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In a recent article, John Mauldin dealt with the question: is economic growth driven by consumption or production? Unfortunately, he made a dog’s breakfast out of an attempt to explain why the correct answer is “production”. I’ll try to do better.

That there is even a much-debated question here is evidence of the great depths to which the science of economics has sunk. It would be like a debate between two groups of mathematicians, with one group arguing that 2 + 2 = 4 and the other group arguing that 2 + 2 = 17. Incredibly, in the world of economics the equivalent of the 2 + 2 = 17 group has gained the ascendancy. And within this leading group, the Keynesians dominate.

One of the fundamental tenets of Keynesian economics is that consumption drives economic growth, with an increase in consumption (a.k.a. aggregate demand) causing the economy to grow and a decrease in consumption causing the opposite. According to Mr. Mauldin, on the other side of the fence we have “Austrian” economist Friedrich Hayek, who “asserted that it is actually production that stimulates the economy and drives consumption.”

On a side note, “stimulates the economy” is a Keynesian phrase that an economist from the Austrian school would not normally use (economies aren’t “stimulated”), so I doubt that Hayek ever spoke/wrote in those terms. More importantly, the knowledge that production drives consumption and therefore economic growth predates Hayek by about 150 years. It is called Say’s Law and was part of the 1803 publication titled “A Treatise on Political Economy”. Say’s Law can be expressed as “production funds consumption” and “people produce in order to consume”. Because Say’s Law is demonstrably true, the “Austrians” adopted it.

The easiest and clearest way to see that an increase in production must come before an increase in consumption in order for the resulting growth to be sustainable is to consider a barter economy. An economy that uses money will tend to be more complex than one based on barter, because money facilitates specialisation (the division of labour) and intermediate stages of production, but the same basic principles apply.

When a barter economy is considered it becomes obvious that in order for someone to consume more he must first produce more, because what someone spends is what he produces. To put it another way, someone can’t spend what he or someone else hasn’t already produced. For example, a potato farmer spends potatoes, a cobbler spends shoes, and a baker spends bread. Consequently, if a baker who produces X loaves of bread per day wants to consume more on a permanent basis, he must first increase his production to X+Y loaves per day.

But how could our hypothetical baker spend more bread if there didn’t already exist demand for more bread?

The simple answer is that he couldn’t. There would have to be more demand for bread at some price. Perhaps by investing in a new oven or finding some other way to produce bread more efficiently the baker would be able to increase his production by, say, 30% and simultaneously reduce the price per loaf by 10%, enabling his customers to afford to buy more bread and increasing his own ability to consume.

Of course, if the bread market were saturated then it would not be possible for our baker to increase his production and therefore his consumption, but within the economy at any given time there will always be many things that people want more of. It’s a matter of targeting the things for which there is demand, and this is where prices come in. Prices transmit information, which is why it is so important that they not be distorted by “monetary stimulus” and other interventions. Prices tell people what to produce more of, and in cases where there is temporarily much greater demand than supply they ration the available supply. For some entrepreneurs, it can also be a matter of targeting the things for which there is currently no demand but for which there could be huge demand in the future. For example, there was no demand for the iPhone before Apple made the first one, but then, suddenly, millions of people around the world wanted an iPhone.

The bottom line is that in the real world there must be an increase in production before there can be a sustainable increase in consumption, because it’s the increase in production that funds the increase in consumption. This is as axiomatic as 2 + 2 = 4.

The market action is getting more interesting. Here are three examples:

1) Although the S&P500 Index and most other important US stock indices ended Monday’s session with gains, the Dow Transportation Average (TRAN) lost ground and has marginally breached support at 8600. It is now at its lowest level since last October — a significant bearish divergence.

Due to Monday’s marginal breach of support, the stage is set for some informative price action over the days ahead. TRAN is going to either follow through to the downside and confirm its breakout or quickly reverse upward and indicate that the downside breakout was false. Each of these possible outcomes contains clues about what the future holds in store.

2) Due to the much-worse-than-expected US employment report that was published when the financial markets were closed last Friday, it was very likely that there would be a decent bounce in the gold price when trading resumed on Monday. The gold price quickly rose to the $1220s on Monday and in doing so traded above its late-March spike high, but it subsequently gave back about half of its gains and ended the day at its 50-day MA. This price action is not bullish, but the set-up is still in place for additional near-term gains.

Critical support is at $1178.

