Economic “darwinism”, inflation is here to stay

Note to reader: Even mainstream outlets like MarketWatch are pointing to the obvious. In a prolonged period of price inflation, income generating assets of all kinds move up higher as inflationary phenomena outweigh higher interest rates and bond yields. To my readers, none of what this article contemplates should come as any surprise. Moreover, none of these circumstances were by happenstance. COVID provided all the means necessary to redirect the nation towards its denouement and the Great Reset.

With regards to this persistent price inflation, I suspect bond yields and interest rates will remain higher for longer than most are willing to contemplate. This elevated yield curve is going to unleash this described economic darwinism and only the best prepared and strongest will survive this decade.

Moreover, inflation is running higher than official data and the 10-year UST yield is basically yielding at or below true price inflation. Thus, we we still find ourselves in a situation where bond holders and the Federal Reserve are subsidizing the cost of money. Despite higher bond yields, monetary policy is still dovish as asset prices across the board continue to reward owners.

Inflation here to stay? U.S. could face unstable inflation in next decade, top investment pro says.
The Federal Reserve might be able to wrestle inflation down to its 2% annual goal, but it’s going to have a hard time keeping it there.

By Jeffry Bartash

Matt Eagan of Loomis Sayles says Fed might get inflation down to 2%, but not for long

The Federal Reserve might be able to wrestle inflation down to its 2% annual target, but it’s going to have a hard time keeping it there.

That’s one of the themes behind the investment decisions of Loomis Sayles, a 98-year-old investment-management firm based on Boston.

Or as Matt Eagan calls it, “unstable inflation.” Eagan is portfolio manager and co-head of the full discretion team at Loomis Sayles.

Eagan said the world has changed dramatically since the pandemic. He’s skeptical the Fed will be able to reduce annual inflation to the low 2% or less level that prevailed in the decade before 2020.

“I think those days are over for the next decade or so, I would guess,” he said in an interview with MarketWatch.

Economic darwnism

After several years of high inflation, Eagan contends, consumers and companies may have gotten used to an environment of higher prices and higher inflation — in effect, ”economic darwinism.”

Workers are asking for bigger salaries or raises, for example, and businesses are constantly to raise prices.

The elevated inflation readings early this year, along with robust employment gains and steady consumer spending, might be a sign of how hard it will be get rid of what is called “the last mile of inflation,” he said.

The consumer price index rose sharply in January and February to push the yearly rate of inflation to 3.2% — well above the Fed’s 2% target. The last mile involves getting the inflation rate down to 2%.

The persistence of inflationary pressures is why Eagan was surprised that the Fed on Wednesday stuck to its prior forecast of three interest-rate reductions in 2024. He though the central bank would scale back its plans

“I thought they would go down to two rate hikes this year and just say, the data is a bit more resilient than we expected,” he said. “But they are wedded to this soft-landing scenario.”

Stable inflation era over?

The Fed’s bigger challenge, even if it gets inflation to 2%, will be keeping it there, Eagan said.

The reason: The U.S. and the rest of the world is facing the most inflationary environment in decades.

Start with demographics.

The U.S. and other Western industrial countries — even China — are facing declining populations that will result in a persistent shortage of labor. Tight labor markets in turn will keep upward pressure on wages as businesses compete for workers.

The era of global free trade, meanwhile, is taking a backseat to security concerns in the wake of the Russian war on Ukraine and Western tensions with China after the pandemic.

“Security issue globally are trumping trade economics’” Eagan said. “The tension between the U.S. and China are making everyone worried about security, and that’s expensive.”

Growing government deficits are also tinder for inflation. The U.S. has been running trillion-dollar deficits since the pandemic and the national debt is expected to continue to grow by leaps and bounds.

The greening of the economy is another potential inflation accelerator.

Eagan said the U.S. would need to spend trillions of dollars to modernize its electric grid and feed the insatiable appetite of emerging technologies such as artificial intelligence. Lots of older, valuable assets such as coal- or gas-fired could also get stranded.

”That’s a huge investment,” he said.

Higher rates for longer

For the most part, there is nothing the Fed can do about any of this.

“There are a lot of supply-side challenges that I don’t think the Fed can handle through normal monetary policy,” Eagan said.

