Summary of My Post-CPI Tweets

By: Michael Ashton | Tue, Nov 17, 2015
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Below is a summary of my post-CPI tweets. You can (and should!) follow me @inflation_guy or sign up for email updates to my occasional articles here. Investors with interests in this area be sure to stop by Enduring Investments. Plus...sign up to receive notice when my book is published! The title of the book is What's Wrong with Money?: The Biggest Bubble of All, and if you would like to be on the notification list to receive an email when the book is published, simply send an email to WWWM@enduringinvestments.com. You can also pre-order online.

There is not a lot here to be very happy about if you want the Fed to stay on hold. The best argument for the Fed to not tighten, at this point, is that it doesn't wanna. Growth isn't great, and is weakening, and we may well enter a recession in a few months (we won't know that for a year, of course, when the NABE announces it). But that won't stop inflation from rising. Money supply growth is still rolling along at 6.7% (the highest in 15 months), but the Fed doesn't really care about that as far as anyone can tell. At this point, the argument for the Fed to move is strong, but it has been almost this strong for a couple of years (and arguably stronger, when growth was less tenuous a year or two ago). The only argument that is stronger now is that they are even further behind the curve.

However, I am still skeptical that the Fed will tighten in December. They need to walk back their rhetoric, and I expect they will do so over the next few weeks (if they do not, then I am wrong and they will tighten in December). Even if they tighten, though, I do not expect them to tighten more than a couple of token times, before slowing growth makes them 'pause' - and that will be an interminable pause.

One chart here that is the most disturbing of the report: medical care services.

US CPI Urban Consumers Medical Care Service

If you have been shopping for healthcare recently, you know that there are steep increases in insurance (which doesn't show up very much in CPI but is more meaningful in PCE) and direct services that you pay prior to using up your deductible are also rising significantly. Medical care is a mess. For a while, the reorganization of payment streams hid the actual increased costs of Obamacare, but the real costs are starting to be felt. It may be that the cost curve eventually turns down because consumers have to pay for more of the care themselves. But this hasn't happened yet, and it will take time. In the meantime, medical care services will add to housing services as the main pressures for higher prices.

It's only softness in goods prices that is holding down overall core CPI now, and that won't last forever!

 


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Michael Ashton

Author: Michael Ashton

Michael Ashton, CFA
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Michael Ashton

Michael Ashton is Managing Principal at Enduring Investments LLC, a specialty consulting and investment management boutique that offers focused inflation-market expertise. He may be contacted through that site. He is on Twitter at @inflation_guy

Prior to founding Enduring Investments, Mr. Ashton worked as a trader, strategist, and salesman during a 20-year Wall Street career that included tours of duty at Deutsche Bank, Bankers Trust, Barclays Capital, and J.P. Morgan.

Since 2003 he has played an integral role in developing the U.S. inflation derivatives markets and is widely viewed as a premier subject matter expert on inflation products and inflation trading. While at Barclays, he traded the first interbank U.S. CPI swaps. He was primarily responsible for the creation of the CPI Futures contract that the Chicago Mercantile Exchange listed in February 2004 and was the lead market maker for that contract. Mr. Ashton has written extensively about the use of inflation-indexed products for hedging real exposures, including papers and book chapters on "Inflation and Commodities," "The Real-Feel Inflation Rate," "Hedging Post-Retirement Medical Liabilities," and "Liability-Driven Investment For Individuals." He frequently speaks in front of professional and retail audiences, both large and small. He runs the Inflation-Indexed Investing Association.

For many years, Mr. Ashton has written frequent market commentary, sometimes for client distribution and more recently for wider public dissemination. Mr. Ashton received a Bachelor of Arts degree in Economics from Trinity University in 1990 and was awarded his CFA charter in 2001.

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