Some pundits are already telling us to ignore rising prices, because things could be much worse.

December 6, 2021

Dear Fellow Investor,

President Biden just told us not to worry about supply-chain disruptions this holiday season, because it’s just like the old days when we couldn’t find a Cabbage Patch doll or Beanie Baby for the kids.

Unlike many, I’m not too animated by that comment, because I expect such economic drivel out of Washington.

But what does stoke my coals is when economists and market commentators — who should know better — go out of their way to downplay the current price-inflation surge. They seem oblivious to the fact that the way they selectively choose their statistics or deliberately manipulate the data reveals their political agendas.

A good example of this is a bit of a Twitter spat I got into this morning with Carl Quintanilla, of CNBC and NBC News fame.

I’m actually a fan of Quintanilla, especially his tastes in classic Rock music, but I didn’t let that get in the way of calling him out for his latest attempt to understate today’s inflationary surge on behalf of the Biden administration.

It started last week, with his posting of a chart of a downtrend in gasoline futures, in an attempt to refute the pain at the pump that everyone is feeling right now (or at least everyone who doesn’t have an NBC limo picking them up every morning).

Today it came with this retweet of a chart showing a decline in inflation break-evens over the past few days.

If Quintanilla’s point wasn’t obvious, it was made clear by his creation of the “#ButMuhHyperinflation” hashtag.

In other words, he’s ridiculing those worrying over the surge in price inflation.

Let’s put aside his strawman position that those concerned about inflation are one and all arguing that hyperinflation lies just ahead. This is an amateurish rhetorical trick, and we won’t yield to the temptation to argue it.

Instead, let’s focus on the arguments that matter. I took on both Quintanilla and Zaccardi, who posted the original chart showing the decline in Wall Street’s inflation breakevens.

For Zaccardi, I replied, “In other words, inflation expectations implied by metrics heavily influenced by the Fed's fat finger on the scale are down. Go figure."

For Quintanilla, I asked him simply to “Now use the CPI.”

As you’ll remember from my recent commentaries, the focus on real rates as implied by TIPS yields is misleading, especially if you consider that the Fed is buying about a quarter of all TIPS securities…and the rest of the buyers have faith in the central bank’s ability to fight inflation.

The reality comes clear when you subtract the rate of inflation as shown by the consumer price index from the 10-year Treasury yield, which was my point.

Quintanilla missed that point, and at my request to “use the CPI,” he quickly replied thusly:

…Which was weird, because he’s deliberately using an annual chart of the CPI.

And it’s here when it becomes obvious that he’s carrying water for his political party of choice. He’s implying that this surge in inflation is nothing to worry about because it’s simply transitory.

This is perfectly in line with his other tweets and commentary recently that the price surges that everyday American’s are enduring are still low when compared with, say, the 1970s.

In other words, “Quit your bellyaching.”

I quickly replied to Quintanilla with a chart you’ll be familiar with:

As I noted a couple of weeks ago when I first showed you this chart, if you measure real rates using the CPI, as we did in the 1970s before TIPS were invented, then you see that real rates right now are as deeply negative as they were during the darkest days of the 1970s!

There are some key differences between now and the 1970s, of course. And I’m not talking about the obvious ones in music and fashion.

Economically, rates were deeply negative back then because both inflation and interest rates were in double digits, yet inflation was still much higher than rates because Paul Volcker had yet to go to work.

The key difference today is that the federal debt has grown so large it prevents the Fed from raising rates to fight inflation, and…Jerome Powell is no Paul Volcker.

Now, Wall Street apparently believe Powell is the second coming of Volcker by the way traders sold off paper gold in reaction to Powell’s reappointment the other day.

But they’ll soon realize that he’s as dovish as ever, and that the Fed is powerless to fight inflation anyway.

And that’s when we’ll see a massive flight to gold.

I don’t think that day lies too far ahead. I believe we’ll see the first major moves in gold before mid-2022. And before that, we’re in the depths of the seasonal tax-loss season right now, ahead of the typical strong period in metals and mining stocks early in the new year.

In short, the time to be positioned is now.

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference

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