The Mess That Greenspan Made - Part 40

The Rise of China, the Decline of Japan

From this item the other day at the Wall Street Journal’s Real Time Economics blog comes the graphic below from a recent IMF study that shows how the rest of Asia has become increasingly dependent upon China, rather than Japan, for exports.

In cases such as Australia and New Zealand, the change is profound.

Of course, since some of these are large percent changes from a small base such as in the Philippines, the data can be a bit misleading, however when countries like Taiwan reduce their exports to Japan by two-thirds while quadrupling their exports to China, that’s huge.

It’s no wonder that China feels the need to flex its muscles from time to time and you can’t help but wonder how things will work out in Japan over the long run, given their dramatic rise, fall, and then stagnation over the last four or five decades.

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As noted earlier today, in Consumer Prices Jump 0.3% in April, two key takeaways from the latest inflation data are that annual price gains have again reached the two percent level and recent increases have been very broad-based.

When combined with what is now generally seen as an improving U.S. economy and the well known axiom that “when higher inflation arrives, it usually arrives very quickly,” today’s inflation report could signal the beginning of a sustained move higher for gold and silver prices.

Admittedly, inflation hasn’t been much of a factor for precious metals lately, but that could soon change, particularly if the recent upward trend in the year-over-year inflation rates continues.

Recall that the gold price reached its apex at above $1,920 an ounce back in the fall of 2011 that coincided with the recent peak in inflation at about 4 percent. There were a number of other important factors at the time, but elevated inflation was clearly one of them.

This point should be clear when reviewing the chart below that includes the SPDR Gold Shares ETF (GLD) alongside the Labor Department’s measure of consumer prices.

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Consumer Prices Jump 0.3% in April

The Labor Department reported that consumer prices jumped 0.3 percent in April, due largely to the rising cost of food, motor fuel, and other transportation items as the annual rate of inflation in the U.S. now stands at 2.0 percent. Excluding food and energy, prices rose 0.2 percent last month, now up 1.8 percent from a year ago.

This marked the biggest increase in the cost of living in 10 months and, after yesterday’s surge in wholesale prices as noted here, signals new concern over rising inflation, a topic that has been off-the-radar of both investors and policy makers at the Federal Reserve.

Three times in the last eighteen months annual inflation has risen to 2.0 percent, but it has not exceeded that level since late-2012 as it came down from multi-year highs in 2011 that, not coincidentally, marked the all-time nominal high for the gold price.


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Thursday Morning Links

Eurozone economic growth loses momentum – BBC
Wal-Mart profit falls 5%, bad weather cited – USA Today
Tepper: ‘Don’t Be Too Fricking Long Right Now – Barron’s
Stocks are telling you a bear market is coming – MarketWatch
Stocks Hit New Highs, But Lack of Confirmation Concerning – See It Market
How to predict when the Bank of England will hike interest rates – Quartz
Why monetary policy matters: New UK narrative evidence – voxeu
BOE succumbs to “spurious precision under pretence of knowledge” – Telegraph
Big Increases in Obamacare Costs Coming in November – Fiscal Times
Geithner’s Most Candid Crisis Moments as Told to Jim Cramer – The Street
The Politics of Income Inequality – NY Times
Inequality disaster prevention – Shiller, CNBC
The Inequality Puzzle – Democracy Now

Markets muted after soft European growth – AP
Ten Year Treasury Yield Plunges – Trader Dan
Bonds are quietly outperforming stocks – LA Times
Is a Major Correction and Bear Market Around the Corner? – Financial Sense
Do Alternative Investments Belong in Most Individuals’ Portfolios? – WSJ
Volatility Index Yawns, Stretches, Hits Snooze, Heads for Sub-12 – Barron’s
Treasury Yield Approaches 6-Month Low as CPI Seen Below Average – Bloomberg
Gold Below One-Week High as U.S. Outlook, Ukraine Weighed – Bloomberg
Gold ETF lets retail investors swap shares for bars – MarketWatch
U.S. Mint Silver Eagles Sales Surge – SRSrocco Report
Near $50 silver in 2011 not a bubble – Mineweb

How Inflation Picks Your Pocket – Mises
How Student Debt May Be Stunting the Economy – NY Times
Frugal Consumers Make it Tough for Companies to Raise Prices – Money News
Japan GDP growth hits 5.9% amid massive shopping spree – CNN/Money
German economic expansion doubles in first quarter – MarketWatch
Most local govt debt ‘controllable’, says banker – China Daily
Goodbye Crisis as Bankers Start Lending in Portugal – Bloomberg
Are Student Loans Really Killing the Housing Market? – The Atlantic
Lawler on RealtyTrac and Cash Buyers – Calculated Risk
Fooled by Reverse Mortgages – NY Times No Better – Mandelman Matters
GSE’s Gearing Up Again For Another Ride – Alhambra Partners
Pondering QE – macroblog

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