YouSaid · the spoken record

Mish Shedlock

lines on the record: 48
first: 2022-09-01
most recent: 2022-09-01
sittings or episodes: 1
sources: podcast

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“The imploding property bubble there and because of its COVID lockdown policy. For the United States to buck that trend, there was this widespread belief in 2008 that China was going to diverge from the world economy. Now everyone seems to believe the US is going to diverge from the world economy. That thought was wrong in 2008. That thought's wrong now. We're headed for a global recession.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Going on in Europe right now, it's also leading one of the things leading to the strength of the US dollar. So it'll be interesting to see what the ECB does going forward, especially, I mean, Europe is in a much worse position here because of energy than the United States. So it's really going to be interesting to see what the ECB does and what they do. also means strength or weakness in the US dollar index because that's what 62% or something of the US dollar index the euro so you know there's a lot going on but if I can just finish up with one point Germany is clearly in recession right now Europe is probably all of Europe is in recession China is very weak because of”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I think what Powell will do was he would just try to emphasize his hire for longer. So what that means is trying to get the market to believe that he's going to hike to, let's say, 3.5% and hold it there for all of next year and maybe beyond. I think that's his mission to get the market to believe that. And that's what he will try before he gives up. But we're too early yet. He's now going to give up yet.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“You know, No, I c I I think that gold is going to be good in the future. Maybe it's probably just not time yet, but the way things are going, it's a hard asset that can't be printed. So that says a lot.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Let's say you lend money to Illinois a billion dollars. It's time to repay. I'll lend it back to you again. And we just keep going forever. That's basically what QE is anyway, right? Just kind of lend you money and you can let you roll over the loan forever.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I know what they're going to do. I'll tell you, the Fed is going to fund it. We already saw this happen during COVID. The Fed had this emergency facility. They lent money to the Illinois government. They lent money to New York City as well. So, you know, one day when we have the next crisis, when many, many of our good citizens are retired and unable to afford anything, well, the government is going to call the Fed and they're going to bail them out. I think that's...”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Well, the interesting thing about Illinois is despite this massive increase. It's in worse shape than it was three years ago because they didn't put any new funds in. And with all the people retiring and the increased automatic increases in some of these pension benefits that the Illinois legislature mandated and built in there this massive rally did not help Illinois at all. So what are they going to do in a genuine downturn?”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Valuations where they are whether you use the Schiller 10-year smooth PE or the Warren Buffett indicator by any measure the stock market is overvalued. I think gold is way undervalued here. I certainly wish I sold it at the top. I didn't. I actually did sell some then, but not enough. We'll see. I think it's just going to be a really hard environment for stocks. And the interesting thing which we've not discussed yet is what that means here for pension plans. You know, Illinois pension plans are essentially insolvent and it won't even take a huge decline in the stock market to get there. Yeah, when they're expecting 8% growth year after year after year, if we just get 2% rises in the stock market for the next five years, which would be about the best I could absolutely see on average pension plans are in a world of hurt.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“It's more of a semi stagflationary time. You know, gold did very well in the 70s and 80s in the stagflation period. It's now acting as if the Fed is actually going to bring inflation under control. So yes, in that sense, or if the sense that the Fed does not hike as much as implied here now, that the Fed has penciled in, that gold somehow seems to believe, even though the euro dollar curve doesn't. Now, that's the amusing thing here about the way that gold is acting. So I'd say one of those beliefs is wrong. You know, the euro dollar curve or gold, which one is it? But it's going to be tough with...”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“If the Fed pivots, then that I guess that would mean that they won't be able to control inflation they're going to give in. And so that's when you think that's when gold will start soaring because it's thinking that the Fed won't tighten enough to kill inflation. So we'll kind of be living in inflationary times.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“It's what the faith in central banks, primarily the Fed, is going to do. And gold is picking up on that. Gold seems to believe. And if gold starts shooting back up and saves starts shooting back up, that's going to be the message that, hey, gold thinks the Fed's going to pivot.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“And the amazing thing about that speech is the ECB did nothing. All he did was make that speech, but gold peaked right about that time, fell back from 1750 to 2000. Gold started rising again, made new highs when it looked like inflation was going to get out of control. And the Fed belief then was the Fed was going to pivot. Gold started going back down when it realized, you know, hey, guess what? The Fed might not pivot. That's the way you need to think about gold because if you just look at the US dollar index, gold at the US dollar index right where it's been has been at 300, 800, 1200, 1700. So it's not really the dollar.