For Entertainment Purposes Only

This was shared by Paul Krugman the Nobel winning economist who drew the short straw in 2006, being in consideration for the job of Federal Reserve Chairman. Ben Bernanke took over, just in time for the great financial crisis. Bernanke then orchestrated a decade long massive government bond buying program, which endeared him to nobody really but the stock market did add some serious value. Krugman now joins cause with the Feds read on lower inflation (expectations).

Conclusion

In short, according to the inflation swap data, market participants believe the Federal Reserve can and will control the high inflation rate, despite price increases being more persistent than previously thought. The well-anchored longer-term inflation expectation provides additional supporting evidence of this.3

During all that time that longer-term inflation expectations were well anchored the Fed was calling inflation “transitory”… They misspoke but apparently the market participants aren’t punishing them, as though you can eat a picture of a loaf of bread (an expectation) when you don’t have one.

At least this chart demonstrates the error of their ways. The green line is where inflation expectations were a year ago. Now that 30 year end point is irrelevant for our purposes (being sentient beings) but it does suggest these are not parallel lines and they meet at some higher point many years from now. It’s only good to think about this because in times of new technological innovation, long time lines often compress. So the more recent inflation expectations in the five year and in the ten year rate of inflation are mostly about 1% higher than they were a year ago.

In the earlier time line, green, inflation bottoms in around five years. In the newer (better informed??) timeline, blue and orange, expectations need ten years to bottom, or level off. So if you were thinking of buying a fixed rate 5 year Treasury at 3% (pulled back 1/2 point this week) you lost some ground maybe.

By their reckoning inflation needs 6 years to pullback 1 1/2%, or 1/4 point a year, but call it 2% and five years, or 2/5 or .4% a year. Should yields come down faster than inflation the real rate of return will only be more negative. Why would bond yields come down? A recession instigated by the Federal Reserve raising rates on savings deposit accounts which under no possible circumstance will ever yield a positive return relative to inflation, begs the question is this the Treasury trying to sell it’s own paper?

Corporate America and the Defense Department are going to support woman’s health issues. What’s that mean in states which have prohibitive laws? This is the issue in November, and puts a lot of pressure on company boardrooms to follow ESG policies. Climate change was tough, this is a lot tougher. What happens when economies of scale implode? Mexico legalized abortion in 2021.

The big bad bear market didn’t really make itself apparent until the Fed raised the cost of money for people who put groceries they can’t afford on a credit card. There will be a moment to buy TIP bonds or the TIP ETF, probably not right now while the Fed throws some cold water on the hot hot inflation.

Corporate Junk Bond ETFs, HYG and JNK are interesting as well. Corporations have revenue (well some of them) while the United States government doesn’t have enough, just deficits and debt. America’s debt picture is going to change. Reductions in spending will cause a great dislocation. Republicans want to reduce fiscal spending, (their social activism is a distraction) and roll back regulation, which will improve corporate profit margins, however economies of scale will suffer, and the stock screening universe has yet to figure this out. Analysts make baseline assumptions about markets, financial conditions, and consumer trends. If those assumptions don’t work out the markets often react in unforeseen ways.

In Europe the ETF is symbol EFA, they hold various industries as well as the makers of consumer products. The US supply chain remains broken, and US consumers will need to buy more product (baby formula?) from the EU. If the Euro weakens against the dollar, take notes. China is meanwhile transitioning to more high end exports and internal growth, just as Japan did after W2 and they have a real estate debt bubble that may take years to resolve, as well as problems with their own political orthodoxy..

The future of AI is on hold, and with that the Metaverse, which looks better for Netflix than Facebook. The Metaverse is real, and it’s really several things including smart phone technology, and artificial intelligence chip makers. They all need to come together. The government needs to be in the middle because this is a medical science game changer. mRNA was the monumental expression of this new therapy.

VAX deniers should buy up all the Bitcoin they can, sorry but that ship has sailed. This is about SEC regulation. Some small part of the real estate market is being transacted in bitcoin, and no doubt losing sales conducted in cryptos will dampen sales. What would real estate developer Trump do? Maybe the new wave of deregulation will have an effect on the animal spirits. Either way the bubble has burst (upon us).

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