Quick thread on inflation

1. What the Fed can deal with
2. What the Fed cannot deal with
3. Size of each

Here we go.

Stuff impacting inflation h/t @LizAnnSonders

/2 Image
The excess demand side inflation from that chart

/3 Image
The part is 'normal' demand side inflation (outlined in green).

The 'excessive of normal' demand-side inflation (the part above the green)

/4 Image
Just the 'excessive of normal' demand-side inflation (the part above the green)

/5 Image
Same exercise from the excess inflation from supply side

/6 Image
Comparing the duration and size of excess inflation from demand (blue) and supply (green)

/7 Image
My conclusion:

Excess demand side inflation been more persistent; Excess supply side inflation has been larger.

The Fed can't do much about the excess supply-side inflation which is larger part, but there is still plenty of excess demand-side inflation for the Fed to tame

Onto oil, which the Fed has little control over, but still worth looking at bc it has been the number one contributor to headline CPI.

Start with a simple chart of Oil Prices (a bit dated)

/9 Image
Two portions of inflation here.

One before the war, which was substantial, and the part after, which is also substantial.

Focusing on the increases:

/10 Image
Side-by-side comparison of pre-war inflation and post-war inflation.

/11 Image
And now both together with a conclusion:

* There is a lot of excess demand-side inflation that the Fed can address. So, good, do that.

* Most of the inflation the Fed cannot address (supply-side and energy) and that's bad.

/12 Image
* I don’t see a reason to be excessively bullish in the immediate-term

* I do see a reason to be quite bullish with a longer-term view

This is how we look at the market and what CML Pro does with stocks.

* Facts A, B, C
* Analysis A, B, C
* Conclusions A, B, C

If done correctly, whether one agrees with analysis and conclusion, value is had just going through the exercise.



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...the characteristics of a random process matter and why one bad kind may be here.

Let's have a chat about why it's relevant to the current macro environment, inflation, and more.

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A singularly stochastic process has has just one underlying driver.

These are the kind we are used to:
coin flip, roll of dice.

Flip a coin once an hour for 100 days.

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