About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, December 17, 2013

Inflation -- A Quick Way To Look Forward

For well over 100 years, inflation has tended to start up first in the commodities sector.
Moreover, since the processing of commodities can often be energy intensive, it is no
less important to keep an eye on the fuels sector when watching for inflation (or deflation
for that matter).

The chart link ahead looks at the CRB commodities composite with special focus on the
52 week rate of change and also includes in the bottom panel the behavior of the wholesale
gasoline price in recent years. CRB With 52 Wk. ROC + Gasoline

The inflation rate has decelerated sharply since Sept. 2011. The chart shows an ongoing
downtrend in the CRB since the spring of that year and also shows that the gasoline price
although volatile has been range bound. Inflation pressure starts to build when the 52 wk.
ROC% accelerates up and can move sharply higher in the wake of the development of a
strong uptrend in the CRB's ROC%.

Various leading economic indicators are pointing to faster global economic growth ahead.
Thus, even though the balance of economic supply  / demand has remained tilted in favor of
supply, you can use this chart to monitor if there are stronger developments for the leading
edge of inflation pressure, which, as you can see, remains pretty quiet for now.

The horizontal line on the chart for the CRB stands at 325 and reflects my macro based
estimate of when commodities supply / demand will come into balance. Note how far the
index is now running below equilibrium. With the world still deeply in debt, it is easy to
see by observing the chart why central bankers have been so concerned about trying to
keep the deflationary wolf away from the door and why fiscal austerity policies are so very
risky.

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