Thursday, May 16, 2013
Asset Inflation v.s. Price Inflation
The only bet on the table right now, for anyone actually thinking about these things, is whether or not asset inflation which is going supernova, as I showed via the Nikkei, will continue long enough to lead to a generalized price inflation across the real economy i.e. what most people consider true "inflation"...
Given the latest spate of data, I would have to say that the (price) "inflationists" have run out of time. Not only are the marginal assets and markets going into "blow-off" mode, which is a phenomenon seen at the end of a move, not at the beginning, but of course the economy is showing new signs of weakening as well. Just today, Walmart announced weaker than expected top line sales. More importantly, just today, the Consumer Price Index had its biggest monthly drop since 2008.
The real point in all of this is that any trend towards price deflation is only in its most nascent stages. A true price deflation caused by a demand collapse has been forestalled and obfuscated to date by rampant asset inflation. Were it not for this manic blow-off in financial markets, the real economy would have rolled over hard a long time ago. Therefore Central Banksters have set us up for not a slow motion date with economic destiny but what one can only describe as a crash landing date with destiny. Because on the other side of the blow-off will come the asset crash, which will end the Central Bank gambit of keeping asset markets levitated until the real economy, which they helped kill by subsidizing debt accumulation, magically comes back to life.
But, don't take my word for it, let's see what gold has to say about all of this. After all, if any asset was going to respond to both the omnipresent bid for market assets it should have been gold, and at the same time, if any asset class were to truly ascertain that a generalized economic price inflation were on the horizon, it would be gold.
Even as I write, gold is down another $20 below where it closed yesterday on this chart: