Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

He'll Bring Them Inflation, and They Will Love Him for It

Economics / Inflation Feb 01, 2017 - 06:55 AM GMT

By: Gary_Tanashian

Economics

I used to make fun of the FOMC rate hike "decision" language in the mainstream media because under the Obama administration and its economic policies overseen by the Fed's monetary policy, there really was no decision, was there? It was ZIRP-eternity, interrupted by a lone and token rate hike in December 2015 (the Dec. 2016 hike does not count because the transition to a new administration and policy regime was already known; in effect, the Fed has already made its first hike under Trump).


According to the traders who make up the Fed Funds futures, there is no decision tomorrow, either. From CME Group, we have virtually no one predicting two successive rate hikes.

Feb 1 Rate Hike Odds

That may or may not be the case. I think everything changed with the election, and the Fed you had before is not the Fed you have today. That Fed was a promoter of inflation and a hands-on supporter of the economy and especially, asset markets. The Fed had kept its implied 'inflate or die' mantra and associated monetary policy in place for 8 long years. But now with the country flipped over like an egg onto its sunny side, a new administration has proven it means what it says (beginning with its blunt, heavy handed and in my opinion, misguided delineation of race and religion on immigration policy).

Focusing on the financial realm, what the Trump administration says is it is going to implement is fiscal (as opposed to monetary) policy in the form of tax breaks to corporations large and small, to tax payers, including and especially the wealthy, infrastructure building, including 'the WALL' (more symbolic than realistic in my opinion) and environmental and business deregulation far and wide. It is a much more business-friendly environment and keeping pure politics out of it, that is a good thing, economically.

In short, what is described above is a scenario where the administration has grabbed the policy burden from the Fed and thus, the Fed is free to do as it pleases now, no longer playing politics. The Fed knows, just as you and I know, that the indirect, and maybe even unintended aim of the Trump administration is to promote inflation. That is because they intend to promote economic growth through policy, just has the Fed has been trying to do for the last 8 years under Obama. By one method or the other, it is in the 'promotion' that inflation lives.

By messing with the dynamics of the inflation signaling system (ref. Operation Twist and its "sanitizing" of inflation signals) the Fed has since 2011 especially, distorted and manipulated signals. So inflation risk #1 is that long repressed (not eliminated) pressures will bubble to the surface. But inflation risk #2 is the active promotion through coming labor cost increases, materials demands and other hard facts of a fiscally stimulated economy.

Let's leave for a future article, talk of the massive debt that will only grow under the Trump plans, leaving the door very wide open to deflationary liquidation at any time along the way of the inflationary path. Though I will ask, in that event, would there be a Federal Reserve standing ready with another monetary bailout as it has done since 2008? The game has changed and the egg is being flipped, after all. But there are so many variables in play that what we might end up with is scrambled eggs instead of a nice, neat 'over easy'.

In straining relations with foreign 'cheap' labor centers in favor of domestic and relatively expensive labor, the implication is rising costs (although I think that where possible, corporations will opt to automate, as opposed to pay $20 to $30 per hour for unskilled labor; we discussed Robotics and Automation here, recently). Corporations, especially those that are public, tend to be ultimately loyal to the bottom line and the bottom line only.

Putting aside the automation aspect (boy, there are a lot of 'put asides' in this article, which to my way of thinking are potholes in waiting along the road to Trump's great new America for the middle class), in freeing corporations and wealthy industrialists and investors of regulatory and tax burdens, the slack should theoretically "trickle down" to the Everyman. In a perfect world, rising costs would be met and offset by rising productivity and declining corporate cost structures. The problem there, of course, is that every time the "trickle down" setup was in place in the past, the only thing that trickled down was brown and lumpen, as in the Army's chain of command. In other, less crude words, the rich get richer and they tend to hold on to a vast majority of that wealth.

Now, I just finished 8 years of complaints about how the rich get richer under the regime of asset-price appreciation through Fed policy as the investor classes gain and the middle class, gets gassed. Surely, the Trump administration is different, but we've seen this blueprint before; first under Reagan, where it worked relatively well (which is very different from saying it worked well for the middle and working classes) and under Bush II, where it did not work well at all (as inflation's effects ate up all the would-be benefits for those going paycheck to paycheck).

This brings me to the title of the article; here on T-minus 1 day to the FOMC "decision", you probably recognize the paraphrased line from Gracchus, in the movie Gladiator. Trump has expressly made the US middle class and its outsourced and offshored jobs a priority. But the shifts toward globalism that were enacted under the Clinton administration have long tentacles and lasting consequences.

Say that worker 'a', an American born and bred and accustomed to certain standards, replaces worker 'b', who immigrated to this country or even more likely, lives abroad in a cheap labor center like China or Mexico. What level of price increase does worker 'a' layer into the cost structure of the product in question? Are we talking an average of $8-10/hr vs. $20-30/hr?  Will the average American do the work in question for $20/hr? Even if so, that is a 100% increase in labor cost.

But again, we can look at the coming tax and regulation relief for businesses as a leveler of that cost dynamic. Corporations would theoretically be able to absorb employment cost increases because of the cost reductions elsewhere.  But will they? When our corporate chiefs do the inevitable (under the Corporate Chief in Chief, Trump) and you start hearing stories of executive piggish excess again – and you will – who will be there to stop or moderate them?

The bottom line here is that while I don't pretend to know what the exact course will be, whether straight line inflation, inflationus interruptus (i.e. a deflationary liquidation event) or stagflation, the little guy will continue to bear the burden because as they say in the Army, the shit flows downhill; and it's just a matter of what pipe it will flow through (don't worry, no pics for this analogy).

Meanwhile, the FOMC is on tap and I for one am not on a foregone conclusion that they will play nice, either in words or potentially, in action.

Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2017 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian 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