Powell is channeling his inner G. William Miller.

Or is it Arthur Burns?

It’s a Transitory Inflation Fee!

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Remember that Austrian 100-year bond?

At the time I questioned the wisdom of buying a 100-year bond from a nation that had less than 100 years before endured a brutal hyperinflation, as recounted by Stefan Zweig:

At first the farmers were happy with all the paper money coming in for their butter and eggs, and they in turn hoarded the banknotes. But as soon as they took their fat wallets to town to buy things for themselves, they discovered, to their discomfiture, that they had asked only five times the price for their food they sold, but meanwhile the price of the scythes, hammers and pots and pans they wanted to buy had risen by twenty or fifty times.

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When Paul Volcker took over the Fed in August 1979, CPI was at already 11.45%, and the Fed Funds rate was 10.8%. He was a bit behind the curve, as that insightful cliché goes. (If we calculated CPI the same way today as Volcker’s era (e.g., if we properly measured things like housing, and threw out the goofy hedonic-quality adjustments,) inflation would be higher today than then.)

By December 1980, rates peaked at 22%, CPI having peaked around 14.5% earlier in the year. That’s a positive 7.5% spread above CPI. By August 1983, official CPI was back around 2.5%, and never went above about 6.4% again until 2022.

Today, official CPI is 8.5%, and rates are [cough] 0.75%. Curve the behind.

So let’s say tomorrow “Powell channels his inner Paul Volcker,” and they do hike 75bps to 1.5%. That’s still a negative 7% spread below CPI. So hawkish. By the way, the Fed bid on Treasuries TODAY.

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Then there’s this article, from the Financial Times: Jay Powell channels his inner Paul Volcker with tough stance on US inflation.

Again, “tough stance”? This is op-ed, not reporting. The author even references the Fed Dot Plot! The Fed Dot Plot has been a joke for over a decade. Anyone who treats the Dot Plot as anything other than Fed propaganda is showing their ignorance of history.

As is usually the case now with the FT, the comments are more illuminating than the article. Bigfoot nails it here: “We would be better off if all Fed employees were fired and replaced by a Taylor rule.”

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Speaking of shitty access-journalism, here’s a double-whammy of WSJ Fed damage control, from Jon Hilsenrath (remember him?), and WSJ Fed sycophant Nick Timiraos: How the Fed and the Biden Administration Got Inflation Wrong.

Again, this fluff is always presented as “news,” rather than a de facto Fed Press Release. The state of Fed reporting is beyond abysmal. There is no serious questioning. They're stenographers.

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• “It’s worth bearing in mind that central banks have been trying their damnedest since the Global Financial Crisis to create enough inflation in order to gradually inflate away the debt…”

• October 2021: Analysis: Inflation revival is a victory, not a defeat, for central banks Yes, inflation is back, and you should probably be relieved if not outright happy. (Thanks, Reuters toadie.)

• US PPI is at 10.8%.

• Market Cap to GDP: May Buffett Valuation Indicator TL;DR: No, the market is not cheap.

• First EV SPAC Announces its Stock Will Go to Zero and Die Thank you for playing.

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Powell says making up for lost inflation is ‘great idea’ (Sept. 2019)

When a central bank undershoots its inflation target, Mr Powell explained, it can promise to the public that it will overshoot in the future. As it makes up for lost inflation, the bank would also be making up for lost growth. “If the public understands and acts up on that, we limit the damage from the recession,” he said. “It’s a great idea.”

This kind of thinking is batshit crazy. Inflation is not real growth!

Gee, where did all the inflation come from?

Does no one have a memory?

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So with 30-year fixed mortgages near 6%, the monthly payment (per CNBS) on a $400,000 house, with 20% down, has gone from $1400 in January 2021 to $1945 today. Near where I live, $400,000 might buy you a spot to rent in a mobile-home park, not a joke.

As I’ve noted before, mortgage rates used to be 10% or more, yet people bought houses all day long. Of course, the houses cost a fraction of what they do now (and the property taxes were much lower.)

Hey, maybe home prices got way too high! (Sorry about the hate speech)

A few trillion in Fed fun coupons going into MBS, plus a few more trillion just in general bad Fed policies, probably had something to do with spiking housing prices. (As we know, MBS QT is coming too…any day now, possibly in our lifetimes.)

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Shout out to friend of the show Jake Taylor for mentioning Chesterton’s Fence on Tobias’ nice podcast:

In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.

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All your Coinbase belong to us.

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It doesn’t matter if you have 100% annual returns for ten years if in year eleven you go broke. e.g.,

March 19, 2000: Firm's market cap climbing to $1 trillion

One trillion dollars.

That's how much at least one analyst believes Cisco Systems Inc. will be worth in a few years--and you'd be hard pressed to find anyone to disagree…

George Kelly, an analyst with Morgan Stanley Dean Witter in New York who took Cisco public a decade ago, is one of the Cisco bulls. Cisco's stock is trading at roughly 120 times Mr. Kelly's earnings' estimate of $1.13 per share…"A low P/E usually signals investors are uncomfortable," Mr. Kelly said…

"We humbly submit that over the next two to three years, Cisco could be the first trillion dollar market cap company--and don't think they wouldn't love it," Mr. Weinstein wrote in his "strong buy" recommendation…

Michael Neiberg, lead analyst in the communications equipment sector for Chase Hambrecht & Quist in New York, said Cisco is turning a lot of investors long-term. "If you had picked a price point to sell [high] at anytime in the past 10 years, you would have been wrong," he said.

At least Cisco survived. Their current market cap is around $182 billion.

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Reply of the day from Jacob:

Speaking of Larry Summers, is anyone in the media ever going to ask him about his very long, very close relationship with Jeff Epstein?