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“That's not it. Yeah, what gold, if you pull up a chart, and I posted this chart before, gold is really reacts in terms of, you know, does the Fed have things under control or not? If you pull up a chart, that's how it acts. I mean, gold fell from 850 to 250 between 1980 and 2000 with inflation every step of the way. But guess what? There was a lot of faith in the Greenspan Fed. He was called the Great Mice.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Me as well, actually. I was thinking gold would do well, but even though inflation was high, it didn't seem to respond. It seems to respond much more strongly to dollar strength. So when the dollar went up, the gold went down. It's just kind of traded like a currency, basically, against the dollar.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Has certainly underperformed what I would have expected to do. Typically in the initial stages of recession, gold gets hit pretty hard. What the miners got hit a lot harder than what I thought they would do. And I think that's just now belief that, like I said, there's a divergence here between what the stock market thinks the Fed is going to do and what's implied by the price of gold here and how gold miners are acting. Gold certainly surprised me to the downside here.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“You know, I'm not, I've always been a believer that cash is not trash. There's an opportunity cost. And I think, you know, waiting appearing high in cash here, I think after this pullback, energy prices, energy might be an okay sector. The healthcare with all the boomers retiring. I think healthcare. I'm in some private placements that I can't talk about in the healthcare industry that I think are going to do phenomenally well. But you're going to really have to pick your spots here. Gold.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“That's definitely not going to happen. So just for context, so the Fed wants to have a maximum roll off of $35 billion a month in its mortgage securities. And that's just not going to happen because when you calculate the principal paydowns, it's about $25 billion a month. So there are going to be about $10 billion short every month going forward. The only way they could make that up is basically by selling mortgages outright and we haven't heard them talk about that for some time. I don't know if they'll do it. We were speaking with Chris Raylan last week and he didn't feel like it was a good idea to do. It wouldn't be easy to do.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“If there is some trouble in the treasury markets, there are other tools that can do that. As we've talked about before, the U.S. Treasury is thinking about doing buybacks, and they could easily handle any problems in the Treasury market without the Fed stepping in and just going back to QE again. So that's kind of a good thing too, since you can separate monetary policy from just basic market functioning.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Let's say if the Fed wanted to pivot, I mean, there's a lot of different ways they can do that. Doesn't have necessarily be straight up rate cuts. Maybe they're higher for longer just doesn't get very high to begin with. Maybe they get to 3% and they just hold it for a while, hoping that things will inflation will tamp down. Now, Jack, I agree with you. It's very unlikely that they would start expanding the balance sheet. Now, for the Fed, and this is almost religious thinking on their part, is that When the balance sheet and the rate cuts have to be in the same direction, and usually you expand the balance sheets after you exhaust the rate cuts. So if you wanted to see the balance sheet expand again, what you would first expect is for rates to go to zero and then the Fed to do balance sheets. That's just kind of the sequence there. Since I don't think any of us expected rates to be cut to zero anytime soon, then you probably shouldn't expect the CQB rolled out either.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“So I think one of the things that to keep in mind is that the authorities, they have a lot of levers they can to try to tap inflation down. And one of the levers that they act on is through the banking sector. So what they could do, for example, is that they could raise the regulatory costs for banks to create credit, something called the counter-cyclical buffer. And when they raise that, that makes it more expensive for banks to make loans that reduces credit creation and could slow down the economy and thus lower inflation. So when you're thinking about the Fed, the toolkit is not just interest rates and balance sheets, but they have this regulatory side too. And as I understand, they're thinking about using it. There's a lot of things they can do that just don't have to be just standard monetary policy tools. If the Fed wanted to slow things down,”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Those places. You know, we blew a housing bubble to fix that. Then we blew a dot-com and we blew in everything bubble to fix the aftermath of the great recession. But one thing is different here. The stress on banks, this recession is nowhere near as big as it was during the Great Recession. We had all the liar loans, people walking away from loan. Banks were hit extremely hard during that. They're not going to get hit as hard this recession, especially with the Fed paying all this interest on now any reserves, not just excess reserves. And it's reserves that the Fed crammed down their throat. And they're not going to unwind all of it. So all of that is going to be able to support a condition where the Fed can keep interest. Rates a little bit higher and not panic like it did the last two times”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“So, even if it's at two and a half percent, let's say with the Fed not doing QE, that's quite a bit different of an environment here in terms of profit, in terms of zombies, which I expect a lot of them to go bust this cycle with housing not picking back up. That's not going to be good for durable goods. It's just going to be, I can keep coming back to the same thing, a period of long weakness that can't be good for the stock market. It's just not a very good picture. And all it is, really. We're just discussing payback for three consecutive bubbles. We had the dot-com bubble. It was coupled with bad loans to South America, Argentina.