3) I continue to think that the Dollar Index made a multi-month top in March, but the market is stubbornly refusing to either validate or invalidate this view. A daily close below 94 would remove all doubt that a multi-month top is in place, while a daily close below support near 96 would be a preliminary signal. Given the recent economic data, the Dollar Index has done remarkably well to remain above 96 until now. Even last Friday’s lousy employment report wasn’t a sufficient catalyst for a breakdown.

There’s a school of thought to the effect that if the market price of a stock you own has fallen below the price at which you bought, you haven’t really suffered a loss unless you sell. If you don’t sell, all you have is a “paper loss”. While technically correct, this is an amateurish and dangerous way to look at things. If you view a paper loss as materially different from and of lesser consequence than a realised loss, then you are essentially deluding yourself. Incredibly, some newsletter writers encourage this form of self delusion.

There will usually be a chance that a stock in your account that is currently ‘under water’ will recover and move into profit. The probability of this happening could, in fact, by very high, but it is important to acknowledge the reality that it is now showing a loss and that a recovery is not guaranteed. The simplest way to do this is to regularly — say, at the end of every week — mark your portfolio to market. In doing so, a “paper loss” is accounted for in the same way as a realised loss and a “paper gain” is accounted for in the same way as a realised gain.

By taking the simple step of regularly marking your portfolio to market you will be facing up to reality and avoiding the counter-productive behaviour, when things are going badly, of ‘sticking your head in the sand’. Accordingly, you will be putting yourself in a position where decisions can be based to a greater extent on facts and to a lesser extent on hope — a position where you will be less likely to kid yourself.

Of course, almost all good practice in the world of investing/speculating is easier said than done.

This post is a slightly-modified excerpt from a recent TSI commentary.

The monetary data published by the ECB last week showed that the rate of euro-zone TMS (True Money Supply) growth continued to accelerate in February — to a year-over-year rate of 11.8%, from 11.4% in January and ‘only’ 6.4% last October. Here’s a chart that puts the current monetary inflation rate into perspective.

The ECB didn’t begin its new QE program until March, so the above chart doesn’t include any of the effects of this new program. In fact, the effects of the new program probably won’t start becoming apparent until the April monetary data are published in late-May.

In one way, the current situation in Europe is similar to the situation in the US during the final few months of 2012. Back then, the Fed embarked on an aggressive new money-pumping program despite the year-over-year rate of US TMS growth already being in double digits and despite the prices of US stocks and bonds being near multi-year or all-time highs. Now we have the ECB embarking on an aggressive new money-pumping program despite the year-over-year rate of euro-zone TMS growth already being in double digits and despite the prices of European stocks and bonds being near multi-year or all-time highs.

The QE program introduced by the Fed in late-2012 did not help the US economy, but it did inflate a new stock market bubble. It also encouraged stock buybacks at the expense of capital investment, incentivised the continued accumulation of debt at a time when both the private and public sectors were already over-indebted, and fostered an investment boom in the shale-oil industry that’s now in the process of collapsing.

Apart from the specific example of the oil-investment boom, it’s possible that the QE program recently introduced by the ECB will end up having similar effects.

Yesterday I published a short piece dealing with the logical fallacies and self-contradictions in one of Ben Bernanke’s early blogging efforts. David Stockman has since published a more in-depth demolition of the same Bernanke post, titled “Central Banking Refuted In One Blog — Thanks Ben!“.

Stockman starts with Bernanke’s absurd assertion that because the Fed’s actions determine the money supply and the short-term interest rate, the Fed has no choice other than to set the short-term interest rate somewhere. He points out that as originally designed/envisaged, the Fed “had no target for the Federal funds rate; no remit to engage in open market buying and selling of securities; and, indeed, no authority to own or discount government bonds and bills at all.” Instead, “[the] entire purpose of the original Fed’s rediscounting tool was to augment liquidity in the banking system at market determined rates of interest. This modus operandi was the opposite of today’s monetary central planning model. Back then, the rediscount window at each of the twelve Reserve Banks had no remit except the humble business of examining collateral.”

According to Stockman: “…in 1913 there was no conceit that a relative handful of policy makers at the White House, or serving on Congressional fiscal committees or at a central bank could improve upon the work of millions of producers, consumers, workers, savers, investors, entrepreneurs and even speculators. Society’s economic output, living standards and permanent wealth were a function of what the efforts of its people added up to after the fact — not what the state exogenously and proactively targeted and pretended to deliver.”

