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It’s Game Over for the Fed—Expect a Monetary “Rug Pull” Soon…

It’s Game Over for the Fed—Expect a Monetary “Rug Pull” Soon…

a Monetary “Rug Pull”

You often hear the media, politicians, and financial analysts casually toss around the word “trillion” without appreciating what it means.

A trillion is a massive, almost unfathomable number.

The human brain has trouble understanding something so huge. So let me try to put it into perspective.

If you earned $1 per second, it would take 11 days to make a million dollars.

If you earned $1 per second, it would take 31 and a half years to make a billion dollars.

And if you earned $1 per second, it would take 31,688 years to make a trillion dollars.

So that’s how enormous a trillion is.

When politicians carelessly spend and print money measured in the trillions, you are in dangerous territory.

And that is precisely what the Federal Reserve and the central banking system have enabled the US government to do.

From the start of the Covid hysteria until today, the Federal Reserve has printed more money than it has for the entire existence of the US.

For example, from the founding of the US, it took over 227 years to print its first $6 trillion. But in just a matter of months recently, the US government printed more than $6 trillion.

During that period, the US money supply increased by a whopping 41%.

In short, the Fed’s actions amounted to the biggest monetary explosion that has ever occurred in the US.

Initially, the Fed and its apologists in the media assured the American people its actions wouldn’t cause severe price increases. But unfortunately, it didn’t take long to prove that absurd assertion false.

As soon as rising prices became apparent, the mainstream media and Fed claimed that the inflation was only “transitory” and that there was nothing to be worried about. Then, when the inflation was obviously not “transitory,” they told us “inflation was actually a good thing.”

…click on the above link to read the rest of the article…

US Consumer Prices Soared In June, Americans’ Real Wages Fall For 15th Straight Month

US Consumer Prices Soared In June, Americans’ Real Wages Fall For 15th Straight Month

With The White House having desperately tried to front-run this morning’s inflation print, analysts were expecting a jump higher led by food and energy costs. They were right in direction but it was way worse as the headline CPI soared 9.1% YoY (vs 8.8% exp and 8.6% prior)…

Source: Bloomberg

The 1.3% MoM rise is the hottest since 2005…

Source: Bloomberg

…and the 9.1% YoY is the hottest since 1981.

Source: Bloomberg

Goods inflation is slowing but services costs are soaring at their fastest since 1991…

Source: Bloomberg

Under the hood, energy costs dominated the rise, but the rent index rose 0.8 percent over the month, the largest monthly increase since April 1986.

The motor vehicle maintenance and repair index increased 2.0 percent in June, its largest increase since September 1974.

The index for dental services increased 1.9 percent in June, the largest monthly change ever recorded for that series, which dates to 1995.

Focusing on the roof over your head factor, shelter inflation +5.61%, up from 5.61%, highest since 1992, and rent inflation +5.78%, up from 5.22%, highest since 1986

Real wages fell for the 15th month in a row… (Americans’ purchasing power domestically fell by a record 3.6% YoY in June)

Developing…

Finally, the S&P has ended the day lower on 5 of the last 6 CPI days…

Trade accordingly.

Fear and Inflation — The Timeless Policy Tools of Discredited Systems

Fear and Inflation — The Timeless Policy Tools of Discredited Systems

If you’re wondering why the media, markets and mandates are making less sense despite a constant flow of hard facts contradicting their message, it’s critical to watch what is done rather than said by the policy makers behind the fear and inflation “new normal.”

The Latest Fed-Speak Translation: From “Transitory” to “Persistent” Inflation

To the extent there’s anything exciting about a cornered Jerome Powell, he was at least able to drop some bombshells at his November 30th meeting before Congress, including a truly cutting-edge observation and fear that inflation forces are “more persistent” and that it’s now time to retire the word “transitory” regarding the same.

Well, Jerome, we could have told you that long, long ago, but this, of course, is no shocker…

More Taper-Talk (Distraction)

Perhaps more “exciting” was his not-so-subtle announcement that the Fed plans to begin a discussion at its next meeting to accelerate the Fed taper by a few months.

Hmmm…

Despite the fact that any Fed Taper will in substance be a “non-taper” given backdoor liquidity tricks from the Standing Rep Facility and FIMA swap lines, the optics of such continued taper-talk will be negative for almost all assets save for the USD, the VIX trade, so-called “safe-haven” Treasuries and possibly gold.

