David Rosenberg wrote:


"We are still astounded over all the inflation calls out there

And, as the latest ML fund manager survey showed, not one investor is bullish on
bonds: Many investors are confusing absolute with relative price shifts and
believe that commodities are the only source of the inflation process. This is pure
bunk, in our view. We had plenty of cyclical bear markets in bonds (early and late
1980s; 1994 and 1999) when commodities were still in their secular bear markets.
Those periods cited in parentheses were notable for booming domestic demand
and tightening labor and product markets. Clearly that is not the case today. And
then there are those that claim that the CPI is being understated. No, no, no. It is
actually overstated.
Look at the real world – the owners’ equivalent rent index is running at +2.6%, but
anyone who follows KB Homes knows that home prices are actually down 17%
(and net orders have collapsed 42%). The Manheim index of auto prices sank
0.8% MoM in May and is down 6.3% YoY – the most negative trend in five years.
But in the official CPI data, auto pricing is shown to be just -0.3% on a YoY basis.
So guess what? If we substitute the KB home price print and the Manheim auto
transaction price index for what the BLS uses, the headline inflation rate is
running at -4% as opposed to +4%. Add to that the department store inventory
price index which is now running at -0.6% YoY – is that a well publicized retail
sector deflationary statistic?"


The question is does the retail idea that inflation is uncontrollable become a self fulfilling prophecy?