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

[henry dribble]

Bit surprised by the responses to my original post, but strings are like that. thanks for all the input, but I wish there might have been some from Japan or those involved in that market.
I know many follow statistics and charts. I do too. But I also do business in Asia I import a wide range of industrial parts. I know for a fact that inflation is rampant in China. It has gotten to the point where it is anticipated and expected. To some extent hording is accurring. This has been going on for over two years. I see it now peaking. Which is odd since it is only now that it is being discussed. In some areas the Chinese are trying to hold on to price levels by reducing production, this is happening in steel.
I know that the Japanese are being affected since they source in China also. Business men in Japan have to be seeing the same increases I have been experiencing. So the question is how do they sit and take these statistcis that say there is deflation and interest rates that make little sense?
What is in their CPI? How are they doing this smoke and mirrors? Does any one check?
Does anyone have any sites I can go to, to see an analysis of how the Japanese form their CPI and PPI? Has anyone read any analysis of them?
Lastly just to make myself clear, the recent report of yr over yr deflation in Japan is absurd, but I do see prices correcting and heading down. I am seeing it. It has started though it is always a struggle at the beginning to get a market to change course.
thanks
Henry Dribble
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henry dribble

[Goodfella]

I blame McHugh for getting me in a muddle over this.

Thank you very much Henry, much appreciate your input. So in your veiw the Greenspan put is fictional.(its even in the dictionary! http://www.investopedia.com/terms/g/greenspanput.asp)

If it is not , to be honest it would not suprise me at all if he was using it now to prevent a snowball effect. IMO the markets/economy are more precariously placed now than in any time in Greenspans era. And that includes the massive selling post tech bubble. Greenspan is running out of armoury, and propping up the stock market could be vital.

I realise you may have answered this allready. But it is important to me and simply clarification/conclusion to this would be very helpfull.

[HenryTo]

Monetary policy, as traditionally practiced by the Fed, has zero bearing on M-3.

Ben Bernanke, in his 2002 speech on deflation, discussed the unconventional measures the Fed can do in order to fight deflation. The last resort (which is not likely to happen) will involve fiscal policy as well as monetary policy. Bernanke mentions that this is similar to Milton Friedman's concept of the "helicopter drop" of money. See below in italics.

There is NO REASON to believe that the Fed is currently resorting to any unconventional means of monetary policy. There is no need to, period.

Fiscal Policy

Each of the policy options I have discussed so far involves the Fed's acting on its own. In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.

[Goodfella]

Ok so if Greenspan has no control over money supply then how do you explain Bernanke's helicopter comments.

[HenryTo]

Goodfella,

Don't take my word for it.

Check out this August 2001 essay by Dr. John Hussman. He has the exact opposite view of McHugh:

http://hussmanfunds.com/html/fedirrel.htm

Conclusion: Greenspan has no direct control on anything, except for the monetary base. My view is not as extreme as Dr Hussman's, though, as I think eventually, the Fed will get what they want.

[Goodfella]

Henry Thanks

I'll take your word for it. But according to Robert McHugh Greenspan is responsible for M3 growth.

Very re-assuring if what you say is true. Hate to think Greenspan is manipulating the US markets. Dangerous game.



Cheers

[HenryTo]

Goodfella,

The only "aggregate" that the Fed has direct control over is the monetary base. That is, currencies + bank reserves. And based on what I'm seeing, the monetary base is experiencing dismal growth.

M-3, however, has accelerated its growth recently - and what this tells me is that despite the Fed tightening the monetary base, and despite the increase in interest rates, the private sector is still very much willing to lend and speculate. That is, we are more or less fighting the Fed at this point.

Does Greenspan have the clout to dampen this continuing speculation and inflation? Sure, he does. Instead of the baby steps that he has taken by raising 25 basis points each time and instead of just following what the Fed Funds futures are doing, he can raise by basis points - this coming Tuesday. If this does occur, he'd have made his message loud and clear.

Best of luck,

Henry

[Goodfella]

Merv was talking about the 1/2 point CPI not accounted for. This is it, the Greenspan printing press.

It will be a heck of alot higher than 1/2 point in the near future if money supply figures are to be believed.

[Goodfella]

According to money supply figures for last week. Greenspan is printing like a man possessed.
If he carries on like this he will have printed enough excess cash to buy the DOW in 6 months. Of course by then inflation will be off the hook.

According to the latest COT figures there is not at much speculative money driving up Gold as bulls would fear. The indians are not buying. Golds gains are thanks to Greenspan.

Has Greenspan lost his marbles or is he being manipulted by Bush and his advisors?

[HenryTo]

My guess is that income levels in the United States will continue to widen for the foreseeable future. In these fast-changing times, one has to do all he or she can to protect him/herself and his/her family - and the best way to do it is through education.

Educate yourself and your kids - read up on the history of labor in this country, as well as upcoming trends and the ability to stay open-minded. Recognize which occupations are being commoditized and so forth, and try to find something that you have a talent in and that you have a passion for. In a truly globalized and capitalistic world, you will be rewarded amply for it.

