Macro Digest: Inflation is here - ignore at your peril

Macro
Steen Jakobsen

Chief Investment Officer

Summary:  China will lead world in 2021 - our credit impulse is clear. A steep increase in activity is expected. The market has no price discovery, hence no "real inflation" information. The measured financial market inflation will come late and seriously lagged.


I feel strongly established macro analysts are looking at macro drivers the wrong way. The financial market operates under no price discovery. The logical conclusion to that is that any financial derivates information has zero value!

The inflation gauges like 5y5y swap and other inflation links are invalid, similar to any analyst using value investment based on psychical asset world. Global stocks today are 80% immaterial value + 20% ESG narrative. Similar inflation today is 80% deficits in supply-demand lines and 20% last mile costs which is exploding as we speak. (@Peter Garnry will publish detail analysis of last mile today – he sees reporting of 60% increase in last mile cost, which of course sits in excess of even the stellar YoY increase these platforms has done in the COVID19 crisis).

This leads me to this conclusion:

  • Market with no price discovery, hence no “real inflation” information. In the real world though Dr. Copper is breaking 2017 high + cost of containers (long haul) + Last mile cost (delivery) is breaking hard higher.

  • The measured inflation in the financial market will come late and seriously lagged.

  • Keep watching for marginal changes in FED and fiscal spend and you risk losing sight of what is really going on: Real economy inflation and disrupted global supply chains plus massive underinvestment in anything from fossils oil and gas, shipping to mining.

Two charts in this batch:

  • Dr. Copper vs. China Credit Impulse – 9 months forward
  • Dr. Copper vs. Container Freight cost
Dr. Copper vs. China Credit Impulse – 9 months forward. Source: Bloomberg
Dr. Copper vs. Container Freight cost. Source: Bloomberg

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