Juggling Dynamite

Bill White is a rare former central banker with decades of experience and a truth chip. Always refreshing to hear. Canada comes up in this discussion specifically. Here is a direct video link.

Former central bank insider William White one-on-one with Quill Intelligence CEO & Chief Strategist Danielle DiMartino Booth. There’s no more consequential time to have this conversation. As central banks tighten monetary policy around the world (removing trillions of dollars in money supply), markets are crashing. White worked for the Bank of England and the Bank of Canada. He was Director of Research at the Bank of International Settlements and the Chairman of the Economic & Development Review Committee at the OECD. He led the policy-making recommendations to associated countries. In short, if there’s someone who knows where global systemic risk lies, planted by generations of central bank missteps, William White is your man. Mr. White is currently a Senior Fellow at the C.D. Howe Institute in Toronto.

Fourteen years of ever-easier money has reared a generation of mindless financial allocators and gambling preoccupations. Whatever this is, it’s not investing, and the costs of waste and mal-investment will be with us for years to come. Patience and self-discipline remain the best antidotes to destructive madness and mania.

Danielle raises an interesting point in this segment, noting that the 3x faster-than-average rate hikes in 2022 may work through the economy faster than the historical 18 to 24 months of past cycles. When it comes to floating rate debt, the rate shock has been immediate, to be sure. When it comes to fixed-term financing, though, higher rates will still only be felt on renewals or new financing. In any case, the economy will undoubtedly feel the weight of high debt for at least the next year.

Cooler CPI Report Easing Rate-Hike Worries — DiMartino Booth joins Neil Cavuto and Jim Bianco. Here is a direct video link.

November US CPI at 7.1% year over year was .2% lower than the 7.3% consensus forecast. Excluding food and energy, the consumer price index rose 0.2% in November (compared with .3% expected and was the smallest advance in 15 months), up 6% from a year earlier. Every sector showed a smaller increase in November than in October except for shelter (where owner-equivalent rent was up 7.1%), which lagged behind the real-time decline in home prices and rents and accounted for more than half of the core CPI increase.  The rate of change in inflation has been slowing since June, and if it continues apace, CPI will be below the Fed’s 2% target by June 2023.

Every asset market soared this morning, hoping that central banks would soon be able to pause rate hikes. Speculative mania remains alive and well, and the analyst consensus continues to expect no recession with 5.5% S&P 500 earnings growth in 2023.

But here’s the thing: the massive monetary tightening to date will already heavily throttle financial conditions through 2023. And the more bullish dreams trade up commodities and other risk assets, the more the US Fed can justify holding rates above 4% and indefinitely reducing its balance sheet (QT).

Lower inflation is good, but it’s not bullish for risk markets in 2023.