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Inflation Estimates (PCE) *Totally* Overshadowed By Benchmark Income Revisions, And The (Deflationary) Implications of Them

Of course inflation numbers, the PCE Deflators for June 2021, but first in the same report as those the BEA also released its various data on income and…

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This article was originally published by Alhambra Investment Market Research

Of course inflation numbers, the PCE Deflators for June 2021, but first in the same report as those the BEA also released its various data on income and spending. In the former category, income, we’ll find a big reason why this deviation for consumer prices most likely ends up as temporary. And before we can get to that, big benchmark revisions.

Like any other statistics-keeping agency, the BEA issues high frequency data (monthly PCE like this along with more comprehensive quarterly figures such as GDP) based on manageable survey sizes. The higher the frequency, the smaller the samples, the less accurate in a statistical sense.

Not satisfied with this setup (good on them), these agencies endeavor to supplement high frequency data taking their time with larger, more complete sampling saved for annual (and more-than-annual) benchmark revisions. It’s a way to check their prior figures to see if the short run numbers can be verified by more complete work.

Most of the time benchmark changes are small, practically unnoticeable. Other times, oh boy. This is one that goes more toward the latter category and it’s a very important series being revised. Even the Economists at the NBER use this particular one, of only a few, when adjudicated the business cycle.

Real Personal Income excluding Transfer Receipts, a BEA data series which comes along under the Personal Income and Spending heading, as the name states the estimates attempt to tally up essentially all forms of private income. And only private sources.

Wages and salaries are the majority, then included proprietor and other forms of capital income, too. What gets left out are transfer payments from the government since what we’re trying to do here is get a sense of underlying economic conditions not directly attributable to the non-economic political decisions made largely by Uncle Sam’s minions.

These July 2021 benchmark revisions go back all the way to 1959; meaning, the entire series was recalculated. The vast majority of those changes were small, barely noticeable therefore not important. They don’t start really showing up until around 2015 and 2016 (that near recession hardly anyone knew was going on).

But it’s really 2017 and onward (see: below) where the difference begins to truly develop. Globally synchronized growth wasn’t as growth-y as had been said at the time. The bond market, you might recall, was never really fooled.

I’ve already stated my case about these earlier time periods being redrawn unfavorably, and while that’s important there’s nothing more that needs to be added here.

But 2021, on the other hand, this is definitely a huge “oh boy” revision. See for yourself:

This might be one of the biggest downward revisions I’ve ever observed. More to the point, and what’s concerning, what it suggests about the current state of the economy and its ongoing maybe struggling rebound. Really struggling.

These new estimates completely redraw the private economy’s ability to create income not in some distant, long-forgotten past but right now – which, as you know, is everything. Outside of Uncle Sam’s helicopters, income economy-wide we now see had apparently stagnated for a truly stunning eight-month period; two-thirds of an entire year which were purported to have been the absolute best two-thirds anyone had ever seen (the inflation hyperbole).

Undoubtedly, this will be blamed on the 2021 vintage LABOR SHORTAGE!!! which declares any economic weakness a benign product of that same federal government infusion. Unemployed workers are too lazy, too fattened by Treasury checks to get off their butts and work. Employers are desperate to hire, apparently, and therefore economic circumstances (and the economic accounts drawn from them) would look so much better if the subsidies subsided.

Except, they did. This is June 2021 data. But really it’s about the viability of that other story; the LABOR SHORTAGE!!! has the media and its tendency to hype up anecdotes while, just like 2018 when we last went through this, the data keeps indicating a more fundamental problem in macro.

As we’ve been documenting over the past few months, it isn’t one thing or another. And in this case of private economy income, there are any number of labor market-related estimates which all at the same time are displaying a potentially serious gathering slowdown.

Why would that be? Because government “stimulus” doesn’t actually stimulate. It can certainly move the needle and produce a short run burst of activity, yet once it runs its course it’s like it never happened (anyone remember the ARRA?) What’s left is what was there before, and if what was there before looks like these revised private income figures, then the potential for slowdown goes way up (see: yields) while the probability for an emerging downside truly begins to emerge.

