June 2019 CPI Inflation

Jul. 12, 2019 7:07 PM ETTBT, TLT, TMV, IEF, SHY, TBF, EDV, TMF, PST, TTT, ZROZ, VGLT, TLH, IEI, BIL, TYO, UBT, UST, DLBS, PLW, DTYS, VGSH, SHV, VGIT, GOVT, SCHO, TBX, SCHR, SPTI, GSY, TYD, DTYL, EGF, VUSTX, TYBS, DTUS, TUZ, DTUL, DFVL, TAPR, DFVS, TYNS, RISE, FIBR, GBIL, HYDD, UDN, USDU, UUP, RINF1 Like
Kevin A. Erdmann profile picture
Kevin A. Erdmann
196 Followers

Summary

  • Going forward, I think inflation may become a less important indicator.
  • Monetary policy is on the margin of neutral.
  • We are probably near the point in time where a tactical long position in fixed income should shift into more of a long position in equities and real estate, either now or over a few months as this plays out.

Here is my monthly inflation update. We continue along in the same pattern. This month, there was a bit of a bump in non-shelter inflation, but the trailing 12-month rate remains about 1.1% and shelter inflation remains about 3.4%.

Going forward, I think inflation may become a less important indicator. The Fed has shifted to a more dovish posture, and they are not insisting on holding the target rate at a plateau. It would be a shock if they don't lower rates this month. So, I am happy to say that my worst fears appear not to have come to pass. Monetary policy is on the margin of neutral. Unless the Fed reverses course, I suspect there will either be a slight contraction or a continuation of the expansion. For now, I will call that a tentative prediction, but it seems to be where we have moved.

We are probably near the point in time where a tactical long position in fixed income should shift into more of a long position in equities and real estate, either now or over a few months as this plays out.

In terms of broader influences, I'm more worried about nominal growth rates in Australia and Canada than things like the tariff issue, but I'm no expert on those issues. That's just my hunch.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Kevin A. Erdmann profile picture
196 Followers
As a private investor, I have concentrated on deep value and turnaround microcaps, where illiquid trading markets and reputational risks allow mispricing to be occasionally extreme. Over the past few years, I have developed a radical new macro-level view of the economy. I have found that the housing bubble was not caused by reckless lending or over-investment in housing. Rather, it was caused by a shortage of housing in several important urban markets. The subsequent bust and financial crisis were not inevitable collapses of a demand bubble, but were avoidable and self-imposed consequences of a moral panic about building and borrowing. The key factors providing insights into financial markets going forward are related to the shortage of housing and the disastrous public policy responses to it. This has led to high rent inflation, perpetually tight monetary policy, a divergence of yields between US housing and bond markets, very low rates of new construction, and labor immobility/stagnation.Two books are in the works on the topic.  Here is the first:https://rowman.com/ISBN/9781538122143/Shut-Out-How-a-Housing-Shortage-Caused-the-Great-Recession-and-Crippled-Our-EconomyI am currently a Visiting Fellow at the Mercatus Center at George Mason University.
Follow
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.