What if everyone is holding back in making things? What if the housing companies just say, "You know what, if we wait, the price of all things that go into homes will come down." Or if the autos hold off, then the price of the goods in a car come down. Given the shortages of semiconductors, that could happen naturally. And what if the Chinese stop buying voraciously, as is clearly the case with first copper then iron ore?
To me it means the Fed is going to win the battle against slow growth without igniting persistent inflation.
Every day I hear some doomsayer on air saying that the wave of inflation we are going to see will unleash a nightmare never seen before, a moment of hyperinflation to rival any in history, something typically followed by unrest that will make Jan. 6 look like a picnic.
And every day I see commodities breaking down, starting with lumber, then with copper, then with oil and now with iron ore. Soon we should see a peak in the raw goods that go into plastic.
These are not idle declines. They are precipitous, some caused by a decline in economic growth in China and some by catch-up by our own companies.
In the meantime, the Fed continues to fund the liquidity needed for people to move out of the cities in a permanent way because of a grudging recognition that COVID is here to stay. Why not reach that conclusion? Only 50% of our country is vaccinated and there is no real stoppage to those coming in from overseas.
I think the inflation bears are missing some big points. They just can't do the homework that ruins their thesis.
First, productivity. The Washington Post last week had a brilliant piece about productivity in the workforce, how much output a worker can do in an hour. "Higher productivity is the economy's special sauce," the paper said. Digitization can lead to remarkable gains, the Post argues, and that is going to mean we are going to do more with less.
I think I have a unique perspective on productivity because it is easy to see which companies make it so inflation can be kept down. ServiceNow (NOW) , UiPath (PATH) , Salesforce.com (CRM) and Nvidia (NVDA) are all about doing much more with less. Same with the companies that are meant to hire fewer people. Or you consider what's going on at Domino's (DPZ) , endless digitization to need far fewer workers? Or how about Blue River and Bear Flag, two tech companies that make a Deere (DE) tractor autonomous? I've got dozens of companies that are meant to cut costs, which means cut jobs.
There are so many companies that make it so we need fewer people that it's only a matter of time before we can see excess labor. I think it will be obvious, as obvious as it will be when the unemployment benefits run out.
Second, hybrid work settles down. Right now companies are in transition. There had been a hope pre-Delta that two vaccinations meant back to work. Wrong. We are going to stay at home. It's easy to see a collapse in office rent coming. At the same time, after all the cars are bought that are needed it won't matter whether we have semis or not. There will be a glut from a lack of buying. I can see the same thing happening with housing. As long as rates are low there will be a shortage until everyone who is hybrid has bought a house. I know it seems fanciful that it could happen, but it's certainly possible.
Finally, we are going to have a tame-enough environment for people who are frightened to go back to work, to go back to work, lowering wages even more than they will be by productivity.
Going into Jackson Hole we have to be thinking not about how inflation is runaway but how deflation could be on the horizon much faster than we realize if the Fed pulls the rug out, which we know is just a matter of time. Right now the Chief seems like a pinata, theoretically beaten by the inflationistas.
I think it's just a matter of time for them to look like the fools and Jay Powell to look like a hero of our time.