Biden, U.S., FED discussed on The Breakdown with NLW


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Ted Cruz tweeted The White House is now expecting shocking inflation numbers. Here's the list of the Biden and men's ever shifting denial of reality about inflation. It's not happening, it's transitory, it's a high class problem. It's a good thing. It's Putin's fault. It's Biden inflation. This is clearly also political. It's denying any role that the Trump administration, which oversaw the initial round of COVID stimulus and Republicans who supported those efforts might have had as well. It's a term that when you hear it, you can pretty quickly and comfortably assess the political objective of the person using it. That said, not being willing to call it Biden doesn't mean that this administration should somehow be free from blame. There has been a long period after Trump and after the first wave of COVID, where decisions they've made or not made have impacted inflation, and at this point it's clear for the worse. The messaging has been bungled from the beginning. The ironic thing about the transitory inflation label is that what they were really saying was a technical argument about the roots of inflation. They were talking about a supply demand mismatch as people came out of lockdowns. They were talking about supply chain disruptions as businesses that had been offline tried to come online. Those things have seemingly pretty clearly been significant factors in producing this inflation. But the language of transitory does three things. One doesn't actually explain those things that they were trying to say. Two, it gives an inherent sense of dismissing this as a problem just by nature of the word transitory and three it creates a sense of time limitation that could easily be disproven. This last part was especially silly to do, given how much was completely unknown about the context we were moving into. We'd never had a global pandemic with a host of mutations and waves in a modern interconnected global economy, and we certainly had never dealt with shutting down the entire world economically at the same time. In a situation that literally no one has experience with. Maybe choosing a language of certainty and time boundedness wasn't the best idea. Indeed, ultimately what the transitory language amounted to was a bet. The fed and the administration that parroted the line made a wager that inflation would resolve before calling it transitory made them look dumb and started extracting a political cost. They lost that bet and every narrative shift since from its greedy corporations taking advantage of this moment to extract more from you to the latest Putin's price hike have just been attempts to dig out from the original sin of calling inflation transitory in the first place. It makes me think even more about how damaging it is that fed's major tool isn't monetary policy, but media and self fulfilling prophecy. With the world being a better spot now if the fed had said, listen, here what we believe, the root causes are of this inflation. Supply demand mismatches, exacerbated by supply chain disruption. Notably, this means that the inflation we're seeing isn't yet the pernicious spiral of higher wages that create higher prices that create higher wages, et cetera, but we're watching. Given the nature of this inflation, it should be temporary. It should work itself out as supply chains resolve and people level out their demand. The problem is we're in totally uncharted territory, and we have no idea how long that will take. Given all that we're in a tough spot, keeping our foot on the gas and monetary support could make inflation worse if it takes longer to resolve than we think. At the same time, recovery from economic downturns is always worse for the poor. And by keeping up more support, we hope we can get more people in jobs faster than in past recoveries. Now, of course, I realize that this is super easy for me to say in retrospect that politics especially in our world doesn't work like this. That it's equally likely that everyone would then be shouting at the fed for admitting they didn't have any idea what they were doing, and that four, even if they had that level of transparency in their public discourse, they still might have made the wrong decisions. But I don't know. I think having the humility to explain exactly what was going on and what they didn't know and why they were making the decisions they were without relying on a buzzword like transitory might have led us to a different place. In any case, this is where we were on Monday night. So what actually happened with this inflation print? Remember February's game had been 7.9% and economists were expecting between 8.2 and 8.6%. What we got was 8.5%. The highest year over year inflation jumps since 1981. Month over month was 1.2% the highest monthly jump since 2005. Gastro half of that cost increase, but food was also up. The core CPI month over month was the only bright spot that anyone tried to hold up. Core CPI gets rid of food and energy, which are seen as more volatile and