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Jeff Gundlach Warns “History Books Won’t Say Inflation Was Transitory”, Remains Long-Term Dollar Bear

Jeff Gundlach Warns "History Books Won’t Say Inflation Was Transitory", Remains Long-Term Dollar Bear

Building on his thoughts from earlier…

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Jeff Gundlach Warns "History Books Won't Say Inflation Was Transitory", Remains Long-Term Dollar Bear

Building on his thoughts from earlier in the year that the dollar "is doomed," DoubleLine Founder Jeffrey Gundlach reiterated in tonight's webcast that any "economic growth we're seeing isn't really economic growth," it's just spending funded by "massive amounts of tools and devices The Fed has used."

As he noted previously, consumption is not really the economy. The economy is about production. And when you buy goods produced in Asia with stimulus money, it shows up as GDP, but it's really Asian GDP. It's consumption in the United States. "So the economy isn't really that strong with five million fewer jobs."

Even with all the stimulus...

“The Fed decided to go big early,” Gundlach said and warns that policy makers going big with stimulus will be a “recurring theme” going forward, building on his previous thoughts that:

"We're running our economy in a way that is almost like we're not interested in maintaining global reserve currency status."

Specifically, the new bond king points out that it only took 20 weeks to unleash stimulus in these terms this time around, versus 80 weeks during the GFC...

And along with massive expansion of The Fed's balance sheet (and concomitant interest rate manipulation), Real Fed Fund rates are dramatically negative (the last time we had negative interest rates of this magnitude wasn’t because interest rates were low, but because inflation was high), and while we have “high-ish inflation,” Gundlach warns it’s not like the ’70s...

Simply out, he explains:

“We have the loosest monetary policy” going back to the early 1960s," adding that "we’ve never seen this magnitude of stimulus.”

On the labor market, Gundlach warns policy has been “heavy-handed” and has resulted in all sorts of distortions in the economy, noting that the inability for businesses to hire workers is a “wound.”

We’ll have to wait and see if the expiration of unemployment benefits has an effect.

Gundlach says inventories are also out of sync with history.

Another distortion by The fed is home prices going up, which Gundlach warns has created a renter stampede. Tenants have been rushing in. One thing that could offset CPI transitory narrative is “we fully expect that rents are going to go up.” The reason rents will go up is that there will be a massive amount of evictions once the moratorium ends, Gundlach says.

“I expect rents will go up very sharply” in the months and quarters ahead “if and when we move out of a no-evictions scenario,” he says.

CPI would be at 12% year-over-year if inflation statistics used actual home prices rather than owners’ equivalent rent, Gundlach says.

And most presciently, the DoubleLine founder says:

“I don’t think the history book will say inflation was transitory."

Specifically, he warns that:

“Transitory will be continually redefined to be a longer time period,” than the two or three months that had originally been bandied around.

One thing that does support the transitory narrative is the message from the bond market, though that might be distorted by yield-curve control, he says.

Gold “looks a little cheap” versus, say, TIPS, says Gundlach.

The copper-gold ratio is saying that the yield on the 10-year Treasury “makes no sense,” Gundlach says. The ratio shows it should be at 3%. The copper-gold ratio is telling the message of Fed and Treasury manipulation, Gundlach says.

Gundlach says he bought European stocks “for the first time in forever” a little while ago.

Interestingly, Gundlach appears to be suggesting investors not fight The Fed (and the long-term trend of yields) and add to long-bond positions on each sell-off to the upper band...

Finally, Gundlach says earlier this year he had said his highest conviction idea was that the dollar would go down but not in the near term. He’s neutral on the dollar, he says for now, but emphasizes his views are long term.

“I would be a strong advocate of emerging-market equity buying should the dollar give a signal it will break to the downside,” Gundlach says.

The dollar moves in seven- or eight-year cycles, according to Gundlach. The dollar index will go below 70 from around 92 now, but not this year.

Which given his previous concerns:

"And so as long as we continue to run these policies, and we're running them more and more aggressively-- we're not pulling back on them in any way-- we are looking at a roadmap that is clearly headed towards the US dollar losing its sole reserve currency status."

is entirely possible.

