How can you panic when inflation?

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The inflation freakout guide from Unhedge

It will be very disappointing if the CPI report this week does not offer the Wall Street and the associated panditocracy for a certain level of panic. Inflation is the monster that eats the financial comment, and since there is no surprise tomorrow, it is not clear what we will all do to be busy until the weekend.

In this sense, a short guide about what you should hyperventilize and what not.

Everyone expects the numbers to be large-according to a Reuters survey a headline of 7 percent in the year, compared to 6.8 percent in November. The decisive factor, however, is the ex-core number for food and energy, which is expected to be 5.4 percent, compared to 4.9 percent in the previous month (the change in the core index compared to the previous month is expected to be included). .49 percent). Exceeding the 5 percent threshold for the first time since 1991 is one of these large round numbers that do not constitute a big change, but still appear to be serious.

don't panic if the goods prices continue to rise rapidly or even accelerate here and there. Breathe deeply in cars, which make up more than 8 percent of the index. UBS, for example, estimates that new and used car prices have increased by 1.3 and 2.8 percent since November. But as every member of the Team Transitory will tell you, the pandemic has brought about a massive shift in the demand of services to goods, as well as with some goods from supply chain problems, the strongest in cars. There is reason to hope that the high goods prices will not last long. Accordingly, ugly -looking numbers on the goods side should hardly push the Fed into an even more restrictive position.

panic moderately about the prices for accommodations. The rent and comparison rent of the owner have risen sharply - in five of the last six months by over 0.4 percent compared to the previous month. These prices tend to be sticky, and covid-related delivery problems (e.g. the wood price) have only minimal influence. That said to me yesterday Bob Michele, Head of Fixed Income at JPMorgan Asset Management:

It was amazed at how much of the offer bottlenecks was spoken and how they cause a lot of inflation. We are looking for something else: accommodation. If we look at November, the third month in a row, the primary and own tenant rents rose by more than 0.4 percent, i.e. over five percent annually. If this continues, it changes the conversation. . . It will confirm the newly discovered Hawkishness, which is based on the Fed

Then why only moderate panic? Because the VPI measures of the accommodation costs are indicators. More timely surveys, such as the rent indices of real estate websites, show that the rental increase, especially in the case of new rentals, may already be over. We have already looked at the rental index of the housing list, but the December numbers recently came out, and the index has become negative in the month comparison and falls back into its seasonal pattern:

The same message also arrives in the nationwide rental mirror of Zillow, which is available until November. This is a UBS chart of this index that shows how it returns to a normal level:

The prices for accommodations are sticky, but there is reason to doubt that they rise up.

high panic be appropriate when we see a strong acceleration of service prices, especially outside of health and traffic (which are idiosyncratic). Much higher prices there "other services"-all from haircuts to lawn care to legal work-would "astonish people", suggested that the UBS economist Alan Detmeister yesterday. This would indicate that the strong wage growth that we have seen recently spreads ubiquitous in the economy, in a way that (theoretically) all screamed, to think that inflation is here and trigger the feared wage price spiral.

Do you want permission to do this? panic about everything, no matter ? So you can tell yourself. Keep in mind that the market is now assuming that the Fed will raise interest rates four times in 2022. This brings us to a 1 percent-found find sentence. This is still a very negative short -term real interest rate. When the Fed reaches its target interest of two percent in 2023, this still means negative short -term interest. And, as Michele told me, "this will not limit the financing costs". He admitted that inflation would decrease by 2022, but he bet that it would not decrease to much less than 3 or 4 percent, significantly above the official goal. Why is he convinced of it? From the conversations of his team with company:

You enforce the cost increases to be observed. . . Both the supplies and labor costs. While they were ready to absorb increases a year ago, they are not ready now. They say that the overall demand is strong enough and you can drive up the prices and you will do it

From this point of view, the Fed may have to become much more restrictive than now, with serious consequences for the markets. Unhedged is not yet there because we are simply not convinced that demand will be strong for a long time, and the pension market supports our doubts. But Michele's argument still scares us.

How useless is Bitcoin?

Bitcoin fell under the $ 40,000 mark on Monday. Bears believe that cryptocurrency loses its swing. Conversely, a bull with which we spoke, Joel Kruger from the Lmax Group, found that Bitcoin has risen to $ 42,000, even though the shares fell further. Unhedged has no idea.

If Bitcoin actually heads for a longer or permanent phase of sluggish prices, the widespread idea that it is a value -plot, similar to digital gold, could lose credibility. Nagging questions about what the cryptocurrency is good for will become louder.

The local currency historian of the FT, Brendan Greeley, deepened these questions in an excellent column at the weekend. He found that BTCS, a crypto company listed on the Nasdaq, offers investors a "bividend"-a terrible suitcase for "Bitcoin dividend". Greeley is of the opinion that there is an important point in terms of Bitcoin compared to other cryptocurrencies:

Behind the bividend is a bet that could have much greater consequences if it is correct. [BTCS CEO Charles] Allows everyone to partly pay investors in Bitcoin because BTCS has 90 bitcoins in his balance sheet, which have a value but have no productive purpose. According to everyone, Bitcoin is an unproductive asset that "only sits there literally". It could appreciate. But it does not generate any income, which in the past was the purpose of a listed company. . . .

[Btcs’s $ 8.8m in] Ethereum has a job. [Its $ 3.2m in] Bitcoin not. BTCS has started with staking - Ethereum and some other cryptocurrencies to place in a kind of digital trust account and to compete with a chance to check a transaction book. The more coins you have used, the higher the likelihood that you will check the main register. The reward is a fee of more coins.

btcs earns money with Ethereum-Staking, but cannot find anything better to do with Bitcoin than to return to investors.

In principle, this distinction is not so binary. If BTCs were so inclined, it could be 3.2 million

In practice, this would probably result in high fees and, worse, a sailing regulatory authorities. But even if it is difficult to achieve with Bitcoin return, it can be easier if technologists like Square CEO Jack Dorsey invest resources in Bitcoin native decentralized finances. Bitcoin does not have to be useless in other words.

But even in the best case, Bitcoin will probably remain behind Ethereum or his newer rivals. Bitcoin is not really designed to be useful. It is structured in such a way that it is trustworthy, decentralized, censor resistant and so on. The years of war for Bitcoin's block size showed that its community places decentralization of usefulness. The attempt to compete with other cryptocurrencies in relation to user -friendliness is probably a lost fight.

This is one of the reasons why the history of the currency of the future has given way to the value of Bitcoin in the history of digital gold. The latter only has to increase the price to appear true. It is far less ambitious.

The newer cryptocurrencies have the advantage of learning from the effort of Bitcoin, and have therefore chosen different design compromises. Many, like Solana, have chosen usefulness towards pure decentralization. Bitcoiner complain that such coins are dinosaurs: only the name decentralized. If this is the price of the mass adoption, it seems to us to be very cheap. ( ethan wu )

a good reading

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