To put it bluntly: we’re not getting sustained inflation from private income that looks like this. Temporary is all it can be, therefore why the yield curve (globally) has moved to downgrade inflation probabilities (which never got very high to begin with) since the heavily-artificial US (goods) economy has been the only real bright spot.

The PCE Deflator is already made stale before we ever get to it.

And even then, there’s more leaning toward transitory than not. For the first time, this one managed to disappoint, so to speak, compared to the CPI estimates. The past two months, both had been egregious. The CPI maintained that for June. Acceleration in this latest PCE price series, however, has seriously diminished, most of all in the core figure.

The overall yearly change in June 2021 was one-tenth of a percent shy of 4% – the highest since 2008. That was only 3 bps faster than May’s 3.96%, and only 39 bps above April’s 3.60% (I should point out that all these inflation estimates were also subjected to benchmark revisions, though the new results weren’t worth spending any time detailing).

The core rate came in lower than expected because the monthly rate of change has itself changed; decelerating also from a peak rate in April. The past two months, while that monthly pace remains elevated, it is clearly moving in the direction of, sorry, “transitory.” Even as the year-over-year change was again the highest in nearly thirty years.

Not only that, as I’ve pointed out recently, comparing the core PCE Deflator with a trimmed mean version (put together by the Dallas Fed) specifically points out itself that this three-month surge or price deviation (for lack of a good and useful term; whatever we call it, it isn’t inflation) continues to be very narrowly constructed.

There has never been a such a huge discrepancy between these two series which both attempt to get at the same thing from different vantage points. Something so highly unusual almost always turns out to be temporary.

So, does the trimmed mean (meaning overall consumer prices in actually broad-based fashion) get up and go from here, eventually converging upward with the core and headline US inflation rates? Already, those are outliers compared to inflation estimates the world over – including, as I’ll get to, the latest from Europe.

In other words, the big inflation estimates are true outliers; isolated geographically as well as when compared within their own details. The big story, the much bigger story, however, is revised income being produced (or not, really) by the private economy that seems to have been hung up apart from the federal government for a suspiciously, alarmingly lengthy period of time.

All of these together only raise the same prospects for disinflationary economic disappointment ahead that has been increasingly added to global bond (price) premiums. There is no mystery here, folks.



Looking for the Next Big Crypto to Explode in 2021? Try These 5 Coins

Bitcoin (CCC:BTC-USD) launched on January 3, 2009. The oldest and largest cryptocurrency, prices of this coin have swung wildly since its inception. But…

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Bitcoin (CCC:BTC-USD) launched on January 3, 2009. The oldest and largest cryptocurrency, prices of this coin have swung wildly since its inception. But last year, Bitcoin experienced explosive institutional and retail interest in the space alongside the broader crypto world. Now thousands of altcoin investors are betting that they can pick the next crypto to explode.

Even though Bitcoin recently underwent a correction, trading volume remains strong between $42,000 and $50,000. Of course, that is very expensive, considering the median household income is $62,843 right now. Yes, you can invest in Bitcoin through PayPal (NASDAQ:PYPL) and Square (NYSE:SQ). But the crypto is still expensive when you compare it to several altcoins out there.

Plus, there are over 7,000 cryptocurrencies you can choose from for your portfolio. When it comes to making big gain, it’s easier for a coin to gain 100x if you’re starting from a smaller size, rather than chasing after a rocket that’s already taken off.

Here are 5 coins that could be the next big crypto to explode:

When investing in any crypto, remember to check if there is an inherent utility to the coin. Even cryptos meme coins need developers to crank out regular updates to stay relevant.

The Next Big Crypto to Explode: Ethereum (ETH-USD)

Source: shutterstock

Ethereum is a decentralized, blockchain-based software platform, and its cryptocurrency is called Ether or Ethereum. Ether is the world’s second-largest cryptocurrency and has held this position for a long time now. Recently, Ethereum has been in the news for its hard fork “London upgrade,” a major revamp for the platform. The hard fork comprises five Ethereum Improvement Proposals (EIPs). The upgrades are important, but the most notable is EIP 1559, which reduced Ether supply with every transaction.