What could upset his theme of higher inflation? A productivity miracle triggered by a revolution in artificial intelligence. But Eagan is not counting on it.

So what will inflation look like then.

“I think the Fed will allow [inflation] to run above in a range,” he said. “I think that range is below 3%, probably closer to 2.5% or lower.”

The only way the Fed could keep inflation at 2% or so, he said, is by driving up unemployment and collapsing the economy. He doesn’t think the Fed has the stomach for it.

“I think they are going to be forced to accept they won’t be able to get back to their target” in the long run.

If Eagan is right, interest rates are also going to remain higher for longer. A huge flood of new Treasury bonds to fund the growing U.S. budget deficits will also add to the upward pressure on rates.

“A 3% inflation vs a 2% inflation world is a big difference in Treasury markets,” he said.

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27 thoughts on “Economic “darwinism”, inflation is here to stay

  1. Easter Shrinkflation Hits the Chocolate Aisle as Cocoa Surges

    (Bloomberg) — Baskets overflowing with chocolate bunnies and pastel-colored marshmallows are a holiday staple, with Americans forecast to spend more than $5 billion on candy this Easter season. But this year, consumers will be paying more for less as cocoa costs continue to surge.

    Not only are prices higher — those delectable chocolate eggs have climbed more than 10% in a year — but shoppers who are willing to pay up should also expect to get less for their money. It’s the phenomenon of shrinkflation: when sizes shrink, but you’re paying the same price, or sometimes even more, for the same product.

    Companies are dealing with an unrelenting drive higher in the cocoa market by reducing the size of their candy bars. They’re also promoting products with less cocoa or that feature other starring flavors, like embracing treats that contain ingredients such as peanut butter or cream.

    “If consumers haven’t really paid attention to chocolate prices since Christmas — or certainly since Halloween — there’ll be a little bit of a sticker shock when it comes to the prices they’re paying for chocolate products on the shelf,” said Billy Roberts, a senior economist for food and beverage at CoBank.

    New York cocoa futures already closed 2023 with a 61% gain and have continued to surge since. Prices have more than doubled just this year, and hit a record $10,080 a metric ton on Tuesday. The rally’s been driven by a historic shortage of cocoa beans from West Africa, the world’s top growing region.

    The average unit price of a chocolate egg jumped 12% in the year ending March 9, while sales volumes were down 4.2% in the same period, according to data from consumer researcher NIQ. Broader chocolate sales follow a similar trend, NIQ data show.

    Even though prices are higher, now may not be a bad time to start stockpiling some treats — especially in the week after Easter when leftover holiday goodies go on sale.

    That’s because chocolate is typically manufactured well in advance.

    Easter costs are already “locked in, albeit at higher cocoa cost versus last year,” said David Branch, a sector manager at Wells Fargo Agri-Food Institute. But, “the big increases will most likely come in the future” as the current “astronomical prices” kick in.

    The current Easter candy on shelves from Hershey Co., for example, is planned with retailers a year in advance and isn’t impacted by current costs, said Allison Kleinfelter, a company spokesperson.

    That means more bad news is probably in store for chocolate lovers during Easter 2025. More than 40% of consumers say they prefer a solid chocolate egg over a filled or hollow one, according to the National Confectioners Association.

    Still, chocolate continues to be an affordable treat for many — particularly for holidays, which account for nearly two-thirds of all US confectionery sales. Nearly 90% of consumers are planning to buy Easter candy, making it one of the top planned purchases for the holiday, according to the National Retail Federation.

    And even with higher prices, “consumers continue to embrace chocolate and candy as part of their celebrations, occasions and every day,” said Carly Schildhaus, the National Confectioners Association’s director of public affairs and communications.

    Demand for the treats has often proved to be more inelastic than other non-essential goods. After all, while no one technically needs chocolate to live, there are certainly many chocoholics who would beg to differ.

  2. Blah blah blah….

    Powell Reiterates Fed Doesn’t Need to Be In Hurry to Cut Rates

    (Bloomberg) — Federal Reserve Chair Jerome Powell repeated that the US central bank isn’t in any rush to cut interest rates.

