The State of Inflation: November
Hump is the new Transitory
This is my 6th article on inflation (May, June, July, August, October). I am proud of this archive because it serves as timestamped proof that I was among the first to point out that #TeamTransitory was an obvious fraud, and to yell about the risks of record loose monetary and fiscal policy in a supply-constrained environment. My resolve never wavered even as doves belittled me as a conspiracy theorist, an alarmist, and as a joke. They told me I wasn’t an economist; that I was just some guy with a blog; that I should leave inflation to the “big boys” of macroeconomics. Oh, and that even if inflation was happening it was only due to outliers (used cars) and weird technical issues (depressed base effects), and besides, it is a good thing that it is happening, bigot.
So, if this article sounds like I have a chip on my shoulder, yea, maybe I do. The inflation rate currently sits at 6.2%, a 30-year high, and only looks to be accelerating.
Warning: this article is a long meandering brain dump about politics, not a tightly constructed argument about the fundamental drivers of inflation. In a perfect world maybe I would re-write it with a meaningful organization and split it into segments with hyperlinks.
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While my long-term thesis holds strong, month-to-month prints have been impossible to predict as shown by the record high Citi Inflation Surprise Index:
Meaning that my monthly CPI forecasts have neither underperformed nor overperformed against the Bloomberg consensus… both of us are crapshoots:
Which is disappointing, because you always want to provide alpha over the benchmark, right? I tied it. It is a humbling experience for sure, and I am hyperaware that public forecasts keep you accountable every month. My biggest takeaway — now that I am a seasoned inflation forecaster! — is that quantitative models are useless for providing alpha. Sure, I could spend hundreds of hours building cutting edge macroeconometric models, but 9 out of 10 times those would just spit back the Bloomberg consensus to me. What value would I add? To that end, I will be increasingly relying on my gut/intuition moving forward in making monthly predictions. Every time I have trusted quantitative models so far, they have failed me. Every time I trust my gut, I seem to get it right.
The Bloomberg consensus for tomorrow’s November CPI print is +0.7%, but I predict it will actually turn out to be +1.0%. This means you are losing ~1% of your purchasing power every month… are you receiving a 1% raise every single month? Are you giving your employees a 1% raise every single month? The evidence says no: wage growth sits at +4.8% which is dwarfed by inflation. Everyone is getting a pay cut! With that in mind, perhaps it is no wonder why Joe Biden’s approval ratings are at historic lows:
The big news this month was obviously Jerome Powell being appointed to another 4-year term as Fed chair, which was covered extensively by every financial pundit with a pulse. Prediction markets had him pegged as a heavy favourite all along:
In second place was former MIT professor Lael Brainard — that dark blue line — whose silver medal prize was being appointed as vice chair. She is now officially Powell’s second-in-command and de facto successor. I think in a perfect world the Dems would’ve strongly preferred her over Powell for the top job, but they didn’t have the political capital on hand to put up a fight. They know that the Senate Banking Committee led by Ranking Member Pat Toomey (R-Pa.) is on a rampage this month, having already sunk Saule Omarova’s bid to be head of the OCC because she is too lefty:
Of course, this tweet was a gross mischaracterization of the Saule Omarova affair; notice how the NYT tweet has 500 likes, but this reply tweet has 4,500 likes:
Powell’s appointment will sail through with 80+ votes and bipartisan support, I think Lael’s nomination would’ve been more of a 50-50 dogfight. Dem leadership decided not to risk it, better to go with the safe choice (Powell) and not spook the markets. The markets know Powell, the market likes Powell, he was the safer choice, he will keep them calm at a delicate time. Besides: if worst comes to worst, the Dem administration can always (justifiably?) blame inflation on Powell if things keep spiralling out of control (which they look to be). After all, he is Trump’s guy, and he is the one who printed all those trillions. The perfect fall guy.
