Oil prices

Inflation, as properly defined, is an expansion of the money supply. The classic way of thinking about it is if we went to bed one night, and when we woke up we found that the balance in our current accounts had doubled, the notes in our wallets had magically reproduced, and our debts had done likewise. Nothing would have changed, except we’d have to hand over twice as many notes in the grocery store. The recent CPI and PCE prints are not like that. A few items have gone through the roof, the others have not. I think from here on in, the high prices will not reverse, but we won’t see an endless inflation. The oil price rise will drain spending power from everything else, and I don’t think people are bringing forward purchases. Hopefully, wages will rise to offset the spike of inflation, but this won’t turn into a spiral. I don’t think we’ll see hoarding. It’s hard to do with petrol, anyway.

How to make money betting on the gee-gees

Macro Ops nails it. It’s all about spotting under-priced horses, i.e. cases where the odds of winning are better than the odds implied by the bookies’ odds. Sizing is important to: don’t put everything on black! This is an evergreen topic.

Worth a look

This is a thoughtful piece about how difficult social mobility is to achieve. It’s a pity that central banks have done so much to block social mobility in the past.

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Peder Mørk Mønsted #art pic.twitter.com/OIzXmif4xo

— Cris 🦋 (@Cris61921593) May 11, 2022

Wrap

CPI hit 8.3%, YoY, but this was less than expected. Bonds rallied a bit (10Y @2.92%). Commodities spiked, but oil is only at $105, well below the peak it reached in March ($120). Currencies didn’t move much. DXY at 103.8.

Generally, the most violent move was in commodities.

The tech stocks were hit, e.g. $TSLA down 6.6%, which pulled the NDX down 2.25%. Other US indices were much less hit, but still negative. The SPX is now below 4000, having been at 4800 as recently as Dec. I guess this is a bear market.