Topping Germany

Thu, 2017/12/14 - 3:05pm | Your editor
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For the first time this week the blog is late not because of technical issues, but because of a conference call by the CEO of one of our key stock holdings.

Before hitting the micro-economics button, I wanted to briefly comment on the inflationary outlook—or rather its lack. Despite the Fed having raised interest rates yesterday, as had long been expected, and despite its warning that there will be 3 more cuts next year, the US central bank did not justify these hikes by blaming inflation risks, as is customary in the CB business.

On the contrary, the Fed singularly failed to mention inflationary risks from the Big Kahuna now being prepared by Congess and the White House, called “tax reform” but in fact a major move to boost the US government deficit because there is no plan to replace the loss of tax revenues. Deficit spending no longer seems to require that the Fed take away the punchbowl just as the party gets going, to quote former a Fed chairman,William McChesney Martin.

It also leaves the US vulnerable on many fronts to inflationary pressures which so far are hidden, like higher wage demands as unemployment falls to extremely low levels historically. But these are not really mentioned except as an exception: lower unemployment is not causing wage demands to rise. The US consumer price index is not operating as it has done historically—which is why the Fed is also operating in uncharted fields.

To quote the BofA Merrill Lynch macro team, “the Phillips curve is dead” because the Fed is not tightening to react to inflation. In my youth, the Fed always boosted interest rates because of fear of inflation. Now the US core CPI is up all of 0.1%--big whoop—but the Fed is proceeding with 0.25% interest rate increases, yesterday, and 3 more times next year, according to its statement. So nobody understands what is happening at the Fed.


The new Zugspitze cable car will go higher than the old one. As a result, it will be even easier for me to get to be Uber Alles in Germany. It is the highest point in the country, south of Munich. All my ancestors were German and forced to flee or be killed because they were also Jewish, one reason I want to be at the German top peak, much higher than Hitler's eyrie at Berchtesgaden.


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