The Common Knowledge of Inflation


To receive a free full-text email of The Zeitgeist whenever we publish to the website, please sign up here. You’ll get two or three of these emails every week, and your email will not be shared with anyone. Ever.


Until an hour before the Devil fell, God thought him beautiful in Heaven.

That’s my fave Arthur Miller quote, from The Crucible.

Our Devil is inflation, and today we think him beautiful in Heaven.


Low consumer inflation opens the door for Fed to cut interest rates further   [MarketWatch]

The low rate of inflation, reflected in the CPI and other price barometers, may allow the Fed more leeway to trim rates if growth in the economy continues to slow. Wall Street puts a high chance the central bank will reduce rates again at the end of the month.

With inflation largely under wraps, the Fed has said it would be prepared to cut interest rates again if the outlook for the U.S. economy worsens. 


Common Knowledge is what everyone knows that everyone knows.

The strategic interaction (a “game” in the technical sense) by which Common Knowledge is created is, at its core, the process by which the crowd evaluates the crowd, and it is the primary driver of our lives as social animals, both in politics and in markets. It’s also the theoretical sun of the Epsilon Theory solar system.

For a crash course, here are some of the ET notes that have focused on the Common Knowledge Game, going all the way back to original Manifesto.


One of the most powerful and pervasive strands of Common Knowledge today is that inflation is practically non-existent.

Everyone knows that everyone knows that inflation is low.

We know this because we are told by our betters – by Missionaries in the game theoretic parlance – that inflation is low, and so it is … not in reality, but in the Common Knowledge. And that’s what counts.

It doesn’t matter if you personally believe that inflation is not-low. It doesn’t matter if there’s obvious data that inflation is not-low. It doesn’t matter because if you act publicly in opposition to the Common Knowledge … if you say that the Missionaries are wrong … then you will be punished for your public action so long as the Common Knowledge persists.

If you rely on the Missionaries for your bread and butter, then you can’t cross the Missionaries.

This is why the author of this MarketWatch article yesterday takes the most recent inflation data – some of which shows headline inflation rising less than expectations, but NONE of which shows core inflation falling – and frames it in a way that communicates “ho-hum, more low inflation just as far as the eye can see … green light for stimulus!”

Let me put it a different way.

Core inflation in the US is now at a 10-year high.

But we are told – in this ARTICLE ABOUT INFLATION – that precisely the opposite is true.

Is this “runaway inflation”? Of course not. But c’mon, man.

I’m really not trying to pick on this guy … I could pick 1,000 articles and 1,000 authors who do this, and we’re all just trying to make a living here. That’s my point, in fact. It’s not evil to write the article this way; it’s entirely rational.

This is also why “Don’t fight the Fed!” is not just a truism … it’s actually true.

But here’s the thing.

At some point a new Missionary will rise. One always does. And that new Missionary will change what everyone knows that everyone knows about inflation.

I’ll leave you with two thoughts on all this.

Sometimes Mr. Market is a Missionary.

The Fed has zero ability – ZERO – to combat that Missionary by raising interest rates and squelching the inflation Narrative.

You saw what happened in December of last year. You saw how Jay Powell was taken out into the public square and politically emasculated for raising rates. You think that’s ever happening again? LOL. Sorry, market peeps, but the Fed does NOT have your back on this one.

Inflation is the Devil. Inflation is the Fourth Horseman.

And you’re not ready for the Fall.


Comments

  1. Avatar for bheit bheit says:

    I look at that core CPI chart and see a massive consolidation below a flat top and the beginning of a breakout higher.

  2. It is striking that when I chat with active market players, that the no-inflation view is a given, not a question.
    Even when the data shows different
    Even when some of the narrative supporting no inflation (like Globalization) has withered

  3. Health insurance premiums are spiking, with recent YoY trends of 20%.

  4. If you think there is no inflation google this: hedonic quality adjustments

Continue the discussion at the Epsilon Theory Forum

Participants

Avatar for bhunt Avatar for psherman Avatar for lpusateri Avatar for bheit Avatar for swiggins

The Daily Zeitgeist

ET Zeitgeist: Raccoons Never Sleep

By Ben Hunt | May 28, 2021 | 5 Comments

Lemonade (LMND) isn’t just an insurance company. No, no … they’re an AI Company! ™.

Plus Chamath is up to his old tricks.

I hate raccoons.

Inflation as Ad Campaign

By Ben Hunt | May 24, 2021 | 0 Comments

An ET Pack member sent me this. Anyone else come across ads that directly call out inflation expectations? Would love to collect more screenshots like…

Many People Are Saying … Bitcoin is Art

By Ben Hunt | May 24, 2021 | 0 Comments

The Bitcoin Is Art thesis that I put out back in 2015 (The Effete Rebellion of Bitcoin) and recently put forward again (In Praise of…

The Zeitgeist – 4.15.2019

By Rusty Guinn | April 15, 2019 | 9 Comments

It’s the Monday Zeitgeist, where we keep the Star Wars image streak alive at 2, celebrate the return of a beloved phrase, laud the arrival of a very dumb phrase, listen to political predictions from economists, and hear a political proposal from a journalist.

The Zeitgeist Weekend Edition – 4.13.2019

By Rusty Guinn | April 13, 2019 | 1 Comment

It’s the Weekend Zeitgeist, where we try to forget about markets for a day or two to see what matters in the rest of the world. This week, it’s robots, the 1980s, self-made men, Star Wars (more than an ACTUAL black hole), Moroccan exceptionalism and the Power of Google.

The Zeitgeist – 4.12.2019

By Ben Hunt | April 12, 2019 | 4 Comments

My father owned a red Corvair almost exactly like this one. He loved that car. Almost died in it, too, when he was t-boned at an intersection on his way to work in Bessemer, Alabama. That was in 1966. I was two years old.

The Boeing 737 MAX is our generation’s Chevy Corvair.

Unsafe At Any Speed.

DISCLOSURES

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.