THIS DIMENSION

   
Of late it seems more people are talking about inflation and it's possibly putting in a Phoenix-like performance soon.

Economist Irwin Kellner writers on MarketWatch: "For the moment, it’s all good. After veering dangerously close to deflation, the rate of inflation has picked up and has now reached 2% — the fastest pace in 20 months. As recently as eight months ago, the 12-month change in consumer prices was only 1%."

As we've said many times before inflation is a function of who's measuring and how they measure it. And it's one of the safest bets you'll ever make in this dimension that bureaucrats measure to their advantage not yours.

So even though the numbers Kellner tosses around, 1% and 2%, are bogus, it's the underlying message or trend one needs to unriddle.  Kellner goes on to say "...the change in the index that the Fed prefers is only 1.6%." Whether he realizes it or otherwise, Kellner makes our point. 

Wouldn't it be nice to use the index we prefer, one the rest of us are forced to use daily, one that includes the price of food and energy?  Ain't going to happen. Though they won't admit it, keeping the threat of deflation front and center is actually an oblique form of inflation. 

In short, it's a verbal form of price controls. And even most economists laboring away in their dank and dark economic cellars know what happens when price controls get lifted. Wanting to recover lost ground is part of the human genetic code.

If you don't think so just ask all those yield-starved hordes out there or the COLA-dependent crowd. One of this administration's first acts during its first term was, among other things, freezing COLAs for two years.  Also, keep in mind the deflationary threat put the kibosh on any possibility for wage increases over that time.

"Meanwhile," Kellner writes, "let us not overlook what higher inflation has already done to workers, savers and seniors. After taking inflation into account, workers’ real wages fell 0.2% in May and are down 0.1% over the past 12 months. Seniors and others on fixed incomes have found that the buying power of the funds they already have is down as well."

Kellner's conclusion is he expects the Fed to continue doing what its been doing until unemployment numbers improve. And that's the whole point. It puts more and more pressure on these bureaucrats to get things just right.

So here's the second safest bet you can make in this dimension. They won't.  Adjust your investing accordingly.

 

                                                                  

AROUND THE WEB

Big Oil Cashes In
http://oilprice.com/Energy/Energy-General/Big-Oil-Is-Cashing-In-On-Iraq-Violence.html

Silver Head Fake?
http://www.acting-man.com/?p=31304#more-31304

Big Drought Trouble
http://m.ibtimes.com/california-summer-will-be-states-hottest-driest-record-national-climate-scientists-say-1608914

Sand Mining Boom
http://insideclimatenews.org/news/20131105/frac-sand-mining-boom-health-hazard-feared-lawmakers-aim-ease-regulation

Risky Game Says Oliver
http://www.theglobeandmail.com/news/world/investors-playing-risky-game-in-search-for-returns-oliver-warns/article19300150/

Emerging Market Banks
http://www.ey.com/GL/en/Industries/Financial-Services/Banking---Capital-Markets/Banking-in-emerging-markets-2014

Investing in Climate Change
http://www.bloombergview.com/articles/2014-06-23/the-losing-bet-on-climate-change

Estonia's Oil
http://www.csmonitor.com/World/Europe/2014/0621/Could-Estonia-s-oil-shale-bolster-Europe-s-energy-security

THE EU POLITICAL CIRCUS

They were once allies through two world wars.

Now there's disagreement about who should be anointed the next European Commission president. Disagreements over fiscal probity will do that. This is not a World Cup soccer match albeit it could be.

Italy's newly elected Prime Minister Matteo Renzi is trying to kick a goal for what one scribe has called "a fundamental rethink of fiscal rules in the eurozone." We don't know about you but that sounds like something that just rolled off the lips of Argentina's president, Cristina Fernandez.

On the other side, staunchly defending her goal of financial rectitude, is Germany's Angela Merkel. What's at stake here is something most governments don't like, fiscal responsibility. We said it before and we'll repeat it. Fiscal probity is not in the DNA of most governments. And if history is any guide never will be.

Renzi's pushing what some are calling his unilateral attempt to dilute what has already been diluted by half with the recent bailouts of Greece, Portugal and the rest of the usual suspects. He wants  more lax official fiscal rules, a jointly funded investment program and a change in the binding debt-reduction rule.

In short, he wants to put everyone on the hook for any bailouts, buy more time for members to meet their debt-reduction quotas and water down what has already been watered down, the original rules of the game. Sounds entirely reasonable for nearly everyone unless you're a German or anyone who believes people and countries ought to exist within their means.