Lael is equally as lefty as the aforementioned Saule Omarova, if not more so (she never shuts up about green finance and equity). In fact, it is pretty clear that she cares more about fighting racism/climate than she does about fighting inflation… which would be fine, honestly, if that were the Fed’s mandate. It isn’t. If the Dems want to tack on 2 extra mandates (climate + racial equity) to the existing 2 (price stability + full employment) they will need to do it officially by codifying it in law, not by underhandedly installing their own activists/ideologues into top bureaucrat jobs and then browbeating hawks into submission. Mission creep is very real and very dangerous; it has been written about extensively by economists like Cochrane, Salter & Smith, and Summers who warns that “We have a generation of central bankers who are defining themselves by their wokeness, they’re defining themselves by how socially concerned they are. We’re in more danger than we’ve been during my career of losing control of inflation in the U.S.” Of course, I also wrote an article called The Federal Reserve Goes Woke.
Freshly reappointed, Powell immediately felt empowered to announce what we knew all along: that inflation was officially™ no longer transitory.
Funny how this realization comes immediately after Biden agreed to reappoint him. Wow, it is almost like he was feeding us bullshit up until that point. Weird! Then Yellen came out on Dec 2 and confirmed “I am ready to retire the word transitory.” She was promptly backed up on this by the CEOs of Wells Fargo, Goldman Sachs, and Bank of America. It is official. The transitory narrative is dead.
What do I predict the next narrative will be? Thanks for asking. My theory is that Christine Lagarde is currently trial-running the “hump narrative.” This seems to be the newest line that they are pushing across the pond, and feels like only a matter of time before Psaki or Yellen are droning on about “hump this” and “hump that” over here. It is one of those cutesy little buzzwords that these fake policy wonk types love (“K-shaped recovery”, anyone?). Really? Inflation will be “hump-shaped”? That's the best you could come up with? Vous devriez m’engager pour écrire du meilleure propagande pour vous, Madame Lagarde, mon propagande serait beaucoup plus crédible.
The actionable advice here is to ignore what you are told by any swamp creature about “hump-shaped” inflation; the only sensible/prudent approach to inflation is to view it as “high” and “indefinite.” Anyone telling you that inflationary pressures will subside in 2022 is either 1) guessing, with no proof to back up their claim or 2) talking up their own book.
The corollary of #TeamTransitory being buried is that the tapering timeline will now be accelerated (reportedly double the pace, up to $30 billion per month) and rate hikes will be moved up. Larry Summers is urging an aggressive policy of 4 rate hikes in 2022 to restore credibility: (“That will be a jolt. But a jolt is what is required to restore credibility.”), but nobody really knows how expectations around these rate hikes will be managed. Clearer guidance is expected to come at the Fed meeting next week (December 14-15). Maybe I will livetweet that meeting! Follow me on Twitter.
Taking a Victory Lap over #Teamtransitory
I don’t fault #TeamTransitory for being so wrong, but I do fault them for being such insufferable douchebags while they were in the middle of being so wrong. These smarmy “technocrats” couldn’t predict water if they fell out of a boat, yet strut around believing they are fundamentally better people than you, and clearly feel they should be hailed as magnanimous saviours for printing trillions of your own dollars and then handing those dollars back to you… while failing to realize that these trillions can only be paid back in one of two ways: taxes or inflation. Now the inflationary chickens have come home to roost and the poorest Americans are the ones paying the price. Even Noahpinion agrees it is time to spike the football:
Bloomberg TV @BloombergTVFormer Treasury Sec. Lawrence Summers says he'd encourage the Fed to signal four rate hikes in 2022. Watch the full conversation during #WallStreetWeek tonight at 6pm ET ▶️https://t.co/cnsV0JHv5b https://t.co/24f7CRiVVN
When criticizing a movement, it is useful to see who its leaders are. Krugman wrote this article called “I’m still on TeamTransitory” (lol) just a couple of months ago:
FWIW, here is what I wrote about Krugman 7 months ago:
The replies to that Kruggles article yield a clue as to the origins of #TeamTransitory:
OK, so Sahm started the #TeamTransitory movement and has been shilling it as “science” over the past 6 months in NYT, WaPo, Barron’s, Yahoo, Politico, Quartz, CNBC, Business Insider, Gaurdian, PBS, Bloomberg, and anyone else who would listen. Literally originating and spreading fake news to millions of people. Let’s hold her accountable as the face of her own movement then, because I was always told that in the forecasting world you live by the sword and you die by the sword. How did her forecasts hold up?