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I agree with you, Misha. I think the lows for, let's say, the 10-year are in, I think 10-year inflation is going to go higher and 10 years going to go higher. I think one of the side effects of having a Fed that's not willing to take pain to get rid of inflation is that inflation will be structurally higher, not just for all the good factors that you mentioned earlier, but also because policy is probably not going to be determined enough to put it into high inflation. So let's say we have structural inflation that's 3% 4%, maybe 5% higher than naturally that means that the tenure will probably higher as well. So nominal interest rates would be higher as well. No, I agree with you there. And if that's the case, then you have to imagine that the stock market will not be, well, not be doing very well, right? So if we have interest rates that are going higher, let's say the 10 years at 4%.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“This bubble is, I think there's going to be this euphoria, maybe temporary while the Fed finally does this pivot, as you call it. But I don't think we're back to the racist. I don't think the Fed's going to launch this massive QE, maybe a cut here or a cut there. Is that really going to be enough to support the stock market based off of what's priced in? My answer is no.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Discussing the euro dollar curve that's implying cuts next year, whereas the Fed is like, well, we're going to hold here, hold here, hold here. And then even if those cuts come, what does it really mean? It's going to mean that the economy is a lot weaker than the Fed expected. But I think the bottom in interest rates is in. I was a big deflationist for many years. And granted that there was some deflationary forces still out there. Retirement has two sides, but the deglobalization and decarbonization was the kicker for me. It's going to be hard there. So, you know, if the Fed can't get interest rates back down to where they were, and that's what it took to create.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“trade off between unemployment and inflation. And I get the sense that they're very sensitive to unemployment, that maybe even increasing unemployment by a little bit is just not worth it to them. So, you know, we'll learn a lot more about this as we have more coming meetings. I don't think the futures market is as wrong as I used to think it was.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“You know, so I think he's going to try to carry out the plan. I just don't think that he has the resolve to do so. So, you know, like what we've been talking about higher for longer, I think he's going to try his best to get there. I just think that if we have just some kind of hiccup along the way, like let's say we do enter into a recession and it's moderate. And, you know, as Mish noted, we have a lot of signs that that's kind of unfolding. I don't think he'll be able to hold higher for longer. It's probably going to be higher for not very much longer. I think the futures market is probably not wrong. I think it's not unreasonable to think that Paul would be, and it's not about where the economy is. I think from my judgment, it's more about just who sits on the FOMC and what their beliefs are and just how strong they are and how they make this.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Now, when unemployment is 3.5%, inflation is 8.5%, Fed funds is 2.5%, and you're worried about overtightening. This tells me that this is a very, very cowardly Fed. This is the Fed of Arthur Burns. Now, if that's true, I don't know. I don't know if he'll go through with a hawkish path. I think he'll try, but I think ultimately he'll cave simply because that's just kind of the politics and the culture of the moment. And you guys, we had Valker, but before Volker, we had Burns. They were both good men, just men of their times. And I don't know if we're ready for an aggressive tightening.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Thinking about cutting rates, and maybe he'll cut a little bit. Now, in that case, maybe risk assets, I think, was to decline a bit, but maybe it's not like a crash. Maybe eventually we will stabilize and sometime next year. Maybe we'll start going higher. So I think that's kind of the two narratives in the market right now. Now, I was strongly leaning towards the former, and as I've talked about this many times, I was in the camp of, let's say, Bill Dudley, who mentioned that if soccer markets keep going higher, Powell is just going to hike more aggressively because he needs to get stock market lower financial conditions tighter to achieve his goal. I'm not actually so sure about that anymore. I've kind of pivoted myself. And that has to do with what I read in the most recent minutes. There's this line in the minutes where”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“So the Fed wants to tighten financial contradictions. That's how they think monetary policy works. And tightening financial conditions is codenamed basically for lower equity prices. So I don't think they like what they see here. Now, usually, and I think many people in the market expect that, let's say Powell Wool at Jackson Hall be reasonably hawkish and try to enforce his view on the markets that he wants to stay higher for longer. I think over the past few weeks, you've had some Fred Presidents come out and basically echo that message. Now, if that happens, I mean, we obviously have another leg down in risk assets and we have not seen the bottom yet. That's one possibility. Now, the other possibility, and I think this is something what the rates market is suggesting, is that Powell was going to chicken out, Fed's Pow is a pivoter. So come next year, he's going to start.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Wealth effect, I would have been very happy with the first six months of risk assets falling, but I would be quite irritated by the S&P 500 rallying over the past two months. How do you think the Federal Reserve reviews the upsurge in risk assets we've had since June, mid-June?”