ka sightings

[jk]

http://www.minyanville.com/articles/index.php?a=11788

1. Vanished
The Labor Department reported that consumer prices were unchanged last month, below expectations of the 0.2 percent rise economists had been expecting.

• Inflation has vanished.
• Recall that last month the CPI fell 0.5%.
• Oh, and it fell 0.5% in September too.
• Yeah, but that's due to the sharp declines since the summer in energy, right?
• Well, core inflation, which excludes food and energy, was also unchanged in November, the lowest reading since June 2005.
• Fortunately, all this consumer price data is seasonally adjusted.
• Otherwise, we would see that the core rate, which the Fed prefers to focus on showed an outright decline of 0.1% last month.

2. Deflation Is Good... Until it Isn't
What do you call a persistent decline in an aggregate indicator of price movements? Oh yeah, deflation.

• So why are stocks reacting positively to news that deflation may be upon us?
• Because right now the consensus (at least as shown by the increase in stock prices) is that this is a benign bout of supply-driven deflation, not the collapse in aggregate demand that Fed policymakers fear so deeply.
• Structural deflation is not, in and of itself, something the market fears, and that is one reason the Fed has implemented policy in a manner that most market participants find difficult to understand.
• In a true bout of secular inflation the actions of the U.S. central bank, ratcheting up the Fed Funds rate over time even as credit expands and bond yields "fail to respond" - the Greenspan conundrum - would indeed seem impossible to understand.
• But, as we have argued, this is no true bout of secular inflation we have experienced. Rather, it was a bout of cyclical inflation within a structural deflationary environment.
• The disconnect now, the view least shared by market participants, is that the structural deflationary environment we are in is poised to suffer from a potential collapse in aggregate demand.
• Remember, Japan's bout with deflation was viewed as benign deflation for many years.
• Be that as it may, the most important thing to take away from the movement of stock prices is not that the stock market is saying, "Hey, there is no deflation." It's that stocks are saying, "Hey, there may be deflation, but it's still ok."
• Unfortunately, by the time good deflation turns bad, it will be too late. And stock prices, all asset prices, will move accordingly.

[Charles Mackay]

Re: ka sightings

John Williams at Shadow Fed is still reporting over 5% CPI as calculated by the pre-Clinton method.