For all of Renzi's new-kid-on-the-block enthusiasm, the term credibility seems to be miraculously absent from his lexicon. There are only a few ways to get investors to cough up capital for your sovereign debt. Create what we now have, a yield-starved environment, make the yield so juicy investors will swallow hard and take the plunge anyway or provide a solid, safe haven devoid of Mr. Renzi's political hijinks.

For now, as they say, the circus must go on.                                                          

IT"S WHINING TIME AGAIN

 
Someone once noted that half truths have two parts. Just make sure you end up with the correct one.

When Mohammed El-Erain left Pimco under somewhat less than ideal conditions, according to press reports, stories circulated about one outburst that erupted between El-Erain and Pimco Chief Bill Gross quoting El-Erain saying in a heated exchange that he was weary of "cleaning up your shit."

You know who the your was in that statement.

El-Erain had previously returned to Pimco from a stint at running the mighty Harvard's endowment fund. Now fast forward to the recent announced resignation of El Erain's replacement to run the fund, Jane Medillo.  Medillo spent five years running things at Harvard, coughing up what many perceived as mediocre returns apparently not acceptable for the mighty Harvard folks.

Medillo is due to step down at the end of the year. When she took over the job rumors had it she inherited from Mr. El-Erain, to paraphrase his term to Gross, a lot of  "s..t" to clean up that contributed to one of her worse years early on.

Now a columnist for Bloomberg, Mr. El-Erain in his latest article offers his take about what to do when governments default. His advice is such that we all should take it with a huge grain of salt. We'd use the other four-letter word that begins with the letter S, but we like to keeps things clean.

Just one quick point. Writing about Argentina's recent Supreme Court setback, he says:  When a sovereign faces severe payment difficulties, the best option for the collective good is to find an orderly way to reduce debt and put the country on the path to economic recovery.

How many times has Argentina been allowed to reduce it's debt and been put "on a path to economic recovery?" Here's a quote from a national publication in 2013. "...Argentina has been playing games with many holders of the nation’s defaulted bonds ever since 2001, when the country defaulted on a record $95 billion debt. Under Presidents Eduardo Duhalde, the late Néstor Kirchner, and now his widow Cristina, successive Argentine governments have been going back and forth trying to settle with (or string along, depending on your perspective) holders of repudiated bonds."

El-Erain then invokes the mighty IMF, one of the globe's great strongholds of bumbling bureaucrats, suggesting what is needed, among other changes, one of the great abstractions of our time, crisis prevention, and ways "to verify and enforce compliance among all those involved, creditors and debtors?"

One thing we do know verifying and enforcing compliance will sell well in Germany. But if history's any guide, that's most likely the only place. Fiscal responsibility is not part of most government's DNA.

Argentina's bond yields are high for a reason. The only sovereign bonds that yield more are Cyprus. So once again it's crying time again in Argentina. Some call it whining time. Or as one bond wag we know recently put it: "Would you like some cheese with your whining?"

http://www.bloombergview.com/articles/2014-06-20/what-to-do-when-governments-default

AROUND THE WEB

 We start off this round of Around The Web with a quote from Mark Twain: "One of the surest ways to convey misinformation is to tell the strictest truth."

Often the surest way to convey misinformation is to tell the strict truth. (Mark Twain) - See more at: http://whowhatwhy.com/2014/06/20/the-art-and-science-of-lies-liars-and-lying/#sthash.UDZZCciP.dpuf "Often the surest way to convey misinformation is to tell the strictest truth."

The Art Of Lying

Often the surest way to convey misinformation is to tell the strict truth. (Mark Twain) - See more at: http://whowhatwhy.com/2014/06/20/the-art-and-science-of-lies-liars-and-lying/#sthash.UDZZCciP.dpuf

Often the surest way to convey misinformation is to tell the strict truth. (Mark Twain) - See more at: http://whowhatwhy.com/2014/06/20/the-art-and-science-of-lies-liars-and-lying/#sthash.UDZZCciP.dpTheThe Art of Lying

http://whowhatwhy.com/2014/06/20/the-art-and-science-of-lies-liars-and-lying/

Wage Inflation
 http://online.wsj.com/articles/america-inc-wakes-up-to-wage-inflation-heard-on-the-street-1403296457

Higher Oil Prices And Emerging Asian Countries
http://www.marctomarket.com/2014/06/great-graphic-higher-oil-prices-and.html

