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Chaos is Spreading Everywhere!

June 27, 2024

Chaos is Spreading Everywhere!

Intensifying foreign wars, raging internal political wars, inflation all over again, and disastrous immigration are turning the world into a madding crowd.

grayscale photo of man in suit
Photo by Callum Skelton on Unsplash

Sure, the S&P 500 just broke 5,500 for its first time ever (and then failed miserably), but everything else this past week is proving out all the points I made in my last Deeper Dive, “Why the Fed’s Inflation Fight is Far from Over” and is also building into a “Year of Chaos.”

Take for example, this statement in that Deeper Dive about the one category that did the most to bring a tiny drip to overall CPI in its last report:

Oil, I’ve been saying, is more likely to rise right away, as the summer travel season gets going, than to keep falling. That is elementary because rising in price during the northern hemisphere’s summer is oil’s common pattern because travel in the summer by jet and by car and by RV and by ship all increase in the nations with the largest populations on earth and the most travelers.

What do we see this week but the predictable, which is why no one should have put any stock in that tiny downward blip in CPI, which was dependent on falling oil prices:

“2nd and 3rd busiest days ever for TSA in June”

“This year’s extended AAA Independence Day travel forecast exceeds pre-pandemic numbers, sets new record”

As I continued last weekend,

When so much of the drop in CPI was due to oil prices falling, markets were foolish to think the little wiggle downward in CPI meant anything to the Fed (or to the rest of us who buy gasoline or diesel), as oil is highly likely to reverse that move this month … and, as I keep saying, oil prices into everything else. It affects all prices down the road.

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

How Powell Destroyed His Inflation War as he Eats the Poor

May 18, 2024

How Powell Destroyed His Inflation War as he Eats the Poor

I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.

Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…

that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”

In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:

Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.

HOWEVER …

After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong…

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

 

How Powell Destroyed His Inflation War as he Eats the Poor

May 17, 2024

How Powell Destroyed His Inflation War as he Eats the Poor

I’m going to save discussion of today’s CPI report for my Deeper Dive this weekend because it requires digging deep into the numbers involved in the report to show why it is not the game-changer for the new trend in inflation that the stock market made it out to be today. Not even close. It could, of course, become a first blip in the direction of a new downward trend against the rising trend for inflation that has held all year, but this year’s trend, so far, remains firmly anchored.

Even Minneapolis Federal Reserve Bank President Neel Kashkari said today, after the CPI report came out,…

that he is unsure how restrictive monetary policy is right now, and that borrowing costs should stay where they are as U.S. central bankers take stock of inflation. “The biggest uncertainty in my mind is how much downward pressure is monetary policy putting on the economy? That’s an unknown,” Kashkari told the Williston Basin Petroleum Conference in Bismarck, North Dakota. “And that tells me we probably need to sit here for a while longer until we figure out where underlying inflation is headed before we jump to any conclusions.”

In fact, another article out today claims, as I’ve been claiming here, that Fed policy is not restrictive at all; and that’s the interesting point for the day I want to focus on as I think the article says it well:

Time and again, Jerome Powell has made it clear. Financial conditions, the Federal Reserve’s key lever for cooling the US economy, are tight.

HOWEVER …

After an $11 trillion rally in US equities since late October — and the sudden revival of meme-stock fever — many on Wall Street think he’s dead wrong. Not only are popular gauges of the investing climate famously loose — some are looser than before the Fed kicked off its historic monetary-tightening campaign more than two years ago.

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

CPI Up 0.3 Percent With Rent Still Rising Steeply, Food a Bright Spot

May 16, 2024

CPI Up 0.3 Percent With Rent Still Rising Steeply, Food a Bright Spot

Rent rose another 0.4 percent in April. Food and beverages were flat with food at home declining but food away from home rising.

CPI data from the BLS, chart by Mish

Bloomberg Econoday economists were correct across the board on the April CPI report. As expected, the CPI rose 0.3 percent, 0.3 percent excluding food and energy, and 3.4 percent year-over-year.

