sets Up A Massive Head and Shoulders Pattern - 14th May 20
Perceiving Coronavirus as a Disruptive Technology - 13th May 20
Why Financial Trouble Brews on the "Home" Front - 13th May 20
Stock Market ‘Sentiment Event’ Rally Grinds On - 13th May 20
The Fed Now Owns All Markets - 13th May 20
Fruit Trees Gardening to Beat Coronavirus Blues - , Apple, Cherry, Kiwi, Pears, Plums, Grapes, Bananas May 2020 - 13th May 20
Gold Investors Shouldn’t Be Losing Focus - 12th May 20
S&P 500 Bulls Again At Resistance – Now What - 12th May 20
US Fourth Turning Accelerating Towards Debt Climax - 12th May 20
Gold in the year of the Coronavirus Pandemic - 12th May 20
Hi Ho Silver : Away! - 11th May 20
The Great Stock Market Disconnect - 11th May 20
The Big Move In Silver May Be Right Now - 11th May 20
Finding Winners in the Wreckage of the Coronavirus Economic Downturn - 11th May 20
Brave New Corona World – A heated Debate between Steven Pinker and Aldous Huxley - 11th May 20
Coronavirus Catastrophe Stock Market Implications - 10th May 20
US Stock Prices are Ignoring the Economic Meltdown, Wait for it… - 10th May 20
Forecasting Crude Oil: This Method Has Been the Undefeated Champion Since 1998 - 10th May 20
Coronapocalypse and Gold - How High Is Too High for the Yellow Metal? - 10th May 20
The Illusion of Owning Gold - 10th May 20 - Nick_Barisheff
The Financial Crisis Will Continue To Lurk Even If the Lockdown Gets Eased - 10th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

When Inflation Strikes Back

Stock-Markets / Inflation Nov 13, 2013 - 12:49 PM GMT

By: Clif_Droke

Stock-Markets Is there such thing as too little inflation? To listen to some economists the answer is an emphatic “no!” Fed chief Ben Bernanke certainly doesn’t believe in the concept of low inflation. Neither does ECB president Mari Draghi. But the question must be asked: with so much official opposition to low inflation, how will America’s middle class ever fully recover from its current malaise?



Economists were shocked last week when Europe’s inflation fell to a “dangerously low” annual rate of 0.7 percent. It’s commonly assumed that when the rate is that low, companies, households, and even governments have a difficult time reducing debt. What economists fail to consider, though, is that low inflation is beneficial to the working class because it lowers the cost of living, which can outweigh the cost of servicing debt. Since food, fuel and housing costs make up the bulk of the middle class budget a lower inflation level will only help the struggling middle class and can even serve to stimulate consumption.

One of the major flaws in the Fed’s inflationist response to the credit crisis is that retail prices for many goods were never allowed to fall. Consequently, the unnaturally high price levels that were established between 2004 and 2008 were never “corrected.” This means that when the next long-term inflationary cycle begins in late 2014 consumers will likely be forced to contend with even higher prices in the years ahead. There is a reason why a 60-year boom/bust cycle exists: it’s nature’s way of cleansing the economy of imbalances and excessively high (or excessively low) prices. When central banks refuse to let the natural cycle take its course it only creates long-term imbalances which in turn can result in major social, political and economic conflagrations.

In the U.S. it was recently announced by the Labor Department that consumer prices for September rose by only 1.2 percent year-over-year. This came short of the Fed’s arbitrary 2 percent inflation target, giving the Fed yet another reason to consider its ill-advised stimulus measures. While a case could be made for the Fed’s intervention in the immediate wake of the 2008 credit crash, its continued stimulus over the last five years has paved the way for future inflation – and significant trouble for the U.S. middle class.

According to The New York Times, inflation is “not rising fast enough” for Washington’s liking. The article by Binyamin Appelbaum stated economists are nearly unanimous in asserting that “a little inflation is particularly valuable when the economy is weak.” That’s not the testimony of history or even the recent past. Just ask Japan: for the better part of 20 years the country experienced extremely low inflation and periods of deflation, yet consumers were content with the low cost of living that enabled them to get by when the economy was slack. Moreover, inflation is an indirect form of taxation since it erodes the savings and purchasing power of consumers and thereby chokes off economic growth.

Apparently, Ben Bernanke’s successor Janet Yellen is another believer that a controlled amount of inflation is a good thing. Like Bernanke, she’s being encouraged by policymakers to continue the Fed’s policy of artificial inflation for the sake of juicing the economy. The fallacy behind this policy is that by keeping the Fed funds rate at or near zero and providing copious amounts of liquidity, demand can be stimulated. Far from being the case, creating artificial inflation by money printing will do nothing to increase spending on a broad scale, as the chart showing monetary velocity suggests. Instead, the evidence strongly suggests that the Fed’s QE program has only succeeded in increasing the demand for money itself, that is, money that is kept in safe havens and not spent directly into the economy.



There’s an old saying that has become trite through its frequent repetition: “Be careful what you wish for, you just might get it.” This bromide rings true, however, when applied to the current Federal Reserve policy. By obsessing over the lack of inflation in the U.S. economy these past five years, the Fed will very likely be surprised by the vigorous growth of inflation in the years following 2014 after the commencement of a new economic Super Cycle. The trillions that were created by the world’s central banks to fight deflation will then become tinder for the fires of inflation that will sooner or later be kindled.

Gold

The price of gold fell sharply on Tuesday, declining 1.23% in a day of active trading. The downside move was blamed on investor speculation that the Fed would begin tapering its QE monetary policy as soon as December. Such speculation has been rife in recent weeks and has consistently been “whipsawed” by the Fed. It’s akin to short-term “noise” and should be ignored as such. What can’t be ignored, however, is the action of the gold price.

Historical evidence suggests that perhaps the single best indicator for tracking the gold price in a bear market is the 30-week (150-day) moving average. The dominant direction of gold tends to follow the slope of this psychologically important trend line during the course of a bear market. This has certainly been the case so far this year, as the following graph shows.



Gold has now returned to its previous closing low from mid-October of $1,268. This is the all-important “moment of truth” for the metal. A close below this benchmark level would pave the way for additional technical selling since many algorithm and technical traders will view this as a “double bottom failure.” A self-fulfilling prophetic decline could then ensue as momentum traders seize the initiative to push gold even lower. It would likely be a short-lived affair but could be a nasty spill if $1,268 is decisively broken.

Stock Market Cycles

Take a journey with me as we uncover the yearly Kress cycles - the keys to unlocking long-term stock price movement and economic performance. The book The Stock Market Cycles covers each one of the yearly cycles in the Kress Cycle series, starting with the 2-year cycle and ending with the 120-year Grand Super Cycle.

The book also covers the K Wave and the effects of long-term inflation/deflation that these cycles exert over stock prices and the economy. Each chapter contains illustrations that show exactly how the yearly cycles influenced stock market performance and explains where the peaks and troughs of each cycle are located and how the cycles can predict future market and economic performance. Also described in this original book is how the Kress Cycles influence popular culture and political trends, as well as why wars are started and when they can be expected based on the Kress Cycle time line.

Order today and receive an autographed copy along with a copy of the booklet, "The Best Long-Term Moving Averages." Your order also includes a FREE 1-month trial subscription to the Gold & Silver Stock Report newsletter:

http://clifdroke.com/books/Stock_Market.html

By Clif Droke

www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules