The war between inflation and deflation


I’m up late, I’m fired up, what the heck, let’s light this fire.

So, I wrote an article for MarketWatch about how Janet Yellen is flirting with a crash to avoid a correction. Also touched on how badly we’ve been jamming the Millennial Generation and that we’d better cut it out or we’re cutting our own throats. I then went on social media to fight with a troll. Hey, what a night.

Here’s what I’m seeing in markets. There is a lot of tired money out there. Central banks around the world just keep printing money and real people don’t want to get on board. At some point somebody with a match is going to realize there is a lot of money to be made shorting debt and they’re going to light that match, right after they’ve made their bets.

I’m guessing we’re a lot closer to a debt implosion than many realize. I’ve been following Jeff Gundlach a lot more lately and he seems absolutely petrified. I was lucky enough last week to talk to a $10 billion plus bond fund manager and he came right out and told me that liquidity is drying up. If that’s so, how much longer can central banks goose markets and beg for inflation.

Here’s what we should all be worried about. There is a war right now between inflation and deflation. We have seen price increases in necessities for years. That is temporarily on break with energy cheap, but who thinks that will last long-term. At the same time, we have seen three decades of wage stagnation. 

Why is this? There are two big reasons I can see. The first is that we have central bankers who are constantly priming the pump. They never let markets ebb and flow naturally. No, they pump up what should be slight down markets and then that turns into an explosion because there is no release valve. That kills wages. 

Now, don’t blame the central banks completely for more than a generation of flat wages. You can and should blame the jag-offs that run half or more of our corporations, as well as, our beloved bought and paid for politicians. For all the mismanagement of unions, they do have about the right message. And, they have nailed this one. Go visit Executive Paywatch. If you can give me three reasons why corporate CEOs are worth what they are making I’ll rub your magic lamp. 

Make sure you don’t start your list with “it’s just the free market paying them what they’re worth.” Let me put this delicately. Bullcrap. These guys, yes it’s mainly guys – although some truly crappy CEOs are women too, lucky for us one is running for President – have been packing corporate boardrooms with their friends so they could get voted a raise for no other reason than their friends say they deserve one. Interestingly, with clearly no conflict of interest, they then go sit on their friend’s board and vote him a raise too. Hey, isn’t America great sometimes. You scratch my back, I’ll scratch yours. 

Now, the minute we see even a small increase in wages, the media goes nuts about how this will bring the whole house of cards down. But they don’t say boo when some millionaire CEO gets a multi-million dollar bonus to leave a company that he’s wrecked. The hypocrisy is off the charts. I say more in a few 800 word articles about right and wrong in corporate America per month than these face people on TV say in a year of babbling. It’s sick. CNBC has practically muzzled Andrew Ross Sorkin who does have a brain and conscience, but let’s corporatist thieves flap their gums non-stop. It’s a shame.

On top of stagnant wages, in the richest country on earth just to remind you, we also have inflation in necessities. Why?

Because the same nozzles that steal money from the corporations go out and buy the farm land, mineral rights and drilling rights so they can use the monopoly pricing power of those things to steal more from us. Hey, and they remind us, they don’t need no stinking regulation, the market will take care of it. Liars. I call lying.

And of course, there is monetary reasons there is inflation in necessities. Quick review your Econ 101 lesson on price elasticity. 

Ready?

Ok, here it is, when you need something, you’re not real price sensitive. You have to have it, so you buy it. It’s all the other things you cut out. And you know what? That has a knock on effect on the economy of reducing aggregate demand for everything else, which, you guessed it, leads to fewer jobs and lower wages. 

Oh the pain. 

I’m telling you this. If Yellen doesn’t raise interest rates soon and stop going all pump up the volume on dovish talk, there will not be the normal correction I am hoping for this year. What we’ll get is a crash in a year or two. I know a lot of you already think that is the way it’s going to be. I hope not, but it could be. I keep trying to have some faith in Janet and the Feds but I lost some last week.