In addition, the upgrade will lead to the Ethereum network handling more transactions per second, improving scalability, and bringing down transaction fees. Another major benefit is expected to decrease the total number of ether coins in circulation, making it a deflationary cryptocurrency. In the run-up to the upgrade, Ethereum did very well. However, considering the next upgrade will occur at the end of 2021, there is an upside here that you can exploit.

Binance Coin (BNB-USD)

A Binance Coin (BNB) sits in front of trading charts.Source: Shutterstock

Binance is one of the most successful crypto exchanges globally when ranked by trading volumes, which is why BNB, its native cryptocurrency, is soaring.

Much like Bitcoin, the thing to like about Binance Coin is the hard limit on the total number of tokens in circulation. It has a strict maximum limit of 200 million BNB tokens. As a result, the token price has risen exponentially for the year thus far.

Binance uses around one-fifth of its profits every quarter to eliminate or “burn” BNB tokens. The reason for destroying or “burning,” coins makes sense: it increases the worth of the remaining tokens.

One of the biggest reasons to be optimistic about Binance Coin is its many use cases. Initially, it was developed as a utility token for discounted trading fees in 2017. But now, you can use it to make travel payments, financial services, and entertainment, among others.

The driving force behind any token is its usability and that’s why BNB will be the next crypto to explode.

Tether (USDT-USD)

A concept token for the Tether (USDT) cryptocurrency.Source: DIAMOND VISUALS /

Stablecoins are a new breed of crypto gaining prominence. They are a less volatile alternative to Bitcoin because they are linked to an asset like the U.S. dollar, as is the case with Tether. The cryptocurrency allows you to transact in traditional currencies and avoid the complexities of digital currencies.

Tether is designed to bridge fiat currencies and cryptocurrencies, allowing users to transfer other cryptocurrencies back to U.S. dollars in a less complex, faster manner. Tether has a 1-to-1 ratio with the U.S. dollar for valuation.

Consequently, the altcoin is less speculative than popular cryptocurrencies like Bitcoin and Ethereum. For crypto investors who want to avoid the wild swings that are part and parcel of this space, Tether should be right up your alley as the next crypto to explode.

Monero (XMR)

XMR logoSource: Wit Olszewski /

Monero is very popular these days because it has the ability to anonymize users. Ring signatures and stealth addresses help in accomplishing this task. Due to the technology at its disposal, the privacy-focused Monero cab hides the identities of the sender and the receiver.

The only problem some might have with Monero’s approach is that privacy isn’t really an option. It enforces anonymity at a fundamental level. That may rub certain people the wrong way.

But there are several people out there who love this feature and want to protect their identity online since this was one of the main initial benefits of blockchain technology — to remain completely anonymous.

Algorand (ALGO-USD)

Algorand logo in light blue against a simple dark-colored, futuristic-looking backgroundSource:

Algorand investors have enjoyed blockbuster returns following an announcement that El Salvador would establish blockchain infrastructure using Algorand.

Italian computer scientist Silvio Micali is the man behind the platform. ALGO-USD has positioned itself as a competitor to Ethereum. One of the biggest things going for it is the proof-of-stake proofing algorithm, which is less energy-intensive to run. One of the main criticisms against Bitcoin is that it consumers a lot of energy. Through using a proof-of-stake mechanism, ALGO-USD sets itself apart from the rest of the altcoins out there.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Faizan Farooque is a contributing author for and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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Use Caution As the Pullback Could Continue for Ethereum

After making it back near $4,000 per token, Ethereum (CCC:ETH-USD) prices have pulled back in the past few weeks.
Source: shutterstock
Mainly, the pullback…

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After making it back near $4,000 per token, Ethereum (CCC:ETH-USD) prices have pulled back in the past few weeks.