CPI Food

Food was the bright spot in April, provided you eat at home. Food at home declined 0.2 percent with food away from home rising 0.3 percent. Overall, food was unchanged.

CPI Month-Over-Month Medical Care

I added this series new this month. It is so amazingly volatile and unbelievably so. The year-over-year chart makes it easier to spot trends.

CPI Month-Over-Month Energy and Gasoline

Energy is another very volatile series. The last three months have not been good to consumers.

Month-Over-Month Synopsis

  • CPI: +0.3 percent
  • CPI excluding food and energy: +0.3 percent
  • Rent: +0.4 percent
  • Owners’ Equivalent Rent OER: +0.4 percent
  • Food at Home: -0.2 percent
  • Food Away From Home: +0.3 percent
  • Medical Care Commodities: +0.4 percent
  • Medical Care Services: +0.4 percent
  • Energy: +1.1 percent
  • Gasoline: +2.8 percent

Other than food at home, there is not that much to cheer about this month. Rent remains the killer.

Yet Another Groundhog Day for Rent

Rent of primary residence, the cost that best equates to the rent people pay, jumped another 0.4 percent in March.  Rent of primary residence has gone up at least 0.4 percent for 32consecutive months!

The “rents are falling” (or soon will) projections have been based on the price of new leases and cherry picked markets. But existing leases, much more important, keep rising.

…click

CPI Year-Over-Year Percent Change Medical Care

CPI Year-Over-Year Details

  • The CPI is up 3.4 percent from a year ago. That’s negative progress compared to the 3.0 percent registered in June of 2023, 10 months ago.

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

Inflation in Real Life Much Worse Than in Government Fantasy World

December 14, 2023

Inflation in Real Life Much Worse Than in Government Fantasy World

Inflation is dead!

At least that’s what you would think if you listen to government officials and talking heads in the financial media.

So, how is this victory over inflation working out for the average person?

Not so great.

Based on official CPI data, price inflation has cooled somewhat, although it remains far above the Federal Reserve’s 2% target. That hasn’t stopped President Biden and most of the mainstream financial media from declaring victory over rising prices. Biden even suggested that companies should start cutting prices since inflation is falling.

It’s important to remember that even if we believe the government numbers and price inflation is cooling, that doesn’t mean consumers are getting any relief.

Prices are not falling. They’re just going up slower than they were six months ago.

And those price increases are cumulative. Since January 2022, prices have risen 9.7% based on the CPI. And the CPI is designed to understate rising prices.

In other words, we’re all still coping with much higher prices no matter what the latest CPI report says. And the suffering is far worse than sterile BLS reports indicate.

This becomes clear when we go out in the real world and stop listening to news people spouting government numbers.

Ironically, we can learn more about the actual impact of inflation from the movie Home Alone than we can from some guy on CNBC droning on and on about the CPI.

In this 1990 classic, 8-year-old Kevin McCallister’s family went on a holiday trip to Paris and accidentally left him alone in his house. Chaos ensues.

You may recall that after realizing he’s alone, Kevin makes a trip to the grocery store. After all, a kid has to eat.

…click on the above link to read the rest…

Deutsche Bank Economists Say the Fed Will Create More Inflation in 2024

November 29, 2023

Deutsche Bank Economists Say the Fed Will Create More Inflation in 2024

Deutsche Bank economists say the Federal Reserve will create more inflation in 2024.

OK, that’s not exactly what they said. But that is the implication of their latest forecast.

The Deutsche Bank analyst forecast that the Fed will cut rates by 175 basis points in 2024 in response to a “mild” recession. That would drive the Federal Reserve funds rate down to between 3.5% and 3.75%.

This loosening monetary policy, by definition, would create more inflation.

The Fed currently has interest rates set at between 5.25% and 5.5%.

Most mainstream analysts now think the central bank will cut rates next year, but not as steeply as Deutsche Bank economists.

