This Time is Different
If one is under the age of 60, you have lived most of your investing life in a period of the FED put, where the FED was always at your back to bail out anyone who made a bad economic decision. Greenspan timidly followed that approach; no conscience Bernanke came along next, then we had scaredy cat Yellen who was afraid to really roll back Bernanke’s excess, and then to top it all off we have Trump’s stooge, Jay Powell who, who like a puppy dog, papered over Trump’s tariff and tax cut issues.
Today’s Senate Testimony
We just heard Powell’s Senate testimony. His “it will take a long time to get back to normal”, what an understatement.
I started this website and blog 14 years ago this week, January 2008, in the early days of the Great Recession. The advice we provided during that period and the initial bounce into 2010 was spot on. What happened after that is what has formed my overall economic outlook, how can a situation created by cheap money be solved by even cheaper money?
So This Time is Different:
The funny Funny Money period of our economic history really kicked off in late 2008 as the Great Recession exploded. That Funny Money period had a brief and half-hearted attempt to wind down, but only has gotten more extended to this day. During this Funny Money period, 2008 to 2022 because of where we were in the long economic cycle, we did not see inflation. Two things are different now, real inflation is breaking out, and the pile of Funny Money is huge. \
Raising Fed Funds rates will not stop inflation, the only thing that has a chance to work is to roll down the Fed Balance sheet. Powell today, no doubt realizes this but is doing his best to push back the time when that will occur, saying it will take at least two to four FED meetings to decide on the Balance Sheet roll down. The market, knowing what Powell believes, there is no excess that is too large, had a nice bounce up from yesterday’s lows. You can be sure, Powell will not act until the inflation gun is put to his head.
The following three charts illustrate the comments above and are compliments of my good friend Ron Griess, TheChartstore, see link in our About section.
The first chart shows the Funny Money story.
The next two charts show CPI and and PPI data, the latest numbers will come out later this week.
The important takeaway on these charts is that the Funny Money Paradigm has not been tested, until now, for the period since 2008.
In the next two days we will present a study we have done that drills down into the Funny Money story.