Guest post by Azizonomics.
I try to read all sides of the economics blogosphere, and try and grasp the ideas of even those who I would seem to radically disagree with.
One thing that the anti-Fed side of the economics blogosphere seems to not fully appreciate is the depth of disappointment with Ben Bernanke from the pro-Fed side. For every libertarian post bemoaning Bernanke’s money printing, there is a Keynesian post bemoaning Bernanke for not printing enough. Bernanke, it seems, is tied to everybody’s whipping post.
And in fairness to the pro-Fed side, the data shows that the Fed is not printing anywhere near as much as its own self-imposed interpretation of its mandate demands. (Of course, I fundamentally disagree that price stability should be interpreted as consistent inflation, but that is an argument for another day).
Scott Sumner notes:
Recall that the Fed tries to keep inflation close to 2.0% and unemployment close to about 5.6% (the Fed’s current estimate of the natural rate.) One implication of the dual mandate is that they should try to generate above 2% inflation during periods of high unemployment, and below 2% during periods of low unemployment.
In July 2008 unemployment rose above 5.6%, and it’s averaged nearly 9% over the past 46 months. So the Fed’s mandate calls for slightly higher than 2% inflation during this 46 month slump. Last month I reported that the headline CPI had risen 4.6% in the 45 months since July 2008. Now we have the May data, and the headline CPI has gone up 4.3% in the 46 months since July 2008. So the annual inflation rate over that nearly 4 year period has fallen from a bit over 1.2%, to 1.1%.
The fear over Spain returned yesterday. Spain’s risk premium shot to a new record high on Friday after officials in Valencia formally asked the central government for funds to help pay the region’s mounting bills, including the high prices of prescription drugs. Yields soared and spreads exploded to 610 points over the German bund. Ibex collapsed almost 6 %. All this is taking place, while the politicians still live in total denial. From El Pais.
At first, Montoro said that he wasn’t aware that Valencia government officials had announced about an hour earlier that they would be the first region to formally tap into the Regional Liquidity Fund (FLA), a system that was created just over a week ago that allows cash-strapped regions to access financing but under stringent guidelines.
“Valencia is not getting a rescue,” said deputy regional premier José Císcar during his own news conference. “We are tapping into a mechanism of financing that more regions will be using in the coming days, but without any more adjustments.”
After first denying it, Montoro explained that the region will tap into FLA and would indeed “be obligated to follow new conditions. (full article here)
Meanwhile, Madrid is under siege by the anti austerity protesters. Espana, everything under the sun. To be continued, as the big elephant now starts moving. The question is whether Rajoy is “cutting too far and too fast’. Video below.
There was a point in the history of VIX and More that I gave serious consideration to a regular feature in which I unveiled “Strange and Unusual Charts” that presumably had, apart from their novelty, the ability to shine some new light on at least one corner of the investment universe. That being said, I have always had an affinity for presenting charts that show unusual ratios, non-standard time frames and such and while the likes ofChart Porn and Unusual Chart of the Month: VXO and RVX did get me started down a slippery slope, I never quite fell into the habit of tilting wildly at windmills on the plains of StockCharts.com and their brethren.
One rabbit hole that I was definitely the first down and pursued the most aggressively was the VIX:VXV ratio, which one blogger insisted was sure to ultimately be my investing legacy. In all fairness, for the first year following the launch of VXV (essentially a 93-day version of the VIX), the VIX:VXV ratio performed as if it was going to make all other indicators obsolete. Of course, then the financial crisis of 2008 hit and the ratio began sprouting warts all over. While I talk about the VIX:VXV ratio only rarely in this space nowadays, the general idea of which the VIX:VXV ratio is just one instance of what has become one of the main themes of this blog: the idea that an understanding of the VIX futures term structure is critical to understanding the valuation of and trading opportunities available for all VIX products, including futures, options and exchange-traded products.