2022-12-13 21:55:00


About CPI :

1.Despite declining core goods prices, driven by falling prices for used motor vehicles as well as businesses discounting merchandise to lure cash-strapped holiday shoppers and clear inventory amid slowing demand and improved supply chains, sticky rents are keeping overall core inflation elevated.

2. Pressure is also coming from services, reflecting higher wages as the labour market remains tight.

3.  Almost every category was up over 7% and things that one needs in everyday life like food and energy are up 15% up to 20% or more

About Pivot : 
1. Now many market participants want the Fed to pivot and stop hiking rates. Why?
The fact that investors see a Fed pivot as the main reason to buy risk/ equities  tells you what an immensely perverse incentive monetary policy is and how poor the macro and earnings’ outlook are.

2. Its obvious that the markets want the easy multiple expansion carry trade back. 
Multiple expansion has been an easy investment thesis as you need not have to worry about Earnings downgrades or  Macro weakness. Valuations soared simply because the quantity of money was rising faster than nominal GDP. Printing money made investing in the most aggressive stocks and the riskiest bonds the most lucrative alternative

3. Few of us seem to realize a Fed pivot is a bad idea, and, in any case, it will not be enough to drive markets to a bull run again because inflationary pressures are stickier than what consensus would want. It is  an exercise in wishful thinking to read so many predictions of a rapid return to 2% inflation, even less, when history shows that once inflation rises above 5% in developed economies, it takes at least a decade to bring it down to 2%.


1. For inflation to  sustainably ease , you require three basic requirements:
1. Hike the rates 2. Cut  CB Balance Sheet size. 3. Cut Fiscal Deficit -

Will Powell say tomorrow that he has succeeded in bringing down inflation and assure that 5 % is the terminal rate ? Will he not think of ways of controlling this Frankenstein monster ?

2. Financial conditions are loosening significantly today as a result of this cooler-than-expected CPI print.That is not what Fed wants to see, as we`re still well above their policy target.A rather hawkish Powell press conference tomorro w is a certainty .

3. Fed has tightened aggressively, and money supply growth has collapsed. When inflation falls from high levels, it tends to fall fast. However, the Fed still wants to un-employ 2 million more American’s, just to be sure. Recession remains the Fed’s primary policy tool. Disinflation momentum relieves valuation pressures while recession momentum adds earnings pressure.

4.  Valuation compression was last year’s story, earnings compression will be next year’s story. The degree of earnings recession depends on the depth of the economic recession choreographed by  Fed


1. Stagflation. That is the risk ahead, and a Fed pivot would do nothing to bring markets higher in that scenario. Stagflation periods have proven to be extremely poor for stocks and bonds, even worse when governments are unwilling to cut deficit spending, because the crowding out of the private sector works against a rapid recovery.

2. Investors should not care whether the Fed pivots or not if they analyze investment opportunities based on fundamentals and not on monetary laughing gas. Betting on a Fed pivot by adding risk to cyclical and extremely risky assets may be an extremely dangerous position even if the Fed does revert its pace, because it would be ignoring the economic cycle and the earnings reality. 

3. I know there is a wry smile in your face - the whole world is betting on Pivot and return of Good days - why this guy us talking nonsense ?  Let`s exchange notes after Powell..