to their end markets. At the start of June, the futures benchmark in New York for the high- end coffee bean arabica hit a four and a half year high of almost $1.70 a pound, up almost 70% from a year before. Yet, despite this reality, the Fed seems quite determined to downplay inflation. This inflation is just “transitory,” Powell tells us. And again, Powell is so not worried that he says he’s not even reading the inflation tea leaves, just the employment data. Is he burying his head in the sand like an ostrich? It certainly seems so. The reality is this: Inflation is seeping into our economy at such a rate that it would be an economic miracle if the masterminds at the Fed were actually correct in calling it transitory. And Powell isn’t the messiah. But if he were...? Then all this inflation should dissipate when the economy really starts humming. The realist in all of us should remember that the Fed has failed, over and over again, to get this right. Instead, it has a tendency to both under and overreact. In this case, the Fed is underreacting to inflationary pressures . Its refusal to move on both its rates and its aggressive bond-buying programs will have long-lasting effects... courtesy of... (drumroll please) 1970s style inflation. Consumer and producer prices are all higher, and there are more than 9 million jobs currently open... imagine that!
IS THIS ALL JUST LIP SERVICE? Meanwhile, as wedded as Powell and company seem to be to their ideas, the old tale of “don’t fight the fed” now has a 2021 reboot: “Don’t trust the fed.” Take everything you hear from the Federal Reserve with a grain of salt... an inflated one at that. These academics, thanks to political pressures, have gotten into the poor habit of telling investors exactly what they think investors want to hear. Think about it... Just a few months ago, it was “We’re not raising till 2024.” (Who actually thought was even conceivable?) Then, when the economic data improved, it was...”We’re not raising until the end of 2023.” And then we heard from one Federal Reserve governor talk of 2022. And now, some Fed governors, including Mary Daly of San Francisco, are pushing to taper in 2021. So, which is it, guys? I would bet money the Fed has no idea. But they’ve got this story of inflation not being a problem, and so far, they’re sticking to it. So, as investors, we need to remain nimble and ready. If the Fed does hike in the relatively near future (as a normal, rational person might assume they would, given the positive economic indicators and inflationary reads which show consumer prices growing at a 5% annualized rate), then the economy and
22
July 2021
Made with FlippingBook - professional solution for displaying marketing and sales documents online