increased 6.5% year over year, but only 0.3% month over month instead of the expected 0.5% month over month. Remember, a lot of the market's reaction to any given news is not based on the raw numbers, but instead based on what the market expects. So the 0.3% instead of 0.5% was seen as a victory. The core number came in unexpectedly lower because of the biggest drop in used vehicle prices since 1969, as well as some amount of deceleration of growth in other categories. There was a lot of attempt to spin that one as a positive, although Nick Carter was not having it. He tweets, inflation is 8.5%, and some economists are celebrating that the second derivative of core prices, the rate of change of the rate of change is negative. Prices didn't decline, they still went up, but the rate of increase in the specific subset of prices wasn't quite as rapid as the previous month. Did anything get cheaper heavens know, things are getting more expensive, just at a slower rate than before. For a subset, feel better, now speaking of reactions, there was a lot of breaking apart of the full year over year list of price increases. Gas up 48% electricity 11.1% meat, poultry fish, 13.8%. Milk 13.3% eggs 11.2% bread 7.1%. Coffee 11.2% used cars even with that decline, 35.3%, and so on and so forth. In terms of people feeling the pinch wages continue to not be able to keep pace. Lisa Abramovich from Bloomberg writes average weekly earnings on an inflation adjusted pace are declining by the most in data going back to 2006, highlighting how far wages are lagging behind consumer price increases. Many honed in on the housing cost measures as a particularly egregious departure from the reality of the situation that people actually face. Michael Burry of big short fame says CPI says housing costs rose 5% last 12 months. Wrong. CPI would be 12% using real world nar housing data. Bureau of labor statistics has smoothed out housing numbers forever because home prices have been a problem forever. Wall Street silver and many others pointed to the difference between the CPI rent increase of around 5% and more market based indexes like Zillow's rent index, which suggests that rents have increased 16.8% year over year. And then of course there are a lot of people who are just looking to what comes next. Market analyst David Tracy writes BlackRock CIO on Yahoo finance today. Rates would need to go to 3.5% before we worry about stock market valuations. Inflation is good for stocks. Remarkable comments. Alan Levin said the CIO at overlay Capital Partners writes the 60s and today are in completely different economic landscapes. 60s was a lightly indebted aspiring young country that hadn't tasted prosperity. Money supply was steady and velocity strong. Today, fat old lazy complacent heavily indebted money velocity is dormant. You will not have a demand side shock where too much money is chasing too few goods. This massive indebtedness will return us to secular deflation once the severe acute inflation is in the rearview mirror. Adam taggart the CEO of wealthy on says, I think today's march print is likely the peak and reported CPI. Do mostly to year over year comparisons get tougher in April, rate hikes and quantitative tightening fed more serious than many think, fast slowing GDP. I think disinflation will be the theme for the rest of 2022 and likely deflation for 2023. And then of course you're hearing a lot of these stagflation word. A piece in Bloomberg today stagflation risk has investors sinking billions into hedges. Europe seen facing a regime of high inflation and negative growth. Quote, it's the next big market call that could enrich traders across Wall Street. The raging global energy crisis and ever more hawkish central banks not key economies into 1970s style stagflation. It's a long shot for now, but anxiety is building among money managers that this market scenario out of control inflation just as growth slumps will eventually come to pass, especially in Europe. Indeed a Bank of America report just out also shows the highest stagflation expectations since August of 2008. I think this is something we'll have to come back to. For now, I think the takeaway here is that no matter how much the Biden administration wants it to be the case, Russia has not displaced inflation as the key macroeconomic story, at least when it comes to markets. Indeed, if anything, the jockeying is to understand if and how Russia's war in the Ukraine is impacting what is really in the driver's seat, which is, of course, inflation. One thing to watch I believe in the coming weeks is to see if we start to see the beginning of demand destruction. If we actually start to see people make big shifts in their consumer habits. To some extent that's already happening, but I wouldn't be surprised if we start to see a lot more focus on that from media in the weeks to come. For now I want to say thanks again to my sponsors, nexo IO, arculus and FTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey breakdown listeners come join coin desks consensus 2022. 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