Read the Paper

Ah you're breathing faster
Silence the only sound
There's no need to be nice on the way up
'Cause you're not coming down
--Genesis

It's been a long time since I've heard this much chatter about rising inflation. With supporting evidence too.

Take, for example, my old sector. Pulp and paper has been suffering from overcapacity and declining demand for so long that durable price increases were a pipe dream. Now look:

As noted before, once inflation--both perception and reality--gets going, it's hard to stop.

Get the Picture

I've been living so long with my pictures of you
That I almost believe that the pictures
Are all I can feel
--The Cure

Connected to our earlier post, here's a picture of how the deficit and corresponding debt balloon with the new spending bill.

Source here.

A Million A Minute

So turn on the TV one more time
And see that everything is fine
--Flesh for Lulu

Judge Nap reprises Rand Paul's recent calculation. The budget deficit since 2016 has the federal government borrowing at the rate of $1 million/minute. With the recently passed spending bill, the deficit is forecast to widen at least $5 trillion over the next three years. This will push the borrowing rate up close to another million a minute.

As such, Judge Nap suggests that the greatest threat to liberty in this country is not some external entity such as Russia or ISIS. It's debt.

Rand Paul adds that, once voters wrap their heads around the enormity of the problem the the GOP-led spending bill has exacerbated, incumbent Republicans should not be surprised if they are tossed out on their ears in upcoming elections.

Inflation Heat

The shadow's high
On the darker side
Behind the doors
It's a wilder ride
--Glenn Frey

Stock futes flipped over this morning after CPI numbers printed higher than expected. Not exactly 'hot' though, as the core CPI came at at 2.1 vs 1.9 exp.

In the scheme of things, measured CPI still looks tame. However, market participants may be waking up to the reality that the Fed Funds Rate has been below the core CPI for about 10 years--by far the longest period in history.

Central banks who, by their easy monetary policies and negative real rates, have been trying to stoke inflation should be careful for what they wish. Once released, the inflation genie is difficult to get back in the bottle.

Negative Real Rates

"You know, the funny thing is, tomorrow if all this goes tits up, they're gonna crucify us for being too reckless. But if we're wrong and everything gets back on track? Well, then, the same people are gonna laugh till they piss in their pants because we're gonna look like the biggest pussies God ever let through the door."
--Will Emerson (Margin Call)

The difference between the nominal interest rate and the inflation rate is known as the real interest rate. If a fixed income instrument yields 5% annually but the purchasing power of the yielding currency is declining at 6% rate, then the 'real' yield is -1%.

A few years back, central banks embarked on policies known affectionately known as NIRP (negative interest rate policy). The idea was to make central bank yields so low that, when coupled with inflation, they discouraged saving in favor of spending. Presumably, this policy would be reversed as economies subsequently firmed.

Every major developed country central bank in the world is maintaining negative real interest rates in what is now the 9th year of a global economic expansion.https://t.co/dAjqRK0ot4 pic.twitter.com/cmkfRhU8zi

— Charlie Bilello (@charliebilello) February 13, 2018

The 'official' numbers tell us that, here in 2018, we stand in the ninth years of a global economic expansion. Yet, as indicated above, every developed country central bank in the world is maintaining negative real central bank lending rates.

Maintaining such easy money policy in the face of strong economic data signals one of two things. Either the 'official' numbers are wrong, or this is the greatest example of incompetence in the history of central banking.

Spending Means Taxing

Should five percent appear too small
Be thankful I don't take it all
--The Beatles

Rand Paul tells Republicans that, "If you're for tax cuts and for increasing spending, that's hypocritical."

"I think if you're for tax cuts and for increasing spending that's hypocritical," @RandPaul told @MajorCBS https://t.co/5i5gZKRxDD

— Face The Nation (@FaceTheNation) February 11, 2018

When taxes go down and government spending goes up, the difference must be funded by borrowing (read: debt). Who is on the hook for paying back creditors who buy that debt?

Taxpayers.

If governments want to spend more, then they must ultimately tax more.

Night and Day

Julie Goodyear: You know what else I miss? Pizza.
Greg Goodyear: Toilets that flush.
Daryl Jenkins: Call of Duty: Modern Warfare.
Robert Kitner: Dude, we're living Call of Duty. And it sucks.
--Red Dawn

The commencement of the Winter Olympics in Pyeongchang finds many in the mainstream media waxing poetically about near neighbor North Korea, located on the other side of the 38th parallel about 100 miles away. The country and its rulers are wonderful, so goes a popular narrative, with North Korean representatives displaying charming examples of synchronized uniformity at the Games.

In past generations, the media uttered similar ruminations about the former Soviet Union, about Communist China, and about Cuba.

In reality, North Korea is similar to its socialist predecessors. It is a murderous police state where people live in conditions of squalor that would place poor people in the US near the top of social strata in North Korea.

We can only hope that bits and pieces of the nearby Olympic games that sneak past the propagandist firewall offer a vision of what could be to citizens of North Korea--a vision that inspires a movement to reclaim the liberty that is theirs by natural right.

Intuitive Bounce

Sweet dreams are made of this
Who am I to disagree?
--Eurythmics

After probing the aforementioned 200 day moving avg a couple of times yesterday, the SPX vaulted about 90 handles in about 20 minutes before settling with 1.5% gain on the day. In retrospect, this was an intuitive level for the bulls to make a stand.

Does this 'successful test' of support sound the all clear? Perhaps. Were I a bull, however, I'd post sentries at the 2550 Maginot as I suspect the bears will be back soon for another assault.

position in SPX

Danger Zone

Out along the edges
Always where I burn to be
The further on the edge
The hotter the intensity
--Kenny Loggins

Currently the uptrend line in place since early 2016 and the 200 period moving average coincide with the fast approaching SPX 2500-2550 zone, which reinforces the thought that bulls will dig in their heels to defend this turf if/when.

Continue to sense, however, that if they close heavy today, chances of a real bloodbath early next week go up.

position in SPX

Spineless GOP

In violent times
You should have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

Congressional GOP members revealed their RINO core once again by teaming with Democrats to pass a two year spending deal: H.R. 1892, the Bipartisan Budget Act. The Act promises to elevate annual federal budget deficits north of $1 trillion--a level matched only by the early Obama administration years (Quick quiz: How must such budget deficits be funded? Answer to be discussed in a future post).

A few Republicans (e.g., Rand Paul, Thomas Massie, Justin Amash) held firm. Much of the same crowd that held firm on Obamacare repeal. Some of their pushback that calls out the GOP hypocrisy is captured below.

Sen. Rand Paul on the new senate spending bill: "If you were against President Obama's deficits, and now you're for the Republican deficits, isn't that the very definition of hypocrisy?" https://t.co/EPCvGs13hW pic.twitter.com/24yiMZ7ZqG

— ABC News (@ABC) February 8, 2018

Roll call for the massive spending bill... https://t.co/d66rM7rzPt

— Thomas Massie (@RepThomasMassie) February 9, 2018

This morning, every Republican in Congress who blasted government growth under Pres. Obama gets to answer the following question with his or her vote: Do you oppose massive spending increases only when a Democrat is in the White House?

— Justin Amash (@justinamash) February 9, 2018

Judge Nap follows with this question:

What kind of politicians rail against deficit spending until they are in charge AND THEN SPEND MORE?
I stand with Rand @RandPaul against congressional Republicans who have rejected their core values.

— Judge Napolitano (@Judgenap) February 9, 2018

What kind of politician, your honor? Why, the spineless GOP type, of course.