Stagflation is 100% here | Stoic Markets

And It's going to stay for years...

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4 years ago our economy was shut down, and the solution we were given was the largest spike in the money supply we’ve ever seen in history.

Naturally, the government and legacy media told us this wouldn’t cause any inflation.

Obviously, they were all wrong.

Throughout 2023, inflation levels started to fall and the media and government took this as their cue to declare the war on inflation won.

Investors, forever seeking the free money that made them rich in 2021, embraced this new narrative and started pushing for rate cuts at frankly irresponsible levels.

As we’ve moved into 2024 however, the inflation data has been far from promising, leading to the most recent release we saw this past week.

We had already seen hotter than expected readings come in for January and February, but it seems this time the message has finally been heard.

CPI rose up to 3.8% as a headline figure, with Core CPI sitting even higher at 3.8%, but the real news lies in the monthly data.

Inflation reached 0.4% over the last month alone, meaning prices rose by that amount exactly.

And while 0.4% doesn’t particularly sound like a lot, when annualised that figure is 4.9%.

This is more than 200% higher than the Fed’s official target of 2%, and we have seen this idea of higher inflation for longer truly cement itself over recent months.

It is now clear to everyone with their eyes open. Inflation is not stopping.

This is eerily similar to what we saw in the 1970s and 80s, a cycle of inflation remaining well above safe levels for years on end, whilst the establishment constantly sees the end in sight, and seeks to loosen monetary policy.

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Despite what you may hear from the legacy media, this is exactly what is happening.

We are supposedly witnessing quantitative tightening and have been for well over a year, and the Fed is claiming to have carried out $1.4 Trillion in QT.

However liquidity over that same time frame is actually up by more than $500 Billion, so where does the $2 Trillion discrepancy come from?

The Reverse Repo Facility (RRP) encouraged Money Market Funds to “park” money at the Fed, and all in all $2.5 Trillion was placed there.

This can almost be seen as “reserve” liquidity as it’s not currently in circulation, but will be when its removed from the RRP.

Over the last year, Money Market Funds have been withdrawing this liquidity and flooding the market with it, meaning that in real terms, we have actually continued to see more liquidity in the markets, which flames inflation further.

The Fed has been telling us they’re working to reduce liquidity, but they are intentionally doing it slower than Money Market Funds are putting liquidity back into the system, and so inflation is not actually being fought.

At the exact same time, the US government has been enacting countless inflationary policies, expanding the national debt, and spending as much as possible in an attempt to keep the US economy growing.

And this effects are not going to stop any time soon. An election year means one thing, votes will be bought, and the easiest way to ensure an encumbant wins an election is to make the economy stronger, and to put money in peoples pockets.

As inflation always has a lag behind it, and it takes months if not years for price increases to be recognised by the average person, most people won’t notice the impacts of what we’re seeing until the election is already decided.

Too long; didn’t read?

Inflation is still bad. It’s going to get worse, and the election guarantees this.

Stay stoic,

Max

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