Wednesday 23, February 2022

EU Inflation Update

Expectations, aggregate demand above productive capacity, runaway growth in credit creation. There are many explanations of inflation, most of which seem to fail in one regime or another.

It’s a very long time since anyone in fixed income markets in developed markets had any first hand experience of inflation, and how to trade in a bear market.

Inflation and weakening of the currency, and rising yields of government debt, often linked to a falling currency are often linked.

It sure is hard to come up with a reliable, quantitative model for inflation, so hats off to Arkes Research for coming up with one. It forecasts 3.7% for 2022, vs 3.2% from the ECB economists. How much faith to put in either of these numbers is impossible to say, but it seems clear that commodities are going to continue to rally.

Wrap

The US seems determined to force Germany to cancel Nord Stream 2. Russia will be subject to sanctions for what it has done so far. Intelligence suggests that Russian troops will soon go into the disputed reasons, on the pretext of protecting Russian speakers from Ukrainian aggression.

FOMC member Daly has said that he wants to see four rate hikes (100bp, presumably).

Ukraine has declared a state of emergency.

Nearly all equity markets have gone done. Oddly, nearly all govt. bond prices have gone up (yields down). Today, the safe-haven properties of bonds were outweighed by the inflation sensitivity. Treasuries and some currencies (AUD.JPY) have started to have a risk-on behaviour which is not typical.

This is a day for being flat, which — after all — is a position too.

Conspiracy Corner

Robert F. Kennedy Jr. | The Real Anthony Fauci, AIDS, COVID, & The Medical Industrial Complex

Big Pharma is a pretty toxic entity. The capture of regulators is endemic in most developed markets, but particularly in the USA.

I do not know if Fauci is guilty of what he is accused of doing, but this episode is worth listening to, if only to understand what all the Joe Rogan fans are on about.

The basis thesis is that Fauci allowed big pharma to corrupt the CDC and other medical regulators in a way that allowed them make big profits from inferior treatments.

I was unaware of the claims, unsurprisingly. Kennedy is mentioned in the FT, but only in stories about decisions to ban him. For the avoidance of doubt, I think that the Covid vaccine is basically safe, but I think this book should be reviewed in the mainstream media too.