    “We don’t need to be in a hurry to cut,” Powell said Friday at an event at the San Francisco Fed.

    Fresh inflation data released earlier is “pretty much in line with our expectations,” he said. But Powell reiterated it won’t be appropriate to lower rates until officials are confident inflation is on track toward their 2% goal.

    “It’s good to see something coming in in line with expectations,” he said, adding that the latest readings aren’t as good as what policymakers saw last year.

    The Fed’s preferred gauge of underlying inflation cooled last month after an even larger increase than previously reported in January, government data released Friday showed. The core personal consumption expenditures price index — which excludes volatile food and energy costs — rose 0.3% in February after climbing 0.5% in the previous month, marking its biggest back-to-back gain in a year.

    Powell said officials expect inflation to continue falling on a “sometimes bumpy path,” echoing remarks he made following the Fed’s last policy meeting earlier this month.

    Fed officials held short-term interest rates at a more than two-decade high at that meeting, and a narrow majority penciled in three rate cuts for 2024.

    Powell said at the time that it would likely be appropriate to ease policy “at some point this year.” But he and other policymakers have made clear they’re in no rush given the underlying strength of the economy and recent signs of persistent price pressures.

    Inflation Cooling

    Inflation has eased substantially from a 40-year peak reached in 2022, decelerating at a particularly fast clip last year. That progress appeared to stall in January and February, with a pickup in consumer price growth.

    Meanwhile, the US economy has remained resilient despite high interest rates. Inflation-adjusted consumer spending topped all economists’ estimates in February, and employers are still hiring workers at a robust clip. Data out earlier this week showed economic growth in the fourth quarter was stronger than originally thought.

    Although Fed officials’ median projection for three rate cuts this year was unchanged from December, nearly half forecast two or fewer rate reductions in 2024. Most policymakers have said they want to see further evidence that inflation is coming down toward their 2% goal before making their first move, which investors now expect in June.

    Powell said Friday an unexpected weakening in the labor market could warrant a policy response from Fed officials, but said he doesn’t see the possibility of a recession as elevated at this time.

    Governor Christopher Waller, an early proponent of raising rates high and fast to contain price pressures, said Wednesday that disappointing inflation data from the start of the year means policymakers may need to keep rates elevated for longer than previously thought or even reduce the overall number of rate cuts.

    But Powell and his colleagues have also said they expect inflation progress to be bumpy, and don’t need to see it hit their target before they start lowering borrowing costs.

    As inflation declines, elevated rates are putting more pressure on the economy, and some policymakers reason it may be appropriate to lower them soon to avoid unduly harming the labor market.

  3. Okay data this morning 🌄

    PCE price index (MoM) (Feb)
    Act: 0.3% Cons: 0.4% Prev: 0.4%

    Core PCE Price Index (YoY) (Feb)
    Act: 2.8% Cons: 2.8% Prev: 2.9%

    Core PCE Price Index (MoM) (Feb)
    Act: 0.3% Cons: 0.3% Prev: 0.5%

    Goods Trade Balance (Feb)
    Act: -91.84B Cons: -90.10B Prev: -90.51B

    PCE Price index (YoY) (Feb)
    Act: 2.5% Cons: 2.5% Prev: 2.4%

    Personal Income (MoM) (Feb)
    Act: 0.3% Cons: 0.4% Prev: 1.0%

    Personal Spending (MoM) (Feb)
    Act: 0.8% Cons: 0.5% Prev: 0.2%

    Real Personal Consumption (MoM) (Feb)
    Act: 0.4% Cons: Prev: -0.2%

  4. It’s all over for us remnant Christians by 2030, so I don’t give a crap anymore…

    In 2023, the Federal Reserve spent $114.3 billion more than it brought in — its largest operating loss on record.