Source: shutterstock

Mainly, the pullback was a result of the crypto flash-crash experienced on Sept. 7. But profit taking by traders who bought the popular altcoin before it surged due to the launch of its London Hard fork may have also played a role as well.

No matter the reason, one thing’s for sure. Don’t assume this latest pullback will be short-lived. Yes, with its increasing utility and institutional interest, Ethereum’s chances of hitting $4,000 again look high. So too, do its prospects of ultimately rallying to five-digit price levels.

Yet such a move may take time to happen. For now, with the concerns with crypto overall I’ve highlighted previously still on the table, and the likelihood that this rising uncertainty compels more traders to take profit, you can expect Ethereum to remain on its current downward trajectory.

Trading for around $3,100 as of this writing, a move back below $3,000 may be in the cards. For cryptocurrency investors with a long-time horizon, possible short-term volatility may not be a big issue. Buying now may still be worthwhile.

If you’re looking for a quick profit, however, you should hold off for now.

It May Be a While Before Ethereum Surges Again

Rival altcoins like Cardano (CCC:ADA-USD) could eventually give Ethereum a run for its money. But for now, ETH remains the main crypto used in DeFi, or decentralized finance, transactions. Recent and upcoming improvements could help it hold onto this dominance. I’m talking about last month’s hard-fork upgrades, plus its planned switch from running on proof-of-work (PoW) to running on proof-of-stake (PoS).

This bodes well for prices in the long term, assuming DeFi continues making its way toward getting critical mass, and starts to truly disrupt the traditional fiat-based financial system. What also bodes well for Ethereum is increasing enthusiasm for it by institutional investors.

For instance, growth stock guru and Ark Invest head Cathie Wood has become more vocal in her bullishness on Ethereum. But unlike with Bitcoin (CCC:BTC-USD), which she predicts will hit $500,000 within the next five years, Wood has not provided a definite number as to where this crypto is headed during the same timeframe.

Nevertheless, one crypto market commentator has taken her recent shilling of ETH, along with the large amount of Ethereum leaving exchanges, as a sign it’s fast heading to $10,000 as institutional investors dive into it with full force.

So, does this mean it’s high time to buy the dip, locking down a position before it makes a quick trip to five-digit prices? Not so fast! While there may be a path for it to ultimately hit such levels, it’s likely not happening soon.

Still Plenty in Play to Send It Back Below $3,000

Investors bullish on Ethereum may be on the money about its eventual move to substantially higher prices. Yet in the short term, there’s just too much going on to push it lower. First, there’s the increasing call for crypto market regulation. Admittedly, this is an existing issue, and one market participants have so far ignored.

Even so, that may not continue to be the case. At first, possible regulation by the U.S. may appear to be a sign that this asset class is ready for prime time, to be followed by a large inflow of institutional money. But what if the point of increased regulation is to prevent crypto/DeFi from growing in popularity?

Take, for example, the efforts by the Securities and Exchange Commission to prevent Coinbase (NASDAQ:COIN) from launching its Coinbase Lend service. It remains to be seen whether increased scrutiny of crypto products will affect usage growth for DeFi. If it does? This may challenge the idea that increased

Along with regulatory risk, there’s the risk that, if markets get rocky, speculative assets like cryptocurrencies will fall in price as well. With both uncertainties hanging over it, don’t be surprised if traders continue to take profit, sending Ethereum back below $3,000.

Only Buy Today If You’re in For The Long Haul

In the long run, ETH-USD may have a road to $10,000 and above. If DeFi takes off and institutional investors allocate more capital to this top altcoin, it may eventually make it to five-digit price levels. Just don’t expect to happen in a matter of months. At least until the issues weighing over it today clear up or play out.

As regulatory and market risks remain, traders looking at it as a short-term play should be cautious with Ethereum. Holding it through uncertainty could pay off on the other side.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Thomas Niel, contributor for, has been writing single-stock analysis for web-based publications since 2016.

