Signal In The Noise

Signal In The Noise

“Today’s US CPI data has the potential to change the story, or to leave us all as confused as we were before,” SocGen’s Kit Juckes wrote Tuesday, summing up the situation ahead of what it was probably fair to characterize as an over-hyped March CPI report stateside.

It’s not that it wasn’t important. It’s just that getting a “real,” “clean” read on the inflation situation won’t be possible for months. Until then, it’s just a matter of parsing the myriad distortions. Finding the signal in the noise. News that US health officials were pausing vaccinations with J&J’s shot further muddied the waters. Ultimately, CPI came in hot, but it was met with an ambiguous reaction.

Bitcoin blew past $62,000 to an all-time high Tuesday. That’s some inflation. Or maybe it’s inflation hedging. Or maybe it’s just what I’ve variously suggested: The greater fool theory of investing par excellence, only now with a Coinbase IPO kicker.

Coinbase is poised to list on the Nasdaq at a valuation around $100 billion. “It really blurs the lines between crypto and more traditional financial institutions,” Zumo co-founder Nick Jones told Bloomberg Tuesday. (It sure does, Nick.)

Elsewhere, German investor expectations declined amid Europe’s ongoing virus surge and stepped-up containment measures. ZEW expectations fell to 70.7 versus an estimated gain to 79 for April.

ZEW President Achim Wambach cited “fears of a stricter lockdown.” Although efforts to boost the rate of vaccinations may help turn the tide, it’ll be just in time for political wrangling to take center stage. Angela Merkel will, of course, step down later this year following elections and there are two possible candidates vying for the spot. “German politics is hardly ever loud nor a box office hit but rather the stuff for connoisseurs of fine intrigues and behind the scenes moves,” ING wrote Tuesday. “It is often small important steps, rather than big bangs.”

Speaking of “big bangs,” Chinese imports surged 38.1% in March, far more than the 24.4% consensus expected. Like all other data right now, the numbers are distorted by the comp, but a superficial take would just be that robust imports reflect a pick up in domestic demand and commodity prices.

Exports missed, rising “just” 30.6%. The figure (above) shows February’s ridiculous 155% surge, a print that was impossible to parse due to base effects.

The general narrative is that external demand should remain buoyant. Much to the chagrin of those inclined to fault China (in one way or another) for the pandemic, the country has benefited from global demand for medical supplies and products tied to the proliferation of work-from-home arrangements.

Now, as the global economy gets back on its feet, China could benefit further. After all, who doesn’t like low-cost products?! Sure, you may be a displaced blue-collar worker in a developed economy, but at least appliances and furniture are cheap.

Coming full circle and tying this all together, I’ll leave you with an excerpt from the latest note by Rabobank’s Michael Every, a crowd favorite:

How often do you buy a TV, for example? The price of those has come down when one adjusts for quality, and even in absolute terms. Yet my own experience is that if I am buying more than one every five years, I am pretty angry about it. The same goes for key pieces of furniture and lots of other items where our neoliberal system *has* seen prices come down (and Western supply chains and jobs shift to Asia in tandem). By contrast, how often do you buy food? How often do you fill up your car with petrol/gas, or buy something delivered by somebody who did? Inflation fails to capture this time distribution effect. Everything around you that you need to buy today is going up in price rapidly – but don’t worry: something big you might not need to buy until 2028 is going down in a hedonic-adjusted price. Sit back and feel the savings.


8 thoughts on “Signal In The Noise

  1. Every makes a dramatic point. In the middle ground however; books, movies, etc.digitalized and cheaper; clothing,housewares,tools, and much more in the middle will have supply chain issue inflation and should abate.
    I think the FED should be patient. But as mentioned yesterday…sentiment sways.

  2. Yeah I feel that grocery bill and my water bill and my property taxes and my electric bill and natural gas and gasoline far more than the fact my LCD TV I bought last year and won’t buy again for 10 years was half the price of the plasma I bought 12 years ago. “Let them eat 4K(ake)”

    Of course according to some idiot on my FB feed today there is no inflation because inflation is only when goods cost more hours of labor than before because if labor is devalued that’s just a price increase and inflation is explicitly only when the value of a currency changes relative to labor. brain asplode So basically everything is fine. Nothing to see here.

    1. Rather inflation is NOT when goods cost more in terms of hours of labor, those are just price increases. Inflation is only when costs of both labor and goods move up as the currency is devalued by excess money printing. A sentiment I only find on libertarian sites. I guess you could argue from that logic that as this isn’t inflation the government should keep up the spending. Somehow I doubt that was his argument.

    2. Incidentally, I loved my first plasma and still consider it the best TV I’ve ever purchased. I no longer have it, but I remember it being crystal clear. Probably because, back then, it was cutting edge. I’m sure it wouldn’t measure up now, but I have a soft spot for that thing.

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