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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread -- Ignore unavailable to you. Want to Upgrade?

To: Wally Mastroly who wrote (326)	7/18/2000 11:43:14 AM
From: T Bowl	Read Replies (1) \| Respond to of 10065

<<Batman says what higher prices?...All new highs by the end of the year:>> Wally - Thanks for the link to the Perma-Bull Batman story. I was taken back by some of his comments; enough so that I started to doubt my strategy I've taken over the last few months!! I needed to go back thru my notes to make sure I haven’t made a HUGE mistake! Back in Feb I posted my thoughts on the ECRI/FIG future inflation gauge trends. After staring at the data I made a few projections on what we should we looking for and why. Message 12896835 I don't track the trends every day - I tend to try and not get caught up in the day to day movements for fear that I won't see the forest thru the trees. Well, I dug out my last real review(Feb00) and went over it since we are now into the time that I said we should pay particular attention to the inflation trends. We gotten 5 more months worth of data since I've looked at this closely. In my original post about the inflation data I made a few comments that I'll add to(or totally deny I ever meant what I said!!) "1) The FIG index defn seems to correlate better with PPI than CPI." I still stand by that. Nothing in the last 5 reports has changed that. "2) Core CPI is VERY VERY impressive! I reckon anyone that bets core CPI will be anything much outside of +2% YTY is gambling big! It's been in a pretty nice steady decline from 3% downto 2% over the last 6 years. Amazing! No wonder everybody is convinced this can last forever. " Please note, that comment was made in Feb00. That statement no longer holds. If you haven't lately, I'd pay particular attention to the trend line of the Core CPI YTY change since 1993. It's been a pretty mild ride. Slow steady declines that to be honest you couldn't even dream of happening in a nicer fashion. There's been a few small bumps along the way, but nothing in the data would have scared me(or the market). Until recently. Look at what has happened particularly over the last 4 months. Sure, we’re still only running at 2.5% YTY change - big freakin' deal. BUT, we have certainly reversed the down trend line we have been running over the last 6+ years! We had a big bump up in the YTY change in the March data, but it fell back into much more normal looking numbers in April. But we've climbed back to that point over the last 2 months. The uptrend is establishing itself. This is extremely significant IMO. "3) You can defn see the effects of energy in the PPI. Core PPI actually tracks the lagged FIG index pretty closely. If I shift the FIG index "fwd" by 11months, it VERY accurately predicts the fall and turnaround of the core PPI in mid 1997. What little data I have defn shows it is an extremely accurate directional indicator for this." Core PPI is much more volatile than the CPI. So, one-time moves in the index are tougher to believe as a trend. However, it is still tracking the FIG index fairly closely. The key here is that the fwd looking indicators were not predicting that we would see significant signs yet. "4) Out of all of these, IMO we will 1st see a true indication of rear view mirror inflation in the core PPI. Looks to me like that could occur in the June or July data." Now we’ve seen the June #s. The FIG index roughly "projects" around 11months ahead. And that's not an exact # - just an avg of what they have seen in the past. (One thing to keep in mind is that it rarely misses a turnaround, but it does give false signals - see the dismal definition for a better review. Also, the ECRI sight has a lot more info on the indicator). Anyway, if I project the FIG index 11months ahead, it says we wouldn't really see much real movement until late this summer. It is an INCREDIBLY valuable exercise to plot the index on top of the last few years of CPI/PPI data! Anyone(like Batman) who claims that we are not seeing any inflation pressures is ignoring some extremely important data IMO. We are just getting into the times when these numbers(PPI&CPI) are getting interesting! All I hear out there is griping about what Gspan is doing "there's no inflation out there, he's gonna ruin our fun!" I think it's more prudent to give him a little credit. It’s actually really, really scary to think what the combination of the SepQ(given the recent few years) and some bad inflation news could do. "5) It is extremely obvious in the data that the energy prices are having a significant effect on the std CPI/PPI. I'm gonna ignore those for the time being. A turnaround in the core CPI will be what really scares me." See above. The trend has already changed. The next 4-6 wks are gonna be fun! todd