‘FOMO’ Morphs Into ‘FOCUS’ Amid A.I. Frenzy
"This cross-asset price rally is about to become a 'wealth effect' problem for them again," Nomura's Charlie McElligott said Friday.
"Them" is the Fed. Policymakers are now staring at a Nasdaq rally poised to spin out of control thanks to an escalating A.I. "mini bubble," as BofA's Michael Hartnett dubbed the Nvidia-inspired melt-up.
The burgeoning frenzy is starting to manifest in anomalous outcomes, including one of the largest monthly performance disparities between big-tech and the S&P
Easiest solution is QT – amp up the quantity and pace – why they choose not to do this is a total mystery
Hanging on to the soft landing hopes.
I think not everyone at the Fed is feeling like tempting a soft landing. At least I hope a few smart people there feel in their bones the prospect of containing inflation is perilously close to getting away from them. Because it is. If it’s not, then things really are different this time. I am inclined to believe that things are same as they ever were. If I am correct, as hard as that may land for our economy, it will mean that things, markets, economies, still make sense.
The only way for the job market to make sense is to make jobs valuable again (read more scarce). Right now they are a dime a dozen. When it becomes much harder to secure a good job, the people seeking them will do what they always have done; brush up on their knowledge, their willingness to learn, their appreciation for hard, and or, smart work, and a healthy respect for their employer’s position in the equation. The biggest lever the Fed has is to “correct” the housing market, which will then affect jobs, reversing the wage-price spiral. Things like egg prices dropping precipitously sound like inflation is being tamed, but enough items can’t drop fast enough to offest sticky higher wages. Unless one of the items is the market value of the houses of the egg buyers.
Did higher labor costs justify PepsiCo raising price by 15% in Q4 and another 15% in Q1? And is shrinking the economy the best and only approach to quelling inflation?
Like most other companies, Pepsi raised prices as much as they thought they could get away with, as fast as they could. They think in terms of quarters because that’s how their shareholders want them to think.
“Get it while you can”
And there’s nothing wrong with that. At some point, their labor and some raw material costs will come down, and their pricing won’t.
Margins will improve and shareholders will be rewarded again.
So, think about all the companies in so many industries, doing the same as Pepsi and acting in their best self interest. Not able to keep a lid on labor costs they actually become complicit in propelling them upward along with competitors and other industries as a matter of survival.
Only the Fed can stop the upward spiral. And I think a downward spiral is what it still takes when inflation gets out of control. It certainly is debatable whether it is “best”
depending on whether one keeps, or loses a job I guess.