Into the Fire

Above Zero COVID

More Inflation Pressure

New Dilemmas

Meanwhile, Back at the Fed

Palm Beach, Polo, and Baby Formula

If you haven’t noticed—perhaps because you live on Mars—inflation is here. Not just in the US but almost everywhere. Prices for everyday goods and services, including necessities like food, are climbing rapidly. The US Consumer Price Index rose 8.5% in the 12 months through March… and we know it understates categories like housing.

These year-over-year comparisons may improve a bit as the “base effect” makes the lookback period start at a higher level. That won’t necessarily mean prices are falling; inflation will remain a problem even if prices stabilize. Higher living costs have a cumulative effect the longer they last.

This is from the latest hot-off-the-press Hoisington quarterly letter (which Over My Shoulder members will get next week):

“Most Americans have suffered a substantial fall in their standard of living over the past 12 months. In the latest available 12-month change, 116.2 million American wage and salary workers suffered a 3.7% decline in their inflation-adjusted paychecks, the largest drop since 1980 (Chart 1). This alone more than offsets the gain in income going to the 6.5 million newly employed in latest 12 months. In addition, salary workers suffered a larger loss in standard of living than hourly employees (Chart 2). Inflationary damage to the 70 million retired Americans cannot be calculated in precise terms, but qualitatively the situation is not good. Those covered by Social Security received a 5.9% cost of living adjustment (COLA), however most private pensioners do not have COLAs.

Source: Hoisington

“A rough estimate is that approximately 50 million or more retirees’ real income has been seriously eroded by the 40-year decade high inflation rate. Summing those whose income trailed price increases (116.2 + 50) yields a figure of approximately 170 million Americans. The sizeable adverse impact of inflation is consistent with a decline in real disposable personal income in 11 of the 13 latest months. Eighty five percent of U.S. households make under $150,000 a year, with many living from paycheck to paycheck or on steady salaries. The imbalance between those who benefitted and those who were harmed from the monetary and fiscal policies pursued over the last two years is abundantly clear. The 8.5% inflation rate has dramatically lowered the standard of living of over 170 million individuals.”

This was the result of a massive monetary policy error which was pointed out over a year ago by numerous Nobel laureates and mainstream economists, and well, lots of less-well-known analysts like me. The Fed even did not include a section on policy rules in its February report to Congress which it has used since 2017 as it clearly showed they were behind the curve. Like they could hide it.

As bad as conditions are, they have the real potential to get even worse. Today we will explore how China’s latest COVID lockdowns will affect the global economy. Hint: It won’t be good. We may be out of the frying pan and into the fire.

First, let me remind you the SIC 2022 is just a little over a week away. I can’t tell you how grateful I am to see all these amazing speakers coming to the aid of my readers... because frankly, we need all the help we can get at this point. (Click here to see the full faculty list—it’s quite impressive. Henry Kissinger, David Rubenstein, Felix Zulauf, Ron Baron, Tom Hoenig, Niall Ferguson, Joe Lonsdale, Frank Luntz, Charles and Louis Gave and Anatole Kaletsky, Howard Marks, Cathie Wood, William White, and 40+ more! The energy and crypto panels are powerhouses!)

As you know, I’m convinced we’re heading into a recession, possibly a severe one. The Fed messed up by raising rates and reducing their balance sheet too late, and the time that passes until they finally get their ducks in a row will not be pretty. Inflation numbers could potentially rival the late 1970s and ‘80s... and do yourself a favor and get your Virtual Pass to this vital online conference. You’ll be glad you did.