Hi Jon, from the simple parameters discussed in the Santelli exchange, it can be said that faster growth is
not causing ...... in and of itself higher inflation.
The longer conversation that time does not permit Rick and the former FED governor to discuss is
that we are in a global central banking environment, which is new and uncharted waters.
These are some of the most exciting times to be alive as the level of complexity is greater due to the
advent of the microprocssing chip.... the huge amount of information which is known globally.... How
quickly information travels around the global to all market participants and the speed in which distortions
are corrected and where mispricing is fixed as well as the speed in which businesses that see businesses
with great profit margins find that , this information about the ability to make massive positive margins in
any business are then taken away by quick adaptors who jump on opportunities with lightening speed.
So the dollar is going up very strongly and this means that overseas earnings for Fortune 1000 companies
are going to be greatly reduced in the next couple of quarters...... WE VERY MAY WELL HAVE ALREADY
SEEN PEAK earnings for this cycle..... this is news for none of the smart money as the SPX, DJIA, RUT
did nothing as all of these generally excellent earnings reports came in...... that is rear view mirror stuff.
It reminds me of one of the 1970 comedies... the Gumball rally or most likely one of the 2 Cannonball
crosscountry race movies... where Bert Reynolds, was nominally the biggest star.... but they had a cast
of 25 celebrities... in one seen an Italian guy is getting into his Ferrari or Lamborgi and promptly breaks
of the rear view mirror in the middle of the windshield........ his very amusinig comment ..... delievered
with dead pan perfection was that he does not need this rear view mirror as he states
"what is behind me is of now concern" .... in his case he is planning on driving so very fast that it really
does not matter what is behind him......
However, we are at full employment, wage inflation, and inflation from the global tariff situation is driving
up prices.... who knows for a fact that this is the high water mark for the global tariff war and that we won't
see a significant escalation from here? the 10 Year Note is sitting at 2.85% or 2.87%... and the FED really
cannot sit around and say well we are not going to raise interest rates..... If they take a past for 6 to 9
months.... we really will see parts of the economy heating up ... or overheating.
Yet, when the FED pushes up the FED Funds rate it puts more upward pressure on the dollar.... Which
also raises the funding costs for the trillions of dollars of Global Debt obligations which are denominated in
US Dollars.... and other US rate benchmarks..... (Also the FED is supposed to be getting to a terminal
FF rate of 3% so they have some ammunition and policy tools to use .. when the next destabilizing
blow up occurs..
Meanwhile this puts downward
pressure on everyone else's currencies..... and they don't have a lucid and effective policy response....
Plus goods coming into the US from all of these debased currencies are going to be super cheap and
that is precisely what DJT won an election and campaigned on the fact that he would / will not let this
happen...... My very great friend Bob Furman is already way ahead of most all of us in terms of what is
going to be the outcome of the Turkish Lira Crash......
except, the European situation is even more convoluted and nuanced than even the people in
charge of "Market Intelligence" FX and asset management at the Citibank's, DB's, JPM's , global
Insurance and reinsurance companies have considered..... and we have geopolitical considerations and we truly are playing 5 dimensional chess.....
So I will be taking a stab at outlining scenerios for Europe this week-end...... and Remember, the
Italian Banks already did not want to repay their debt before any of these latest developments occurred.
Also we have Elon Musk this past week is ominously similar to some past behaviors by senior business
leaders from top of economic cycles past.
and obviously, we will get fundamental news input from various Poltical leaders, banking and asset
management heads, as well as all the players at the IMF, ECB, BOE, SNB,, BOJ, the FED... and
also input from the folks at the BIS, the key exchanges, FINRA.... etc.
so lets give everyone a chance to play the roles that they are all getting paid, generally quite handsomely
to do...
John |
