The Fed Wants Your Cost of Living to Go Up.

We can never recapture the purchasing power of the dollar that has been lost.

“We can guarantee cash benefits as far out, and at whatever size you like, but we cannot guarantee their purchasing power.”

Alan Greenspan, discussing Social Security, February 16, 2005

Well, it’s been a week since The Most Important Fed Decision of Our Time® (or at least of the month. The next Fed decision is in just 43 days!!!!)

The 30-year mortgage rate is off its recent peak near 8%. At 6.19% this is about one -percent below long-term averages - i.e., if we include years before the insanity of ZIRP and massive QE.

The problem remains that house prices are too expensive (see the FHFA chart below the fold).

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Meanwhile, the two-year yield is at its lowest level in…two years.

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The unpopular (except among Central Banks) pet rock “Gold” keeps making new nominal highs…

The dollar is looking weak - and this is against pathetic competition.

And stocks have reached what looks like a permanently high plateau.

(If anyone would like a semi-log version of the above SPX chart, please feel free to make your own.)

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Peter Boockvar - one of my favorite market observers - posted this Monday:

“Once purchasing power is lost, it is lost forever, and Federal Reserve Governor Chris Waller inadvertently made that perfectly clear when he spoke on Friday. He told CNBC in an interview that "What's got me a little more concerned is inflation is running softer than I thought." He's 'concerned' after we just experienced a 21% jump in the cost of living since February 2020? Tell that to the shopper at Walmart or Dollar General.

Remember 'average inflation targeting'? That was a policy that the Fed implemented in August 2020 and turned out to be one of the most disastrous policy initiatives in their history dating back to 1913. It was defined as this, "On price stability, the FOMC adjusted its strategy for achieving its longer-run inflation goal of 2 percent by noting that it "seeks to achieve inflation that averages 2 percent over time." To this end, the revised statement states that "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." We know that policy initiative completely blew up on them.

Governor Waller implicitly confirmed that this inflation symmetry policy is out the window as if they stuck to it, they would have to tolerate a period of time of deflation in order to 'average' out the recent period of high inflation at 2%. I'll include a chart here again of how much inflation rose above its long term trend line and say again, once purchasing power is lost, it is lost forever because central bankers won't let you get it back.

Rudy Havenstein, I think you'd agree.” [I do]

CPI index since the 1970's vs its trend line:

Here’s then St. Louis Fed President Jim Bullard, on the Fed’s idiotic Average Inflation Targeting strategy, in January 2020, PRE-Covid:

How anyone watching this video could still think that the Fed should not be disbanded is beyond me (I know, it ain’t gonna happen…)

Anyway, there are some great market observations below from the likes of Jim Grant, Greg Weldon, James Lavish, Ted Oakley, Luke Gromen, and Nikita Krushchev, plus a particularly good interview with Dr. Komal Sri-Kumar, who really stands up for the little guy - such a rare thing among Wall Street types - in a chat with Ash Bennington.

Also I have the usual potpourri of news items on CRE, housing, music, etc. Hope you find something you enjoy.

I am well aware that I have been, over the years, waging a quixotic battle against further currency debasement, which at this point is like trying to stop incoming tide. My posts on the topic are for my amusement, and for future historians, if there are any.

My pseudonym was intended as a warning, not encouragement, but here we are.

I’m sure most of you are smarter than me at figuring out what that means over the next five or fifteen years. Buy things Central Banks can’t print - but don’t get too overleveraged in the process. While leverage is wonderful when everything is going up (just ask Barry Sternlicht), during the periodic blips in the long march to utter currency debasement, there are periods when you don’t want to be forced to sell at the bottom.

If you’re into high strangeness, check out Richard Hatem’s take on “disclosure” - which mirrors my own views on the topic.

Let’s be careful out there.