The Pomp Letter - Will We Repeat The Great Inflation?
Today’s letter is brought to you by Espresso Displays!I normally work on my desktop computer and am hyper productive. The second that I leave my desk, I lose my productivity on a laptop. So I started to use a second screen and it seems to have fixed the issue. It took awhile to evaluate many different screens — Espresso Displays was by far the best one. I use it every day. I can’t imagine working from my laptop without it now. They are lightweight, thin, and look like Steve Jobs designed them himself. Any reader of The Pomp Letter who orders one today will get $100 off before midnight. Highly recommend! To investors, Inflation is becoming a big problem again. February’s core CPI numbers show that month-over-month inflation growth has been accelerating since October 2023. Augusta Saraiva writes, “the so-called core consumer price index, which excludes food and energy costs, increased 0.4% from January, according to government data out Tuesday. From a year ago, it advanced 3.8%.” Ken Griffin, the founder of Citadel, sees this rise in inflation as a key reason why the Federal Reserve should not rush to cut interest rates. Griffin said the following at a conference yesterday:
It makes sense that people would be spooked if the Federal Reserve became unpredictable or volatile in their decision-making. But the truth is that the Fed shouldn’t be worried about their reputation at this point — they have a much bigger problem on their hands with the potential resurgence of inflation. Unfortunately, we have a historical example of what could happen. The Great Inflation of 1965 - 1982 had an initial surge of inflation, followed by what seemed to be inflation falling to manageable levels, before inflation resurged to even higher levels of pain and destruction. Michael Bryan, who served at the Federal Reserve Bank of Atlanta, describes that time period with the following paragraph:
It would be catastrophic to endure another two decade period of mismanagement to the degree we saw during The Great Inflation. While I don’t think our future is that bleak, it wouldn’t be surprising to see inflation continue to return with a vengeance. Ben Hunt posted this chart and said, “Friends, every month I make the same post. Inflation stopped going down 8 months ago. Wage and price inflation is embedded well above target. I don't know why this is so hard to understand.” Again, not exactly what you want to see if the Fed has been telling you that inflation should continue to come down and will be under control shortly. This chart seems to show a new average inflation number post-pandemic that is noticeably higher than pre-pandemic levels. As Lisa Abramowicz from Bloomberg explains, “the Atlanta Fed's gauge of sticky inflation has risen to about 5% on a 3-month annualized basis. Inflation is moving in the wrong direction for the Fed, so it's interesting that the market's base case is still that the Fed is going to cut rates by about 100bp by January 2025.” So rather than scratch your head asking yourself why bitcoin and the stock market are at all-time highs when interest rates are over 5%, you should probably ask yourself why these assets aren’t higher given how crazy things could get if inflation mounts a comeback. Let’s hope for everyone’s sake that inflation will be slayed, but don’t hold your breath for it to happen. Hope you all have a great day. I’ll talk to each of you tomorrow. -Anthony Pompliano Darius Dale is the Founder & CEO of 42Macro. In this conversation, we talk about inflation, small business optimism, bitcoin, stocks, energy, global liquidity, and macro environment. Listen on iTunes: Click here Listen on Spotify: Click here Bitcoin and Stocks at All-Time Highs - But Things Are Still Bullish?Podcast Sponsors
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