Yesterday, they said inflation was 5% or something. Couple things wrong with that. Inflation isn’t 5%. And what they reported was CPI, not inflation. CPI does not measure inflation. It measures “consumer prices.” Inflation is defined as a rise in the general price level. Certainly under that classical definition, housing would be include. But it isn’t. The BLS removed house prices in 1982 because they had been rising too fast and were costing the government’s cronies too much in labor contracts. And it was costing the government too much in government employee salaries and government contract COLAs.
So they ditched it and made up a completely fictional measure of housing costs that lags and understates the increases on the way up, and lags and understates the decreases on the way down. The worst part is that this bogus component of CPI, which is a combination of renters rent and what they call Owner’s Equivalent Rent, currently represents about 40% of core CPI.
This CPI feature is currently input at +8.8% year to year and 0.5% m/m. At 40% of CPI, that accounts for 3.5% of the 5% year to year increase in CPI. Without it, the gain would have been 1.5%.
But wait, there’s more. Actual house prices as shown in the near real time MLS price data (currently February contract data) were down 1.2% year to year according to Redfin. So take another 0.5% off the headline core CPI number for that and CPI would be at 1%, not 5%. The Fed would need to instantly stop and reverse QT.
Given the delay in OER recognition of reality, it might be another 6 months before the Fed wakes up. By then it will be too late.
This chart shows the relationship between the size of the Fed’s Securities Holdings, the various bogus official measures of inflation, and the Fed’s fake funds rate which rubber stamp changes in the 13 week T-bill rate in the market. If real world housing prices were accounted for 3 of the lines would be shifted down by 4 per centage points.
The one sticky problem remains the PPI for Final Demand Core Finished Consumer Goods. Undoubtedly a problem. Sorry, I can’t reconcile everything.
Maybe we should watch the more volatile stuff, food and energy.
Meanwhile, I have updated the Core Finished Consumer Goods Final Demand PPI in the above chart. Tracking Fed SOMA (System Open Market Account) nicely.
Fed SOMA is just its securities holdings, which represents POMO, QE, and QT only. The emergency lending programs, ELPs are just a circle jerk, that pay depositor withdrawals. The recipients instantaneously deposit the money they withdrew from the banks into a money market fund. The MMF then places the money in Fed RRPs. So the cash that left the banks, and directly reduces the Fed’s bank deposit liabilities (aka colloquially “reserves”), remains on the Fed’s balance sheet as RRP liabilities. Depositors still have instant access to the cash via their MMFs, which are attached to their brokerage, and/or bank accounts.
The Fed’s ELPs therefore do not add funds to the system. They merely maintain what was already there. Meanwhile, QT goes on. THAT is what really shrinks deposits.
Capiche? Ou non? Macro Liquidity Says No Way Jerray!
I’ll be back with our usual look at the hourly ES charts for a guess on what today’s trading will look like.
For moron the markets, see:
- Here’s What’s Next Now That Gold Has Reached Its Limit April 10, 2023
- Cycle Indicators Tell How to Play This Rally Now April 10, 2023
- Swing Trade Screen Picks – 3 Buys, 4 Shorts April 6, 2023
- Here’s How We Know That Doom Has Already Arrived April 6, 2023
- Macro Liquidity Says No Way Jerray! April 4, 2023
- First, the Rally, Then … April 3, 2023
- Watch Out For This If the Market Comes Unstuck March 27, 2023
- How to Play When Fed Changes the Game, Not Just the Rules March 19, 2023
- Systemic Meltdown Under Way As Dead Bodies Finally Start Surfacing March 12, 2023
- Here’s Why There Will Never Be Bull Markets Until This One Thing Happens February 26, 2023
- You Can Now Follow the Diabolical Usual Suspects February 16, 2023
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