    Federal Reserve Board releases annual audited financial statements

    Additional information in the audited financial statements of the Reserve Banks includes:

    •The Reserve Banks’ 2023 sum total of expenses exceeded earnings by $114.3 billion. In 2022, net income was $58.8 billion;
    •Interest income on securities acquired through open market operations totaled $163.8 billion in 2023, a decrease of $6.2 billion from 2022;
    •Interest expense on depository institutions’ reserve balances was $176.8 billion in 2023, an increase of $116.4 billion from 2022;
    •Total interest income earned on loans to depository institutions and other eligible borrowers, including from the Bank Term Funding Program and Paycheck Protection Program Liquidity Facility, was $10.4 billion;
    Interest expense on securities sold under agreements to repurchase was $104.3 billion in 2023, an increase of $62.4 billion from 2022.
    •The Reserve Banks realized net income of $0.1 billion from emergency credit facilities established in response to the COVID-19 pandemic; and
    •Operating expenses were $9.2 billion in 2023, including assessments of $2.9 billion for Board expenses, currency costs, and the operations of the Consumer Financial Protection Bureau.

    1. Oy vey…

      I came across Gregory Mannarino on YouTube yesterday and he was warning us of imminent economic, stock market, and housing market collapses.

      On his live stream with over a thousand listeners, he was out pounding the table on how cheap silver was. He said he predicted all of these bubbles when Trump got into office. But the only thing I remember whenever I looked at his videos was he was warning of a collapse the whole time. He’s been warning of a stock market collapse for at least the past 12 years. He’s been warning of an economic collapse for the past 12 years, yet he said he predicted all the bubbles.

      He gets a lot of traction on YouTube as I’m sure the powers will not shadow ban him. He says to buy as much silver as we can. Once again, a great non sequitur; silver uptake is 90% industrial, yet he claims that silver is going to skyrocket. The only metal that has shown its true colors during collapses and crashes is gold. Do not buy silver. Buy gold. If you believe there’s going to be a crash or a collapse, which there may be, I only recommend gold. Platinum is less than half the price of gold for a reason. A great percentage is devoted to catalytic converters and industrial use. The same goes for palladium and rhodium. The gold is a vital metal and invaluable on so many levels, but its main use is for money.

      Stop listening to these bloviating one string banjos and buy gold over all other metals. Don’t buy silver, palladium, platinum, or rhodium. These are the times we own gold.

      I digress, this new world order will be climbing a wall of worry and the Gregory Mannarino’s of the world are invaluable to the Jew synagogue, so the wealth and power consolidation can continue right under our noses while we screen collapse. Indeed, the economy is collapsing, just not in the way that Gregory Mannarino nor the other alt financial stooges sees it.

      Just go to the grocery store to observe the economic collapse in real time. Try to rent an apartment at a reasonable price. Try and buy a house at 7% mortgage rates. Try and not go into debt to finance life. Take a look at what’s happened in Argentina for a clue on what’s going on right now in the states. We are observing an economic collapse in real time. The wealthier are consolidating their power over us while they overwhelm our borders with low end mongrels. We scream diversity, social justice, equity, racism, and of course, collapse, yet the economy continues to hum right along. It’s just not humming the way the plebes wanted to.

      Of course, I have five readers that stop by my blog. So, pardon me for not bothering to put out much more output. Why bother?

      1. I think you are 1000% correct. Stocks and real estate have proven to be the best investments in these prolifigate fiscal times. Gold is great for a small portion of one’s wealth for insurance.

      2. Good evening,
        I am one of the 5 readers you mention. In 2018 timeframe I bought for the first time, some amounts of physical gold and silver.
        My thought for silver was that it has, to my knowledge, also been a source of transferable wealth throughout the centuries just as gold has done. My question is “Why only gold if silver has also been used as real money over the centuries”?

        1. Unfortunately, I had to delete the old site, and I’ve been starting this one, so there’s a lot of my work that I’ve been deleting because of my recalcitrant wife.

          Ag has approximately 90% industrial offtake; meaning that economic dynamics play an important role in determining equilibrium prices. This is especially true of Pt and Pd. Platinum is used in diesel vehicles while palladium is used in gas powered ones.

          The prices of all three industrial metals, Ag, Pt, and Pd, have struggled vs. Au as the real economy has struggled or the world has gradually shifted out of diesel and into EV and hybrids. Plus there is better recycling techniques.

          I don’t want to create a false dichotomy per se, but if forced to choose any PM over another, my choice would be gold, hands down. I’m not saying Ag is a loser, but we must come to terms that there are other dynamics at play when determining equilibrium Ag prices.