Stockman’s point, in a nutshell, is that the machinations of today’s Fed represent one of the most egregious examples of mission creep in world history.

For anyone interested in economics and economic history there’s a lot of useful information in the Stockman post. For example, Stockman notes that during the 40 years prior to the 1913 birth of the Fed, “the US economy had grown at a 4% compound rate — the highest four-decade long growth rate before or since — without any net change in the price level; and despite the lack of a central bank and the presence of periodic but short-lived financial panics largely caused by the civil war-era national banking act.”

In fact, Bernanke’s short post and Stockman’s lengthy rebuttal make an interesting contrast. The former is gibberish, whereas the latter displays a good understanding of economic theory and history.

Former Fed chief Ben Bernanke now has a blog. This is mostly good news, because he will certainly do less damage as a blogger than he did as a monetary central planner. However, it means that he is still promoting bad ideas.

I doubt that I’ll be a regular reader of Bernanke’s blog, because his thinking on economics is riddled with logical fallacies. Some of these fallacies were on display in his second post, which was titled “Why are interest rates so low?“. Some examples are discussed below.

In the fourth paragraph Bernanke states: “The Fed’s ability to affect real rates of return, especially longer-term real rates, is transitory and limited. Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth — not by the Fed.” However, earlier in the same paragraph he states that the real interest rate is the nominal interest rate minus the inflation rate, that the Fed sets the benchmark nominal short-term interest rate, that the Fed’s policies are the primary determinant of inflation and inflation expectations over the longer term, and that inflation trends affect interest rates. Also, the Fed clearly attempts to influence the prospects for economic growth. So, by Bernanke’s own admission the Fed exerts considerable control over the “real” interest rate. In other words, he contradicts himself.

A bit further down the page he states: “…[the Fed's] task amounts to using its influence over market interest rates to push those rates toward levels consistent with the equilibrium rate, or — more realistically — its best estimate of the equilibrium rate, which is not directly observable.” And: “[the Fed] must try to push market rates toward levels consistent with the underlying equilibrium rate.”

So, having said in the fourth paragraph that the Fed has minimal control over the real interest rate and then contradicting himself by saying that the Fed controls or influences pretty much everything that goes into determining the real interest rate, he subsequently says that the Fed’s task is to push the market interest rate towards the “equilibrium rate”, which, by the way, is unobservable. Now, the so-called “equilibrium rate” is the REAL interest rate consistent with optimum usage of resources. In other words, he’s now saying that the Fed’s task is to push the REAL market interest rate as close as possible to an unobservable/unknowable “equilibrium rate”, having started out by claiming that the Fed doesn’t determine the real interest rate. I wish he would at least keep his story straight!

As an aside, the equilibrium rate is the rate that would bring the supply of and demand for money, capital and other resources into balance, which is the real rate that would be sought by the market in the absence of the Fed. In other words, if the Fed did its job to perfection, which is not possible, then it would be constantly adjusting its monetary levers to ensure that the market interest rate was where it would be if the Fed didn’t exist.

Bernanke goes on to say that today’s US interest rates aren’t artificially low, they are naturally low. Apparently, the Fed’s ultra-low interest rate setting is a reflection of a naturally-low interest-rate environment, not the other way around. This prompts the question: Why, then, can’t the Fed just get out of the way? To put it another way, if default-free nominal interest rates would be near zero and real interest rates would be negative in the absence of the Fed’s gigantic boot, then why can’t the Fed allow interest rates to be controlled by market forces?

It seems that Bernanke cleverly anticipated this line of thinking, because in a beautiful example of circular logic he says “The Fed’s actions determine the money supply and thus short-term interest rates; it [therefore] has no choice but to set the short-term interest rate somewhere.” That is, the Fed can’t leave the short-term interest rate alone, because if the Fed exists it will inevitably act in a way that alters the short-term interest rate. Clearly, Ben Bernanke can’t even imagine a world in which there is no central bank.

Ben Bernanke ends his post by putting aside all the talk in paragraphs 5 through 9 about the Fed’s efforts to control the real market interest rate and by reiterating his comment (from paragraph 4) that the Fed doesn’t determine the real interest rate. As a final piece of evidence he notes that interest rates are low throughout the world, not just in the US, but forgets to mention that central banks throughout the world are behaving the same way as the Fed.

