Inflation Versus Recession

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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Gold hit its second highest price ever yesterday. Interestingly, the U.S. dollar is not close to its all time low. For any given dollar level, gold prices have been rising over time. Inflation is when a currency decreases in value and this has been happening for the dollar when measured against gold. Looking at the value of one currency versus another can obfuscate that inflation is taking place. All fiat currencies are declining in value against gold and this indicates that a widespread global inflation is taking place.

The trade-weighted dollar fell as low as 77.02, but closed at 77.19 yesterday. This is well below the 78.33 breakdown level. The dollar is at an 11 month low and even if it stays at current levels or rises somewhat will hit a yearly low within 3 weeks. This will be very bearish. The U.S. dollar is already at a yearly low against the euro and Australian dollar, both of which hit new highs yesterday.

While inflation is taking place, the same thing can't be said about an economic recovery. Consumer spending accounts for 72% of U.S. economic activity and under current conditions can not improve in the foreseeable future. Consumer Credit for July was released yesterday and it fell by $21.55 billion or at a 10.4% annual rate. Credit card debt fell at an 8.5% annual rate. It was the 11th straight monthly drop. While consumer credit is contracting, so is consumer income. At the same time, the savings rate is rising. All three indicate less consumer spending and ongoing contraction in almost three-quarters of the U.S. economy.

The one-month drop in consumer credit in July was four times greater than the entire consumer debt in the U.S. in 1944. The 60 plus year post World War II expansion was fueled by ever increasing consumer credit. Like all expansions inevitably do, this one has come to an end. Initially, there was real growth that went along with the expansion, but in the last three decades U.S. growth has been based on increased spending made possible through excess credit. Going forward inflation is going to make this impossible.

NEXT: CFTC Kills Off DXO

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

More Numbers that Just Don't Add Up

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

Our Video Related to this Blog:

More U.S. government statistics were out today. Income is up, spending is up and savings are up - all in the midst of the worse recession since the 1930s. It must be something in the water that makes this possible. Actually, it's more likely something is up in the little known government office for the adjustment of statistics to make them look better. There was a significant rally in the markets yesterday and it also had a peculiar look to it.

The mystery of rising incomes in the midst of a severe recession is explained by one-time stimulus checks mailed out last month by the federal government. Because of these income was up 1.4% on the month. But even without them the government claims incomes was up 0.2% for the month. Yes, unemployment is soaring, workers hours are being cut, business is declining and yet people are making more money. If this is what happens in recession, think of how well America could do if there was a depression! Real disposable income (income after taxes and inflation) is supposed to have been up 1.6% last month as well. Americans aren't spending all this new found loot however, spending was only up 0.3%. The savings rate climbed to 6.9%. As recently as April 2008 it was zero. Increased savings are a sign of lack of confidence in the economy. Why, I can't imagine. Clearly as the U.S. economy gets worse, people make more money.

The Commerce Department also released the PCE deflator today. This is the number to used as the inflation rate when they calculate the GDP. The lower the number the higher the GDP figure. The core PCE came in at 0.1% for the year. So there is NO inflation (I really have to find out where these people shop). Bonds rallied on this great news and the yield on the 10-year fell to 3.51%. If it drops down to the 3.00 level its probably a great shorting opportunity.

All asset classes seemed to have rallied yesterday, which is unusual. Even more unusual the Dow, Nasdaq and SP500 all went up the same percentage. I am not sure that I have ever seen this happen before, although it must have. Volume on the Nasdaq was slightly below average. Volume on the Dow was anemic. The Dow reclaimed its 50-day average, but stopped at the 200-day. It is trading between the two today.

NEXT: Watch the Dollar Itself and Not Media Coverage

Daryl Montgomery
Organizer,New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.