|
| |||||||||||||||
tips,spread,inflation,deflation,learning markets How to Read the Market's Expectations for InflationHow to Read the Market's Expectations for Inflationtags:Learningmarkets.com explains how to gauge the market's expectations for inflation by comparing the yields of two types of treasury securities. To view the recent values of the two securities described, click here.
Comments  who voted for this video NetRunner
- MikesHL13
How To Read The Market's Expectations For Inflation Related Videos
| Watch this Video NextFriends O' the Sift Top New Politics Videos by Vote   Subscribe Top 15 Politics Sifters of All Time Top 15 Politics Sifters of the Past Week Newest Appreciated Comments          | ||||||||||||||
Stumble This
http://www.shadowstats.com/inflation_calculator?amount1=100&y1=2008&m1=8&y2=2009&m2=8&calc=Find+Out
Let's be straight here, I am accusing the government of cooking the books. Anyone who believes government inflation data (the video included) is a... (insert your insult here)
So basically we have the shadow statistics site saying inflation is real, and we have the TIPS value, which says it isn't.
I'm watching the video again, the dude never explains why the difference is expectation of inflation, just that it is. No doubt he'd give some circular logic explanation anyhow. ... Ok he explains, its the "market" that moves these things. Never mind that the FED is buying these things, and the FED isn't a market, it can move the treasuries however it likes.
Anyhow i won't downvote even though it is crap, after all i'm just a layman.
http://www.huffingtonpost.com/michael-brenner/lies-statistics-and-econo_b_341149.html
Some people are predicting hyperinflation, but we all agree that isn't here yet. However the everyday crappy inflation is dogging us even though we are officially out of recession.
and, Netrunner if you aren't tooo pissed
I find it funny that people buy into the shadow statistics website. Why are their numbers more believable than the government's?
For that matter, if TIPS gives a payout based on government-based CPI, doesn't that mean this measure becomes an effective way to gauge whether the market agrees with the officially-published CPI? If the market believes the government consistently under-reports inflation, then wouldn't it bid up the constant-value yields, and make this test show that the market expects high inflation?
It's kinda the beauty of the test -- both yields are set by market forces, but the payout for TIPS will be adjusted by the government-reported CPI, while constant-value won't be. The spread is determined entirely by market-expected worth of the TIPS vs. constant-value.
Now, this isn't a way to measure inflation, it's a way to divine what the market consensus prediction about the 10-year rate of inflation is.
The way I see it, you have four possibilities:
In this case, the constant value yield gives you an upper bound for the rate of inflation -- the market expects that security to pay back the rate of inflation + market interest of >0%.
The above is true, and the test as described can also be expected to be a reasonable predictor of the 10-year inflation rate.
In this case, we would see a high TIPS spread, but real inflation will be less than it predicts.
This is the Austrian belief. It means for some reason all the people controlling all the money in the world believe the Government's fraudulent statistics, while shadowstatistics.com, Peter Schiff and Ron Paul play the role of economic Cassandras.
I don't see why smart (and therefore most) money wouldn't bet on their predictions, if they are indeed accurate. They have no new theory, or special information, and certainly aren't keeping what they know to themselves. As a liberal, I don't see why the market not listening to their "correct" ideas doesn't violate the basic premise of why we should surrender our lives to the infallible, prescient markets, but I digress.
My judgment is that #4 would indicate not that Paul and Schiff are right, but that Karl Marx is right, and capitalism should be considered a fatally flawed system.
Mostly though, I think the evidence points to reality falling somewhere between #1 and #2. To the degree that the government is lying, the market is aware of it, and adjusting accordingly, with inflation likely to fall between the TIPS spread and the constant-value yield...and neither number is large right now.
I'm more of a free marketeer than Paul and Schiff -- I think if they really had valuable insight, more money would be moving on the basis of their theories and predictions.
"Accordingly it does not take a rocket scientist to work out that there is a vested interest to understate inflation."
I have to admit, finding a web page to disagree with netrunner was kinda hard. BUT I WILL NOT BELIEVE IN SANTA CLAUS. (or government statistics)
"Commodity prices outperforming long dated US treasuries have a respectable record of anticipating inflation."
and we see the year over year at 25%.
Let's not forget that people buy treasuries because they can sell them easily. Yes, they buy them because they don't expect inflation to bite them there. But these other measure of inflation ARE BETTER because people actually buy these to keep, not as a short term investment.
See, the internet wins arguments for me. I just had to find the one blog that agrees with me.