US producer prices rose 9.7% year over year in 2021. The increase was expected to be 9.1%. Here is the chart below:
This type of inflation shows up in raw material costs. It is not part of CPI (consumer price index). However, since (OER) owners equivalent rent, is not included in CPI it is much lower than PPI from the above chart. CPI is 7.5% Which is half what real inflation is considering OEM, food, Gas, energy, and services. In more expensive parts of the US, CPI is less than half of real inflation. This will get much worse. We explain why the rest of this blog.
For those readers who know or follow Charlie Munger and Warren Buffet, here is the latest Charlie Munger quote, he called Bitcoin rat poisen in 2018, click here to view on twitter.
When the pandemic started in 2020. The Fed had stimulus, perpetual QE, and they were buying treasury bonds at alarming rates. The result now, in the US, is a $15 trillion overvaluation of all treasury and mortgage bonds. See the chart below from Dan Moorehead of Pantera Capital:
Due to said overvaluation, the bond bubble will crash soon and when it does, rates would theortically skyrocket:
Here is a quote from Pantera Capital:
“You can see that about a year ago, the Fed completely pushed that up, really crazy. I think the Fed's actions are a complete policy mistake and they are basically about to stop. The Fed is going to have to stop doing what they're doing, and then there's going to be this big air gap in bonds. So, if you have yet to sell your bonds to the Federal Reserve, you should do it. By next month, the last buyer (and only buyer) of bonds will be gone. And that will drive a lot of people to come into alternative asset classes like crypto.”
We still think the Fed will chicken out and raise rates 25 bps. Inflation will get much worse in this case. If they do raise rates substantially, stocks and real estate will take the hit. Since the late 90’s the Fed has held up asset prices and inflated them. A lot of the government corruption has been derived from this. Therefore, a continuation of this corruption and a loss of buying power to ordinary Americans is more likely. Of course, it could go either way. Either way is bad, unless you own Bitcoin. Here are two more charts from Dan Moorehead of Pantera Capital: