Wednesday, September 3, 2008

Best of the Net - Wednesday Sept 3, 2008

Mike Shedlock disected the CPI inflation numbers and deemed Real Interest Rates Are High. He notes correctly that the "Owners Equivelant Rent" (OER) portion of the CPI number has for years massively understated inflation numbers, and since home prices began to fall, is now massively overstating inflation. The bull market in Treasuries will continue, argues Shedlock. Shedlock's 'reconstructed' version of the CPI (with Case-Shiller home prices substituted for OER) would drastically change the GDP adjustments, puting the US in recession now.

Chris Puplava has a well thought out explanation for why the US Dollar is rising. To summarize: the rest of the world is slowing, putting downward pressure on foreign rates. This is something I have argued for continuously. That a weakening Euro will cause the dollar to rise. Figure 7 in his article illustrates perfectly that the US dollar is anticipating the spread between Foreign Central Bank rates and the US benchmark rate to close and possibly invert. This would have a further downward pressure on commodity prices, and by extention headline price inflation data. But is this a good thing for the economy and stock prices? Be Careful What You Wish For.

Kevin Depew's Five Things You Need to Know: Tale of an Insomnious Scofflaw spoke of the "rear-view mirror", and consumer balance sheets.

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