Re-flation Danger

From Bloomberg:

S&P/Case-Shiller Composite 10 August 157.93 September 158.61
S&P/Case-Shiller Composite 20 August 146.00 September 146.51

Home prices continue to improve according to Case-Shiller data. The report's index for the top 10 cities rose 0.4 percent in September, on the low side of what is a long strong string of improvement. Year-on-year rates continue to improve, now down to single digit contraction at minus 8.5 percent for the 10 index. A look at the quarter-to-quarter rate shows steady improvement, at plus 3.1 percent for both the third and second quarters. Improvement is especially evident in the West and Florida, high flying areas hit hardest by the housing downturn. This report, noted for its vigorous methodology, continues to contrast with price data in the existing home sales report where contraction, though slowing a bit, is still underway. New home sales data for October will be posted tomorrow. Prices in this report did show improvement in September.


Is the Fed succeeding in their goal of re-flation of the housing market.
If so, there is a dark side to their success - much higher inflation.
We need more data points before we can get a clear reading on this phenomenon. I suspect that deflationary forces will overwhelm this attempt at reflation, but who knows, with Bernanke at the printing press it is still a possibility.

Reflation is one of the negative aspects of negative or zero interest paid on treasuries.
Another is the carry trade developing in the US dollar. When it reverses, as we have argued before, watch out. If the dollar rises, stocks, oil, and commodities will be clobbered.