More On Human Nature Research
http://www.theglobeandmail.com/life/health-and-fitness/health/how-canadian-researchers-have-gained-greater-insight-into-human-nature/article19273969/?page=all

Let's Hear It For Gratitude http://www.spring.org.uk/2014/06/the-emotion-that-boosts-self-control-and-saves-you-money.php

Oil Prices Going Forward
http://www.reuters.com/article/2014/06/22/us-economy-global-idUSKBN0EX0C320140622

Once The Hog Butcher Of The World
 http://oilprice.com/Energy/Energy-General/Rail-Companies-Ordered-to-Reveal-Details-of-Oil-Shipments.html

Stocks Versus Bonds
http://blogs.marketwatch.com/thetell/2014/06/21/stocks-make-more-sense-than-bonds-or-cash-jpmorgan-funds/

WEEK UPCOMING

Here's a breakdown of what's up next week from Minyanville, one of the better market websites. Now they hardly need our approbation, but honest attribution--despite what many think--still has a place in today's world.

And by way of full disclosure we own ConAgra.

Monday, June 23

US Economics (Time Zone: EST)

08:30 Chicago Fed Nat Activity Index, May, exp. 0.2, prior -0.32
09:45 Markit US Manufacturing PMI, June prelim., exp. 56.0, prior, 56.4
10:00 Existing Home Sales, May, exp. 4.74m, prior 4.65m
11:00 Fed to purchase $1.5b-$2b notes in 6-7 year range
11:30 Treasury to sell $25b 3-month bills and $23b 6-month bills

Global Economics (Time Zone: GMT)

01:35 JPY Manufacturing PMI (JUN P)
01:45 CNY HSBC Manufacturing PMI
07:00 EUR France Manufacturing & Services PMI (JUN P)
07:30 EUR Germany Manufacturing & Services PMI (JUN P)
08:00 EUR Euro-zone Manufacturing & Services PMI (JUN P)

Earnings

After:
Micron Technology (MU)

Tuesday, June 24

US Economics (Time Zone: EST)

09:00 FHFA House Price Index, Apr., exp. 0.6%, prior 0.7%
09:00 S&P/Case-Shiller 20 City Composite MoM, Apr., exp. 0.8%, prior 1.24%
09:00 S&P/CS YoY, Apr, exp 11.50%, prior 12.37%
10:00 Consumer Confidence Index, June, exp. 83.5, prior 83
10:00 New Home Sales, May, exp. 440k, prior 433k
10:00 Richmond Fed, Jun, exp 6, prior 7
11:00 Fed to purchase $850m-$1.1b bonds in 22-30 year range
11:30 Treasury to sell $25b 52-week bills, 4-week bills
1:00 Treasury to sell $30b 2-year notes

Fedspeak:

08:05 Plosser to speak in New York
18:30 Williams to speak in Stanford, CA

Global Economics (Time Zone: GMT)

08:00 EUR Germany IFO Business Climate (JUN)
08:00 EUR Germany IFO Current Assessment (JUN)
08:00 EUR Germany IFO Expectations (JUN)

Earnings

Before:
Walgreen (WAG)

Carnival (CCL)

Wednesday, June 25

US Economics (Time Zone: EST)

07:00 MBA Mortgage Apps
08:30 Durable Goods Orders, May, exp. -0.2%, prior 0.8%
08:30 Durable Goods ex-Transports, May, exp 0.3%, prior 0.1%
08:30 GDP Annualized, 1Q, exp. -1.8%, prior -1%
08:30 Personal Consumption, exp 2.5%, prior 3.1%
08:30 GDP Price Index, exp 1.3%, prior 1.3%
08:30 Core PCE QoQ, exp 1.2%, prior 1.2%
11:00 Fed to purchase $2.25b-$2.75b notes in 7-10 year range
11:30 Treasury to sell $13b 2-year floating-rate notes
13:00 Treasury to sell $35b 5-year notes

Global Economics (Time Zone: GMT)

No major reports

Earnings

Before:
General Mills (GIS)
Barnes & Noble (BKS)
Apollo Education (APO)
Monsanto (MON)

After:
Bed Bath & Beyond (BBBY)

Thursday, June 26

US Economics (Time Zone: EST)