The dominant narrative today is that the Fed has successfully beaten down price inflation. A cooler-than-expected CPI report for October reinforced this notion. With inflation on the run, mainstream analysts think that the Fed has initiated its last hike and will pivot to rate cuts next year to guide the economy to a “soft landing.” Even before the CPI data release markets were pricing in 75 basis points of rate decreases in 2024.

Many mainstream analysts and financial news network pundits have taken a recession completely off the table. But Deutsche Bank senior US economist Brett Ryan told Reuters he expects the US economy to hit a “soft patch” that will lead to a “more aggressive cutting profile.”

Ryan said he expects this economic weakness to further ease inflationary pressure.

The Problems With the Forecast

There are several problems with the Deutsche Bank projections, and the entire mainstream narrative more generally.

In the first place, the death of inflation is greatly exaggerated. No matter how you slice and dice the data, none of the numbers come close to the Fed’s 2% target. Core CPI is still double that number.

…click on the above link to read the rest…

Why You Are Feeling So Much Poorer

September 1, 2023

Why You Are Feeling So Much Poorer

We are living through the largest pillaging of the American middle class in a half-century. It’s not in the headlines. This is extremely strange. In fact, this might be the first and only article you have read about it. This could be for a reason. If people knew what was happening to them, they would begin to feel very restless, even furious. Some people among the ruling class do not want that.

The Biden administration trumpets its economic achievements. It’s mind-boggling. Call it trolling. Call it gaslighting. Call it whatever you want but you know it is untrue.

Let’s look at the facts.

What do you spend money on month-to-month? It’s rent or your mortgage, food at home or out, utilities, and gas. Those are the basic categories. The Consumer Price Index includes far more than that, some items you do not purchase and some that are going up far less than others. So let’s look at government numbers on what you actually purchase; that is, the items and services that you consume that dominate part of your income. And let’s stretch that back three years.

Everything is going up and up and has been for three years. Looking at the items on which you actually spend money, we find increases between 18-plus percent to 22-plus percent. Let’s say we average it all out at 20 percent.

Now let’s look at real disposable income, which is income left over after expenses adjusted for inflation. That result is an increase of a pathetic 3 percent compared with three years ago. The stimulus payments felt great at the time but those are long gone, essentially a head fake. So your income demands are up 20 percent whereas your leftover cash is barely up at all. That’s essentially a disaster for your standard of living.

In short, you have been robbed.

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)
(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)
…click on the above link to read the rest…

Claims Of A Lower CPI Cannot Inflate Away Reality

January 16, 2023

Claims Of A Lower CPI Cannot Inflate Away Reality

Yes, we have a problem, and claims of a lower CPI cannot inflate away the reality that inflation hurts consumers. To start with consider the argument inflation is much higher than the government reports. That said, Jay Powell is most likely very serious about ending the Fed put which has been a huge contributor to the wealth effect and inequality. This has also been a big driver of financial and economic growth.
If Powell accomplishes his goal it is expected to result in a more “responsible” and less speculative financial system. As things stand, most Americans are watching their wages falling behind the price of goods. As people are forced to buy less economic growth slows. This would of course extend down to falling prices as the wealth effect slams into reverse. All this brings with it risk and probably a lot of pain. This issue is intensified because the ability to simply roll over debt and refinance has been greatly diminished. Both liquidity and rates reduce this possibility. Trends are not friendly to growth anywhere in the world.

Lower CPI Does Not Signal Growth Ahead

Even if inflation drops like a stone, that does not mean it will not return with a vengeance or signal growth will pick up. Feeding into this is that many people today do not want to work. The five-day service sector office work week became a thing of the past when people were told to stay home during the pandemic. Mediocre production on the part of workers coupled with the potential that Geo-political issues may soon create a slew of new commodity shortages. Supply chain problems and disruptions tend to limit the supply side of growth.…click on the above link to read the rest…

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

August 13, 2022

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

July 13, 2022

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

December 12, 2021

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?

December 10, 2021

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

December 10, 2021

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

December 5, 2021

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?

December 2, 2021

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…

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