Deflation Is Crushing QE Right Now
http://seekingalpha.com/article/1855341-deflation-is-crushing-qe-right-now
"
Investors are focused on the possible tapering of U.S. stimulus and starting to take some money off the table after a strong equities rally year-to-date. Less attention is being paid to the biggest source of risk at present: deflation in the developed world. All of the past week's data point to heightened deflationary risks. Paltry U.S. consumer price index (CPI) figures, German producer prices undershooting and another bout of weakness in commodity prices, particularly oil, suggest deflation is winning the battle over central bank stimulus. Which is something that Asia Confidential has been forecasting for some time.
It's no coincidence that at the same time, the Japanese yen has reached four month lows versus the U.S. dollar. Japan is printing an enormous amount of money in a bid to end its 20-year affair with deflation. It wants inflation at all costs and the yen is collateral damage. Lowering the yen increases the competitiveness of Japanese exporters, resulting in more cars, robots and flat-panel TVs being shipped abroad. And that means Japan is exporting deflation, and resultant lower prices in these goods, to the rest of the world. Key competitors in China and South Korea are starting to fight back but are being hampered by their strong currencies versus the yen.
There's increasing talk that Europe will resort to more stimulus soon to wade off deflation. The euro has been remarkably strong compared to other currencies, making the region's exporters increasingly un-competitive. Across the Atlantic, Bernanke and co. have been further hinting at QE tapering, but with rising deflation risks, any tapering seems unlikely. If Japan succeeds in weakening the yen further, you can be sure that other countries will start to complain and print money to lower their own currencies. The phrase "currency wars" may come back in vogue soon enough.
What does all this mean for markets? Well, it increases the odds of a further stock market correction before year-end. And a bond rally would seem overdue. But more broadly, it means the tussle between deflation and central bank stimulus should continue. That means more money printing and low interest rates for the foreseeable future. Which could push asset prices higher from already elevated levels, raising the odds of a major correction down the track.
Disinflation reigns
I've spoken of deflation so far, but it's really disinflation (falling inflation) that's occurring. A host of recent data suggests that this remains the primary threat to global economies, including:
1) The U.S. inflation rate fell to 1% annualised in October, the lowest figure in almost 50 years, excluding the 2008 financial crisis. Inflation in America peaked in 2011 and remains way below the Fed's 2% target rate. The chart below is courtesy of Business Insider.
...
"
http://seekingalpha.com/article/1855341-deflation-is-crushing-qe-right-now
"
Investors are focused on the possible tapering of U.S. stimulus and starting to take some money off the table after a strong equities rally year-to-date. Less attention is being paid to the biggest source of risk at present: deflation in the developed world. All of the past week's data point to heightened deflationary risks. Paltry U.S. consumer price index (CPI) figures, German producer prices undershooting and another bout of weakness in commodity prices, particularly oil, suggest deflation is winning the battle over central bank stimulus. Which is something that Asia Confidential has been forecasting for some time.
It's no coincidence that at the same time, the Japanese yen has reached four month lows versus the U.S. dollar. Japan is printing an enormous amount of money in a bid to end its 20-year affair with deflation. It wants inflation at all costs and the yen is collateral damage. Lowering the yen increases the competitiveness of Japanese exporters, resulting in more cars, robots and flat-panel TVs being shipped abroad. And that means Japan is exporting deflation, and resultant lower prices in these goods, to the rest of the world. Key competitors in China and South Korea are starting to fight back but are being hampered by their strong currencies versus the yen.
There's increasing talk that Europe will resort to more stimulus soon to wade off deflation. The euro has been remarkably strong compared to other currencies, making the region's exporters increasingly un-competitive. Across the Atlantic, Bernanke and co. have been further hinting at QE tapering, but with rising deflation risks, any tapering seems unlikely. If Japan succeeds in weakening the yen further, you can be sure that other countries will start to complain and print money to lower their own currencies. The phrase "currency wars" may come back in vogue soon enough.
What does all this mean for markets? Well, it increases the odds of a further stock market correction before year-end. And a bond rally would seem overdue. But more broadly, it means the tussle between deflation and central bank stimulus should continue. That means more money printing and low interest rates for the foreseeable future. Which could push asset prices higher from already elevated levels, raising the odds of a major correction down the track.
Disinflation reigns
I've spoken of deflation so far, but it's really disinflation (falling inflation) that's occurring. A host of recent data suggests that this remains the primary threat to global economies, including:
1) The U.S. inflation rate fell to 1% annualised in October, the lowest figure in almost 50 years, excluding the 2008 financial crisis. Inflation in America peaked in 2011 and remains way below the Fed's 2% target rate. The chart below is courtesy of Business Insider.
...
"
common..BS BS and more BS