1.“The Dog that Didn’t Bark”
Gregory: “Is there any other point to which you would wish to draw my attention?”
Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”
Gregory: “Is there any other point to which you would wish to draw my attention?”
Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”
2.Since 2008, when FED started its QE there was a fear that the wall of Liquidity would lead to very high Inflation, bordering on Hyperinflation.
However, that did not happen flummoxed the best of the minds.
However, that did not happen flummoxed the best of the minds.
3. In the last one year due to COVID the concept of “HELICOPTER MONEY’ which was touted by Bernanke in the early 2000’s as one solution to take care of low growth. So how is Helicopter Money different from Quantitative Easing?.
4.Helicopter money has commonly been misconstrued as quantitative easing. Although both are monetary policy tools that expand the money supply, the impact on the central bank’s balance sheet is different
5.For QE, the central bank creates reserves by purchasing government securities from commercial banks and other financial institutions. On the other hand, helicopter money involves giving away money to the public, which does not increase assets on the CBs balance sheet.
6.Essentially, helicopter money increases the money supply by distributing currency to the public, while quantitative easing increases the money supply by purchasing government securities.
7.COVID -19 was the trigger to start “Helicopter Money” in a slightly different format, what with the Government decided to put money directly in the hands of the consumer to mitigate the crisis.
8.While the Helicopter Money has been gradually reduced by the Govt with most of the schemes expiring, the Inflationary forces have been resurrected which had been buried by Volcker in the mid 80’s.
9. Droughts in South America which have made soft commodities more expensive & man made experiments like banning of Fertilizers in Sri Lanka raising the spectre of crop failures in Tea & Spices which have further exacerbated a delicate balance between Inflation & Deflation
10.The 600-pound Gorilla in the room is the actions of China who have depressed the inflationary trends locally by releasing its stockpiles of Commodities while disincentivising exports.
In effect China is exporting Inflation.
In effect China is exporting Inflation.
11.While there is scant focus on this action of China, its already being sniffed out by the “smart money”.
Supply side shocks have also played a role such as Freight rates going through the roof which is reflected in the Baltic Freight Index at a multi-year high.
Supply side shocks have also played a role such as Freight rates going through the roof which is reflected in the Baltic Freight Index at a multi-year high.
12.We have also noticed the chip shortage which has now become the bug bear of everything Electronic including Auto Manufacturing.
13.With the withdrawal of Incentives by the U.S.Govt where one by one scheme has been wound up leaving the consumer with less money in his pockets, demand will shrink with a lag.
14.Thus, we are staring at a ‘Perfect Storm” of poor consumer sentiment hence depression of Demand & a Supply shock in terms of crucial components for many Industries thereby increasing input costs which would mean Higher manufacturing prices .
15.A sure recipe for very high Inflation to continue to manifest in the next couple of years.
The Inflation Genie is out of the Bottle & difficult to put it back.
The Fed and other CBs are as usual behind the curve.
The Inflation Genie is out of the Bottle & difficult to put it back.
The Fed and other CBs are as usual behind the curve.
16.On paper they are an Intelligent bunch of people.
But in reality, they are a bunch of Intelligent Idiots as the Sub-prime crisis showed more than a decade ago.
But in reality, they are a bunch of Intelligent Idiots as the Sub-prime crisis showed more than a decade ago.
17.Remember Bernanke’s address to the Congress in March 2007 where he opined confidently that Sub-Prime is contained and affects only a small portion of the Mortgage Market.
18.Subsequent events proved otherwise.
This time all the CBs are touting the same line “ Inflation is Transitory “.
Considering their impeccable track record of being behind the curve whether it’s the LTCM crisis& Sub- Prime crisis, they are in line for a Hat-trick of sorts.
This time all the CBs are touting the same line “ Inflation is Transitory “.
Considering their impeccable track record of being behind the curve whether it’s the LTCM crisis& Sub- Prime crisis, they are in line for a Hat-trick of sorts.
19.On Friday, when Employment Numbers were below even the lowest expectations, the Pavlovian response of the market was for yields to crash & risk assets like S&P futures to spike happened for a few minutes, then everything did not go to plan.
20. Like the “Dog that did not bark “ in the story of Sherlock Holmes, the financial markets did literally NOT BARK.
Time to realise that its no longer business as usual.
Time to batten down the hatches.
Time to realise that its no longer business as usual.
Time to batten down the hatches.
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