Bitcoin’s Troubles

Needless to say, BTC didn’t respond too well, dropping by 20% in the wake of Powell’s double-speak; as of this writing, it rose by 9% in less than 24 hours.

Such dramatic price swings, in our opinion, confirm that cryptos (despite “consolidation” and “adoption” pains) will never be stores of value but rather volatile (and yes, exciting) speculation assets—though we know the crypto circles (who will likely also ignore recent warnings [raised by Jintao Ding] of quantum hacker risks) will strongly disagree.

…click on the above link to read the rest of the article…

And Just Like That, Inflation Is About To Disappear?

And Just Like That, Inflation Is About To Disappear?

Earlier this year, when inflation was still “transitory” two Fed chairs, Powell and Bernanke, made comments which we joked only make sense if the definition of inflation is changed:

…click on the above link to read the rest of the article…

Prices Climb At Fastest Pace Since 1982… But It Could Have Been Worse

Prices Climb At Fastest Pace Since 1982… But It Could Have Been Worse

Having surged faster than expected in 7 of the last 8 months, all eyes are on this morning’s Consumer Price Index as this is the last big release ahead of next Wednesday’s Federal Reserve decision, where Deutsche Bank economists (among many others) are expecting they’ll double the pace of tapering. Chair Powell himself reinforced those expectations in recent testimony, stopping just shy of unilaterally announcing the faster taper. Crucially, he noted this CPI print and the evolution of the virus were potential roadblocks to a faster taper next week.

And sure enough, CPI printed +6.8% YoY – right as expected and the fastest rate of increase since 1982…

The Fed Will Break the Economy

The Fed Will Break the Economy

Last week, the Fed was handed an unexpected gift as first-time jobless claims fell to the lowest level since 1969, which gives the Federal Reserve the green light to continue tapering its $120 billion monthly purchases of U.S. Treasury and mortgage-backed securities. Given the Fed’s dual mandate of maximum employment and stable prices, low unemployment claims along with a low unemployment rate allow the Fed to focus on combating inflation.

To fight inflation, the Fed only has two policy tools. The Fed can raise the federal funds rate, which is currently at 0 percent, and it can taper or reduce the size of its balance sheet. While those two tools are good at fighting monetary inflation, or rising prices associated with money printing, neither are useful for fighting supply-chain inflation.

The Fed isn’t concerned about how inflation manifests itself but only its ability to fight inflation. At the Federal Open Market Committee’s Nov. 3 press conference, Fed Chair Jerome Powell announced the committee has decided it was appropriate to reduce its asset purchases.

Starting in mid-November, the Fed would reduce its purchases of U.S. Treasury and mortgage-backed securities from $120 billion per month to $105 billion per month. In mid-December, the Fed will further reduce its asset purchases to $90 billion per month. Many pundits believe the Fed will increase the pace of its reductions at its Dec. 15 press conference, which will mark the last Federal Open Market Committee meeting for 2021.

For the Fed, the need to slow the rate of inflation is a matter of maintaining credibility. Congress has assigned the role of maintaining stable prices to the Fed, which has determined that 2 percent annualized inflation is a reasonable target. With the Consumer Price Index rising at a rate of 6.2 percent on a seasonally adjusted rate in October, there are serious political ramifications for Congress should the Fed be unable to control inflation.

…click on the above link to read the rest of the article…

When Will Consumers Balk at Surging Prices?

When Will Consumers Balk at Surging Prices?

That’s the big question. Looking for signs of widespread push-back but not finding much. Consumers pay whatever.

One of the bizarre factors that has driven the current surge in inflation – the worst in 30 years per CPI-U, the worst in 40 years per CPI-W – has been the sudden and radical change in the inflationary mindset among consumers and businesses.

We saw that in late 2020 and all year in 2021, when prices of new and used vehicles spiked in practically ridiculous ways. People are paying more for a one-year-old used vehicle than what a new vehicle would cost, if they could get it, and they’re paying many thousands of dollars over sticker for new vehicles.

Out the window is the ancient American custom of hunting for a deal. And yet, new and used vehicles are the ultimate discretionary purchase for the vast majority of buyers that can easily drive what they already have for a few more years. But they’re jostling for position to pay these ridiculous astounding prices. And there has been enough demand to keep inventories bare and prices soaring.

During the Great Recession, potential new-vehicle buyers went on a buyer’s strike, and sales collapsed, and two of the Big Three US automakers filed for bankruptcy, along with many component makers, and sales didn’t recover for years. Consumers have this power because vehicle purchases are discretionary. But this time, consumers aren’t exercising their power to put a stop to those price spikes. Instead, they’re paying whatever.

