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The specter of deflation is haunting more than New England Patriots quarterback Tom Brady. The whole U.S. economy is now grappling with its effects.
As growth splutters, the world's largest economy is facing the real possibility of a spiral in prices. On Thursday, the Producer Price Index for Final Demand showed that prices fell by 0.4 percent in April compared to March, and by 1.3 percent versus last April. The readings according to the previous-used PPI data series, known as PPI for finished goods, looked even worse, with a monster 4.4 percent year-over-year drop.
Steep price drops can be perilous for the growth of an economy that's comprised of nearly 2/3 consumer spending. While falling prices may sounds attractive from a consumer standpoint, they are bad for the overall economy since deflation encourages people to save, rather than spend, money. After all, why spend a dollar today when it will be worth the equivalent of $1.05 tomorrow?
However—and perhaps unlike the Patriots' embattled quarterback—the U.S. has a good excuse for the potential deflationary shock: Oil.
Crude's slide over the past year has reduced macro price metrics tremendously. And indeed, when energy and food prices are stripped out to produce what's known as the "core inflation" measure, PPI for Finished Goods actually rose by 2 percent over the course of the year. On the other hand, the core PPI for Final Demand number still fell 0.2 percent from March to April.
Simultaneously, some maintain that no matter how noisy the inflation reading may be, there are still bad signs embedded in it.
"The PPI came in well below expectations and trying to pin the drop in wholesale prices on any one component would be a mistake," wrote Steven Ricchiuto, Mizuho's unconventional chief economist. "The loss of upside momentum in prices is broad-based."
Stocks snapped back from a three-day losing streak on Thursday, with the Dow rising 1 percent and the S&P 500 closing at a record high. And while many market participants question how long stocks can maintain their momentum, one top technician says the rally is just getting started.
"There are two ways of looking at the market, you can anticipate a move or react to it," technical analyst Ralph Acampora said Thursday on CNBC's "Futures Now." "I think people need to react more because so far there hasn't been a major correction."
As of Thursday, the market hasn't seen a correction in 740 trading sessions, or since late 2011. But according to Acampora, head of technical analysis at Altaira, the broad market trend is still quite healthy. "Until you see the major moving averages broken, until you see the trends broken," there is no need to worry, he said. "We can stay in this range for a while and so far, the leading averages look just fine."
They say the wait is the hardest part, and that's certainly been the case for both the bulls and the bears with stocks this year.
Despite the fact that the S&P 500 is sitting near record highs, one top technician sees a storm brewing for stocks, and the root of that concern comes not from how much stocks have moved, but rather how little.
"The S&P 500 is trading within its tightest range to start of a year in almost a decade," technical analyst Carter Worth said Tuesday on CNBC's "Futures Now." "It's almost as if they closed the market."
Worth noted that since the start of January, S&P 500 has traded within a 125 point range, or roughly 6.3 percent. That's the smallest peak-to-trough range for the start of a year since 2006.
While it was almost certainly not her intention, one ancillary effect of her comment has been to soundly disprove one of the biggest conspiracy theories about the Fed's easy-money policies.
In recent years, it has been popular for Fed skeptics to claim that the true goal of massive bond buying and low benchmark interest rates has not actually been the stated claim of bring the economy back from the brink and decreasing the unemployment rate to normal levels—both of which appear to have been accomplished.
The true goal of the Fed's policies, some suspected, has been to send stock prices higher as part of a surreptitious plot to create the "illusion" of economic growth.
Over the years, comments from Fed officials have made it plain that they watch asset prices carefully. Now, the idea that the Fed is a cheerleader of ever-rising prices has been cast into doubt.
"I don't really know why she chose to say that," said Euro Pacific Capital's Peter Schiff, one of the Fed's loudest doubters. "I mean, I don't really put much stock in anything she says."
However, when pressed by trader Scott Nations on CNBC's "Futures Now" Thursday, Schiff sounded a bit befuddled about how to interpret Yellen's words.
"I doubt she's trying to convince people to sell stocks, when you know that the very goal of quantitative easing... was to lift asset prices. So why would they intentionally undo what they deliberately set out to do?" he asked.
Fed chair Janet Yellen spooked investors Wednesday when she warned against sky-high equity values. And in a strange turn of events, she's finding an unlikely ally in her assessment in the form of her biggest critic, Peter Schiff.
On CNBC's "Futures Now," the outspoken Schiff said that the stock market is "more than just a little overvalued, it's extremely overvalued." But rather than defending Yellen's call, Schiff instead blamed the Fed's policies for the frothy valuations that Yellen was warning about.
According to Schiff's logic, the sky-high valuations for equities are a direct result of the Fed's easy money policies over the past couple years. Schiff said that "artificially low rates" have forced investors to buy stocks and in the process have made them more expensive.
"Janet Yellen was half right when she said the stock market was overvalued," Schiff, Euro Pacific Capital CEO on said on Thursday.
After falling to near record lows this year, U.S. bond yields are rising fast, leaving many investors fearing that we could be witnessing the end of a historic run in U.S Treasurys. But while bond watchers focus on economic data for clues on where rates are going next, one well-known strategist says not to look at the U.S. economy, but rather overseas.
On CNBC's "Futures Now," bond expert Ira Jersey suggested on Tuesday that Europe, specifically the German bund, holds the key to where U.S. rates will go next. And by his work, the selling might be over.
"When we were at about 10 basis points on the German 10-year yield, the consensus was it was going to go to zero," said Jersey, head of U.S. interest rate strategy at Credit Suisse. "But once we started to see crude oil rise and some positive data out of Europe, people thought maybe things weren't right."
Rates in the U.S. have fallen despite rising stock prices and falling unemployment, typically two things that weigh on bond prices. And according to Jersey, the move higher in U.S. treasurys has been fueled by heavy buying of foreign bond yields. The benchmark German 10-year yield is at 50 basis points, considerably lower than the U.S. 10-year bond.
However, in a sudden turn of events, German bonds have been selling off, and that has hurt prices for U.S. bonds. Bond prices and yield move inversely.
According to Jersey, the selling pressure in German bonds may soon abate, spelling relief for U.S. investors.
We suspect there may be some stabilization [soon], but there certainly could be some [continued short-term] weakness on the horizon, given how many people played along with the ECB and started to buy a lot of German and other core European yields."
And despite increased fears of more selling pressure at home, Jersey said the U.S. is the safest place for investors to look for yield.
"The correlation between Europe and the U.S. over the past 12 to 13 months has been quite astounding," said Jersey. "The fact is the U.S. is, ironically, the high yielding of the major bond markets. If you look at where Japanese yields are and you look at where German yields are, the U.S. is the liquid market when you need some type of yield," he added, noting that compared to 50 basis points in Germany, U.S. yields are quite substantial.
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