Author Topic: Yield Curve Inverting  (Read 7080 times)

Cigarbutt

  • Hero Member
  • *****
  • Posts: 2164
Re: Yield Curve Inverting
« Reply #30 on: June 17, 2019, 12:17:59 PM »
Parsad says USA consumer prices will go up if USA workers take home more money this year. However all data is pointing to the other direction, i.e., prices going down.

The USA saving rate has been higher than average compared to the recent past, where savings rate on disposable income is at 7-8% of GDP. This is excluding contributions to 401(k), ESPP, IRA/Roth-IRA, HSA etc. which can soak anywhere between 0 - 35% of income.

https://www.reuters.com/article/usa-bonds-tips-umich-idUSL2N23L0MC
https://tradingeconomics.com/united-states/producer-prices

Barrons ran an article saying rate cuts are needed and more importantly some QE may be needed by year end:

https://www.barrons.com/articles/the-rate-cut-the-economy-doesnt-need-but-the-markets-do-51560557553?mod=hp_DAY_1
https://www.barrons.com/articles/the-fed-may-have-shrunk-its-balance-sheet-too-quickly-51560504607?mod=past_editions


Meanwhile, the person that has invested with Parsad is betting on a deflation. (FRFHF)
CPI-linked derivative contracts
The company has entered into derivative contracts referenced to consumer price indexes (“CPI”) in the geographic regions in which it operates that
serve as an economic hedge against the potential adverse financial impact on the company of decreasing price levels. At March 31, 2019 the company
held CPI-linked derivative contracts with a fair value of $16.2 (December 31, 2018 - $24.9), notional amount of $113.6 billion (December 31, 2018 -
$114.4 billion) and weighted average term until expiry of 3.4 years (December 31, 2018 - 3.6 years).
The company’s CPI-linked derivative contracts produced net unrealized losses of $4.3 in the first quarter of 2019 (2018 - $20.2). Net unrealized gains
(losses) on CPI-linked derivative contracts typically reflect the market's expectation of decreases (increases) in the values of the CPI indexes underlying
those contracts at their respective maturities (the contracts are structured to benefit the company during periods of decreasing CPI index values).
Shalab,
It seems that we disagree about where we're going although it will have to be, in the end, the same destination.
"However all data is pointing to the other direction, i.e., prices going down."

This yield inversion talk is getting confusing but one of the most significant and fundamental measures I've been following agrees that asset prices may have entered a deflationary phase: the Tooth Fairy payout.
https://www.prnewswire.com/news-releases/tooth-fairy-payouts-plunge-for-second-consecutive-year-300798356.html
I've been able to match the Tooth Fairy payout until 2012 and then it seems that the payout has been looking for a reversion to the mean.
You will also notice that the US regions that have suffered from globalization have shown their resentment through lower payouts.
 



shalab

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1157
Re: Yield Curve Inverting
« Reply #31 on: June 17, 2019, 05:24:05 PM »
I stand corrected - I should have said the prices aren't increasing as fast as the Fed is expecting. Prices are definitely going up but below the Fed target rate. Asset prices (houses) have come down in the last year.

Parsad says USA consumer prices will go up if USA workers take home more money this year. However all data is pointing to the other direction, i.e., prices going down.

The USA saving rate has been higher than average compared to the recent past, where savings rate on disposable income is at 7-8% of GDP. This is excluding contributions to 401(k), ESPP, IRA/Roth-IRA, HSA etc. which can soak anywhere between 0 - 35% of income.

https://www.reuters.com/article/usa-bonds-tips-umich-idUSL2N23L0MC
https://tradingeconomics.com/united-states/producer-prices

Barrons ran an article saying rate cuts are needed and more importantly some QE may be needed by year end:

https://www.barrons.com/articles/the-rate-cut-the-economy-doesnt-need-but-the-markets-do-51560557553?mod=hp_DAY_1
https://www.barrons.com/articles/the-fed-may-have-shrunk-its-balance-sheet-too-quickly-51560504607?mod=past_editions


Meanwhile, the person that has invested with Parsad is betting on a deflation. (FRFHF)
CPI-linked derivative contracts
The company has entered into derivative contracts referenced to consumer price indexes (“CPI”) in the geographic regions in which it operates that
serve as an economic hedge against the potential adverse financial impact on the company of decreasing price levels. At March 31, 2019 the company
held CPI-linked derivative contracts with a fair value of $16.2 (December 31, 2018 - $24.9), notional amount of $113.6 billion (December 31, 2018 -
$114.4 billion) and weighted average term until expiry of 3.4 years (December 31, 2018 - 3.6 years).
The company’s CPI-linked derivative contracts produced net unrealized losses of $4.3 in the first quarter of 2019 (2018 - $20.2). Net unrealized gains
(losses) on CPI-linked derivative contracts typically reflect the market's expectation of decreases (increases) in the values of the CPI indexes underlying
those contracts at their respective maturities (the contracts are structured to benefit the company during periods of decreasing CPI index values).
Shalab,
It seems that we disagree about where we're going although it will have to be, in the end, the same destination.
"However all data is pointing to the other direction, i.e., prices going down."

This yield inversion talk is getting confusing but one of the most significant and fundamental measures I've been following agrees that asset prices may have entered a deflationary phase: the Tooth Fairy payout.
https://www.prnewswire.com/news-releases/tooth-fairy-payouts-plunge-for-second-consecutive-year-300798356.html
I've been able to match the Tooth Fairy payout until 2012 and then it seems that the payout has been looking for a reversion to the mean.
You will also notice that the US regions that have suffered from globalization have shown their resentment through lower payouts.