We’ve also seen this with the price of gasoline, which at the end of November had spiked by 59% year-over-year and by 31% compared to November 2019, to an average of $3.38 per gallon, according to the EIA.

…click on the above link to read the rest of the article…

Fed’s Lowest Lowball Inflation Measure Spikes to Worst-Hottest 31-Year High. Powell Groans and Mutters

Fed’s Lowest Lowball Inflation Measure Spikes to Worst-Hottest 31-Year High. Powell Groans and Mutters

But the Fed has now backed off its ridiculous claims and is taking inflation more seriously.

The lowest lowball inflation measure that the US government produces, “core PCE,” which excludes the now soaring food and energy prices and understates inflation by the most, is used by the Fed for its inflation target: a symmetrical 2% “core PCE.” And this core PCE in October, released today by the Bureau of Economic Analysis, spiked by 4.1%, more than twice the Fed’s inflation target, and the worst-hottest inflation reading since January 1991:

It’s not temporary, Fed Chair Jerome Powell groaned and muttered this morning upon seeing this inflation monster blow out, following his $4.5 trillion in money-printing in 21 months. Here he is, freshly re-nominated for another four years, viewing the problem of his own making that he will now have to deal with, by cartoonist Marco Ricolli for WOLF STREET:

The overall PCE inflation index that includes food and energy, the second-lowest lowball inflation measure the US government produces, spiked by 5.0% in October, the worst-hottest since November 1990:

There is hardly anyone left on Wall Street with professional experience in this kind of inflation.

And the Fed still has the foot on the gas, but just slightly less so, planning to print $105 billion from mid-November through mid-December to repress long-term rates, and it’s still repressing short-term rates to near-zero – blowing at nearly full speed through every red light at every intersection.

On a month-to-month basis, the overall PCE increased by 0.43% in October from September, the worst-hottest increase since May. This amounts to an annualized pace of 5.2% (12 x 0.43%).

If you think that a car will slow down on its own somehow when you floor the accelerator, you’re tragically mistaken, as the history of automotive accidents shows.

…click on the above link to read the rest of the article…

Shipping Container Price Surge Will Result in Increased Prices on Consumer Goods

The United Nations Conference on Trade and Development (UNCTAD) announced that we should expect consumer prices to rise 1.5% on average over the next year due to the global shipping crisis. Inflation, fuel increases, and labor shortages are among the many factors that have caused shipping costs to spike. “UNCTAD’s analysis shows that the current surge in container freight rates, if sustained, could increase global import price levels by 11% and consumer price levels by 1.5% between now and 2023,” the UN reported last week.

This will impact consumers throughout the world. The US could see a rise of 1.2%, according to the UN, while China may see a 1.4% increase. Less developed countries could see costs skyrocket by 7.5%. According to CNBC, as of late October, over 600 shipping vessels were parked outside of ports worldwide as they are unable to offload. The UNCTAD expects prices on electronics to spike 11.4%, furniture and textiles by 10.2%, rubber and plastic by 9.4%, and basic electrical equipment by 7.5%. Even pharmaceutical products are expected to increase by 7.5%. There are no signs of this crisis improving anytime soon.

Wheat soars to 9-year peak on supply concerns, strong demand

CHICAGO, Nov 22 (Reuters) – U.S. wheat futures rallied to their highest in nearly nine years on Monday as ill-timed rains in Australia and rising Russian wheat prices stoked concerns about tightening supplies among the world’s top exporters.

Corn and soybeans followed wheat higher, with additional support from a waning U.S. harvest and strong domestic demand from ethanol makers and soy processors.

“The demand continues to equal or outstrip the supply in the short term,” said Don Roose, president of U.S. Commodities.

“The wheat market’s leading the charge. It was hit with weather that is too wet in Australia and a little too dry in the U.S. Plains, shipping issues in southwest Canada and issues around export taxes in Russia,” Roose said.

Chicago Board of Trade March soft red winter wheat was up 23-1/4 cents at $8.57-1/2 a bushel after peaking at $8.59-1/2, the highest for a most-active contract since December 2012. All futures months hit new contract highs.

K.C. hard red winter wheat futures also posted across-the-board contract highs, with the March contract ending 28 cents higher at $8.66-1/2 a bushel.

Wheat prices in Russia rose for a fifth straight week last week on strong demand. Shipments from the world’s largest exporter are down 34% this season due to a smaller crop and rising export taxes.