If the free market can’t be trusted to set the most important price in the economy (the price of credit) and if government intervention can help the economy work better, then total government control of the economy must be the optimum situation. Therefore, if Keynesians were consistent they’d advocate for either Communism or Fascism.

In practical terms, Keynesian economics, which is the type of economics that dominates policy-making throughout the world today, involves using monetary and fiscal policy to ‘manage’ the economy. The overarching idea is that a free market is inherently unstable and that by modulating interest rates and something called “aggregate demand” the government can keep the economy on a smooth upward path. The fact that the results of putting this idea into practice have typically been the opposite of what was predicted doesn’t, according the Keynesians, indicate a major flaw in the underlying concept; it just means that the right people weren’t in charge.

Anyhow, the purpose of this post isn’t to argue against Keynesian economic theories, it’s to make the point that completely logical proponents of these theories would recommend a Communist or a Fascist political system. The reason is that these are the political systems that are most consistent with Keynesian economic theory.

As an aside, I’m applying the word “theory” very loosely to what the Keynesians believe, because what they believe is not encompassed by a coherent set of principles. It is more like an endless stream of anecdotes than a theory. Actually, it is a bit like Elliot Wave (EW) analysis. In the same way that EW analysis can always explain what happened in the past but is not useful when it comes to explaining the present or making predictions, Keynesians are always able to come up with an anecdote that explains why historical performance, while seemingly being totally at odds with their theories, fits perfectly into their theoretical construct after the special set of circumstances associated with the time period in question is taken into account. Since there are special circumstances associated with every period, Keynesians will always be able to come up with anecdotal explanations for why things didn’t pan out as expected. There is never any perceived need to question the underlying ideas.

Getting back to my point, consider the control of interest rates by a central planning agency called the Central Bank. All Keynesians (and pretty much everyone apart from the “Austrians”) believe this price-setting power to be not only legitimate and appropriate, but also necessary to facilitate the smooth running of the economy. OK, but given that the price of credit is influenced by a greater number of variables than any other price and would therefore be the most difficult price for a central planner to get right, if central planners can do a better job of setting interest rates than a free market then it stands to reason that central planners could do a better job than the free market of setting all prices. Therefore, anyone who claims that it is right that a central bank controls interest rates would, if they were being consistent, also claim that similar agencies should be established to control all other prices.

Now consider the Keynesian notion that the government should modulate “aggregate demand” to create a more stable economy. The thinking here is that 1) a free-market-economy periodically gets ahead of itself and then plunges into an abyss, 2) dramatic economic oscillations are caused by largely unfathomable changes in “aggregate demand”, with the devastating downswing the result of a mysterious collapse in “aggregate demand”, and 3) by adding and removing demand via its own spending, the government can smooth the transition from one boom to the next. In effect, the economy is treated as if it were a swimming pool that sometimes, for no well-defined reason, loses a lot of water, while the government is treated as if it were an institution capable of replenishing the water, even though in the real world the government has no water of its own.

If the economy really were like an amorphous mass of liquid that could be manipulated, via changes in government spending, in whatever direction was needed at the time to create the optimum outcome, then total government control of the economy would definitely work.

The upshot is that if uber-Keynesian Paul Krugman went on television and argued in favour of a Soviet-style system, he would be taking his economic principles to their natural political conclusions. In doing so he would be totally logical. He would be totally consistent. And he would be totally discredited.

This post is a slightly-modified excerpt from a recent TSI commentary.

The following chart shows that Commercial traders, as a group, were heavily net-long euro futures almost all of the way down (the blue bars indicate the net-position of the Commercials). Since the Commercials are reputedly the “smart money”, how could they have been so wrong?

The answer is that they weren’t wrong. Here’s why.

First, if large speculators and small traders are lumped together under a category labeled “speculators”, then the commercial net-position is simply the mathematical offset of the speculative net-position. If speculators, as a group, are net long to the tune of X contracts, then commercials, as a group, will be net short to the tune of X contracts. Second, in the currency market and also in the gold market (gold trades like a currency), speculators drive short-term price moves. This is evidenced by the fact that speculators (as a group) become increasingly ‘long’ as the price rises and then become increasingly less long, or short, as the price declines.

Due to the fact that every long position in the futures market must be associated with a short position (it’s a zero-sum game), speculators cannot increase their long exposure in the futures market unless commercials increase their short exposure by exactly the same amount. To put it another way, it would not be possible for speculators to drive the price upward by going ‘long’ if there weren’t commercials prepared to take the other side of the trade and ‘go short’, and it would not be possible for speculators to go short or liquidate their long positions unless commercials were prepared to go long or exit their short positions.

