Inflation Nation

Inflation Nation

The Fed has walked off the job. It’s no longer spiking the punch and inflating the economy. But the music is still playing; once underway, inflation can be hard to stop. Here’s the latest from the Washington Post: ‘Inflation in June soared 9.1 percent higher than last year, hitting a new peak amid rising gas prices’:

The Bureau of Labor Statistics inflation report for June reveals how American households and businesses continue to feel the weight of higher prices for housing, food and energy.

Meanwhile, Mr Market is trying to clean up.

The Street: ‘Oil Plummets on Recession Fears, U.S. Gas Prices on Longest Weekly Decline Since 2020’.      

Americans are saving around US$140 million a day as gas prices extend their longest losing streak in two years amid a sharp pullback in global crude markets.

Forbes: ‘Mortgage Giant Cuts Thousands of Jobs — Warns Of “Accelerated” Downturn As Housing Market Abruptly Collapses’:

Mortgage originator loanDepot on Tuesday unveiled a plan to cut thousands of jobs and reduce costs “significantly” as higher interest rates sink mortgage demand—becoming the latest company to warn the housing market is due for a steeper turnaround after the pandemic-era home-buying frenzy.

How to understand what is going on?

A market midden

There are bull markets and there are bear markets; this is a bear market.

There are up-swings in the long credit cycle and there are down-swings; this is a down-swing (rising yields).

Trillions of new dollars were born in the post-1971 free love, free money era. Now, those dollars — old and grumpy — are dying off.

Millions of Chinese peasants joined the modern world, worked for peanuts, and helped keep consumer prices low; now, China is out of cheap peasants, labour costs are rising, and the Fed must learn to fight inflation.

There are many ways to understand what is going on. It’s like digging down into a midden of market history. We come across gnawed bones and broken pots — each offers a little more insight.

And sometimes we find something, right there on the surface.

We don’t read The New York Times for news. We read it to find out where the deciders are going. Like the Soviet press, the NYT tells us only the part of the story it wants us to have. But it sends winks and nudges to the legions of deciders, insiders, the elite, the Deep State, and the Establishment. It signals important policy shifts. And in the last few days, the old grey lady gave us a heads up: Biden will not run again in 2024.

From the weekend:

‘Mr. Biden looks older than just a few years ago, a political liability that cannot be solved by traditional White House stratagems like staff shake-ups…Some aides quietly watch out for him. He often shuffles when he walks, and aides worry he will trip on a wire. He stumbles over words during public events, and they hold their breath to see if he makes it to the end without a gaffe.’

And then, on Monday:

‘Widespread concerns about the economy and inflation have helped turn the national mood decidedly dark, both on Mr. Biden and the trajectory of the nation… a pervasive sense of pessimism that spans every corner of the country…’

And here’s Yahoo! News piling on: ‘President Biden’s Approval Rating Drops to 33% as Overwhelming Majority of Democrats Seek New 2024 Candidate’:      

According to a New York Times/Siena College poll conducted last week, only 1 in 3 Americans approves of Biden’s job performance. Perhaps more daunting for Biden’s political future, though, is that only 26% of registered Democrats wish to see him secure the Democratic Party nomination during the next presidential election.

A crisis of faith

This is only important to us in that it points to yet another way to understand today’s economic and political malaise. And we begin by noting that widespread disapproval is not unique to Mr Biden. Donald Trump’s approval rating sank below 30% at the end of his term. During the 2008 financial crisis, even fewer people expressed confidence in George W Bush.

Nor is it limited to the US. Boris Johnson was just asked to clean out his desk. Emmanuel Macron is widely despised; 62% of the French public disapprove of him. German President Scholz is not far ahead, with a 36% approval rating. And this just in from Italy: ‘Italy’s govt faces collapse’.

What’s going on? Why do people have so little faith in the leaders they elect? What’s wrong with the Western democracies?

(Vladimir Putin, by contrast, is said to have an 83% approval rating.)

And how is this connected to our search for answers…why are markets in one of their worst sell-offs in history? Does the problem go beyond just money?

This may be the end of the long wave of falling interest rates. It may be the end of the Bubble Epoch, caused by the Fed’s ultra-low lending rates and money-printing. It may be the end of the bull market that began in March of 2009.

But it may also be the end of the line for modern, welfare democracies.

Stay tuned…


Dan Denning Signature

Bill Bonner,
For The Daily Reckoning Australia