From Neue Zürcher Zeitung's The Market.ch, November 18:
Once again, hope is rising that the Federal Reserve will take a milder stance on monetary policy. Jim Bianco doesn’t think so. The strategist and President of Bianco Research argues that the era of low inflation and low interest rates is over for good. In an in-depth interview, he explains how to navigate the new environment.
The pattern is all too familiar. Hopes grow for a cooling of inflation, investors speculate on a slightly softer monetary policy, stock prices rise, the Fed intervenes and the market goes down again.
Will it happen again this time after weaker CPI data for the month of October ignited a new rally last week?
For Jim Bianco, the answer is clear. «It looks like inflation might have peaked, but that’s the least important piece of information you can give me,» says the President and founder of Chicago-based investment advisor Bianco Research. «The real question is how far inflation is going to go down on its own,» he adds.
In an in-depth interview with The Market NZZ, which has been slightly edited for clarity, Mr. Bianco explains why he believes inflation will remain at a significantly higher level than before the pandemic. He tells what that means for the Fed’s interest rate policy, which investments promise success under these new market conditions - and why investing is often like tennis.
Mr. Bianco, it looks like consumer price inflation in the US has peaked. Is this the beginning of the end of the massive surge in inflation in the aftermath of the pandemic?
This was only the third time in the last twenty months that the CPI data have come in below expectations. It was a downside surprise, but for most of the time inflation has beaten expectations consistently. So you don’t want to make too big of a deal on month-to-month data, but someone should tell this to the market because it’s making a big deal out of it.
So what’s in store for the markets?
It looks like inflation might have peaked, but that’s the least important piece of information you can give me. It better have peaked, because if we are going to be consistently in an 8% or 9% CPI world, I won’t be employed the next time you want to talk to me, and Zoom might not work. We would be in a world of hurt. The real question is how far inflation is going to go down on its own. Is it going to go down all the way back to 2%? Or does it stop at some higher level?
What do you think?
I think that the long-term average for inflation will probably be closer to 3.5 or 4%. If we go down to 2%, it’s only because we have a bad recession which killed demand, and this would probably be just a cyclical low that only lasts until the economy recovers and inflation moves back up.
What does this mean for investors?....
....MUCH MORE
HT: Alpha Ideas (India)
I could not agree more with that intro.
The scuttlebutt that the Fed will get inflation down to 4% and declare victory is consistent with our thinking that the whole inflation upswing was deliberate, that the Fed's delay in responding to the very visible rising prices was not a policy error, and that the current QT and interest rate hikes policy is also deliberate. The folks who are trying to impose their "policy error" chatter on the rest of us are not the people who are invited to meet with Mr. Powell in private and are more than likely just looking to burnish their street cred when the recession, the most foretold and forecasted recession in living memory, when the recession that is coming occurs. Cue the chorus of "I told you so's." (definitely not a Heavenly choir)
