Through a Glass Darkly
‘Fed Chair Kevin Warsh says that when markets do nothing but reflect the Fed's own words back, the Fed goes blind to its most important source of information. He's right. But the problem is bigger than the Fed. Forward guidance turned the markets into a mirror. The Fed watches the markets. The markets watch the Fed. And nobody is watching the economy.’
The latest column from ECRI takes this apart. The Economic Cycle Research Institute. The only one to consistently get the economic, inflationary and monetary views correct. For several decades.
‘Warsh wants to swap one backward-looking gauge for another, but every one of them tells you where inflation has been, not where it's headed. Wall Street and the Fed keep polishing the rearview mirror. Someone has to watch the road ahead.’
As Warren Buffett said, "In the business world, the rearview mirror is always clearer than the windshield."
Economics: where six people can express seven different points of view. Nevertheless, I do follow ECRI closely. Inflation, always and everywhere a result of monetary policy, is climbing as DC takes a summer break from doing nothing to ‘stomping the hustings’… doing nothing.
‘In a hall of mirrors, a reliable sense of direction is precisely what’s missing. Most are racing to react to what's in the rearview mirror. The real edge is seeing the bends in the road ahead, before they become the picture in the mirror.’
Inflation is ahead. More is coming. It is driving markets by driving costs. Companies that see this and advantage their knowledge stay a few steps ahead of the rearview mirror blinders. Most of the others are blindsided – yet again. Transportation. Consumer discretionary. Energy.
And oddly enough, some of Europe, some of South America, some of Asia are each doing quite well. Poland. Italy. Columbia. Chile. As elections sweep Europe this fall, look for significant changes in the political structure. If this is only a feint, they will continue to slide. As is true for South America and the smaller Asian nations: Singapore, for example.
The lesson here is ignore the fire. Look where the smoke is. That way lies danger. Winds of change can alter a fire’s direction suddenly, as we in S, CA know too well. Be prepared to stand your ground until you see the flames.
We don’t see flames in the U S economy yet. Smoke, certainly. Enough consumers are working enough hours or are fully retired. They have enough for the blood and circuses. Those who want to work do so – and are increasingly well paid for their labor. They spend more as they work more. Wages go up with inflation so few even feel the actual pain, they just pay more.
And the political cycle roars towards us as well. More like a freight train than a fire truck. It will pass and we shall survive. But the noise and sirens blaring are meant to be a distraction. Ignore it. Just vote your conscience. As a citizen of the Republic.
Eat wisely
Sleep well
Love with Abandon!