The hawks got inflation right, while she was wrong every step of the way, from “inflation won’t happen” to “inflation isn’t happening” to “okay inflation is happening but it is worth it and a good thing.” This is indisputable. Surely she accepted this defeat with grace and humility, right? Haha. Of course not. Check out a small sample of the things she has said about Larry Summers in just the past couple of months. Each quote is funnier and more unhinged than the last, especially considering how badly she lost to him:
Anyone as clueless about reality as Larry should not be listened to.
A big reason I am so vocal about Larry is that his macro analysis is a heaping pile of shit.
if Larry Summers and his fangirl Heather Boushey were not such horse's asses, I'd be working the Admin under Yellen. I turned down the interview. I would gouge my eyes out before I joined the Biden Admin.
hey, Larry, could you send me what you're smoking? it must be some really good shit
SUCK IT, LARRY!
[mockingly ] Larry’s smarter than I am. As I am told, repeatedly.
Larry has gone unchallenged for decades. It’s time for other people to lead. You could say Larry Summers suffers from a skills gap in the current environment.
look, people. why has Larry gone completely irrational and obnoxious during the past year?
I will take Larry down. Larry time to retire ...
why listen to Larry? oh yeah, so you can roll your eyes at him, tell him to stfu, and then do the opposite
I gave a talk where I was asked to bring my best Larry Summers and spin a story of high inflation. I tried my best -- better than he does -- but really it was weak.
I hope Larry and his crew enjoy this moment. it's transitory. hawks day in the darkness always are. daylight comes and they fade away.
Larry is just a pain in the ass.
I am fucking done with the constant battle with Larry Summer and his academic macro team.
Larry’s advice is the opposite of what we should do.
suck it, Larry. you lost. just barely but you did.
He’s a good way to know the opposite of how to think about the economy.
WE ALL KNOW HOW POOR HIS ANALYSIS IS. AND HOW DANGEROUS.
I want to be very clear Larry is not leading a "critical conversation" we need. HE'S THREATENING A ONCE IN GENERATIONS OPPORTUNITY TO DO GOOD, EQUITABLE ECON POLICY. I will offer EVERY SHRED of my academic cred (most is gone already, thanks snowflake dude). to make that case.
Just ignore him. We should give a rat's ass what Larry and crew think. I know I am on the right side of history.
inflation hawks ruled the roost for decades. LARRY, I CAN OUT-ARGUE YOU. I AM AND I WILL
Larry, go back to grad school and kindergarten. better economics and manners will serve you well
I got Joan Robinson scholarship at Denison where I was a triple major in econ, political science, and German with 4.0. Larry doesn't stand a chance.
Larry is a dangerous man,
Larry truly is a walking policy disaster. man is a walking policy mistake
Larry is an obnoxious storyteller and abuses data. I’m a better storyteller and I love data and people!
I would loooooove to see 'raw-smartness' Larry take the first-year micro exam at Harvard. this was not his textbook. it was mine.
I would be happy to do stats work for Larry and fact-check his work. my hourly rate for him is steep, but he can afford it.
Larry is not alone in horrendous takes
how broken are elites that they still care about this man and his ego?
lowest of low was Biden calling Larry [for advice]. srsly, childish, self-centered goofs like him must be ignored, NOT called by the President.
lowest of low was Biden calling Larry. srsly, childish, self-centered goofs like him must be ignored, NOT called by the President.
I get a lot of DMs about Larry and his incredibly bad takes on inflation. his abuse of economic reasoning breaks my heart. he should listen to [me] but won’t.
Larry is the master of silencing people who make good counterarguments. his crew are masters of never listening to anyone else.
