Photo: Bloomberg TV
The world’s central banks aren’t doing enough and the proof is in the “energy cliff”, Jefferies’ David Zervos says in a note to clients this morning.”If the worlds’ central banks are so easy, why is energy collapsing?” he asks. “And how can gold be unchanged year-to-date?”
Simple: they’re not, or commodity prices would not be flat lining.
Zervos cites the XLE (energy ETF) which is down nearly nine per cent year-to-date, and gold prices which are little changed since January.
These downward trends in the energy and commodity complex should be a warning sign to anyone with a “price stability” mandate. There is a hefty disinflation trend developing and given the amount of debt in the system – and the weakness of global aggregate demand – any signs of significant disinflation should be cause for grave concern. We cannot mix a lot of debt with a lot of deflation – that will be the end of us!! That is Irving Fisher 101!
And while it may not be “common wisdom” to assert that our global central banks are being too tight, the proof is in the prices. A large sustained drop in energy costs at this stage of the reflationary game is VERY unsettling. It is the surest sign that monetary policy is too tight!
Below, the year’s movement in the Energy Select Sector ETF.
Photo: Google Finance