Yesterday the Fed made it's non-decision. It's difficult to determine if Jerome Powell is lying to try and save his job or if he actually BELIEVES the inflation he and his Fed cronies and his friend over at Treasury are creating is somehow... wait for it... transitory.
The current bout of inflation is NOT transitory. Again, I can't tell if Powell is lying to jawbone the equity markets higher - inflation helps equity valuations - and create artificial wealth for his Wall Street cronies, or if he actually believes the words that come out of his mouth. It probably doesn't matter. He's dead wrong. As always, the numbers don't lie.
Let's just take a few transitory indicators that you might be transitorily feeling in your transitory wallet.
Gas prices. According to AAA the U.S. retail average gas price was $2.885 last week versus $1.785 in the same period a year ago. Worse, if your car desires premium, that will now cost you $3.49 per gallon versus the $2.41 figure in the same week last year. Ouch!
But Powell and his cronies probably think you should just be recharging your Tesla (TSLA) , anyway. Unless you are Ben Franklin with your key in an electrical storm, electricity is not free, however.
According to the EIA, the average U.S. residential consumer was paying 13.34 cents per kwh in February 2021 versus 12.85 in the same period last year. There are great regional disparities in the EIA's delayed data, but I would look for that already inflated level of inflation to increase as the economy opens up. That will really hurt industrial customers, who paid 8.15 cents/kwh in February, an astonishing 30% increase from the 6.41 rate of February 2020. Wow!
The problem is that those costs will have to passed onto the ultimate consumer, and that is the devastating consequence of inflation and a Fed and Treasury that seem hell-bent on creating it.
I have covered energy, but the other category Powell and his cronies EXCLUDE from their calculation of core inflation is food. Nominally that's because of "volatility" but I am sure Jerome eats most of his meals for free on the taxpayer's dime, so it probably makes sense to him.
According to the USDA, in 2021, food-at-home prices are expected to increase between 1% and 2%, and food-away-from-home prices are now expected to increase between 2.5% and 3.5%.
In 2020 both figures were above 3%, so I would characterize those estimates as conservative. Also, sadly, the foods you are supposed to eat are seeing higher inflation than the "bad" ones... the fresh fruits category has had the largest relative price increase (3.3%) and the beef and veal category the largest relative price decrease (0.4%). Similarly, you should probably just eat all your meals at home, but the divergence in inflation now is showing how restaurants are having to attempt to pass through higher prices for electricity and for people, as labor shortages in the restaurant industry are now being widely reported.
So, as I have noted in many RM columns, you can build your portfolio to capitalize on these trends. In a prior RM column I mentioned the Teucrium Corn Fund ETF (CORN) and, man, it has been a rocket ship. It even crossed the $20 mark in early Wednesday trading before pulling back a bit. Who would have guessed CORN would outperform TSLA in 2021? Well, I did, actually.
What else? As I mentioned in another RM column, unchecked inflation is the mortal enemy of bonds. So you can short them by buying synthetic bond ETFs, those that focus on the short side. My favorite of late has been (TTT) , the
ProShares UltraPro Short 20+ Year Treasury ETF. These ETFs are constructed to follow the daily moves in a basket of Treasuries and so can be frustrating to follow on a consistent basis.
Hang in there, though. Keep betting on higher interest rates and thus lower bond prices. The trends are very clear. Jerome Powell will be the last one to realize inflation is NOT transitory.