Larry's a total fucking waste of my intellectual time and emotional energy.
let me be very clear, I do not give a flying fuck (technical macro term) about Larry.
Larry is a threat to humanity, has been since his time as Treasury Secretary. THAT WAS DECADES AGO. I have trashed my reputation among elite macro and faced repeated professional retaliation by going at Larry's *economics* in public. WORTH IT.
I am ignoring Larry and his crew forever. . LARRY ABSOLUTELY CANNOT INFLUENCE THE FED. thank god.
was writing a “Fuck Larry Summers” Substack post in my head this morning.
frankly, I am utterly unimpressed with his debate skills. his analysis is model-less (as he admitted in an interview) and he is uncurious (and sloppy) with data. oh and that tone. good lord.
go away, Larry, you have done enough damage
Larry Summers, please retire. I hear Cape Cod in the winter is great!
they gotta have something to communicate first. unless your Larry. then you just say shit.
.American people don't care if Larry's feelings were hurt.
I have learned a lot from the very smart, sensible economists worried about inflation. Larry is a waste of my time and energy. he's also a walking disaster for the world. so yeah, if I could cancel him I would. it is not possible. true broadly.
academic elite macroeconomists of Harvard/MIT/Chicago like Larry have wasted so much time advocating for disastrously bad policies.
I honestly do not get the appeal. Larry's a goofball and epic bad grasp of the real world.
can't ignore Larry but god forbid, you follow his advice.
Larry, there's this neat thing called reality. Would you like to join us?
Larry Summers more than any asshole idiot has fought the past year and half to silence my speaking truth to power -- he and his masters -- AND giving evidence-based policy advice. motherfucker got me blocked from doing fiscal press at a place. SNOWFLAKE who hates the truth.
Larry Summers is a hawk hack.
Larry Summers is a disease and a shithead economist. 100%.
Larry Summers is a symptom of a disease in economics. also disturbing are his elite crew who work hard to silence those who disagree on merits.
OMG 3 PERCENT INFLATION, save us from ourselves, Larry.
Larry Summers is one of the loudest and certainly the most colorful of the inflation hawks. it's a risk we should take seriously but given his earlier work, why is it Larry?
"Larry sounded so convincing." yes, that's the problem. he sounds convincing now too, that's why y'all give him a pass. it's not healthy.Larry is destroying the world.
my criticism of Larry and his crew, especially this year, is fully grounded in the economics. in terms of policy, during the entire crisis, I have worked extremely hard, despite a lot of professional retaliation, to deliver the best advice I can. that's me.
"because the CPI said so" is an argument Larry should try. at least it's data
Larry is the dangerous man and the Fed's NOT done its job EVER.
Economists get paid well even when disastrously wrong, forever. ask, Larry Summers.
Larry and his crew are sadly just part of being a macroeconomist in policy.
Economists to do good in the world. Larry is something of a — I don’t know — I see him as a roadblock to achieving that goal,”
“anyone as clueless about reality as Larry should not be listened to. full stop.”
I wish the people who had really big platforms in macro and more professional stature that I don't would say something. Larry would listen to them.
yes, let's give Larry endless amounts of space to peddle his theories -- not models, as he admits elsewhere -- about higher inflation.
it's also important to retire what's not working anymore. did, you hear that, Larry? retirement is a thing.
yes, I’m pissed off. elite white men elevating Larry —- again and again, decade after decade — is why economic policy is so fucked up.
Again: this is a small sample of the things she has said about Larry Summers in just the past couple of months. He has not acknowledged her existence. How does Politico refer to this parasocial trolling? They gush that she is “sparring with Larry Summers,” as if she were some avant-garde iconoclast engaged in a scholarly debate:
I actually googled this Politico reporter to see who would write such a thing, and it was some 30-year-old chick with a journalism degree. Of course. God forbid they have someone who understands economics covering the Federal Reserve beat, lest they fail to regurgitate whatever Claudia tells them to. Much like how CS wrote her own Wikipedia page, in this case, she has deemed Larry to be “sparring partners,” so the vapid millennial reporter dutifully reports it, and so the world turns.
