Financial Professionals


The IMF & Inflation


The week of October 11 begins with the Columbus Day Holiday on Monday.  Clearly, one of my all-time favorite trading days was Columbus Day 2008, when the S&P 500 Index surged from 899.22 to 1003.35.  This Columbus Day will begin with investors analyzing the weekend comments from the IMF meeting in Washington D.C.

The commentary from global central bankers sounds coordinated, however I am presently very suspicious that beneath the surface, global central bankers are anything but "All for One and One for All." In fact, I think it is just the opposite -  the underwhelming growth in the G-7 has initiated a competitive currency devaluation process. Monetizing the debt, lowering the standard of living, and attempting to "export" their way out of this limited growth is the current strategy.

Over this past weekend, U.S. Treasury Secretary Timothy Geithner's message to the IMF was that they must, in essence, "referee" the current currency rebalance to ensure "countries can expand their economies without damaging those of other nations."  The reality for investors is that until the Chinese allow the yuan to rise more quickly, the U.S., BOE, and BOJ will cheapen their own currencies. The trajectory for the U.S. dollar remains lower, as does the standard of living in the G-3.

On Thursday, October 14 the Producer Price Index (PPI) will be released. The expectation is for a 0.2% month on month (MoM) rise after last month's 0.4% rise.  Friday, October 15 the Consumer Price Index (CPI) will be released. The expectation is for a 0.2% (MoM) rise after last month's 0.3% rise.

Given the significant price appreciation for energy and agriculture during this month, I would be surprised if a negative CPI (MoM) figure is released for the remainder of 2010. This is important as I highlight in the below chart with circles. The post market trade from the circled trough points is one of capital market appreciation. Sustained (MoM) CPI in positive territory will lend support to the overall market. A slip back into negative territory would be of concern.

CPI MoM Change 11/30/07-8/31/10

Source: Bloomberg

Past performance is not a guarantee of future results.

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