No New Eras - Inflation and Market Outlook Presentation by David Rosenberg


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No New Eras

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As you can see by the title, I'm positioned against the consensus view, especially when it comes to inflation, and I do indeed find myself in the Jay Powell camp that as the pandemic caused a temporary deflationary condition because the initial shock hit demand greater than supply, we now have the combination of the fiscal juice and re-openings creating the exact opposite condition where demand is outstripping supply. But I think it's a tad disingenuous to believe that supply won't catch up, and when it catches up, demand growth will be subsiding since so much of it is artificial in nature and the conditions for disinflation will come back into vogue; I actually expect to see this happen before the end of the year.

And this is not the same economy of the 1970s any more than the 1870s so comparisons here are completely off base. But what I find is that most market pundits I talk to don’t really understand what inflation is, and that it is a sequence of price increases, not a one-off shift in the price level to protect profit margins from a short-term dislocation between demand and supply, which so very clearly reflects the residual impacts from the pandemic. Jay Powell is right — the inflation everyone is talking about will be almost as transitory as the deflation was a year ago when we saw the front-month contract on WTI go negative for a day, copper and corn collapse 20%, and we had three straight months of negative readings on the CPI. The worst thing to do back then was extrapolate, and that holds today as well as it did a year ago.

With a tip of the hat to Cosmo Castorini during his famous kitchen lecture to Loretta in the classic 1987 flick Moonstruck, “everything is temporary, that don't excuse nothin’!”

David Rosenberg

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