Fed will soon be running after the fire engine

Abraham George Macro View

Since there is not much movement in all the four asset classes that we track, I have nothing much to write on specific markets. That does not mean there are no macro developments that can shake the markets down the line. For long, I have been writing on growth and inflation.

President Joe Biden says that US desperately need growth, and that justifies transforming the economy through top-down central planning, and spending trillions of dollars that they don’t have. Despite this clear intent to inflate the size of the economy, the Fed says it sees no inflation or for that matter any inflation risks.

But what are the facts? Last week, the first reading on Q1 GDP was at 6.4% growth. That’s about three times the pre-pandemic, and double the long-term US average economic growth rate. Add to that, the Atlanta Fed model is now projecting 10.4% growth for Q2.

So growth is already inflated. What about prices? The government tells us that inflation is running at 2.6% which is under the longer- term inflation rate of 3%. House prices are going through the roof. Median house prices in the US rose 20.5% from pre-pandemic levels. Car prices are soaring. Used car value index is up 33.5% from pre-pandemic levels. The FAO Food Index is up 24%. The national average gas price is up 16% from pre-pandemic levels. Add to all of this, there is not a single commodity for which the price is down.

So inflation is here - it’s just not in the government numbers. They cannot mislead you for too long. In the next report, I’ll focus on what will be the antidote for inflation and how Biden’s new tax policies will drive the economy.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.