The Keystone Speculator's Inflation-Deflation Indicator

by K E Stone (Keystone)

The Biden inflation is a hot topic these days. Sleepy Joe's war on America's energy complex for the sake of the stupid glorified golf carts (EV's) is a sad commentary on the country. Jackasses wedded to the misguided climate change political narrative destroy the backbone of America. Stopping inflation is child's play. Reopen the oil fields that Biden shut down and voila, inflation will disappear. Fuel (oil, gasoline, natural gas, coal, etc..) makes the world go round.

Americans are too corrupt and greedy nowadays to do what is right for the nation. Instead, they pledge allegiance to their political tribes placing that narrative and agenda ahead of what is best for the country.

The Biden inflation is a moon-shot. The indicator goes from deflation to inflation in one-year's time. The peaks in inflation are May and June of 2022. You probably realize that this year you are not that vocal about inflation and higher prices than you were during the summer of 2022. However, inflation is in the daily zeitgeist again as prices and yields rise.

Oil is at and above 90 bucks a barrel creating the latest push higher in inflation. Inflationists and deflationists battle each day spewing talking points and cherry-picking data to try and bolster their narratives. You can clearly see in the chart above why analysts are having a hard time at assessing inflation. There are many fits and starts and reversals in direction over the last couple years.

The Keystone Speculator's Inflation-Deflation Indicator is in NEUTRAL territory on the verge of breaking above 3.1 to signal inflation ahead (like summer 2022).

The Keystone Speculator's Inflation-Deflation Indicator sits at 2.99, call it 3.00 over the last few days, at Neutral teasing a foray back into inflation land. The United States has not seen disinflation since 2021.

President Biden and Congress pass massive COVID-19 spending bills in 2021 throwing money out to Americans like a fireman tossing candy to children during a parade. Trump was also greasing the skids in 2020.

At the same time, in 2020 and 2021, the Federal Reserve turned up the money-printing dial from from heinous to disgraceful. The money-printing was so obscene it would make Caligula blush. The Fed turns the money-printing dial to 11 a la Spinal Tap. Chairman Powell and Treasury Secretary Yellen toss money to Americans from a helicopter piloted by former Fed Chairman Bernanke.

Worse, creating the trifecta of the inflationary backdrop, is Biden's stupid misguided climate change agenda hacking the vital oil, gas and coal industries to death while promoting windmills, solar cells and glorified golf carts (EV's) that do not work in natural disasters and cause more ecological waste (mining and battery disposal) than regular gas-powered cars.

The factors above are the inflation fuel and the pent-up demand for goods and services after the lows of the pandemic lights the fuse. Higher oil, gasoline and fuel drives up the costs of all goods and services.

The chart above generally reflects goods inflation rather than services inflation. For decades this did not matter since both moved in unison. In recent years, however, due to obscene central banker money printing that has destroyed price discovery, and the disruptions of supply lines due to the pandemic, the goods and services inflations have been on separate paths.

The thinking was that services inflation would roll over and come down to join the lower goods inflation, however, what may occur is goods inflation floating higher to join services inflation. The trend is higher for this year mimicking the move in the US stock market.

The oil, coal and natural gas industries are the energy backbone of the United States. It takes a high degree of stupidity, and corruption, to purposely crash these industries, adding to the already out of control inflation due to the Congressional spending spree (fiscal stimulus) and the Fed's money-printing (monetary stimulus). The so-called green energies are not ready for primetime so Biden sells America down the rabbit hole of despair. At the same time, Russia's dirtbag dictator Putin continues the Ukraine War further exacerbating worldwide inflation.

The 10-year Treasury note 'price' is used for the denominator (bottom number) of The Keystone Speculator Inflation-Deflation Indicator. The 10-year Treasury price is 97.56 with a yield at 4.41%.

Commodities are in the numerator (top number). The CRB Commodity Index is at 285.99.

The Keystone Speculator Inflation-Deflation Indicator

CRB/10-Year Price = 285.99/97.56 = 2.99, call it 3.00 over last few days

Above 4.20 = Hyperinflation

Between 3.1 and 4.2 = Inflation

Between 2.5 and 3.1 = Neutral; Inflationists and Deflationists Battle

Between 2.1 and 2.5 = Disinflation

Below 2.1 = Deflation

Granted, the calculation above is focused on goods inflation rather than services inflation. For many decades, you could track commodities, with the CRB, or GTX, and the goods inflation and deflation dictated the overall economy's direction. As the US politicians screwed America over the last five decades, sending jobs overseas and destroying the middle class so stock prices could move higher on the slave labor, the goods production went to foreign nations while the US focused more on services as the major part of the economy.

The debate between inflationists and deflationists over the last few years has been the discussion of goods versus services inflation. The pundits looking for inflation said goods would inflate and catch-up to the rising services sector while the talking heads preaching deflation said the services inflation would drop to join the goods disinflation and deflation as the economy slumps. All bets were off and both sides ended up being correct as the COVID-19 pandemic hit knocking the world on its arse.

The deflationists were correct in 2019 and 2020. Services inflation drops to become more compatible with the goods deflation. Of course, the China Virus pandemic wiped out the airlines, hotels, travel, restaurants and hospitality and leisure industries. Services are knee-capped falling to the ground joining the goods deflation. Men turned into bush people letting their hair grow wildly outward as they avoided the barber for fear of catching covid.

Then the central banker cavalry arrives March 2020 promising to print money forever. Greenspan, Bernanke and Yellen (former Fed chairs) were already in the basement of the Eccles Building running the printing presses like mad. Helicopter Ben loaded-up his chopper with freshly printed Benjamin's dropping the money from the sky into the investment banker's hands on Wall Street.

President Biden provides way too much stimulus creating a lazy workforce that would rather sit home than work. The staffing shortages are a headache for employers that want to get back to normal but cannot since there are not enough workers to fill positions. Wages rise sending inflation higher. These behaviors, and the obscene amounts of Congressional (fiscal) and Federal Reserve (monetary) stimulus, send inflation to the moon.

When the Fed and Congress tag-teamed in March and April 2020 with trillions in stimulus, billions went into the US stock market pumping it to record highs. A few hundred thousand workers left the workforce either retiring or caring for loved ones after the pandemic, creating a massive labor shortage as the pent-up demand hit in 2021 and 2022.

Rising wages create inflation. The lack of inflation and ongoing persistent deflation for many years was due to the stagnant wage growth. Inflation cannot exist without wage inflation which had not occurred for many years until 2021 and 2022.

Interestingly, as economic activity slows in the US, and some companies begin layoffs  in 2022, the wages are starting to stagnate again, helping create the current top in inflation since June 2022.

The inflation over the last year is mainly due to energy, food and rent/utility costs. People notice higher gasoline and food prices more than other price changes. The inflation indicator falls into the neutral range as the path forward becomes a guessing game.

Oil will have a big impact on the path forward. Everybody and his bro call for oil above $100 per barrel but that typically means it will not get there. Wages are moderating which will keep inflation at bay. Inflation will eventually run far higher in the years forward and bring on hyperinflation but is now the time?

Just think, in a few years, the chart above will be way up there in the hyperinflation zone. That is when the Dow will be over 50K, the SPX will be 10K or more, a gallon of gasoline will be $10 and more, a loaf of bread will be $10. The stock market will be hugely higher, however, the US dollar will be toilet paper. That will be a whole new set of challenges when the velocity of money (money on reserve at the banks that suddenly floods into circulation) kicks in.

Inflation in 2022 matched the 2011 highs. Back then, traders were convinced that rates would continue higher but instead the peak was in. Time will tell if the inflation peak in May/June 2022 will hold. Here we are over one year later and it is holding.

Watch the indicator closely over the next month to see if it starts calling for inflation again. It would not be surprising to see it roll over as oil and commodities retreat and the economy softens. It would be a big deal falling into disinflation again since that would then open the door to deflation. If we start on the path lower to disinflation and deflation, that would likely occur with the US stock market selling off in force a la 2008/2009 and 2022.

The answer to the inflation-deflation debate is both sides are right and both are wrong since the indicator sits at neutral. The path to disinflation is more likely if the economy sours. People would lose jobs and the stock market would drop. The people propping up the economy right now are the upper middle class and wealthy because the Fed's easy money made them rich beyond their wildest expectations with higher stock prices (at the expense of the rest of society).

The chart has to make a decision on what direction to move out of the neutral territory. A move higher with more inflation and higher prices means the wealthy class keeps spending money, mainly on services, to keep the economy afloat, or, a move to disinflation occurs if the economy begins falling apart and layoffs rise.