Imagine for one minute if I personally were to spend months on end yelling these exact same quotes at a senior scholar in the economics profession. Would you call me a deranged, obsessed stalker? Perhaps you would call me a low-IQ angry clown with bad impulse control. Would you pat me on the back and tell me I was doing a good job, as her #EconTwitter “friends” are doing? Or would you tell me to sit down like a petulant child?
What does a professional Twitter troll crave more than anything? Attention. So I guess in some way I am validating her strategy by writing this article, but my tiny blog is a drop in the ocean compared to the amount of attention she receives from the mainstream press. Her plan to garner attention is going swimmingly, so why change course now? Better to double down and assure us that it is still transitory, and insist that Americans are “winning right now” and that “inflationary” could actually mean “indefinitely”:
If Covid lasts for 5+ more years, and inflation runs in the double digits the whole time, it will still have counted as “transitory” according to her definition and MMT will not have been to blame. Got it. Oh, do you disagree? What are you, a racist bigot nazi?
What a ridiculous cope. Who still agrees that inflation is transitory as of December 2021? Any serious economist? Only the most contrarian of contrarians.
A trend is emerging: she constantly denies reality and is blind to her own partisan bias. Let’s ignore for a second that this is the worst imaginable trait for a professional forecaster to possess (the tendency to deny reality), I also find this behaviour fascinating because it is a generalizable phenomenon to all libs. This is how they deal with their cognitive dissonance when reality clashes with fantasy — deny, deny, deny. Ask them if printing money causes inflation, or why Sweden leads the developed world in rape per capita (hey, maybe Kurt Mitman fits in as an immigrant there after all!). Their brains simply default to deny, deny, deny followed by changing the subject and moving the goalposts. These are broken, delusionary humans who deserve our pity. Once again, I would point to this research from Philipe Lemoine:
After I tweeted this enumerated list:
She now refers to me as a “hateful stalker”:
A hateful stalker? For posting her words verbatim, showing that she is a hateful stalker? This is psychology 101: whatever the neurotic/gaslighter/narcissist person is is doing, they will assign those characteristics or behaviours to you. It's a form of denial (deny! deny! deny!) and is taken to an almost comedic extent in this case. Let’s take the psychoanalysis one level deeper:
After calling me a hateful stalker, she now calls me racist. More projection? It is pretty funny: I love how when backed into the corner, the triggered lib will always just make up random accusations and hope something sticks or isn’t checked out.
What I find more despicable than calling me racist, however, is that she weaponized her mental health in an attempt to shield herself from criticism — treating it like a “get out of jail card.” Newsflash: When you choose to do the wrong thing over and over again, it is a choice, you are making a choice, you have agency. It is wrong and immoral to seek to escape the consequences of one's tweets, especially when you have 40k followers and a blue check and write articles in the NYT. To say you have no choice is to relieve yourself of responsibility, and that's not how a person with integrity acts. Being turboaggro and hateful and blaming it on a mental illness is not okay: it betrays a boomer-tier understanding of mental health. Educate yourself. Vous n’avez pas carte blanche to be an asshole — especially when others (not me) are only criticizing your terrible ideas (transitory inflation) on their merits (or lack thereof). We all have problems, we all need to learn to deal with them ourselves and not inflict them on the world. Stop turning your personal problems into the Econ profession’s problem. Either deal with them or shut up and stop aggressively tweeting bad opinions about inflation hundreds of times per day.
Besides: why is your mental health more valuable than Larry Summers’? I do not see any reason I should value one more highly than the other. Surely, you are inflicting mental duress.
My overall impression here is… amazement. I am in awe of the sheer audacity required to play the victim while bullying him for months on end — this is extremely manipulative/sociopathic behaviour — some might even call it toxic femininity. Nobody in the entire profession spews more bile than CS, so I am puzzled at her inability to grow a thicker skin. Can dish it out more viciously than anyone in the entire profession… but is unable to take mild criticism without ‘sperging out? Sad. The dread of criticism is the death of genius.
