macroeconomics

Inflation, inflation expectations and emotions

Inflation.

Today `` market participants expected a sharp acceleration in the growth of producer prices in the United States ''. waited, how to say so, softer.. All in all, last time, such a mistake was in full swing 2008 of the year. Speech, certainly, about the baseline, i.e. minus energy and s / x. Not great all somehow. All kinds of industrial production, it is predictable. And here is Empire State.. There, too, the prices did not go well, by the way..

I, certainly, glad to, what is happening in the markets, but it's time to pause. And, at all, can't help but shake off the thought, that somehow everything is too simple. well, yes, and too, quickly.

Inflationary expectations.

read, that someone from the NBU boasted about `` taking inflationary expectations under control '', which was the reason for the slowdown in inflation in Ukraine in the last of the reporting months.

shocked. Inflationary expectations? In Ukraine? Taken under control?
How? With using what? Where? It's all about what? It's a fantasy.

Emotions.

One side perfectly expressed [info]pshan, the other side, sad, at least well expressed [info]kar_barabas.

Recently, ready to become the head of the Fed, there are so many, which is simply based on the primitive contrarian view, you do not need to look at the basics of economic theory with apolitical eyes, to understand the current problems of monetary policy. And then, just like the famous hero 'take and share" some.

NY Fed: while the kids fight in the sandbox, guys go for stew

you've all heard about the letter. I have three associations: about tariffs in the early 30s, about the pressure on Volcker and, sorry, Sarah Palin. here is this letter, this one is almost the same picture, as the show is the last (literally show, ie. TV programme). there are many different words, for example, bandwagon effect, there are stronger words inherent in the Russian language. and then there are highly intelligent European officials again having fun with the markets. sometimes good, that we live in an undeveloped country. clumsy only with an ax, petty nonsense do not take us.

but! a real surprise crept up to us!
then, drumroll:

New York manufacturers say business conditions have "deteriorated" this month.
For the first time since mid-2009, the survey’s general business-conditions
index fell below zero to -11.1, declining 27 points from October’s reading of 15.73.

first thought: too early. I, if you remember, set for this closer to the one-year milestone.
second thought: well, this, only NY, this is the first survey this month, even more important than kansas, some.

but! if you have not realized all the charm, then the third thought is shown on the graphs below: ouch.

neither add nor subtract. but if you think, 2010, this is a great year for money managers;)

o loans

some improvements are present, but with all the words limiting the meaning of this fact (seems, looks like it, maybe, some signs,…)

for more detailed information, here

QE, parallels

disclaimer: behavioral parallels.

let's remember the liquidity programs two years ago.
public perception: this is hyperinflation, they print money!
OK, sorted out. …hmm, and… …e…. about! And they (reserves) everybody is going to gush now!
hyperinflation, hyperinflation!!!!

naive monetarism, it's still that.

By the way, when the wolf comes, it will not come from the monetary side,
but with the most ordinary, with the most common cyclical.

what true-flipper warned about

though, in fact, it's still not about Wealth Effect, а Balance Sheet Effect.
and how do you remember, no one promised anything to anyone about QE. just in case.
By the way, don't forget, what is QE, this is just a nice bonus to relief rally.
at least, it started like that, eventually going into normalization rally.

budget expenditures, consequences of QE and ukrrynok

Budget expenditures.
In Bloomberg, in some places very interesting `` economic daily '', no matter how you pay for it. Not that, to something important, but useful interesting things often come across. Here, Really, I didn't get it, why subtract FFR, but the general idea is already clear.

 

Consequences of QE.
As opposed to 'the markets are driven by the printing press', was so bulish on the American macro, that I almost did not believe in a return to slightly above trend growth. We urgently need to go see Rosenberg, to restore peace of mind.

Ukrrynok.
Excuse me, for a vulgar phrase, but he really is meaningless and merciless. Especially the second.
Can I have a little banter? From what was noticed the other day.

SMASH. Some guys woke up a couple of days ago, but there was a meeting 25 yet. Certainly, don't warn me[info]vitalis219  I would oversleep the event itself, but the market is still, least 2 day gave the opportunity to painlessly enter / exit. Although, in general,, not my job, to deal with some sector.

“Let's consider ukravtoprom by EV / Capacity and compare with the Chinese”. Jetty, underestimated. You need to continue or everything immediately becomes clear? By the way, taking into account the plans for the introduction of new capacities, you can change all kinds of EV / Capacity in EM to increase the Capacity itself. Type, they are underestimated in EM, because, what's there capacity expansion. If the latter were not there, then EV / Capacity would not be 6, and, say 8. Well, and then in the same style.