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“When they buy a home. The longer home prices stay elevated, the slower and weaker this recovery is going to be. So the Fed might engineer this after this recession, which were in. But we're going to flirt in and out of recession, perhaps for two years, because of all these imbalances that have built up and because of the constraints on the Fed due to deglobalization and fear of another interest rate spiral, which they're not going to want to do.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“When you look at what the Fed is telling you, they're not actually giving you a very aggressive rate hike path. They're saying that maybe they go to $3.5, maybe close to four, and they'll stay there. It seems like they're trying to avoid just this overtightening you're talking about. They're trying to say, I want to be higher for longer. However, what they mean by high is just not really high. Let's say they raise to a level that's like 3.5%. Now, I mean, that's historically not really high, right? I mean, back when we really had inflation at 8%, 9% Fed funds rate was 10%. So 3.5%, it's really low. And so I think what they're trying to do is just kind of keep it at this moderately low level for a long period and hopefully, I guess.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Right now, they feel pretty flush with cash from their stock market. That's going to support consumption for a while. But what if we get this big decline in the stock market that I expect? That's going to really weaken demand going forward. So I think at some point this is going to reverse and the Fed's going to cut, but can't cut as much as before because of deglobalization, because of energy, because of decarbonization. So this all adds up to my long period of weak economic growth, even if it's not quite a recession.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“We're definitely in a stagflationary environment now. We've got deep globalization, we've got a Fed that's going to probably overtight. I think that's going to actually kill the Where people would, you know, then step in and want to buy houses. But the longer that home prices stay afloat, the harder it is for the Fed to stimulate. may be the key to all of this. There's a record number of homes under construction right now. Eventually that supply is going to lower rents. That's what the Fed needs. But this might play out, what, six, seven months from now before these homes are all constructed. Meanwhile, the Fed keeps tightening. But there's a lot of competing forces. Also, boomers are going to retire.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think you make a really good point about just employment will be strong. And Misha, as you suggested that, you know, we have a lot of people retiring, right? And I've been thinking along these lines as well, when you have a lot of people retiring, you're basically decreasing the supply of labor. And so that gives labor greater bargaining power. So maybe unemployment remains low and wage increases remain high. Now, all those people who retire, they're, let's say, living off Social Security. Well, Social Security adjustments are based on CPI, right? So you have wages increasing at very high rates because of low unemployment. And the people who are retired, their social security payments are increasing by CPI as well. So you kind of have this, it's like a wage price spiral that you saw in the past. And, you know, you have other things happening. Biden is talking about giving everyone $10,000 off of their student loans. I'm sure more programs like that are in the pipeline.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Is another one $22 million are going to be retiring, so they're going to be replaced by who? By what, at what productivity. That's going to increase costs. Salaries, once they go up, tend not to come back down. So there's a lot of reasons to believe that we've seen the bottom in yields on interest rates. Also, the Fed is going to be very fearful of stepping on the QE gas again because of what just happened. So even if we get this big slump that I expect, I think the Fed's going to be reluctant to step on the gas like they did before. But, you know, I do think as long as employment stays high, the... And the PCE, which is the Fed's preferred measure, they're going to keep hiking.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I think a hard landing is baked in the cake regardless. It depends on what your definition of hard is. Because again, I expect unemployment to be relatively strong. Perhaps the strongest in any recession ever. It wouldn't surprise me at all. But in terms of demands for good and services, in terms of inflation, the Fed is going to have a really tough time. And deglobalization is another factor. The Fed had winds of globalization at its back. You know, US manufacturers were outsourcing to China to Vietnam to whatever. We're trying to onshore that. We're trying to bring that back. Guess what? That's going to raise the cost. That's going to raise the price of things. So wins that were blowing in the Fed's face are now blowing the other way. Productivity.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“You're gonna buy a new refrigerator. And, you know, even if refrigerator prices are falling or expecting to rise, if you don't need a refrigerator, you're not going to go out and buy one. So add it all up. And I came to, you know, you can add it up various ways, but I came to like 80% of the CPI is inelastic. Very little demand. So trying to control prices by reducing demand or increasing unemployment really isn't going to work, which is why I think the Fed is actually going to overtighten here.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“That is one way, but it's a slow slog, isn't it? Look at all the things that are totally inelastic. Rent, for example. The Fed has this idea that inflation expectations matter, yet there are actually two Fed studies done by the underlegs, which Powell and the key people on the Fed don't actually, they don't either read it or they don't believe it because they've been trained to believe the wrong things. A rent and owner's equivalent rent are 31% of the CPI. And you tack on another 8% for energy. It's pretty much inelastic. I mean, you can turn the heat down a little bit, or you can, you know, maybe take a less vacation and spend less gas, but that's pretty much inelastic. Food is pretty much inelastic. You know, guess what? If your refrigerator goes out, what are you going to do?”