That 70’s Flow: An internal headline this on Friday read: “Unsurprising Upside Surprise.” I’m still not sure if the idea was that they were just kidding a few months ago when they said inflation should blow over quickly, or they’re just kidding now, but either way, the market’s not amused.
A few charts, songs and terms for this theme follow:
Chart 1, Prices are up:
Term 1, Policy Misstep: When the governors of various central banks face the unfortunate task of negotiating rate increases after a surprisingly stiff bout of inflation. Like a banker locked in a pigpen: “Where do I step and not get mud on my Oxfords?”
Song 1, She Came in Through the Bathroom Window – The Beatles
From the masterful medley on Abbey Road, this song is about a groupie who snuck in to a Paul’s home, and stole a bunch of his clothes. Because inflation is a thief in the night, who’s been hanging around in broad daylight.
Chart 2 is called The One Nobody is Talking about Because Everyone is Talking about Chart 1
This chart shows how the 10 year US T-Bill yield is being spurred lower by: a) risk aversion – people going long on the government debt, and b) policy announcements or even the faint whiffs of them.
Comparing the 10 and 2 year yields is a key indicator that’ll hit the news again in due course
Song 2: Carry that Weight – The Beatles. The song is said to have been the band’s acknowledgement that they’d never outlive that moment in their careers or lives, forever defined by something that grew beyond their wildest imaginations, like a virus.
Term 2: Bear Flattening. This has nothing to do with roadkill. It’s when market forces (as opposed to central bank policy intentions alone) press short term interest rates up and/or long term rates down. The implication is that central banks have their hands full when the rest of the market syncs on a theme together.
Bonus Term 2: What Trudeau already got and Biden won’t. Get it? Trudeau got term 2, but Biden won’t get term 2 too. Though he might look cute in a tutu. But I’d rather see a flat bear in a tutu, wouldn’t you?
Chart 3, The Zombies are Coming: Artificially generous credit terms, including limbo-low rates, resulted in junk-quality debt getting lots of love since Covid. This chart shows the correction now underway. Hidden among worst of these high yield borrowers are a few firms that likely wouldn’t have survived without such conditions, often referred to as Zombie firms.
Song 3, You Never Give Me Your Money – The Beatles: Because the market never would have given them money if not for the whole Robinhood thingy. Deadweight is best trimmed before it starts to stink.
Term 3 Lysenkoism: Named after the not-very-sciency scientist who headed up the Soviet agricultural program. Lysenko dogmatically implemented a number of whacky agricultural practices built on dogma, and leading to the needless starvation of millions. Because he got his PhD out of a Krakerjackski box, and even went so far as to put legitimate scientists in mental institutions for failing to catch on.
Bonus Olympic Term - Maoist Lysenkoism: In the waning days of his life, a senior party office demanded that Chairman Mao be fed ground up black pearls to “cure” the supreme leader’s advanced case of Amyotrophic Lateral Sclerosis (ALS). The official violently threatened Mao’s otherwise competent medical staff, who bravely refused him, notwithstanding the brutal political conditions of the time. (Gold medal for Dr Li Zhisui, whose masterful 663 page biography is well worth a read!)
Weekly Wrap: If there’s good news, the thought is that the market seems to have already priced in the high inflation.
Read more here: Global Insight Weekly
Ps. I snoozed off just there -- dreamed I saw Trudeau dancing with a zombie trucker in a tutu, while Biden danced with a roadkill bear. Then a dragon flew off a ski jump over them, and broke into 100 trillion black pearls, which became worthless from over-abundance.
Enjoy your week!
Mark