*  *  *

Full Webcast presentation below:

9-14-2021 DoubleLine Total ... by Zerohedge

Tyler Durden Tue, 09/14/2021 - 19:05

Economics

US Meat Prices To Remain Elevated Amid Depleted Reserves

US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic…

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US Meat Prices To Remain Elevated Amid Depleted Reserves

Beef, pork, and chicken in US cold storage warehouses have yet to recover from pandemic lows and could continue to support higher prices. 

New United States Department of Agriculture (USDA) data shows beef reserves dropped 7.7% from a year ago in August, poultry supplies fell 20%, and pork plunged 44% to their lowest levels since 2017, according to Bloomberg

Jim Sullivan, commercial director for Stable USA, said low meat inventories would suggest meat prices will stay elevated. 

"Prices remain very elevated compared to seasonal expectations," Sullivan said. 

Soaring supermarket prices have been on the radar of the Biden administration as working-poor families allocate a high percentage of their incomes to basic and essential items. Higher food inflation eats away their wages and is why Biden recently increased SNAP benefits by a quarter

Earlier this month, the Biden administration finally addressed inflation as a concern but didn't blame the trillions of dollars in fiscal and monetary policies and labor shortages on increased food inflation but instead placed responsibility on meatpackers. 

White House National Economic Council Director Brian Deese said "pandemic profiteering" food companies are driving up supermarket costs for Americans. This is nothing more than a blame game and failed government policies that have not just increased food prices but have left supply chains reeling due to stimulus checks that disincentivized workers from working. 

New data of low meat supply at US cold storage facility is more bad news for the Biden administration, who will have to develop a new narrative about why meat prices aren't going down. If food inflation remains elevated into early next year, Americans might vote with their wallets during next year's midterms. 

Tyler Durden Thu, 09/23/2021 - 20:00
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Economics

Where Do Monetarists Think the PCE Price Level Is Going To?

From an email from Tim Congdon, at the International Institute for Monetary Research (9/20): I suggest that a more plausible figure for end-year PCE annual…

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From an email from Tim Congdon, at the International Institute for Monetary Research (9/20):

I suggest that a more plausible figure for end-year PCE annual inflation is between 5½% and 6%. (The consumer price index – up by 4.5% in the first seven months of 2021 – may finish the year with a rise somewhere in the 6½% – 7½% area.)

The conclusion is based on the following reasoning:

In the background here is the huge overhang of excess money balances. In the year to mid-May 2021 the M3 measure of broad money increased by 35%. The evidence over many decades is that – in the medium term – the growth rates of money, broadly-defined, and nominal gross domestic product are similar. So – unless that 35% number is now followed by a big contraction in the quantity of money – the US economy will continue to be affected by two conditions, specifically,

• ‘too much money chasing too few assets’, and
• ‘too much money chasing too few goods and services’.

Of course the two conditions are interrelated and also interact with each other. Our research emphasized last year that rapid money growth was likely to boost asset prices first, and that has been right. (Incidentally, to attribute the behaviour of the prices of US tech stocks to bottlenecks and supply shortages would be daft. Does one have to say these things?)

What’s the implied path of the PCE deflator, relative to nowcasts and forecasts? See Figure 1, where I’ve used the mid-point of Congdon’s forecast (5.75% December y/y), shown as the red square.

Figure 1: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), Survey of Professional Forecasters August median forecast (green line), FOMC 9/22 projections (blue square). Source: BEA, Cleveland Fed, Philadelphia Fed/SPF, Federal Reserve, and author’s calculations.

The FOMC median forecast is surprisingly similar to the Survey of Professional Forecasters’ median forecast from the preceding month (mid-August). The FOMC members then still perceive a deceleration in inflation in the last half of 2021.

Congdon’s forecast looks plausible given the August PCE deflator nowcast (and even more using the September). However, it’s far outside of the range projected by the FOMC, as shown in Figure 2, which includes the high/low inflation forecasts.