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I think just from my perspective, that gives him way too much credit, really. I really don't think they're intentionally do this. I don't get the sense that they know any better. And so they think that buying mortgages is good because we are helping people. So let's do that. Up 20% a year. Yeah, maybe that's a little bit above average, but oh well, the people at the Fed, they're well-intentioned, but I don't think they are very good at what they do. So now that the housing prices are reduced, that actually goes part of, that's part of what they're trying to do. So one of the ways that they can get inflation down, like I mentioned before, is to make people unable to afford higher prices. And if your wealth is a bit lower, let's say you had a few hundred thousand dollars in home equity.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“You know, I agree with you about housing. I mean, according to Zillow, my home price is down 15% in like six weeks. So that's a pretty big drop. I think though that I think the housing bubble this time is very much”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I think the Fed is going to make another mistake because I think we're going to start to see housing prices decline substantially. But guess what? That won't factor into the CPI. Rent will. Rent prices are still rising. I expect them to keep rising for a few more months. That's going to keep the Fed on the trigger of raising interest rates. And unless there's a credit event, which I really don't foresee because the economic conditions are simply not as bad as they were in 2008, especially with all the free money interest rate on reserves that are going to the banks is going to help cushion them for many losses that they're going to have, say, in commercial real estate loans. So there's a chance here, a very good one. that the Fed is actually for once going to go too far in the other direction. Any comment on that, Chosen?”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“To me, the Fed is, well, following sort of a wrong theory here. They're looking at the CPI and actually they're looking more at the PCE, but that excludes housing. And that was the big mistake the Fed made in the years leading up to the Great Recession. It kept ignoring forever rising housing prices. And it ignored them again. So we're back in this housing bubble. To me, and I understand why it's not in the CPI, because the word is consumer. Okay, houses aren't a consumer expense. But my idea is, so what? You know, what matters? Does inflation matter or just consumer inflation matter? This is where the Fed has made mistakes.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“They've actually been kind of open about this too. If you listen to what Jay Powell said at his last press conference, he kind of beats around the bush. He's trying to say it in the nicest way possible, but he's saying that we need below trend economic growth for like two years. So he's telling you that he kind of wants a recession, you know, hopefully not a really bad one, but we kind of need one to get it. And he has trouble telling being straight. He's not like the Bank of England straight up and tell you this is going to be terrible, guys.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I think that's part of it, but I think more broadly it's about inflation. So the Fed has a dual mandate, full employment, and price stability and what they've been saying recently is that they're really worried about the price stability part. As you know, inflation is still about 8.5%. Core is still high in rising. So from their thinking, usually the way that you get inflation down is you increase a little bit of unemployment. So when you have more unemployment, you have more slack in the economy. So that means the economy slows down and prices go down as well. Another way you can think about it is that inflation goes down when people can no longer afford the higher prices. And one way people can afford higher prices is if they don't have jobs.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“Industry. The last economics, the last retail sales report was another weak one and housing has been miserable since for about six months here now with existing sales falling for six months, today's housing report was an absolute disaster down 29% from a year ago. But interestingly, down 38.5% since January. Wow, when have you ever seen that outside of recession? And today we had the flash PMI report led by services. The PMI was 44 down from 47 and a half last month. Interesting thing about that is the last ISM services was really hot. I looked at that and said, you know, One of these reports is wrong. PMI, the market, well, now SMP. PMI came out again today. Services, again leading the decline. I think the ISM numbers are wrong. Anyway, add it all up. You're looking at other than jobs, everything looks recessionary to me.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT
“I thought we were in a recession in May, and I made that proclamation. We've had two quarters of negative GDP, but I don't think that's what matters. What matters, I think, is negative real final sales. Real final sales didn't really start to turn down until May. And in fact, a lot of things started happening in May. And, you know, I said back then, I said, I think we're in recession right now, but that was based off of my belief that housing was going to do what in fact it did do. But the April retail sales report was pretty hot. I looked at that and said, whoa. And then in May, what happened? Retail sales plunged. Target came out and warned twice. Walmart warned. Target warned again last week about, you know, the need to get rid of.”
2022-09-01 · Forward Guidance · The Fed Doesn’t Have What It Takes To Fight Inflation | Joseph Wang & Mish Shedlock · IDENTIFIED FROM THE TRANSCRIPT