Looking at it from a different angle, it would not be possible for commercials to hedge their long exposure in the cash market by going short in the futures market unless speculators were prepared to do the opposite (go long) in the futures market, and it would not be possible for commercials to hedge their short exposure in the cash market by going long in the futures market unless speculators were prepared to do the opposite.

Both commercials and speculators are needed to establish a liquid futures market. The speculators create the opportunity for commercials to do what they do, which is to hedge by selling into strength and buying into weakness, and the commercials create the opportunity for speculators to do what they do — speculate on price direction.

That’s why the relentless complaining in some quarters about commercial short selling of gold futures and other precious-metals futures is so silly. Complaining about a large commercial net-short position is the same as complaining about a large speculative net-long position, because they are two sides of the same coin — you can’t have one without the other. Limit the extent to which the commercials can go short and you also limit the extent to which speculators can go long.

Getting back to the euro futures market, it’s not correct to say that the commercials have been wrong, because a substantial commercial net-long position in the futures market does not imply that the commercials are betting on a rising euro. In general, the commercials don’t bet on price direction; that’s what speculators do.

In the euro futures market the commercials weren’t wrong, but it’s fair to say that speculators, as a group, were very right all the way down. That’s unusual. The Commitments of Traders (COT) situation is nothing more than a sentiment indicator, and it’s rare for speculative sentiment to reach either a bullish or a bearish extreme and for the price to continue in the direction expected by speculators with almost no interruption for many months thereafter. So rare, in fact, that I can’t recall ever seeing it before.

Considering the overall commodity backdrop, the recent sharp rebounds in base metal prices and the copper price in particular are both interesting and incongruous.

Under the heading “Copper Bottom” in a TSI commentary a few days ago I discussed last week’s upward reversals in the copper price and the Industrial Metals Index (GYX). I assumed, at the time, that last week’s price gains were partly due to the risk that supply would be disrupted by the blockade of Freeport’s massive Grasberg copper mine in Indonesia, and therefore that the removal of this risk at the end of last week would result in some of the price gains being given back this week. Strangely, however, the copper price spiked higher at the beginning of this week and briefly challenged the bottom of the major $2.90-$3.00 resistance range before pulling back to the high-$2.70s (a few cents above last week’s closing level). It seems that games are being played by large-scale participants in this market.

I plan to write some more about copper later this week at TSI, but at this time I wanted to point out that the bearish participants in the copper market have relative valuation on their side. As illustrated by the following charts, the copper price is presently at a multi-decade high relative to the CRB Index and at its highest level since 1998 relative to oil.

A recent Mineweb article comments: “…it does seem to be odd that given the huge undisputed flows of physical gold from West to East that the gold price has performed so badly over the past few years.” Actually, no, it doesn’t seem odd at all, since the flow of gold from sellers in one part of the world to buyers in another part of the world suggests nothing about the price. A net flow of gold from “West” to “East” is not inherently bullish and a net flow of gold from “East” to “West” would not be inherently bearish. Through bull markets and bear markets, some individuals, parts of the market and regions of the world will be net buyers and other individuals, parts of the market and regions of the world will be net sellers. Anyhow, the main purpose of this post isn’t to rehash the concept that the volume of gold being transferred between sellers and buyers contains no information about the past or likely future change in the gold price, it’s to make the point that gold’s price must bear some resemblance to the prices of other useful commodities.

Due to its nature, including its traditional role as a store of value, gold is capable of trending upward in price while most other commodities are trending downward in price. However, there are limits that have been defined by the historical record.

One of these limits is 26 barrels of oil. The historical record tells us that gold is very expensive relative to oil when the gold/oil ratio moves above 26. Even at the crescendo of the 2008-2009 Global Financial Crisis, when the fundamental backdrop was as bullish as it ever gets for gold relative to oil, the gold/oil ratio didn’t rise above 28. And yet, in January of this year the ratio got as high as 29. This was the highest since 1988 and not far from a 40-year high.

In other words, gold was so expensive relative to oil earlier this year that it would have made no sense to expect significant additional gains in the US$ gold price without a substantial recovery in the US$ oil price.