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The dot plot thickens

All eyes on FOMC meeting FOMC day finally arrives with markets already being buffeted by a variety of inputs. Although I expect the FOMC to not give too…

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All eyes on FOMC meeting

FOMC day finally arrives with markets already being buffeted by a variety of inputs. Although I expect the FOMC to not give too much away on the tapering front, the best we can expect I believe is a signal that they will make a firm decision on whether to start at the November meeting, we could in for a surprise on the latest dot plot. The dot plot, which charts FOMC members’ timelines for rate hikes or cuts could see more members moving hiking expectations into 2022. We may not get a taper tantrum lite from tapering comments, but we could from a more hawkish dot plot. I’ve long given up hope that US bond yields will react materially, but we could see a further extension to the US dollar rally and equities and commodities probably won’t have a good day at the office.

It is a busy day for central banks anyway with the Bank of Japan announcing its latest policy decision this morning. Like Indonesia yesterday, I expect no change from the BOJ, with a new prime minister to be chosen next week and an election to hold in the next couple of months. They may downgrade growth expectations and hint that more stimulus is ready should the economy slow, which should be supportive of Japan equities. Paraguay sneaked in a 0.50% rate hike this morning Asia time, and Brazil this evening, after the FOMC looks set to hike rates by another 1.0%. With Russia also on a hiking path, parts of the EM world could become attractive carry propositions if Mr Powell keeps the dovish hat firmly on. Turkey should be hiking, but that is a quick path to unemployment if you are the central bank governor.

Mainland China returns to work today although Hong Kong markets are on holiday in a game of tag. China has left its one and five-year Loan Prime Rates unchanged at 3.85% and 4.65% respectively as expected. Another RRR cut, probably early in Q4, is my favoured easing path for the PBOC. With one eye on the Evergrande saga, which has captured the world’s attention, the PBOC has injected a chunky liquidity injection today of CNY 120 billion via the 7 and 14-day repos. Whether that is enough to soothe frayed nerves in China remains to be seen.

What has soothed nerves is Reuters reporting that Evergrande’s Hengda Real Estate unit will make coupon payments on onshore bonds that was due tomorrow. That saw an immediate jump in the risk-correlated Australian and New Zealand dollars, and some buying coming into early Asian equity markets. However, the Evergrande story will keep on giving with the Financial Times reporting yesterday that Evergrande issued wealth management products sold to Chinese retail investors were used to plug financial holes in various subsidiaries. Concerns also swirl around its stake in a regional Chinese bank and whether it has been borrowing from itself effectively. The coupon payment story is likely only a temporary reprieve with no signals from the Chinese government over what steps, if any, it will take to assist an orderly wind down or restructuring.

US markets are contending with their own challenges in addition to the FOMC. The House of Representatives passed a vote to extend the US debt ceiling until after next year’s mid-term elections and will vote on a full bill today. It will likely be dead on arrival in the US Senate though, with Mitch McConnell as much as saying so, forcing the process into reconciliation to pass. The tiresome gamesmanship over the debt ceiling from both sides should be another reason for the Fed to stay on the cautious side of things this evening.

Natural gas prices continue to make headlines with European gas prices having climbed by over 400%. Most of the noise is around the 10-20% of gas that producers keep for the spot market and here it seems Asia is winning the bidding war. Gazprom is reluctant to increase export volumes to Europe above contracted amounts, meaning no spot gas. Bemusingly, signals from Russia suggest that a quick approval and certification of the new NordStream2 pipeline could result in an immediate increase. All Europe and Asia, to a lesser extent, can do, is hope for a mild winter at this stage. Europe is paying the price for its naivety in tying energy security to Russia in the hope that it would be a reliable partner. That’s like me turning structurally bullish on cryptocurrencies and starting to call them an investable versus tradeable asset class.

For today, Evergrande has knocked the FOMC meeting into second place in the attention of Asian investors. I expect regional markets to be buffeted by headlines emerging from that situation and the price action after the coupon payment news suggests dip buyers hungrily await in everything if even tenuous positive news arrives.

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