Inflation Hype is Real

I am not usually one to get caught up in the latest market hype, as its usually more fluff than substance.  I usually take the other side when the knuckleheads on CNBC get all excited about something.  But the rising inflation isn't just hype.  WTI Crude oil over $65, highest since 2018, when everyone was talking inflation.  Corn and soybeans at the highest prices since the drought induced price spike in 2012-2013.  Copper at the highest levels since 2011.  Lumber prices more than double 2017 prices.  US Housing market is very strong as there just isn't that much supply.  Yet you have the lying government inflation statistics showing low inflation.  And the Fed and their academic cronies saying that inflation is transitory because of base effects.  These aren't base effects.  They are price surges to multi year highs.  

And the reason is simple.  When the Fed prints so much money and the government pumps out so much pork, you will have a lot of dollars looking for a home.  M2 money supply is up 25% year on year.  That is ridiculous for an economy with an organic growth rate which is probably less than 2% real.  So you have a lot of excess dollars that have no economic use, so they go to either speculation or savings.  It seems like people these days don't really differentiate much between those 2.  Those new printed dollars will chase anything, stocks, bonds, commodities, real estate, bitcoin, etc.  You are getting a big time surge in inflation that is the strongest inflation impulse since the 2006 to 2008 commodity boom cycle.  

At the foundation of money, is confidence.  If people really start to lose confidence in the US government to maintain fiscal discipline, that naturally takes away a lot of demand for dollars and bonds in particular.  The Fed and the government may think they are having a free lunch as they pump out pork stimulus after pork stimulus one after the other, but that confidence in the dollar is being eroded day by day.  

Now Biden will go on to his next pet pork project, infrastructure.  Numbers anywhere from $2 trillion to $5 trillion are being thrown around like its casino chips at the blackjack table.  M2 money supply is roughly $20 trillion.  So each of these stimulus packages (avg. $2 trillion) are diluting the existing amount of dollars by about 10%, if the Fed monetizes all of the debt issuance.  At the current pace, the Fed is buy $1.5 trillion in Treasuries and MBS per year.  The Fed has told you repeatedly that they aren't going to be the ones spoiling the party.  In fact, they are the ones who want to spike the drinks with even more cheap liquor.  

This level of pork spending during peace time has never happened before.  And if Biden is off his rocker like I suspect he is, he will keep pushing for more spending until the inflation gets so out of control that even the Fed will have to stop pretending like inflation is low and get on top of it or let the dollar get crushed.  

And what about those economist blowhards whose BS is so overflowing that no one calls them out when they use terms like economic scarring.  It seems like these BS artists come up with a new term every few years to sound like experts.  When people go bankrupt or their businesses fail, they have to go look for a job.  While they are looking for a job, they are getting very generous unemployment benefits, almost as much or sometimes even more than what they would earn when working.  That money is spent.  People with money, and there are lot of them, start new businesses when they see the opportunity after others go bankrupt and the competition is weeded out.  Those new businesses require investment, which jump starts the economy.  

There is a huge source of pent up demand looking to be released once lockdowns are eased and vaccine rollout goes through most of the population.  With all this pork, this will end up becoming the hottest economy since post World War 2.  

If the Fed does nothing for the next 6 months, which is the base case and what probably happens, by the end of the year, they will be back to where they always end up, keeping easy monetary policy for too long, ignoring inflation, and fomenting bubbles.  They will be way behind and end up with some token tapering before the cycle self combusts from the bubble getting so big that it pops spontaneously and the Fed will be back to pleasing the market with gobs of more free money.  Wash, rinse, and repeat.  Since 1998.  

The speculative juices are flowing again, as bond yields stabilize and the stimulus checks are coming over the next few weeks.   Those stimmy checks are going to be used to buy a lot of junk stocks over the coming weeks, so investors are front running the stimmy fueled dumb money.  Everyone is sucking on the government teet now.  Biden will give 'em more when it runs out.