Imagine someone who whines non-stop and claims she is persecuted for being female even while fomenting persecution campaigns against everyone else. Perhaps you could frame this as exemplifying a wider cry-bully phenomenon on #EconTwitter: it is a cesspool rife with people who hector and scold about civility and claim to be victims of other bad actors, but engage in a nonstop stream of venom and abuse toward other people on a regular basis. Imagine the hubris it must take for this person to aggressively self-promote themselves to millions of people in the mainstream news as *the* authoritative voice on inflation, and then scream histrionically about racism (???) and mental health when you are verifiably proven wrong. Sorry, but you very deliberately positioned yourself as the public face of your movement, you paraded yourself around on national TV telling others you were THE ONLY PERSON WHO SHOULD BE ALLOWED TO SPEAK ABOUT INFLATION, and now your rants about Larry Summers speak to your credibility (or lack thereof) as a forecaster. This is all fair game for me to dunk on. Someone has to. I am providing a public good.
Why is a 20-something burnout like myself lecturing you on how to be a responsible adult in the first place anyway? Why are you getting into slap fights with me? Aren’t you like 50 years old? Get your shit together. Millions of families are going to suffer because of your terrible inflation forecasts. Your macroeconomic intuition is bad, you are a mean authoritarian, and you should feel bad.
Propaganda is Your New Normal
It was clear from day 1 that the Biden regime would go the “blatant DPRK agitprop” route for controlling messaging around inflation. Remember a year ago, when they hilariously discontinued M1 data because it made them look bad?
Every month since then has been the same predictable garbage. We are currently in November, so we are treated to their Thanksgiving-themed talking points:
Can’t afford a turkey this year? Just eat bugs and soy! JFC... we really went from “inflation is transitory” to “eat bugs instead” this quickly? I would love to talk to the bureaucrat that approved this tweet and thought it was a good idea. What was the goal — to provide sassy vegan nutrition advice? Why is a regional central bank doing this? The person running their social media needs to be fired. This stuff erodes trust in the financial system, and is reminiscent of how all public trust is lost in the public health system:
These types of sassy tweets bubble up when you let affirmative action DMV ladies capture your institutions. They tweet stupid bullshit and erode your credibility. Remember on 4th of July, when they told you inflation wasn't a problem because the Fourth of July was 16 cents cheaper on average this year:
Which in turn had the same tone-deafness as the Democratic Congressional Campaign Committee, who tweeted this monstrosity a couple of days ago:
Arguably the worst chart I have ever seen — it is something you would teach a schoolchild in a simple lesson on how to spot “lying with data.” You’ll notice that this is a 2-cent drop in gas prices, but when you zoom out the Y-axis is manipulated to make it seem like some monumental achievement.
Once again: which staffer thought this was a good idea? Who approved and then tweeted it? Just how dumb do elites think proles are? Truly amazing stuff — the contempt and derision are palpable. Not to mention that the Biden regime just spent the past 6 months saying “Rising gas prices aren’t our fault! The President doesn’t control inflation, sweetie!” and then they turn around and tag the President in this tweet, saying “thanks” for a 2 cent drop? Either you are responsible for all price swings, or none of them, you opportunistic turds. It is no wonder these intellectual lightweights are getting manhandled by OPEC.
And it is no wonder that state propaganda backed them up on this new talking point:
The Biden administration has no plan to fight inflation. It is time to stop denying you have a problem and take action. They need heavyweights like LS back in the White House, they need adults in the room. Do you think anyone there actually respects Heather Boushey? Lol. If Biden were cogent, he would realize that the smart play here is to fire Heather Boushey and replace her with LS who has been right all along.