It’s a similar situation with many other commodities. For example, the following two charts show that a proxy for agricultural commodities and a proxy for commodities in general came within spitting distance of their respective 2008-2009 financial-crisis lows last week. Given that gold is presently trading about 70% above its 2008-2009 low, the appropriate question isn’t “why has gold performed so badly?” it’s “why has gold held up so well?”. I think it’s because there are plenty of well-heeled people in the world who are aware of the eventual consequences of the current monetary experiments and are buying gold as a form of insurance.

My point is that although some of gold’s most important fundamental price drivers are unique to gold, the gold price should never become completely divorced from the prices of other useful commodities. Considering the prices of other commodities, it would make no sense for the gold price to be substantially higher than it is today.

During 2001-2011, buying exploration-stage gold stocks with large in-ground resources at low per-ounce valuations worked well. It worked well because ‘the market’ was often more concerned about leverage and quantity than economic viability and quality. Since 2012, however, buying an exploration-stage gold-mining stock on the sole basis that owning the stock gave you relatively low-cost exposure to a lot of in-ground gold has generally not worked well, to put it mildly. For the past three years, one of the most important rules to be followed by value-oriented speculators in gold-mining stocks has been: if it ain’t economic, it ain’t worth anything. This rule will probably apply for at least two more years.

Here’s a specific example to illustrate how the per-ounce market value of an exploration-stage gold-mining stock can be very misleading.

At the closing stock prices on Tuesday 17th March, I estimate that the 1M ounces of Measured-and-Indicated (M&I) in-ground gold owned by Dalradian Resources (DNA.TO) were being valued by the market at around US$80/ounce and that the 15.7M ounces of M&I in-ground gold owned by International Tower Hill Mines (THM, ITH.TO) were being valued by the market at around US$2/oz (taking into account the net cash of the companies). This simple comparison suggests that THM offers much better value than DNA.TO, but this isn’t the case.

Based on the economic studies that have been completed to date by each company, I think that DNA offers the better value. The reason is that DNA’s deposit is economically robust at $1200/oz whereas THM’s deposit would require a gold price of more than $2000/oz just to become economically viable. Any gold deposit that currently needs a gold price of at least $2000/oz to become viable will never be worth anything, because by the time gold rises to $2000/oz, which it very likely will within the next 5 years, the deposit that needed a price of $2000/oz to be viable in early-2015 will probably need a gold price of $2500-$3000/oz to be viable.

Now, it’s certainly possible that THM will come up with a totally different mine design that enables the project to become viable at a much lower gold price. However, that’s a long shot. Based on what’s known today about the economics of THM’s Livengood project, the project’s appropriate per-ounce valuation is zero.

I’m not saying that buyers of THM won’t make money. THM and other gold stocks with blatantly uneconomic deposits will be bought during gold rallies and are capable of delivering large percentage gains in quick time. For example, THM’s stock price more than tripled from its Q4-2013 bottom to its Q1-2014 peak and almost doubled from its December-2014 bottom to its January-2015 peak. That is, stocks like this can still work well as short-term trades, despite the reality that their mining assets aren’t worth anything.

The important thing is not to kid yourself that an extremely low per-ounce valuation necessarily means that you are getting an excellent deal.

An article by Wolf Richter contains some interesting charts showing the response of the US oil industry to the huge decline in the oil price. Two of these charts are displayed below.

The first chart shows that there has been a collapse in the rig count (the number of drilling rigs in operation), which is not surprising considering the magnitude of the price decline. It also shows that the daily oil production rate has continued to climb and has just hit a new all-time high, which is a little surprising.

The second chart shows that with flagging oil demand and the on-going upward trend in oil supply, the amount of oil in storage in the US has moved sharply higher and is now about 21% above the year-ago level.

Can the oil price bottom while supply/demand fundamentals are becoming increasingly bearish? The answer is yes, because the market is always trying to look ahead. However, at this time there is no evidence in the price action of a bottom.

A WSJ blog post by Josh Zumbrun contains charts suggesting that an upward reversal in US consumer prices is underway. The evidence is in data compiled by the “Billion Prices Project”, which “scrapes the Internet daily to capture changing prices online and has often foreshadowed subsequent changes in official price indexes.“

Here is one of several interesting charts from the above-linked post. The “PriceStats” index is calculated by the Billion Prices Project. Based on past performance, the turn that’s showing up in the PriceStats daily index probably won’t be captured by official measures of “inflation” until reports in late April.