Figure 2: Personal Consumption Expenditure deflator (black), Congdon midpoint forecast (red square), Cleveland Fed nowcast as of 9/23 (sky blue +), FOMC 9/22 projections (blue square), high and low forecasts (dark blue +). Source: BEA, Cleveland Fed, Federal Reserve, and author’s calculations.

In other words, the monetarist view (if I can use Congdon’s view as a proxy) differs from both a mixed bag of mainly mainstream economists (proxied by the Survey of Professional Forecasters) and policymakers (the FOMC).

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Economics

US stocks march on, lifted by business optimism

Benchmark US indices closed higher for the second consecutive day on Thursday September 23 lifted by positive sentiments from Fed s economic outlook…

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Benchmark US indices closed higher for the second consecutive day on Thursday, September 23, lifted by positive sentiments from Fed’s economic outlook.

The S&P 500 was up 1.21% to 4,448.98. The Dow Jones rose 1.48% to 34,764.82. The NASDAQ Composite rose 1.04% to 15,052.24, and the small-cap Russell 2000 was up 1.82% to 2,259.04.

Traders ignored the weak unemployment data released by the Labor Department on Thursday, which showed new jobless benefits claims rose by 16,000 to 351,000 in the week ended Sep 18.

Economists consider the rise in benefits claims to be because of Hurricane Ida and forest fires and not due to flawed policy action. On Wednesday, the Fed said that it might start withdrawing stimulus support from November. The statement raised confidence in the economic recovery.

Financial stocks were among the top movers on S&P 500 Thursday, while energy and real estate stocks declined. Stocks of BlackBerry Limited (BB) rose 12.08% a day after reporting quarterly results. Its revenue rose to US$175 million in Q2, FY21, from US$174 million in the year-ago quarter.

Accenture plc (ACN) stock jumped 2.63% after reporting its fourth-quarter results. Its net income was up US$1.43 billion from US$1.30 billion in the same quarter of the previous year.

Salesforce.com, Inc. (CRM) stock rallied 7.38% after it raised the full-year revenue guidance. It expects its FY 2022 revenue to be US$26.35 billion, up from its earlier forecast of US$26.3 billion.

In the energy sector, Exxon Mobil Corporation (XOM) rose 3.58%, Chevron Corporation (CVX) gained 2.51%, and ConocoPhillips (COP) gained 2.45%. Kinder Morgan, Inc. (KMI) and EOG Resources, Inc. (EOG) advanced 2.51% and 2.76%, respectively.

In the consumer discretionary sector, Nike, Inc. (NKE) increased by 1.26%, Starbucks Corporation (SBUX) gained 1.25%, and General Motors Company (GM) rose 2.24%. Ross Stores, Inc. (ROST) and Hilton Worldwide Holdings Inc. (HLT) ticked up 1.62% and 4.30%, respectively.

In financial stocks, Berkshire Hathaway Inc. (BRK-B) rose 1.65%, JPMorgan Chase & Co. (JPM) jumped 3.35%, and Bank of America Corporation (BAC) rose 3.79%. Wells Fargo & Company (WFC) and Morgan Stanley (MS) jumped 1.58% and 2.86%, respectively.

Also Read: Top five communication stocks that rode the Q2 rebound

Also Read: ONTX stock dives 16%, DVAX stock in green after clinical data

US stock indices closed higher on Sep 23 on positive economic outlook.

Also Read: Crypto exchanges Binance vs Kraken: Where would you like to trade?

Futures & Commodities

Gold futures were down 2.05% to US$1,742.40 per ounce. Silver decreased by 1.71% to US$22.515 per ounce, while copper fell 0.48% to US$4.2317.

Brent oil futures increased by 1.38% to US$77.24 per barrel and WTI crude was up 1.37% to US$73.22.

Bond Market

The 30-year Treasury bond yields was up 5.04% to 1.941, while the 10-year bond yields rose 7.71% to 1.434.

US Dollar Futures Index decreased by 0.39% to US$93.100.

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