          Moreover, many novice and small investors hoard Ag coins and bullion and drive up premium spreads to much higher levels than in the Au market.

          With Au, I’m more concerned about what BTC is doing as the gold market becomes overshadowed by crypto.

          There’s a reason why Au consistently trades at a high premium over Ag, and especially Pt platinum. Au is real money and the sovereign states and wealthy prefer that over Pt and Ag.

          Back in 2020 I recommended readers to perhaps look at Pt as a buy and hold and play on converging prices, but that never happened.

          What amazes me is how cheap Pt is vs. gold

          1. I think silver has done better than platinum in the last couple of years. Platinum just has not gone anywhere above 1,000 an ounce. Once it reaches that level then Pt comes right back down.

          2. Aside from automotive use, Pd and Ag are used in the defense industry. They are essential for recovering tritium. I can’t say more but the info is out there. What that does for value I have no idea but thought I would add this to the mix. Or how does that fit into the catalytic converter theft incentive?

        1. As the Jew synagogue-controlled world objectives race to finish their takeover of the nation states, they will run the last lap of the marathon in the stadium, naked for those willing to see. Au will go up in tandem with deficit spending and the ostensible loss of central bank control of inflation and the yield curve. Ag follows Au more than the other PMs, but I would rather own the big daddy of all PMs, gold. In Au we get what we expect.

          Interesting how Au is rising despite “delays” in bringing down bond and overnight yields. Au is telling me catastrophe will be the end result.

          We will NEVER see Au fall below $2,000 again in our lifetimes or until Jesus returns.

          1. I am glad I pulled cash out of my properties b/w 6.25% and 7.75%. DSCR loans are now changing at least 8.25%-8.50%. As rates remain higher for longer, funding investors are charging higher investor loan rates.

  5. The New World Order is built off the backs of those preceding it.

    Daniel Kahneman, a psychologist whose work casting doubt on the rationality of decision-making helped spawn the field of behavioral economics and won him a Nobel Prize, has died. He was 90.

  6. Donald Trump is controlled opposition; his social media company stake is worth well above $4 billion as it formally trades this morning under the new ticker of DJT. He owns 60% of the shares.

    1. Donald Trump is playing a role for the synagogue of Satan. Note the recent payoff of 4 billion he got from his social media deal. He may be allowed to become president to fulfill their goals.

      Remember that Donald Trump is not Jesus Christ nor is he a man of God.

    1. The schvartze loving Maryland state will probably release these ship commandeers as it’s honorable to worship perpetrators of crimes and gross negligence. Maryland has been paying for its poor choices. I’m sure there’s more to come. I’m selling my properties out of that state and I suggest you do the same, especially if you’re European Caucasian.

    2. Yes, that’s a big Oh $*IT! I can imagine the economic fallout from this will be huge. If we thought prices on everything were high just wait. The day after the disaster Biden says the Fed will pay for the repairs. Boom. Just like that. The bridge just went through some renovations too? Were counterfeit Chinese materials used and were parts failing? Could this in part be Jewish lightening? They suspect dirty fuel caused the ship engines to die. No one changed the fuel filter? Maintenance contract for ships has sunk to a new third world low? Way too many questions.

      Apparently large amounts of coal are exported from here to China and India. Then of course containers coming in full of stuff made by the energy produced from that coal. Are we in for another covid like crisis where store shelves become empty? It’s only been a couple of days but I have a bad feeling about this.

    3. I have suspicions that this bridge collapse is deliberate sabotage to cause major shipping disruptions. It was interesting how the lights on this freighter flickered on and off before crashing into the bridge. It is also interesting how the whole bridge just collapsed instead of that section that got hit.
      This was designed to hit the coal producing regions of Pennsylvania and West Virginia as much of that coal comes out of the Baltimore port.

      1. You get no disagreements from me. Makes sense. Another infrastructure “accident” can completely reverse FED path.

        Death, disease, bioweapon injuries, bankruptcy, destruction, war, screams of racism, homosexuality, fornicating between races, despair, suicide, broken dreams and families, hopelessness, emptiness, etc. etc. are wonderful for this economy and the prospects of the wealthy.

