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One Trader Revisits The Inflation Scare Of 2012
By Kevin Muir of “The Macro Tourist” fame; reposted here with permission
I would like take you back to 2012. Just a few short years after the soul-searching-scary Great Financial Crisis of 2008-9, market participants had finally given up their worry of the next great depression enveloping the globe, but had replaced it with an equally fervent fear that inflation would uncontrollably explode. The Federal Reserve had recently completed their second round of quantitative easing, much to the c
Ah yes, Helicopter Ben. He was just reading from a prepared script. Apparently he still is.
At least Alan Greenspan, his infamous predecessor, relapsed into truthfulness after his stint as Fed chair. His “Gold and Economic Freedom” paper (written in 1966) is still a classic; and he started sounding kind of rational again after his retirement.
It was just that stretch from 1987-2006 when ‘the maestro’ was getting weird and speaking in tongues.
Not that these guys are well-paid actors…
From my own personal experience I am seeing that inflation and growth are hanging on a strange sticking point from a purely economic standpoint. In a state with near full employment and in a business with an unheard of number of unfilled positions and with competitors offering 50% more pay… We refuse to adjust compensation. It costs us customers and profit but it’s an intractable position, pay MUST not increase. It seems to be a widely held HR principle that you do NOT increase pay to fill positions or match competitors. Now this ends one of two ways as far as I can see; either big companies start competing for talent and pay skyrockets driving rapid inflation… or the principle kills growth and rot sets in for another recession. Rent has increased over 100% in the past 10 years in this market and wages have assumed 10-20% total inflation over the same period. Eventually something breaks, the trends are divergent.