Heavy rains, meanwhile stalled harvesting in Australia and threatened crop quality, while flooding in western Canada has disrupted exports when global demand for wheat has risen.

Robust domestic demand for corn and soybeans amid strong margins at ethanol plants and soy crush facilities underpinned futures prices.

CBOT December corn gained 6 cents to $5.76-3/4 a bushel, while January soybeans added 11 cents to settle at $12.74-1/4 a bushel.

 

The Futility of Central Bank Policy

It is only now becoming clear to the investing public that the purchasing power of their currencies is declining at an accelerating rate. There is no doubt that yesterday’s announcement that the US CPI rose by 6.2%, compared with the longstanding 2% target, came as a wake-up call to markets.

Along with the other major central banks, the Fed’s reaction is likely to be to double down on interest rate suppression to keep bond yields low and stock valuations intact. The alternative will lead to a major financial, economic and currency shock sooner rather than later.

This article introduces the reader to some of the basic fallacies behind state currencies. It explains the misconceptions policy planners have over interest rates, and how central banks have become contracyclical lenders, replacing commercial banking’s credit creation for non-financial activities.

In effect, narrow money is being used by the major central banks in a vain attempt to shore up government finances and economic activity. The consequences for currency debasement are likely to be more immediate and profound than cyclical bank credit expansion.

Introduction

It is becoming clear that there has been an unofficial agreement between the US Fed, Bank of England, the ECB and probably the Bank of Japan not to raise interest rates. It is confirmed by remarkably similar statements from the former three in recent days. When, as the cliché has it, they are all singing off the same hymn sheet, those of us not party to agreements between our monetary policy planners are right to suspect they are doubling down on a market rigging exercise encompassing all financial markets.

…click on the above link to read the rest of the article…

Dollar Purchasing Power Plunges. Inflation +6.2%. For Urban Wage Earners +6.9%, Highest in 40 years, Most Monstrously Overstimulated Economy Ever.

Dollar Purchasing Power Plunges. Inflation +6.2%. For Urban Wage Earners +6.9%, Highest in 40 years, Most Monstrously Overstimulated Economy Ever.

Fed still printing money and repressing “real” interest rates to negative 6%, new vehicle prices spike by most since 1975, housing CPI jumps, food & energy soar.

The broadest Consumer Price Index (CPI-U) spiked 0.9% in October from September, and by 6.2% from a year ago, the highest since November 1990 (6.3%) and since 1982, according to data released by the Bureau of Labor Statistics today.

The Consumer Price Index for All Urban Wage Earners and Clerical Workers (CPI-W) spiked by 6.9% in October year-over-year, the highest since June 1982, nearly 40 years ago:

This CPI-W is the index upon which the Social Security COLAs are based, which are determined by the average during the third quarter. The Q3 average of 5.9% set the COLA for 2022 at 5.9%, the highest COLA since 1982, and there was some jubilation among beneficiaries a month ago. But now inflation is blowing right past that COLA.

As Atlanta Fed President Raphael Bostic pointed out, “transitory has become a dirty word.” This massive inflation occurred while the Fed still had its foot fully on the accelerator – $120 billion a month in money printing and near-0% short-term interest rates, meaning “real” short-term rates are at negative 6.0%.

The Fed has been saying over and over again ad nauseam for seven months that inflation will slow down somehow on its own, even as the Fed had the foot fully on the accelerator, and every step along the way, the Fed has grossly underestimated the surge of inflation, and continues to do so. The Powell Fed has unleashed a monster.

Here is Fed Chair Jerome Powell’s reaction to this inflation monster blowout, as captured by cartoonist Marco Ricolli for WOLF STREET:

…click on the above link to read the rest of the article…

Two Big Myths About Why Energy Prices Are Rising

Photo: Bridget Bennett/Bloomberg via Getty Images

The global economic recovery is running low on fuel. Chinese factories have been flickering on and off as Beijing rations electricity. Britons have been parking in petrol lines as their nation’s pumps run dry. Americans have turned on their president as spiking gas prices eat their wage gains. And the entire northern hemisphere is sweating the cost of keeping warm this winter.

High energy prices have long been the bane of the post-2020 recovery. But as the days grow shorter and the nights get colder, their salience is steadily rising. In recent days, Democrats and Republicans alike have called on Joe Biden to take immediate action to reduce the cost of energy. The former implored the president to bring down gas prices by tapping the nation’s emergency oil reserves. The latter chastised Biden for personally driving up energy prices by blocking new oil and gas drilling on federal land.

