japanese supposed deflation

[henry dribble]

The Japanese are not a people who like to leave much to chance. this of course includes their economy which seems to be totally managed, which is a nice way of saying manipulated. this includes the private sector of interlocking corporations and the government bureaucracy.
This week once again the government statistics showed their CPI declining on a yr over yr basis. this is of course ludicrous. Everything in Asia is rising. I have been trading in Asia for 30 years and I have never seen prices move like they have in the last two years. Though I do think they are peaking now.
Henry and other participance to this forum, my question to you is this: does any one really believe these numbers? I know it makes good sense to keep throwing out these bogus low inflation numbers to justify their ridiculously low interest rates. but does any one really believe them? does the financial press in Japan ever question any of this? do money managers there question this?
thanks
Henry Dribble
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henry dribble

[nodoodahs]

IMO, in/deflation are monetary phenomenon and we haven't seen any*, for any extended period, since the great default on Bretton Woods; we can't trust government statistics on costs of living or production, their bread is buttered on lying about it; the real cost of living increases generally at an equal pace with monetary supply, with a delay of 12-18 months and some distortions, these distortions based on how the money is injected into the system.

* in "first world" countries
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[Goodfella]

Ok Henry some good points there. Thanks


I agree that wage inflation in the west will be difficult to come by (esp manufacturing) given the out sourcing of cheap labour in a globalised economy. But with everyday costs rising people may demand higher wages or they simply wont be able to make ends meet. Especially in services that are not being outsourced.

Not just the inflation charts that are breaking out. Long term Bond charts look very ominous.

The ECB have hinted they will be hiking soon. If the fed stops here the dollar will get hammered.

[HenryTo]

Like I said, the first sign of a new inflationary cycle will appear in countries such as China and India - said countries who are experiencing the most growth in the consumption of commodities such as copper, gold, silver, steel, etc. The fact that the Chinese money supply has again been nearing the 20% level - with little wage inflation - and with GDP growth of 9.5% suggests to me that there is no new inflationary cycle, as of yet.

In the U.S., unions are still being destroyed in front of our very eyes. That means continuing depressed wage growth. More important, that means wages in the U.S. will, at some point, be totally determined by the global markets - not by union negotations, and so forth. Witness Northwest, Delta, and Delphi, and the recent UAW's negotiations with GM. The price of steel is declining in price, and next year will probably bring more of the same. Starting 2007, the Chinese auto manufacturer, Chery, will start selling $5,000 cars in the U.S.

The last time the ECRI's Future Inflation Gauge was this high was June 2000, and (what a coincidence), the Fed paused their interest rate hikes in that same very month. Moreover, the cost-of-living adjustment imposed by the Social Security Administration for 2006 is now at a 16-year high. The last time it was this high was 1990, and inflation quickly disappeared afterwards.

The Indians have come out and said they will not be purchasing gold jewelery at a $475 gold price. My guess is that gold will decline in 2006. The median U.S. home sales price has also declined in the latest month.

When it comes to an indicator such as inflation, it is not enough to only just draw trendlines on a chart and declare the next inflation cycle is now upon us. Actually, if one draws an A/D line of the CPI components, it is going down, and not up.

Hope this helps.

Henry

[Goodfella]

CPI has broken out of a 20 year trend. These trends are not reversed easily. Certainly not with baby interest rate hikes.


How do you come to the conclusion that the worst of the inflation for developed countries is coming to an end?
Why is gold so high? (fundamentally gold is a very poor investment. it does not get used up and more is dug up everyday).

Bear in mind that the reason developed countries have managed to keep inflation down is thanks to the developing countries/globalisation.

You sound like Greenspan/BOE. If interest rates had been set at the level of true inflation for last decade we would not be so precariously placed today.

[HenryTo]

Hello Henry,

As far as I can tell, money managers do look at those statistics - but it looks like they don't agree, as yields in long-dated government bonds around the world have been rising very quickly lately. That being said, the yield on the 10-year JGB is still at 1.55%

My longer-term bet is that Japan and most other developed countries will still be in deflationary trends for the foreseeable future - and that inflation for this cycle has peaked or will peak sometime next year.

The start of an inflationary trend will first show up in China or India, as these two are the countries that have been showing the most growth in the consumption of commodities, etc (i.e. "stuff" that has seen the highest growth in prices). Most notable have been the growth in the consumption of gold, silver, platinum, palladium, copper, steel, oil, coal, etc.

Have a great weekend,

Henry