Cents and Sensibility: the Inflation Guy Podcast

Ep. 67: Three-point Goal? Or go for Two? (Percent)

The Fed, along with most global central banks, considers 2% (or in that neighborhood) to be the definition of "price stability" that it aims for. Except that in the Fed's case, that 2% is on PCE (not CPI), and they only aim to hit that as an average over some (unstated) period of time.

However, even that is proving to be...somewhat difficult, leading to "murmurs" in some quarters that the Fed should change its target to 3% rather than 2%. For example, see this article in Reuters from May 24th: https://www.reuters.com/markets/us/murmurs-grow-within-fed-about-tweaking-2-target-once-inflation-recedes-2023-05-24/ 

In this episode, the Inflation Guy reviews the history of the 2% target, including how it's sort of a squishy target...which the Fed doesn't really have the power to hit anyway. The Inflation Guy goes a little nuts with the analogies but you will get the point.

Tune in for the trivia question; stay for the history lesson!

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Ep. 66: De-dollarization - Should We Worry? with Andy Fately

This week, the Inflation Guy brings another special guest on the set.

Andy Fately is a veteran of more than 40 years in the foreign exchange markets, trading spot, forwards and options as well as running businesses for major US and international commercial and investment banks.  He is known as the FX Poet (https://fxpoetry.com/about-2/), but really focused on creating solutions for risk managers for problems as they arise.

Andy and the Inflation Guy tackle the question that naturally follows from headlines like these from earlier this year (links take you to the story):

• Russia embracing the Chinese yuan for much of its global trade
• Saudi Arabia considering invoicing oil exports to China in yuan
• France buying gas from China in yuan
• Brazil and China agreeing to ditch the dollar for bilateral trade
• BRICS countries planning to develop a new reserve currency
• Kenya promising to ditch the dollar for oil purchases
• ASEAN members discussing dropping the dollar for cross-border payments
• India settling some trade in rupees

Should US citizens, or dollar-users in general, be concerned that the sun may be setting on the US Dollar? How would this happen, and is it likely to happen? Andy Fately and the Inflation Guy combine their knowledge (which, to be fair, mostly belongs to Andy) and push back a bit on the 'bear porn' disaster cases by walking through the actual mechanics that would be involved in a de-dollarization.

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Ep. 65: This Month’s CPI Report - Sing a New Song Unto the ’Board

The Inflation Guy addresses this month's CPI report, which showed an above-expectations Core CPI number (by a little). However, the internals of the report were not too bad, and according to the Inflation Guy today's data turns out to be a really good one supporting the timing of the Federal Reserve Board's pivot from active-tightening to steady-policy. The months ahead, though, still are unlikely to deliver what the market is pricing in, setting up a denouement for later in the year. For today, however, sing a new song unto the 'Board!

Ep. 64: Will the Money Supply Decline Save Our Inflationary Bacon?

The M2 measure of the money supply has declined 4% from its peak 8 months ago - the largest decline since M2 has been measured starting in 1959. On the other hand, the Velocity of M2 has risen 8%, tying the largest increase in history. Which of these two titanic monetary tides will prevail? Does the decline in money presage the beginning of a deflationary debacle (at least for the stock market)?

The Inflation Guy takes on this question and untangles the truth for you.

Plus, he added a trivia question. So, there's that.

Ep. 63: A Bitter Pill

In this episode, the Inflation Guy again tilts at windmills by ranting about recent comments by Bank of England Chief Economist Huw Pill to the effect that the reason inflation is remaining high is because normal people are not accepting that they are worse off, and therefore insist on arguing for higher wages rather than "taking their share" of the pain. Wow, he gets animated in this one. It's only Episode 63. What is the Inflation Guy going to be like when we get to Episode 100?

Ep. 62: There’s Nothing Wrong With the Phillips Curve!

It has become de rigeur in economics circles (word to the wise - always avoid such circles if you wish to retain your ability to think independently) to bemoan the death of the “Phillips Curve.” The Phillips Curve supposedly describes an inverse relationship between inflation and unemployment. "Supposedly”? In this succinct episode, the Inflation Guy explains why poor William Phillips' good name has been dragged through the mud unnecessarily. There is nothing wrong with his curve!

