Operating at the Intersection of Technology and the Capital Markets
Tag: Stagflation Is Imminent
Tomorrow's CPI release is inconsequential at this point. Prices for finished Goods & Services likely modestly abated and will remain elevated in our view such that 2% CPI is not going to happen this year. More pressing for the Fed is the ongoing banking crisis. The fixed income market ought to be setting interest rates, … Continue reading Tomorrow’s CPI Release Does Not Matter
Blame the various COVID relief packages for the weak labor force participation rate - 62.5% in February, up from 62.4% in January but down from 63.3% in February 2020 pre-pandemic. This at a time when the Biden Administration is proposing a $7 trillion budget. I'm not sure where demand for U.S. Treasuries to fund this … Continue reading Labor Force Participation – Weak
Regardless of where CPI lands tomorrow, my view is that the Fed will hold rates higher for longer than the market believes. Higher interest rates combined with a shrinking money supply (QT), translates to: tighter monetary conditions, a higher cost of capital, less revenue visibility for companies, more employee layoffs and a deeper recession. The … Continue reading Tomorrow’s CPI = Noise
Governments gorged on historically low interest rates since 2009 and issued record amounts of debt to fund all sorts of silly spending programs from economic "stimulus" checks to QE. Debt securities are subject to the laws of supply and demand as is any commodity. We have too much paper outstanding - especially as it relates … Continue reading More QE Is Coming. Stagflation Is Staying.
Prices need to fall across the economy to really kickstart economic growth to the point where Americans can feel it. Unfortunately this is not going to happen. Prices and interest rates will plateau, yet they will remain elevated as the economy stalls. We have a word for this economic condition - Stagflation. If you regularly … Continue reading Prices Need To Decline To Kickstart Real GDP Growth. Don’t Hold Your Breath.
Many Technology investors got religion on August 26th as it relates to interest rate increases (more to come) and a Fed pivot (not any time soon). The message of "higher for longer" was reiterated yesterday by Fed Chair Powell. The Fed tends to undershoot when it comes to inflation and its Fed Funds target. We … Continue reading It Always Makes Sense To Invest In Quality Names
Despite hawkish rhetoric the Federal Reserve's monetary policy remains accommodative. Real interest rates remain negative by a wide margin (8.50% CPI compared to a 2.25-2.50% Fed Funds Rate range) and we are nowhere near a "neutral" rate. Our outlook calls for muted Real GDP growth and high prices (i.e. Stagflation) for years to come. Commodities … Continue reading The Fed Remains Accommodative. Inflation Remains Persistent.
The Cleveland Fed's current August year-over-year CPI estimate is 8.3%, down 0.2% from July's 8.5% level. The bank estimates August Core CPI at 6.3%, up from July's 5.9% level (while oil prices have fallen, food prices continue to rise). We quote the Cleveland Fed as the bank's view on CPI and Core CPI is in-line … Continue reading August CPI To Remain Robust
So much for the Fed trimming its Balance Sheet by $95 billion per month. The Fed has expanded its asset base during the month of August. Fed assets stood at $8.9 trillion as of Wednesday August 10th. It is difficult to allocate this Federal Reserve any credibility as it relates to mitigating price inflation or … Continue reading QT or QE?
If voted into law the Inflation Reduction Act will ensure more deficit spending, more Federal debt, more taxes, negligible Real GDP growth, low interest rates and high inflation - a recipe for continued Stagflation. What does stagflation look like? You are living it. The earmarks of stagflation are high inflation, high Federal debt and negligible … Continue reading Inflation Reduction Act Ensures Stagflation
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