Sunday, September 22, 2013

What Inflation?

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"Inflation is always and everywhere a monetary phenomenon." - Milton Friedman

Last Wednesday, the Federal Reserve announced 'No Tapering'.... needless to say most of us in the financial world were stunned. Read

The markets rallied off the news, ITZ quickly re-entered Silver Wheaton (SLW) for a quick trade. However, the enthusiasm waned on Friday, as many wondered...why? What did the Fed know that we didn't.

Given the Fed's loose monetary policy, many people assume that higher inflation is an inevitable consequence. The velocity of money is extremely low at present, wage increases are another factor, but that as well has been fairly low.
The 'Core' inflation -  excluding food and energy prices- as mentioned by the press, always leaves us asking why do they ignore those factors. Basically the 'core' eliminates volatility associated with those factors. Fed Statement

The U.S. economy has been performing well below its potential during the Obama presidency, due to the "output gap".  The current output gap is -5.8.

Warren Buffett noted that the markets were 'fairly valued' this week Read

Bottom line, for now inflation does not appear a threat to our economy, at least for a few years. The trend remains bullish for equities, ITZ suggests buying any pullbacks/corrections.

For past charts & post click here

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