I just don't see how unions can survive going forward unless, for example, all the world's employees within a certain trade can join together to form one union. For example, if all steel workers come under the umbrella of a single union during the next decade. Even there, there are always employees in the developing countries who would be perfectly happy to work for 50 cents an hour without enjoying the "benefits" of joining a union. Moreover, under current conditions in China, there is really no way for anyone to effciently organize, even with the advent of the internet.

[HenryTo]

FYI - the ECB next meets on November 3rd and while there may not be a rate hike at this point, there most will probably be one come December - unless oil prices continue to tank in the interim. At the same time, however, the yen is making two-year lows so our imports will more or less continue to get cheaper, for now.
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European Bonds Post Worst Week Since February on ECB Rate View
Oct. 29 (Bloomberg) -- European bonds had their worst week since February as signs of quickening growth and inflation in the region stoked speculation the European Central Bank will raise its interest rate this year for the first time since 2000.

The German 10-year bund yield rose 18 basis points as reports showed improved business sentiment in Germany, France and Italy, the region's three biggest economies. ECB officials including President Jean-Claude Trichet, Chief Economist Otmar Issing and Nout Wellink have in recent days toughened their remarks on inflation, saying they're ready to act to counter rising prices.

``The chances are that the ECB is going to continue sounding hawkish on inflation,'' said Orlando Green, a fixed-income strategist in London at Calyon, the securities unit of Credit Agricole SA. ``The market's knee-jerk reaction at the moment is to sell bonds.''

The yield on the German 10-year bund was little changed at 3.40 percent late yesterday. The yield on two-year bonds, among the securities more sensitive to changes in interest-rate expectations, rose 15 basis points in the week to 2.62 percent.

The price of the German 3 1/4 percent bond due July 2015 fell 1.52, or 15.2 euros per 1,000 euro ($1,212) face amount in the week, to 98.65, according to data compiled by Bloomberg. Bond yields move inversely to prices.

ECB council member Wellink said policy makers are becoming ``increasingly concerned about inflation'' in the region, according to an interview late on Oct. 27 in the Dutch town of Voorburg.

`Game On'

Axel Weber, an ECB council member who also heads the Bundesbank, said a day earlier the ECB may need to raise rates to preserve its credibility and damp expectations inflation will accelerate. The ECB has kept its interest rate at a six-decade low of 2 percent for more than two years. Policy makers next meet on Nov. 3.

``If we get evidence of inflation pushing up beyond the levels we've seen already, then it's game on for an ECB rate hike in December,'' said Anthony O'Brien, a fixed-income strategist at Barclays Capital in London. ``We would give it about a 35 percent chance at the moment but that could increase quickly should we get surprises in the next inflation reports.''

Consumer-price inflation in the region held above the ECB's 2 percent ceiling for a 10th month in October. The annual rate of consumer-price increases slowed to 2.5 percent from 2.6 percent in September, the European Union statistics office Eurostat said on Oct. 28.

Interest-rate futures trading suggests investors have increased bets the ECB will raise borrowing costs in the region by March next year.

The yield on the three-month Euribor futures contract due in March rose 13 basis points in the week to 2.54 percent, as of late yesterday. The contract settles to the three-month euro interbank offered rate, which has averaged about 14 basis points more than the ECB's key rate since the currency's introduction in 1999.

[Goodfella]

Here is a cut from your freind John Mauldin

"The willingness of US monetary and fiscal authorities to sustain demand in this way has been highly desirable. But, at some point, probably on your watch, there will be a correction. Most analyses suggest that this will require a very large depreciation of the real exchange rate, to shift output towards - and domestic demand away from - tradeable goods and services. Such a depreciation would require a big fall in the dollar and rise in domestic prices of tradeables. It would also, almost certainly, entail a jump in long-term interest rates.


It backs up what Merv said in his speech.

Like i said currencies will play a part.
Long term charts are allready suggesting this theory

[nodoodahs]

GDP is meaningless, a mirage. Unfortunately others react to it.

Imagine that we're all driving down the highway, and some great illusion of space aliens eating the asphalt ahead of us suddenly appears. I know it's false ... but if the other drivers on the road react as if it's real, I have to take their actions into account somehow ... regardless of the fact that it's an illusion. So my reactions to CPI, GDP, etc. would, in a perfect world, be nil, but in a world where others react to it, my reactions may be different than theirs.
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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]

Noodoodahs. And Greenspan has been printing while hiking rates.

IMO If gold sinks GDP will too. (not real inflation adjusted GDP)

[Goodfella]

I look at what the charts are telling me and try to match that with fundamentals. Currencies could well play a role in domestic inflation.
Its not the central bankers job to target wage inflation. But CPI.

I remember a speech that Merv King gave just before the fed started coming out with their hawkish comments. "The uk will be reverting away from an economy of importing goods over the next few years". Now how could this possibly happen? I wonder.