08:30 Initial Jobless Claims, June 21, exp. 311k, prior 312k
08:30 Personal Income, May, exp. 0.4%, prior 0.3%
08:30 Personal Spending, May, exp 0.4%, prior -0.1%
08:30 PCE Deflator YoY, May, exp 1.8%, prior 1.6%
08:30 PCE Core YoY, May, exp 1.5%, prior 1.4%
11:00 Kansas City Fed Manufacturing Activity, June, exp. 9, prior 10
11:00 Fed to purchase $850m-$1.1b bonds in 22 to 30 year range
13:00 Treasury to sell $29b 7-year notes

Fedspeak:

08:30 Lacker speaks in Lynchburg, VA
13:05 Bullard speaks in New York

Global Economics (Time Zone: GMT)

12:30 CAD Average Weekly Earnings (APR)
16:00 EUR France Total Jobseekers (MAY)
22:45 NZD Trade Balance (MAY)

Earnings

Before:
Lennar (LEN)
ConAgra Foods (CAG)

After:
Nike (NKE)

Friday, June 27

US Economics (Time Zone: EST)

07:55 UofMich Consumer Sentiment, June F, exp. 82, prior 81.2

Global Economics (Time Zone: GMT)

JPY Jobless Rate (MAY)
JPY Household Spending (MAY)
JPY National CPI (MAY)
JPY Tokyo CPI (JUN)
JPY Retail Trade (MAY)
01:30 CNY Industrial Profits (MAY)
06:45 EUR France GDP (1Q F)
08:30 GBP Lloyds Business Barometer (JUN)
08:30 GBP Current Account (1Q)
08:30 GBP GDP (1Q F)
08:30 GBP Index of Services (APR)
08:30 GBP Total Business Investment (1Q F)
09:00 EUR Euro-zone Economic Confidence (JUN)
12:00 EUR Germany CPI (JUN P)

Earnings

No major reports

Twitter: @MichaelSedacca

Read more: http://www.minyanville.com/business-news/markets/articles/economic-data-earnings-reports-earnings-economics/6/20/2014/id/55358#ixzz35JjAXPNr

BAGS AND CARTONS OF AIR

                                                                                                                                                                                                                                                                          
Now we realize that everyone does not through the glass see clearly. That's a polite way of saying we're never all going to agree about anything.

We just posted a piece about flat wages and the costs of energy and food. Buy a bag of, say, potato chips today and compare the contents with one you bought a few years ago.

Forget the price you pay at the counter. That's only one way inflation impacts you. Just compare the contents, in this case how much air was in the old bags versus how much is in there today. Try the same with a carton of orange juice.

Now back to everyone not agreeing. We've stated many times before we seek out information from those who may have a completely different opinion from ours. We like to call that being objective with the faint possibility of learning something sprinkled in for fun.

And about those flat wages for the middle class, here's a rather long article. If you take the time to burrow through it, you most likely will come to your decision on the subject. It might differ from ours or it could agree. Either way you'll come away more informed. And that's worth more than even the value you got in those old bags of chips and cartons of OJ.

Now we realize it's not going to be as exciting as who wins the World Cup or, even more important, who's the lucky guy who's going to be Kim Kardashian's next hubby.

But as they say: "Ain't love grand!"
                                                                                                                  
http://globaleconomicanalysis.blogspot.com/2014/06/real-and-unreal-wages-five-decades-of.html

PROFITS AND GROWTH

"Where's the beef?" was a catchy line in a long-ago burger commercial.

Today, a similar question investors ought to asking after all this QE is where's the growth?  Follow that up with have you seen any lately other than in asset prices?

In that respect, QE has been a miserable failure when you measure the return over five years on all the money created. Most money runners turning in a similar record would lose their jobs. What are we getting for the buck is also a legitimate, fair question, like it or otherwise.

That very growth is being questioned by some Wall Street analysts when it comes to U.S. companies faster revenue growth for 2014 and beyond. According to Factset, analysts cut second quarter growth estimates for S & P 500 firms to 2.8% from 3.5% on a year-over-year basis. That 0.7% decline is well beyond the last four years quarterly average of 0.3%, per Factset.

So have higher earnings reports been buoyed more by cost-cutting and buy-backs rather than reality, since the second quarter of 2011 revenue growth for any three month period has not gone up? Revenue mirrors the economy.

Bureaucrats and other economic apologists can talk measures of inflation all they want, but flat wages, higher food and energy prices spell trouble as in the big T. And that rhymes with capital PG as in profits and growth.

Not an especially a good recipe to paraphrase an old Wall Street bromide for a stock market that may be running more on promises than facts.