And just a little bit more angry. Hmm, and where is the UX Index on 1000 points? Not, i don't mind, to draw conclusions looking at the graph. God be with them with astrocycles, eliots and other grails. Everyone has their own cockroaches (for example, I quite seriously believe in patterns, at that, that they can exist, exactly can, but do not exist). And actually, my summer look was like this: macro everything will be fine, technique – everything is just disgusting. Stop, where does it have to do with “UB index on 1000 points”? The fact, that the representatives of this movement seem to sincerely believed in doubledeep. But they had a lot of buy recommendations. All in all, skis, certainly, as always, nothing to do with it.

Again, sorry, just accumulated.

a few words about QE

unexpectedly it turned out, what “ouch, but the volume of QE may not be as large as we all want”. about, God, the market falls for 1% on fears of low QE volume… all in all, or is it not a surprise for the market. or the market blindly believes in 2 trillion. you decide.

look at the price components of all kinds of PMI and smile. it's one thing when the breakdown grows and new issues of tips with negative profitability come out. another thing, when prices equalize in reality. then we look at the operational indicators and see how the slowdown took care of. the fed did his job, Fed can rest. joke. the economy was not planning to go into double dip by now, which I didn’t do. indignant summer alarms, au-u…

look at the Chicago PMI and keep in mind that, that he has more than 90% correlation with subsequent ISM (so they say). ouch, was the market pledged to restore growth?. I'm not talking about crazy guys who sold sipi at 1k and bought off at 1.2k. here they are 3/4 rally. they have always been there. not growth – this is QE fallback. and QE – this is your insurance in case, if the macro doesn't line up. (will align, ie. will begin to level out. so more precisely).

and about the sad. judging by the components of US GDP, probability of quarterly <0 in one of the next two quarters remains. no need to dramatize like Rosenberg, but there are chances. I think, which is more likely in the first quarter, than in the fourth, although this is not typical. commercials with a probability of 25% (Sort of, if you guessed right – then “I told you”, if not, then “I didn't insist”).

TIPS are useless in predicting inflation

generally, it's a well-known fact, that inflationary expectations do not predict inflation. is it, what with a horizon of several months. for another illustration, a small report:

We proposed a model free procedure to assess the relationship between the break-even and future inflations. We showed that the break-even inflation is informative about future inflation over horizons of 3, 6, 24 and 30 months. For the 3- and 6-month horizons, besides being informative, break-even inflation is an unbiased estimator as well. However, over the horizons of 24 and 30 months, the relationship between the break-even and future inflations is negative. On the other hand, for the horizons of 12 and 18 months, breakeven inflation has almost no power to explain future inflation. These results indicate that policymakers and market participants should be very careful in using break-even inflation as a proxy for future movements in price indexes.

a source

how to model inflation

extremely interesting work with such conclusions:

The dynamics of inflation for both the US and Japan may be summarized as follows:
1. Inflation is not well-modeled by an old-style accelerationist Phillips curve, or by a forward-looking, rational expectations New-Keynesian Phillips curve.
2. Inflation may be sensibly modeled as depending on the one-year (survey) expectation of inflation with a weight of between 2/3 and 3/4, and lagged inflation with a weight of between 1/3 and 1/4.
3. Inflation also depends on marginal cost.
4. The one-year expectation responds sluggishly to current and lagged realized inflation rates, and to current and lagged output gaps.

further it is better to follow Link.
really not worth explaining, what does it mean, if it's closer to the truth, than old school?

win-win

Win #1
1) in 2007-2008 nothing bad happened (“the crisis came from America”)
2) if it happened, then ЕМ will grow according to the growth trend of potential GDP
3) Potential GDP EM is obtained from labor + capital + technologies (institutional factors = fairy tale)
4) eventually, risky assets will rise. and there will be inflation. high.

Win #2
1) developed countries may not grow for a while
2) this is politically unacceptable, will actively stimulate. monetary.
3) no balance problem. “money printing” increases denmass. and will give inflation. high.
4) money will depreciate in relation to non-money. risky assets on a horse.
(stocks will lag first, they tolerate inflation poorly in a short period)

And so inflation, and so inflation.
Well well.. We went through this two years ago.

I just want to say, that inflation is a monetary phenomenon,
but there is such a funny thing as the inefficiency of the economy, shock offers..

Look at India for example. And then on EM CPI without India.
By the way, and what is the reason for the agricultural growth this year? Ethanol again?))
Or did it QE manage to stay in reserves, but will seep,
like Stirlitz to the secret factory for the production of felt boots?

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