In this podcast, the Inflation Guy refers to a chart. It's hard to see charts on audio, so here is a link to the chart in case you want to follow along:

The Real Phillips Curve

Ep. 61: This Month’s CPI Report - Good, Not Great

When is a perfect forecast not a perfect forecast? When you got the reasons wrong. This ain't hurling hand grenades, where only the result matters - if you made a bunch of positive mistakes and a bunch of negative mistakes and they happen to offset, you're not a genius; you just got lucky. So today, Wall Street economists forecast 0.39% on Core CPI. That was exactly what they got. But for all the wrong reasons, and the reasons are important.

In this episode, the Inflation Guy (whose forecast wasn't even right, so who is he to judge?!) highlights the two things which dragged down Core inflation...neither of which was expected by almost anyone. So the news overall is good, not great, and the Inflation Guy will tell you why.

If you like the podcast, please click that like button and forward it to a friend!

Ep. 60: Inflation and Insurance Companies, with Bill Poutsiaka

The Inflation Guy doesn't understand why some people love to be the smartest person in the room. That's not fun at all! The Inflation Guy wants to be no better than the second-smartest, so he can always be learning. This is the first episode where he achieves this goal in a podcast format, with a real live guest who is deeply experienced in how insurance companies evaluate and address inflation risks.

Bill Poutsiaka is a senior financial services executive who has been a CEO, Chief Investment Officer, and board member for global insurance and asset management businesses. Bill has served as an active director on the boards of public, mutual, private and non-profit organizations. These organizations have included global, domestic, large, small, multiline and highly specialized insurance and investment entities. His executive roles include Chief Investment Officer & SVP of AIG Property Casualty following the financial crisis; CEO of quantitative firm PanAgora Asset Management, and CEO Arkwright Mutual Insurance Co which he merged to form FM Global.

More importantly, he is an old friend of the Inflation Guy. In this episode of the podcast, they talk about how insurance companies think about and address inflation risks...and also go 'into the lab' to talk about some of the things they ought to do, if they don't.

Bill is currently consulting, doing board work, research on application of emerging data science methods, mentoring, advising/coaching fintech organizations and startups, publishing, and speaking at conferences and universities. If you want to get in touch with him, drop the Inflation Guy a message at InflationGuy@EnduringInvestments.com

Ep. 59: Delta - Not So Arcane

In this episode, the Inflation Guy presents an introductory-level discussion of the concept of "delta," applying it to securities and explaining how the concept is used (in fairly plain English), but also applying it to exposures outside of the finance world. If you are someone who agreed with the tenor of a recent news article referring to the "arcane area of trading known as delta-hedging," you might find the Inflation Guy's perspective refreshing.

If you like this podcast, please be sure to 'like' us, forward the links to your friends, and talk about us often. And return next week for more!

Ep. 58: ”You Fell Victim to One of the Classic Blunders!”

In this episode, the Inflation Guy discusses how volatility is a feature, not a bug - and how the Silicon Valley Bank debacle is not likely to lead to lower inflation at all. He also tells an interesting story about how deposit interest rates used to be capped, and how uncapped deposits have often been associated with bad outcomes at poorly-managed banks (and lots of them).

Some sources for this podcast:

Rolnick, Arthur J., “The Benefits of Bank Deposit Rate Ceilings: New Evidence on Bank Rates and Risk in the 1920s,” Federal Reserve Bank of Minneapolis Quarterly Review, Summer 1987. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=148ae4d7a7bd36d2a3e851fb543d6350cdfa20d4

“Deposit Deregulation,” Federal Reserve Bank of San Francisco, Weekly Letter, April 10, 1981. https://www.frbsf.org/economic-research/wp-content/uploads/sites/4/el81-15.pdf

Banking Strategist website: history of US Bank Failures. https://www.bankingstrategist.com/history-of-us-bank-failures