  7. Thomas,
    I know from one of my posts in the past and your subsequent response, that you have your reservations about the cryptocurrency market bc it does not produce regular cashflow income in the way that rentals or dividend stocks do. However, I am reiterating my prior opinion because we are witnessing the beginning of another bull market in crypto and we have seen, and will continue to see, outsized gains that far outperform any other asset class, including real estate. There is no reason why one cannot DCA out of appreciating cryptos every month to generate income. I am posting a Youtube video from Raoul Pal, who I think has the best macro model of what has happened in the financial markets since 2008. While some think that crypto might be preparing us for a (digital) beast system, it’s price appreciation far outperforms anything else and there is no reason why a person cannot trade out of it into fiat after it has gone up by 1000%. There is simply no other asset class that gives the average person the ability to get ahead of the high inflation that is crushing us. At least consider his thesis from this video. Look past his frequent use of the F word. It is not an indication of the value of his content. Cheers.

    1. Hi. Thanks for the YouTube link and the comments. I’ll take a look at the video when I have a chance.

      We’ve always recommended Bitcoin for speculation. Of course, they do not derive any income per se, but as a speculative vehicle I’ve always recommended Bitcoin. I’ve also been holding a bunch of Bitcoin cash and that one has been doing well for me over the past year or so. I think these ETFs have definitely bolstered bitcoin’s appeal and it finally opens up a way for people who otherwise would have been skittish about owning some into buying into it. My coinbase account has done well.

      Indeed, Bitcoin is an object that the powers are useing to acclimate us to the beast system, but I guess everything else has been used to do the same.

      I prefer real estate to a long-term asset as there are so many other benefits that investors can derive, especially tax benefits. Very little of my income is actually taxable.

      1. I completely agree that one should invest in things they know and that taxes need to be factored in. I know nothing about real estate. I happened upon crypto 8 yrs ago and it was the one investment class that really stuck. People can certainly lose their shirt very easily in crypto but you have to start somewhere.

        I’ll just post an earlier interview that Pal did where he fleshes out his main thesis called the “everything code” for anyone who is interested. I doubt he is aware of the S.O.S or if its long term goals, but his info is useful nonetheless, particularly his analysis of the 3.5 to 4 years cycles we have seen in the crypto markets which is really the key to knowing when to enter the market.

        1. For someone like me who exclusivity depends on my own abilities and such, as I haven’t had a job since 2001, and don’t have other timely revenue streams, I needed to develop predictable income streams that would directly benefit from the Marxist objectives and the massive deficit spending of QE. For instance, look at the diluting down of the Western European whites in the US; endless and “relentless” migrant streaming as Biden says. This makes rental investing a slam dunk for me. As I have gotten older, I have relied more and more on SFR investing. I can’t really afford to take my investment capital and sink a big chuck into BTC as I wouldn’t be making income to live off of. I live solely off my RE income. Capital appreciation is also there, but that’s gravy.

          If I had a job, I would have been more bold with BTC, but hindsight is 20/20.

          My one reservation is this; BTC moves with equities, and if anyone thinks stocks will tank, I would be careful about BTC until we see stocks tank. I am not saying either will, but if someone holds that thesis, I suspect the BTC train has left the station for this round.

          1. Old rare coins, especially pre 1933 US gold coins and old pre 1964 silver coins in better condition have proven to be sound investments over the years as they have substantially risen in value. However, they don’t produce income and they get taxed at a maximum long term rate of 28% when sold.

            Rental Real estate is great for income and lower tax rates as well as appreciation.

  8. I was able to rent out a property I purchased last September for $1,750/mo. I paid $258k. Doing the quick math I get a gross cap rate of 7.0%

    In 2015, the same property rented for $1,200 and its market value was $200k. That is a gross cap of 6.3%.

    This week, an identical property in the same subdivision and same sqft was listed for $1,900/mo. by a realtor.

    I don’t see a bubble where I’m looking. The relentless streaming of multibreed low end takers into the country as well as the relentless deficit spending by the nation’s government to reengineer our lives and economy have destroyed most people’s freedom and future.

    Call me racist and xenophobic while we investors laugh all the way to the bank.

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