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On How the Stink of Bogus Flatus and Fed Inflatulation wIth It Will Kill Us 4/13/23

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Yesterday, they said inflation was 5% or something. Couple things wrong with that. Inflation isn't 5%. And what they reported was CPI, not inflation. CPI does not measure inflation. It measures "consumer prices." Inflation is defined as a rise in the general price level. Certainly under that classical definition, housing would be include. But it isn't. The BLS removed house prices in 1982 because they had been rising too fast and were costing the government's cronies too much in labor contracts. And it was costing the government too much in government employee salaries and government contract COLAs. 

So they ditched it and made up a completely fictional measure of housing costs that lags and understates the increases on the way up, and lags and understates the decreases on the way down. The worst part is that this bogus component of CPI, which is a combination of renters rent and what they call Owner's Equivalent Rent, currently represents about 40% of core CPI. 

This CPI feature is currently input at +8.8% year to year and 0.5% m/m. At 40% of CPI, that accounts for 3.5% of the 5% year to year increase in CPI. Without it, the gain would have been 1.5%. 

But wait, there's more. Actual house prices as shown in the near real time MLS price data (currently February contract data) were down 1.2% year to year according to Redfin. So take another 0.5% off the headline core CPI number for that and CPI would be at 1%, not 5%. The Fed would need to instantly stop and reverse QT. 

Given the delay in OER recognition of reality, it might be another 6 months before the Fed wakes up. By then it will be too late. 

This chart shows the relationship between the size of the Fed's Securities Holdings, the various bogus official measures of inflation, and the Fed's fake funds rate which rubber stamp changes in the 13 week T-bill rate in the market. If real world housing prices were accounted for 3 of the lines would be shifted down by 4 per centage points.

image.png

The one sticky problem remains the PPI for Final Demand Core Finished Consumer Goods. Undoubtedly a problem. Sorry, I can't reconcile everything. 

Maybe we should watch the more volatile stuff, food and energy. 

I'll be back with our usual look at the hourly ES charts for a guess on what today's trading will look like. 

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I have updated the Core Finished Consumer Goods Final Demand PPI in the above chart. Tracking Fed SOMA (System Open Market Account) nicely. 

Fed SOMA is just its securities holdings, which represents POMO, QE, and QT only. The emergency lending programs, ELPs are just a circle jerk, that pay depositor withdrawals. The recipients instantaneously deposit the money they withdrew from the banks into a money market fund. The MMF then places the money in Fed RRPs. So the cash that left the banks, and directly reduces the Fed's bank deposit liabilities (aka colloquially "reserves"), remains on the Fed's balance sheet as RRP liabilities. Depositors still have instant access to the cash via their MMFs, which are attached to their brokerage, and/or bank accounts. 

The Fed's ELPs therefore do not add funds to the system. They merely maintain what was already there. Meanwhile, QT goes on. THAT is what really shrinks deposits. 

Capiche? Ou non? 

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We are now in day 10 of mindless rangebound slot racing, right in the middle of the range between the January 2022 high and the October low. The market has reached perfect equilibrium pricing. It can now close and reopen once a month for the new monthly fixing, rather than waste all this time pretending that the market means something. It doesn't It just floats on the surface of the Liquidity Sea. 

Meanwhile, this hourly chart of the ES 24 hour S&P futures is not bearish yet. Don't even think about it before it breaks 4083. I like the negative divergence with the hourly oscillators, but this pattern needs to break down to confirm. That means break 4070. If that happens, the measured move objective would then be 4005.

Woop de effing do. And if it doesn't break, fasten your seatbelts, yon stoolies. 

-rpyn

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Here's an even better real time barometer of housing deflation. The daily data on average mortgage size. That's obviously tied to the price or appraised value of the house, since LTVs tend to be constant. 

The increase since January is a regular seasonal feature. Comparing year to year level, we're looking at a decline of 8.5%. That's through this week. Here’s How We Know That Doom Has Already Arrived


source: tradingeconomics.com

Here's a 5 year chart so that you can see that I am truthing you about the seasonal aspect of the January-April increase. 


source: tradingeconomics.com

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Dollar being sold.

It broke strong support on USDPLN FX. EM keep marching higher.

ETH jumping 1000 USD in just one day even thou Binance said there are some problems with ETH processing.

Gold is moving higher because the inflation going DOWN. Its one of the biggest myth of gold bugs that gold is good for inflation periods. Gold keep rising when inflation expectation and inflation is going DOWN, not UP. So no more fed hikes means gold could go higher, same as silver, copper etc. same as crypto. Thats the reason behind big gold moves. Gold bugs should love low inflation, not high inflation.

Lower yield, no more hikes are good for GROWTH companies like Meta. Just look at META ticker - what a big UP move. From 88 to 220 in just 6 months. Do you still laugh and joke about Zuckerberg? Its like 150% rise!!! When you compare that to gold, well, gold is a non-event. Gold should be at 3750 (move from 1500 x 2,5, same as META). This tells you a lot where is beef and money.

And look at Europe - DAX and many indices doing or flirting with ATH or YTDH

That's a plain truth.

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2 hours ago, DrStool said:

I have updated the Core Finished Consumer Goods Final Demand PPI in the above chart. Tracking Fed SOMA (System Open Market Account) nicely. 

Fed SOMA is just its securities holdings, which represents POMO, QE, and QT only. The emergency lending programs, ELPs are just a circle jerk, that pay depositor withdrawals. The recipients instantaneously deposit the money they withdrew from the banks into a money market fund. The MMF then places the money in Fed RRPs. So the cash that left the banks, and directly reduces the Fed's bank deposit liabilities (aka colloquially "reserves"), remains on the Fed's balance sheet as RRP liabilities. Depositors still have instant access to the cash via their MMFs, which are attached to their brokerage, and/or bank accounts. 

The Fed's ELPs therefore do not add funds to the system. They merely maintain what was already there. Meanwhile, QT goes on. THAT is what really shrinks deposits. 

Capiche? Ou non? 

Wouldn't the ELP program be money printing in the short term because banks are using collateral worth 80 cents on the dollar to get a $1 worth of funding from the Fed. The fed expands the balance sheet  (net money printing for the 20 cents that is provided above collateral value) When banks pay back that loan, then there is no net effect.

 

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The value of the collateral doesn't affect the Fed's total liabilities, aka money.  But I have to think about this because when the initial loans were made, the deposit liabilities went up by a like amount. But now they've been dropping for the past two weeks, and we'll get an update on that tonight that should show that most of the money shifted into RRPs. 

So the loans stay in the system as an addition to the RRPs. Therefore, they do nothing. 

 

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so bank failures are Bullish as Hell....(started Last October)

the more the better, but then again, govt failure(s) crime (At all levels) is the norm.....

>: Gasoline went up 15% this week......if it really matters, anymore......

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