A funny tangent here is that Claudia has also declared jihad against Heather Boushey, and used her connections at Politico to run this headline:
Getting back to the thanksgiving theme, Liz Warren then declares war on "Big Poultry" for high turkey prices, continuing a trend of blaming inflation on greedy corporations. This is a very popular talking point on the left right now: they are aggressively pushing that inflation is a result of greedy corporations, as argued in this Robert Reich article and this Kyle Kulinski tweet:
Adam Tooze @adam_toozeUS corporate profit margins surge to highest level since 1950. https://t.co/sXTipXELNV https://t.co/nnmJmb3jES
CNN just spent the past 6 months telling me that inflation wasn’t real… but now that it is real, it is a good thing? If it was a good thing all along, then why were you arguing so adamantly that it never existed? Is this new talking point (“inflation is good for poor people, actually”) actually real? How stupid do they think the public is?
Don’t worry, Americans just need to learn like Europeans (i.e., consume less). Sounds eerily similar to Sultan Erdogan’s advice to his suffering Turkish people to “eat less” as a sacrifice for the good of the country:
Turkey… Serbia.,. Argentina… notice anything about the company that the USA finds itself in lately? Congrats, the USA is well on its way to 2nd-world status — soon, the Brazilification will be complete. I hear Portland already has favelas. Like all good 2nd world countries, the American elites are condescending, stupid, and out of touch:
This person works on the NYT editorial board and is amazingly somehow even wronger about inflation than Claudia. She confidently asserts that rich people hate inflation because “assets aren’t doing as well as they’d like” (the S&P 500 is up ~30% YTD lmao) and that the working class’s income is keeping pace with or outstripping inflation. Again: wage growth is at +4.8% while inflation is at +6.2%. Is Sarah Jeong genuinely this stupid, lazy, and uninformed? That would be a charitable assessment. My honest assessment is that she is just another scumbag journalist deliberately provoking a reaction. Just another Twitter troll craving attention. Congrats on your 300 retweets. All it cost was Western Civilization.
Here is the thing about my inflation thesis: I have already laid it out ad nauseam in my first 5 articles, so now there is nothing left to do but sit back and watch it play out.
This is already a long article — I don’t have the bandwidth right to lengthen it by summarizing the fundamental drives again and again and again — there are only so many times I can quote Milton Friedman about monetary phenomenons. Maybe I will get back on the horse next month and take some deep dives into individual drivers of inflation e.g. energy, food, fertilizer, housing. For this month, I guess I ran out of time and focused more on qualitative/political analysis.
Reminder About The Bond Market
The other final holdout on #TeamTransitory is a tiny little thing known as the bond market:
This is their last hope, and it is not a strong hope:
The answer to Cowen’s question (What is it that you understand about the Fed that the broader market does not?’ I have yet to receive a compelling answer.) is simple, I do not know why it is put forth as such an unanswerable conundrum. The answer is twofold:
The bond market has historically been a lagging indicator of inflation.
The bond market is currently highly distorted due to QE (everyone knows this).
In terms of prediction markets & binary options, my track record so far is 4/6 correct months. This month I am hoping I can go 5/7… which starts to sound like a respectable record! Let’s take a look at what people with skin in the game are pricing in for November:
I think “Yes” on Polymarket is the obvious play here.
Notice that Polymarket threshold is 0.8%, while the Kalshi threshold is 0.9%. To compensate for this 0.1 bump, you have only compensated 14 cents. I think there is more than a 14% chance that the exact number this month ends up being 0.8%, so, betting with Kalshi rather than Polymarket is almost certainly negative expected value.
7 of the past 9 US inflation prints have beaten the consensus forecast. The consensus forecast this month is 0.7%. Therefore if anything, picking the “over” on 0.7% on Polymarket should be the safe play… and yet you are getting underdog odds. Feels like a mispricing.
My projection for November is 1.0%. To see what that looks like, I have crudely projected this chart one step into the future. Obviously, this is a crapshoot… but for whatever reason, I just feel like my blue bar is very reasonable. I feel good about it.
Hedging Against Inflation
I am writing a standalone post called “How to hedge against inflation.” Subscribe now, for free, to get that in your inbox:
Here is a link to my Discord community: