Friday, July 31, 2009

Gold Intra-day


Call it a sign of the times -- dollar stores have become the latest victims of a struggling economy. A dollar store in East Lyme was recently forced to become a $1.25 store.

How demand inelastic are dollar(ehm, dollar-and-a-quarter) store items? Can owners push through cost increases without destroying demand?

Econ Data

Thursday, July 30, 2009

AUG Gold coming into Support

7yr Auction Today

$28 Bil in 7yr paper going off today. Should be interesting considering yesterday's weak 5yr auction where non-primary dealer tenders were less than half the total accepted bids. In other words, without the primary dealers taking $24 Bil the auction would have failed.

If this continues look for pressure on the market as PD's have to find ways to get rid of this supply... 10yr futures hovering about 20 tics above yesterday's lows.

check here a little after 1:00 est to see the results

3.287% median yield \ 3.369% high yield
$10 Bil to PD's, $17.5 Bil to Indirect Bidders
Total Bid-to-Cover of 2.63....still not enough tendered from non-PD's to cover the auction

News & Opinion

Econ Data

Wednesday, July 29, 2009

Weak 5yr Auction Today

$40 Bil in 5 year paper goes off today at a median yield of %2.59, $14.2 Bil* going to indirect bidders, with a total bid-to-cover of 1.92(not good)...

5 yr note futures dropped from ~ 114'28 to 114'11 before bouncing back to 114'19

*With the recent change in what constitutes indirect bidders we shouldn't draw any conclusions from this number

Official Price Inflation vs. Unofficial Price Inflation (1980 - present)


Visit St. Louis Fed Econ Data for official data

Economic Data

Fed News

Tuesday, July 28, 2009

TIPs Spreads and CPI

Let's take a look at a chart I created showing the 5,10,20 yr TIPs spreads with the CPI. Of course this is just a tool to understand direction of inflation rather than the amount, as the CPI underestimates the real rate of inflation. Interestingly, it appears that the TIPs market may be embracing this notion, thereby pricing in a higher yield (suppressing spreads) than it would if the CPI was accurate; sending the false signal of a low expected inflation rate. It may also simply be the TIPs market successfully anticipating a drop in future CPI. Most of this is unimportant, rather the direction and pattern of these spreads is important to follow vis-a-vis the CPI.

Two things to take from this chart: notice during the great Deflation Scare how minimal the drop in the CPI price level was. Unless that starts falling again(and remember it already understates real inflation) we should accept the fact that the monetary system/economy is in a period of 'reflation'. The other is that TIP spreads have strongly rebounded and we're getting to a point in the CPI price level where the Y/Y changes in future CPI numbers will be based on better comparisons, indicating that, because these two measures should converge (and the y/y CPI has mainly stayed above the TIPs spread in the near past), we should expect the y/y CPI to rise in the coming months.

The Flation Debate

The 'Financial Blogging Commentariat' is deeply divided over the issue of inflation and deflation. It seems to be the most acrimonious battle out there. The crux of the debate is whether the U.S., specifically, will witness inflation or deflation in the coming months and years. It's then further subdivided into those calling for hyper-inflation, hyper-deflation, stag-flation and a few less noteworthy types of 'flations'.

The two apocalyptic views are held by the hyper-inflationistas(HI's) and hyper-deflationistas(HD's). The latter generally take a more intellectual approach to understanding monetary dynamics while the former tend to be more crass. This of course doesn't make the HI's wrong per se, but it allows for a number of successful rhetorical assaults against their position. They tend to be marginalized, fairly or not, as 'gold-bugs' and monetary ignoramuses.

The HD's though, in an attempt to understand all the technical aspects of monetary policy/dynamics often lose sight of the bigger picture, especially the political dynamics. Many hold the claim that the monetary system is inherently deflationary as money arises from credit expansion where P+I continually grows in respect to P, or in other words credit grows faster than money and eventually debt service starts increasing money-demand whereas a drop-off in credit expansion doesn't allow for a concomitant rise in money-supply. This is true, but misses the big picture. The idea that politicians will insure bank-credit-money (e.x. checking, savings accounts) through things like the FDIC and bank bailouts or will attempt massive, inflationary Keynesian counter-cyclical policies is overlooked or dismissed. They assume that the credit-money relationship is completely mechanical and fail to realize that un-sterilized, fed monetizations in the secondary market or debt defaults can break down this mechanism of forced debt repayment and shrink the credit-to-money ratio.

The HI's conversely have a better view of the big picture(political-economy) but are often times ignorant of much of the details of monetary/fiscal/economic policy and dynamics. They'll often be heard bandying about phrases like "they're printing all this money, that's inflationary". While there is some truth to this, especially from the larger political perspective, they fail to understand exactly how money is being "printed"(if it is at all) and that just because the supply of money increases the price of money(the reciprocal of the money prices of goods and services) does not necessarily have to fall.

It's my contention that while both apocalyptic views have some merit, more than likely the truth lies somewhere in between. We'll continue to discuss this topic - in much more depth - going foward...

MetaPhynance: An Intro

The MetaPhynance Blog was created as a conduit for offering the economically/financially literate (or just interested) a look into the world of finance from a somewhat abstract, top-down perspective. We'll attempt a holistic-theoretical - yet still applicable - understanding, rather than some narrow, abstruse econometric/inductive prophecy -- ideally. More than likely it will devolve into a forum for posting tendentious nonsense and waxing indignant; would it be a readable financial blog if it didn't?

The author of the Blog(me) is a futures trader focusing mostly on the Indices and Gold. I also do investment consulting work and have my degree in management/finance. Of course that latter fact means absolutely nothing and, if anything, should make you less likely to listen to anything I have to say. Likewise, if you're undaunted by the prospect of listening to a self-righteous, haughty, pedantic, loquacious (see what I mean about that pedantic thing?) A-hole, stick around.

p.s. The Blog will not be restricted to formal content; hopefully a variety of other interesting material will compliment the data, charts, articles etc.

- Jon