I was at a friend's birthday party last night, talking to his brother-in-law. We were discussing the housing market and how out-of-joint it is. He's a contractor. "The Fed's printing too many ferns," he said casually. I agreed and started to go on about bond purchases and tapering, but it was pointless. This man had already laid it out plain. Nothing more needed to be said. The Fed's printing too many ferns. It was March 15, 2020, when the FOMC called an emergency meeting and cut the federal funds rate from 1–1.25% to 0–0.25%. And by December 2020 the central bank had abandoned its effort to wind down its balance sheet. Instead, it went in the opposite direction, purchasing at least $120 billion a month in U.S. Treasuries and mortgage-backed securities. 
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In this way, the Fed pumped more than $1.5 trillion into the economy via short-term lending. I don't blame them. The economic situation was dire. But it was also obvious that Fed Chairman Jerome Powell wouldn't curtail his monetary policy as quickly as he expanded it. He pledged to wait... and wait... and wait... Until the economy had more than recovered. Only then could he be sure that the recovery was solid. And this week he made it clear that we are still nowhere near that point. Not in his eyes anyway. And that's kind of striking. After all, GDP grew at a 6.5% annual rate in the second quarter, pushing the economy's size beyond its pre-pandemic level. Yes, today's economy is stronger than it was prior to the pandemic. The stock market, despite a smattering of volatility of late, is also at a record high. In fact, the S&P 500 has added more than 1,000 points to its pre-pandemic peak. The aforementioned housing market remains strong, as well. Stronger than it ought to be, even. The Case-Shiller 20-City Home Price Index, released Tuesday, soared 17% in May from a year earlier on top of a 15% jump in April. The May increase was the biggest since August 2004. The median price for an existing home in June hit an all-time high of $363,300, up 23% over last year, marking 112 straight months of year-over-year gains. All of this, and the media is still out there fear-mongering about the Delta variant's threat to the economy. | Silicon Valley’s Death Sentence Silicon Valley is facing ruin… Its decline has nothing to do with COVID-19 or political unrest. This is about same trap the Rust Belt fell into decades ago. But one off-radar company is expected to come out as the huge winner of this development. It discovered the answer to a problem that might be the final nail in Silicon Valley’s coffin. Institutional investors like Vanguard and BlackRock are pouring billions into this company. We’re about to witness one of the biggest breakthroughs in the history of technology… You could set yourself up for 950%... 6,893%... or even an incredible 12,795% gain. Exact details here. |
Flight volumes and hotel-occupancy rates continue to rise. Under-staffed restaurants are overbooked. The Conference Board’s Consumer Confidence Index has risen for six straight months, reaching 129.1 this month. That's not quite as high as it was prior to the pandemic but it's damn close. Just give it another month or two. And the result of all of this? Rising price pressures. Inflation. Consumer prices rose 5.4% year-over-year in June, the fastest pace since 2008, and 0.9% month-over-month. Make no mistake, inflation is real. It always has been. And now it's gotten so bad that even Jerome Powell has been forced to acknowledge it. "This is a shock going through the system associated with the reopening of the economy, and it has driven inflation well above 2%," Powell conceded. "And of course we’re not comfortable with that." He then explained: "The challenge we’re confronting is how to react to this inflation, which is larger than we had expected — or that anybody had expected." Of course, that's patently false. I and other like-minded analysts have been warning about high inflation for more than a year now. It was totally expected. The only person that didn't expect it was Powell.
Nevertheless, it's clear now that he was wrong, and even he understands that. But he's still not going to do anything about it. He's going to hold out every last hope and prayer that inflation really is just "transitory." But don't worry, if Powell gets proven wrong again, he'll "re-evaluate." We just have to wait for that to happen. "To the extent it is temporary, it wouldn’t be appropriate to react to it," Powell says. "But to the extent it gets longer and longer, we’ll have to re-evaluate the risks.” The rub there, of course, is that by that point it may be too late. And in fact, there's a great deal of evidence laid out before you that it already is too late. That's the problem. The Fed's printing too many ferns. Fight on, 
Jason Simpkins  @OCSimpkins on Twitter
Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of Wall Street's Proving Ground, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. *Follow Outsider Club on Facebook and Twitter.
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