Meanwhile, fossil-fuel lobbyists and eco-socialists alike are casting the energy crunch as a byproduct of the world’s (slow and uneven) green transition. In their account, investors have been spurning new oil and gas production out of fear of future regulations, while renewables have failed to scale up fast enough to compensate. For oil barons, this narrative functions as an argument against stringent carbon pricing. For Marxists, it offers hope for an impending crisis of capitalism, as the old energy system dies and the new one struggles to be born.

Global energy markets contain multitudes. The price of oil internalizes myriad forces, from the financial to the macroeconomic to the geopolitical to the meteorological. So, one can tell a wide range of true stories about the energy crisis of 2021…

…click on the above link to read the rest of the article…

Inflationary Storm Forces Unilever To Raise Prices Fastest In Seven Years 

Inflationary Storm Forces Unilever To Raise Prices Fastest In Seven Years 

Rising consumer prices are not going away. The latest example of this is from British multinational consumer goods company Unilever PLC who announced Thursday soaring commodity prices had forced it to raise prices the most in years.

The multinational consumer goods company that produces food, beverages, cleaning agents, and personal care products said it raised prices 4.1% in the third quarter, the fastest in seven years, pushing soaring material costs onto consumers, which compensated for a drop in shipments to Southeast Asia during COVID outbreaks.

Unilever CEO Alan Jope said inflationary pressures would linger for at least another 12 months:

“Our current view of the future is that peak inflation will be in the first half of 2022, and it will moderate as we move towards the second half,” Jope said in a Bloomberg Television interview.

“We continue to take pricing responsibly, and that’s in relation to the very high levels of inflation we’re seeing,” CFO Graeme Pitkethly told reporters. He said that inflation in the consumer goods industry is in the “high teens,” with Unilever mitigating some of the inflationary impacts due to its negotiating power.

Pitkethly warned inflation could surge even higher next year, and the company would have to deal with spot prices as its hedges expire. He said 20 billion euros in raw materials and packaging costs and 3 billion euros worth of logistical costs had been impacted inflation.

Rivals, such as Nestlé warned Wednesday that “inflation costs are rising faster than we can roll forward through pricing . . . The situation has not improved. If anything, we are seeing further downsides compared to what we told you in the summer.”

…click on the above link to read the rest of the article…

Core Consumer Prices Surge At Fastest Rate Since 1992

Core Consumer Prices Surge At Fastest Rate Since 1992

With the world’s eyes having moved on from China’s rip-roaring PPI (and post-data decision to unleash price controls), this morning’s CPI print has been heralded as the arbiter of “is it transitory or not” with some (BofA) even suggesting we are nearing a period of “transitory hyperinflation.” The answer for now is – inflation’s still accelerating as headline CPI soared 5.0% YoY (hotter than the +4.7% expected). That is the highest level of inflation since Aug 2008.

Source: Bloomberg

But it is core CPI that is the huge outlier, soaring 3.8% YoY – the hottest level of inflation since 1992…

Source: Bloomberg

Goods prices are up 6.5% YoY – the highest since 1982 – and services prices are also accelerating significantly.

Source: Bloomberg

Under the hood, many of the same indexes continued to increase,  including used cars and trucks, household furnishings and operations, new vehicles, airline fares, and apparel. The index for medical care fell slightly, one of the few major component indexes to decline in May

The index for used cars and trucks continued to rise sharply, increasing 7.3 percent in May. This increase accounted for about one-third of the seasonally adjusted all items increase.

The household furnishings and operations index increased 1.3 percent in May, its largest monthly increase since January 1976.

The index for new vehicles rose 1.6 percent in May, its largest 1-month increase since October 2009. The index for airline fares continued to increase, rising 7.0 percent in May after increasing 10.2 percent the prior month. The apparel index also rose in May, increasing 1.2 percent.

The index for car and truck rentals continued to rise, increasing 12.1 percent after rising 16.2 percent the prior month (and more than doubled over the past 12 months, rising 109.8 percent).

Finally, rent/shelter inflation remains subdued

  • MoM: The shelter index rose 0.3 percent in May. The index for rent rose 0.2 percent and the index for owners’ equivalent rent increased 0.3 percent
  • YoY:  The shelter index increased 2.2 percent over the last 12 months.

So, Transitory or not?

Olduvai IV: Courage
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