Dear Ben, You Can Stop Now – Thoughts on Inflation

Posted: April 27, 2011 by socklessjoe in Fucking Markets

I think I’ve been the only Fed apologist on this blog, or at the very least the most vocal.  As a filthy monetarist, I think there are circumstances under which you need to run the proverbial printing presses.  And I think we had some of those times in the past couple of years.  And now I think that time is over.

When Glenn Beck was flipping out about the parabolic expansion of the monetary base, I noted that the M3 Money supply growth was still slowing.  In fact, M3 didn’t start contracting until late 2009. Now, M3 Money supply has stopped shrinking and is about to start growing again.  When folks started complaining about the devaluation of the dollar, many noted that the dollar index was still rising.  Now, the dollar index is nearing its 2008 lows.

I’m pretty much not buying the argument that the rise in commodities is unrelated to the Fed action. Oil, Gold, the CRB Index and the S&P-500 have all more or less been the same trade since the 2008-2009 market panic lows.  The S&P-500 and the dollar index are (not so) coincidentally both back to their June 2008 levels — the stock market has risen, the dollar has fallen.

Here are some of the things I’m looking at re: inflation…

Since the 2008-2009 stock market bottoms, Gold (in the form of the GLD ETF, represented by the dotted line) and the S&P-500 have been pretty much the same trade.  You can quibble about where to draw the starting line, but the basic idea is pretty sound.  (And if you want to get picky about it, the S&P-500 gave you dividends too.)

What about oil?  Pretty much the same deal.  (WTIC = West Texas Intermediate Crude)

The Oil-to-Gold ratio…

Since May/June of 2009, oil priced in terms of gold hasn’t really moved much.  Think about that for a sec — In real, Ron Paul gold-bug terms, oil is almost exactly where it was in June of 2009.  Doesn’t feel that way, does it?  Yeah, that’s the inflation kicking in.

Is oil out of whack with other commodities?  Not especially.

Oil (dotted) vs. the CRB Index (solid).

(The CRB is about 1/3 petroleum products, so oil is a big chunk of the CRB.  But there’s all sorts of other stuff making up the other 2/3 like cattle, cocoa, soybeans, aluminum, etc.)

S&P-500 -vs- the Dollar Index

Ok, so the dollar (solid line) has been all over the bleedin’ place during the turmoil of the last couple of years.  But now it’s about back to where it was in  June of 2008.  The S&P?  Also back to about where it was in June 2008.

Oil? Back to Sept-2008 levels.

Coincidence?  I’m thinking not so much.

So this is me, a filthy monetarist, saying that I’ve had about enough inflation for my taste.

  1. socklessjoe says:

    Sorry that these charts look like butt. WordPress is doing some idiotic resizing thing.

  2. chad98036 says:

    You and me man. Not an economist but my reading of Friedman has shown that Bernanke has been following his playbook. My major complaint has been that too much of the stimulus package went to areas other than actual stimulus. The theory was sound the execution sucked.

  3. HayZeus says:

    Thankfully enough, it looks like the Ben Bernanke agrees with you, too.

  4. […] printing can sometimes be a good thing. But I called “uncle” on extraordinary money printing back in April 2011. Since then we have not seen absurd inflation, but we’ve seen it. From a money supply […]

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