The Fed Is Fuct… - Praetorian Capital
The Fed Is Fuct… - Praetorian Capital

The Fed Is Fuct… - Praetorian Capital

The Fed is fuct. I think they know it. We all know it. And it’s likely they know that we know it. They intend to continue the charade anyway. (View Highlight)

Despite centuries of study, I think it’s clear no one really knows what causes inflation. While it tends to show up during periods with excessive money printing and large fiscal deficits, sometimes such periods have not witnessed inflation. (View Highlight)

However, at the base level, I believe inflation is caused by too much demand chasing too few resources. Let’s talk about today’s inflation. (View Highlight)

I believe the current inflation is unique in that it is being driven by a lack of supply. There’s not enough oil, wheat, housing, automobiles, semiconductors and labor. Normally, when there is a shortage, entrepreneurs will scramble to add supply and fix the shortage, or in the case of labor, invest in productivity. (View Highlight)

Meanwhile, we act like the Fed can magically solve the inflation problem. Unfortunately, I do not believe the Fed is capable of solving an inflationary problem caused by the government restricting supply, though they will try anyway. (View Highlight)

As the Fed appears powerless to fix the supply side, they instead intend to reduce the demand side of the equation. Unfortunately, the Fed only has two rather blunt weapons at their disposal. They can use QT, but that mostly impacts financial asset values, or they can increase interest rates. (View Highlight)

At the same time, the Fed is a political animal. They respond to congress and congress is demanding that they “do something!!” Therefore, the Fed will use their two blunt weapons. Oddly, it’s quite possible that by raising the cost of capital, they will defer investment in new supply and exacerbate the shortages. (View Highlight)

The history of recent rate cycles is that the Fed raises rates until they break something, then they panic and reduce rates. We’re two hikes into this cycle and stuff is already starting to break. (View Highlight)

They don’t intend to crash the market. Their heart is in creating asset bubbles—they were still doing QE a few weeks ago. They intend to raise rates just enough to get congress to panic about asset prices, then the Fed can take a pause and “see what happens.” (View Highlight)

In the end, they’ll just blame it on Putin, hedonically adjust it and say that there’s no inflation anymore. Sometime soon, people will realize that Powell is no Volcker, then commodities will scream out of control. (View Highlight)

We’re still midway through the pause in “Project Zimbabwe,” but we’re almost to the other side. We’re already into the rotation. Tech is trash—it’s not coming back. We’re in the early innings of a hard asset up-cycle now (View Highlight)

A lot of companies trade for three or five times supposedly “peak earnings.” What if those earnings levels are the new baseline and we see peaks that are far in excess of today’s levels?? I believe these supposedly cyclical businesses are where this decade’s multi-baggers will be. (View Highlight)