Deflation or Bust?

PNC Christmas Price Index (PNC CPI) released its annual cost to fulfill “The 12 Days of Christmas,” and while it is not cheap, the price did not increase that much from last year. If you buy all of the items at a retail store, it would set you back $27,673 +$300 or 1%. If you buy online, the cost will leap by 8% to $42,959. However, if you follow the song (repeating the verses) and purchase each item at every mention, the cost would ring up to $116,000, up less than 2%. 

Lower commodity prices are making headlines these days, but it is a long-term trend.

When observing the Goldman Sachs commodites index which consists of 70% different forms of energy and 30% everything else (copper, corn, gold, wheat, soybean, live cattle, aluminum, sugar, lean hogs, cotton and more), we can see commodity prices declined by 65% since 2008.

And the fall in commodity prices may have picked up big steam as the prices paid, a component of the ISM Manufacturing report, tumbled more than 16% in a single month, while all other components of the report were flat to slightly higher.

Source: Bespoke

Thar she blows, but in the wrong direction.

Deflation is a four- letter word for many economists, as it has been part of the aftermath of major historic periods of The Great Depressions of (1890, 1893, 1907, and 1930). More recently, it has been the anchor for Japan and its fabled lost (2) decades.

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I do not think we are in the red zone yet, but this is an indictment against Fed policy and artificial attempts to manipulate large economies. It is not unlike that Hollywood star that keeps going under the knife, even though it is a fool's errand.

Some economists like Friedman were so afraid of deflation, and last night, a viewer was upset I was complaining about it when it helps folks on a fixed income. Can the benefits truly outweigh the risks? I do not think they can, but this could all work itself out once central banks move out of the picture. However, leading the rebound will be crude oil.

What... Exxon Worried?

In April of this year, the Intergovernmental Panel on Climate Change (The IPCC) issued its opus on climate change. And what must be done now to save the planet? The IPCC, made up of 1,250 scientists from around the world and 200 governments said all known fossil fuel reserves must be left untapped through 2050.

Immediately, ExxonMobil issued a carbon risk report that environmentalist called “brazen, arrogant, and a deeply flawed vision of the future," saying none of the companies hydrocarbons reserves will become "stranded'.

It was a slap in the face as Exxon said governments would never be able to get their act together, have great economies, and cut fossil fuels. In the meantime, the company added 1.6 billion to reserves last year, and now boasts 25.5 billion proven.

• 53% Liquids
• 47% Natural gas

I bring this up because at some point, oil comes back and we will be talking about $150 a barrel. I'm not sure when that happens, but investors selling into current carnage would be making a giant mistake. (I know all our energy ideas are lower, but I think they're all buy/holds, although smaller names might have bought extra trouble with faulty hedging programs.)