A year ago I wrote about how inflation is going to whack us so hard we’d have to rethink our money. Below is an excerpt from the post I wrote back then.
Recapping our thoughts.
We expected some big moves in inflation, which we are getting now. The Fed has unequivocally stated that “We don’t care about your stocks, We need to kill inflation” (I’m paraphrasing) and so interest rates have begun to rise!
I think the meme below provides an adequate solution to the problem we find ourselves in as investors. But we need a more nuanced look as well…obviously…
What happens next
It’s literally all dependent on the data we get from inflation. J-Powell said that they will be completely data-dependent on assessing where interest rates need to go. So all that matters now to the broader market is inflation data.
You can sort of get a read for inflation data before it comes out if you watch the right things, let’s take a look:
Commodity prices -high
Energy -high af
Food - high af
Rent - increasing
Wages - increasing (labor market is super tight - means lots of competition for labor).
These things are all increasing. A lot. Inflation “risks” are still tilted to the upside, the war, China lockdowns, and high energy prices- which make literally everything more expensive, are still looming.
But we are seeing healing in some corners of the market:
Housing prices are crashing (thanks to high mortgage rates)
Freight costs are getting lower (also thanks to demand destruction).
Shitcoins are bubble-bursting
Shitcos (shit companies) are bursting too. Once Tesla finally hits $60 per share nature will be healed.
There is also a psychological cycle to inflation. Businesses increase prices, employees fight for increases, and in a circular fashion, inflation can become “embedded” like a habit. This happens in lots of third-world “emerging markets” and is well documented throughout history.
Not a good look. Households expect rent increases of 11.5% over the next 12 months…11.5%
This will lead to more demand destruction, as we have already seen with Target and the retailers. No more stimulus checks…especially not in the face of 8% inflation.
Jerome Powell
We need to see inflation coming down in a convincing way. That’s what we need to see. And until we see that, we’re going to keep going. We’re not going to assume that we’ve made it until we see that. - DJ Powell. Full Transcript
This is basically all you need to understand right now about the macro picture. And read it closely-
We need to see inflation coming down in a CONVINCING way. - Pretty much all that matters now.
Watch for things breaking
As Fed hikes shit starts to break.
Lots of interest costs go up, consumers pay more on their mortgages, spending declines, and all costs go up. Shit breaks and the Fed needs to push the economy into a recession to dampen demand and kill inflation.
Crypto is going to break.
High growth unprofitable tech is going to break.
When things start breaking the real panic sets in, and the real buying opportunities.
Be safe out there.