Producer Price Index fell amazing 1.3% while core PPI shot up 0.6% - what does that mean for economy, dollar, bonds and stocks?
Sam Adelton
Oct. 17, 2006

The gasoline price drop is part of history. The fact is that the core PPI without the food and energy shot up 0.6%. That is nasty according quantitative models. The stagflation is now real. The Fed may have to raiser rates. But that will stagnate the economy again. The component that increased core PPI came from raw material side and not from finished goods side. That just says the stagflation is on. It is a combination of commodity driven inflation and underemployment driven stagnation.

the effect on stocks can be very negative. The companies are pay too much too produce and have very little in terms of pricing power. The net effect is a prolonged bear market in stocks. The divergence in the market also tells the same thing.

Bond market now is perplexed. It has rarely seen stagflation driven economies. The bond market now is hostage to the Asian Central bank buying.

The pause in rate may not be for very long. Fed with old school economic pundits will fight the inflation without understanding the dynamics of the stagflation. That is beneficial for US Dollar.

Eventually US will enforce stricter trade rules, that is also bullish for US Dollar. The risk remains in the long term though. Again and again the central banks have failed to fight stagflation. They overshoot chasing the inflation and cause eventual depression in the economy. Stagflations when fought with fiscal means end up in deflation and depression.

Producer Price Index fell amazing 1.3% while core PPI shot up 0.6% - what does that mean for economy, dollar, bonds and stocks?
Sam Adelton
Again and again the central banks have failed to fight stagflation. They overshoot chasing the inflation and cause eventual depression in the economy. Stagflations when fought with fiscal means end up in deflation and depression.
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The stubborn capacity utilization manifests strength of economy – Dow 15000?
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Till it reaches 85, the Fed has no reason to raise rates. And if that pause happens in the middle of a capacity utilization above 80%, it is super-bullish.
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A little change in core PPI says the inflation part of the stagflation is under control but inverse direction of stocks and bonds manifests start of a massive recession
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Lack of measures to correct the underemployment driven recession is dragging the economy down further. If slight inflation is suddenly changed into deflation (as happened in Japan in the last deade), the economy can be depressed.
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A massive drop in Producer Price Index shows interesting correlation between inflation, eonomy, bonds, stocks and gold
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The model shows the vulnerability of the stock market and the economy. The gold market interestingly has decoupled itself from dollar.
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