Inflation, inflation, inflation...
Inflation remains stubbornly high in the US and the rest of the world, which means the Fed won't have any other choice but to continue to inflict pain on financial markets
"It's not about money... It’s about sending a message. Everything burns."
The Joker (The Dark Knight)
The CPI number for May was released on Friday morning, and it was bad. While the consensus expected inflation to start moderating, it screamed higher, reaching 8.6% over the past year. A 40-year high. The reaction of financial markets was immediate: They all tanked hard. Why? Because with inflation remaining high, the Fed will have to keep raising interest rates until enough demand destruction has materialized to tame inflation. Under this scenario, a Fed-induced recession seems inevitable.
If inflation is bad in developed countries, it’s worse in emerging markets. High commodity prices combined with local currency weakness has led to even sharper rises in food prices in countries like Turkey or Egypt.
In the US, the rise in housing prices and mortgage rates (now above 5%) means that buying a home is getting out of reach for many Americans.
Following the publication of the World Bank’s latest global economic outlook, the World Bank president went on CNN to warn against “the worst slowdown of the global economy in 80 years.”
How are Americans coping with the rise in prices? They are maxing out their credit cards…
The Oil & Gas sector continues to do very well in this environment, with ExxonMobil reaching a $400 billion market capitalization this week.
Interview of the Week
The New Era of Great Power Competition | John Mearsheimer & Stephen Walt
Both professors are prominent members of the so-called “realist school” and their views have often run counter to the prevailing orthodoxy in Washington, which one could broadly characterize as interventionist. John Mearsheimer gained attention for his views on Ukraine, which went viral after the recent Russian invasion. Just one of his videos on YouTube alone has been seen over 27million times. This is a must listen interview if you want to better understand the Ukraine invasion.
Macro Corner
Macro Voices | #327 Luke Gromen: Recession with Rising Yields is Entirely Possible
Luke Gromen is one of the clearest voices out there to understand the macroeconomic environment. In this interview he discusses why foreign divestiture of US assets is a big deal, what are the Fed’s options, and how Europe is setting itself up for an energy triggered hyperinflationary death spiral.
What Bitcoin Did? | The Fed, Inflation and Bitcoin with Steven McClurg
Despite the title of the podcast, this is very much a macro discussion. Steven McClurg is a Co-Founder of Valkyrie Investments. In this interview, he explains how he watches the Fed for policy indications, how to protect your wealth against high inflation, how governments should fight inflation, supply chain issues, and inflation hedges.
On the Margin “A lot More Pain To Come” For Risk Assets | Joseph Wang
Former senior Federal Reserve trader Joseph Wang breaks down how quantitative tightening works in this interview. Citing Joseph's most recent piece "Turbo Tightening,” he explains the monetary mechanics driving the Fed's balance sheet and the $2 trillion at the reverse repo. He then gives his take on what it means for markets, specifically risk assets. Technical but very insightful interview.
Something different
The Tim Ferriss Show | #596: Edward O. Thorp, A Man for All Markets — Beating Blackjack and Roulette, Beating the Stock Market, Spotting Bernie Madoff Early, and Knowing When Enough is Enough
An incredible interview. You will not believe it when you hear him but Edward O. Thorp is 89! He had an incredible life. Edward was one of the world’s best blackjack players and investors, and his hedge funds were profitable every year for 29 years (he was down only three months during his entire career!). He spotted the Madoff fraud decades before the ponzi scheme collapsed. I really enjoyed this interview.