Inflation Memo – ValueWalk Premium

Inflation Memo

Higher than expectation inflation is the “breaking” news of the day.

Q3 2021 hedge fund letters, conferences and more November 10 headline

But are we really surprised? Going out for errands will conclude that much.

I hesitated writing this memo because 1) it’s reactionary and 2) we don’t need another Fed bashing memo. Twitter is on the top of that.

I’m not a Fed hater. I know it’s cottage industry to criticize everything they do. It’s too easy to say they don’t know what they are doing. It can’t be easy to manage an economy. You are not running the Fed to be loved. They are in a tough spot. Do nothing and inflation becomes a major issue. Or raise rates too aggressively to kill inflation and risk crushing the recovery. The Fed reiterate inflation is “transitory”, meaning once the supply issues are fixed it will come back down. They have been saying that for over a year. Right now inflation has been permanently “transitory”. I hope they figured it out.

We know inflation is mostly a supply chain issue. And we now know demands fuels it. There’s some psychology involved.

Demand push inflation psychology: Because consumers expect their dollar to buy less good and services in the future, they go nuts now, which of course push prices even higher. We all do that. Buy now or the price will sky rocket. So we are in this never ending loop where one increase leads to another.

And of course it’s now political. If inflation doesn’t get under control the Democrats will pay the price in the next elections. Inflation is a regressive tax and the people who can’t afford it are hurt the most.

‘Reversing this trend is a top priority for me’ said Joe Biden this morning. Ok, great. But I can’t reconciliate that statement with record breaking deficit and the massive spending bills the Democrats are trying to pass. It’s like saying I have a drug problem and the solution is more drugs.

I can’t help to note that for how long has the Fed tried to boost inflation? 10 years? Mission accomplished.

Mission Accomplished – Source: CNBC

Again, why are we surprised?

This is history on repeat. Out of control spending + out of control money printing = inflation. I learned that in Economics 101 under fiscal policy and monetary policy. They clearly flunked their class. We have the tools to fight it: control the money supply.

Article by Brian Langis

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