Monday, February 6, 2012

6 Feb 2012

As I said I was going to, I was able to mostly recreate the Shadowstats CPI index using some math - it is not just adding a percentage because you can see the gap increased with time.  I had to do it to use it to deflate other values.  I will not send the data out of respect to John Williams.  It is not perfect though.

This is what I wanted to adjust to Shadowstats numbers.  It doesn't give us much as I hoped, but does show elongated times where it was below zero and didn't immediately lead to a recession like the official one did.

This is the raw index that I backed out after I got the real rate of change for the CPI.  This is amazing.  It is almost pacing credit growth (MZM) perfectly.  Shocker!  As you can see, the narrowest form of money, monetary base, has left everything in the dust as the Fed tries to prime the economy.

To show how well the MZM and the CPI correlate, I created this.  This actually might have some predictive value.  The idea here is that when MZM outpaces price increases (positive numbers) the new money actually buys more (anything - gas, Dow, food) and creates the illusion of a growing economy quite well.  The opposite is true when the creation of new credit falls behind the increases of prices, each incremental amount of credit purchases less goods.  I am still trying to interpret the peaks and the measures of it compared to the stock market. 

Check out the second from the top.  Truly amazing levitation.  Either we have found the Sorceror's stone and are converting everything we own into gold, cured cancer, and the world's energy problems or this will not end well as everyone ends up on the same side of the boat.

The medium term has caught up and has fallen under the same spell.

Sorry if this looks incredible ugly and disjointed.  I copied a square from around our current rally and placed it near strong rallies of this index the past four years.  White squares outline the copies placed near the beginning of strong rallies in the past.  The only one that has substantial length on it was the March 09 rally which the difference is highlighted in yellow.

"The market can stay irrational longer than you can stay solvent."  Ain't that true?
 John Maynard Keynes

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