Our Favorite Chart: Core CPI

“Inflation is taxation without legislation” – Milton Friedman

How’s that deflation meme working for you?

Core CPI’s Cup and Handle Pattern 


Back in the day, I would be buying that chart hand over fist if it were a stock, bond, or commodity.  That is a classic breakout to higher prices.

August Core CPI

August core CPI came in hot, hot, hot for the third straight month at 0.3 percent.  That’s 3.4 percent annualized for the past three months, folks.   Gotta love the 10-year yield at 1.78 percent, almost less than half core consumer price inflation even as it is breaking higher.

Wait.  Let’s use a different inflation measure.

How about the PCE deflator, which utilizes moving weights to allow for substitution.

You know, like if the rent on your apartment is spiking,  you, the consumer, will move out into, say, the cockroach motel down the street, which is a bit more affordable.  No inflation.  End of debate.

BLS Release

The index for all items less food and energy rose 0.3 percent in August, the same increase as in June and July. Along with the indexes for medical care and shelter, the indexes for recreation used cars and trucks, and airline fares were among the indexes that increased in August. The indexes for new vehicles and household furnishings and operations declined over the month.  – BLS

Gimme Shelter

Check out the inflation in the goods & services that really count for the average American, shelter and medical care.


By the way, shelter is only about 12 percent in the PCE versus 33 percent in the CPI basket.

Even as the core CPI breaks out, we believe it still underestimates true inflation i.e., the change in real, actual prices paid.  See our, Deflation? Not Even Close, post here.

We’re not big fans on how the government measures inflation, in the first place,  as the largest portion of any consumer basket is housing (42 percent in CPI basket), which includes shelter (33 percent), and just doesn’t pass the smell test in terms of a true metric of price changes or even a cost of living measurement.

Because the majority of families own their homes, the government uses a proxy called owners equivalent rent (OER)  to measure housing inflation,  which is 24 percent of the CPI basket.   The BLS changed how housing was measured in the CPI basket after the big inflation of the late 1970s, in an attempt to separate housing as an investment versus the shelter services it provides.  – GMM, July ’19

One more thing,  only about one-third of American millennials own their own home, which further distorts the inflation measures.



You go, Chairman Powell,  cut those IOER rates to zero as inflation breaks higher.   Give the market socialists what they want. History will surely remember you bigly!

Just Do It.   The one-percenters will love it but the average American and pensioner will then soon need a cup and handle on their tin cup as they are sent begging into the street, crying,

Oh, a storm is threat’ning
My very life today
If I don’t get some shelter
Oh yeah, I’m gonna fade away
Rolling Stones


Posted in Inflation/Deflation, Uncategorized | Tagged | 3 Comments

Roll back: The Verb China Is Looking For

Roll back is the verb China is looking for.

Mr. Market is all lathered up this morning on the following report,


Source: @FerroTV

Not so fast.


A senior White House official said the U.S. is “absolutely not” considering an interim trade deal with China.

Bloomberg News reported earlier Thursday the Trump administration discussed putting together a limited trade deal that would delay and remove some China tariffs, citing five people familiar with the matter. The news had driven stocks to session highs. — CNBC

Major Cave 

From our cheap seats in the peanut gallery, we can’t help but notice for the past month the Chinese have been sending signals and tossing the Trump negotiating team a few bones to walk back the new tariffs that went into effect on September 1st with more to come.   No bite from Trump as the September 1st tariffs went live.  Ditto for China’s retaliatory tariffs.

Then we heard China is willing to buy American ag products to jump-start negotiations.


The source said China could also offer more market access, better protection for intellectual property and to cut excess industrial capacity, but would be more reluctant to compromise on subsidies, industrial policy and reform of state-owned enterprises.  – SCMP

That would be short-term positive for the farmers but, come on, man,  central planning in trade?  Remove the price distortions and let the market forces rip and do their thing.

We also wonder if Trump’s negotiators understand the concept of hysteresis,

Hysteresis in the field of economics refers to an event in the economy that persists into the future, even after the factors that led to that event have been removed.  – Investopedia

Even if tariffs are completely rolled back, it may take a long time for U.S. farmers to restore their export markets, if ever.

Deal Or No Deal?

So, after all the American economic carnage caused by Trump’s trade war, is the administration about to, or willing to cave on what they said were the most important issues:  1) intellectual property protection, 2) industrial policy reform?

Will Trump cut another meaningless Potemkin Trade Deal?

We don’t know.  These clowns are so unstable and divided, losing the support of the American electorate, and seem to be in panic mode as Trump’s polling numbers continue to drop like the Hard Rock Cafe in Atlantic City!

The polls du jour show President Donald Trump trailing basically every Democrat in the 2020 general election, both nationally and in individual states — even in Texas.

…Their [polls] message is pretty simple: Trump looks weak. The president is lagging in the low 40s in head-to-head polls, consistent with his stubbornly low approval ratings. A lot of Americans seem to be fully committed to or are actively considering voting for somebody else. That’s not where the incumbent, after three years in office, should be if they want a second term. – Vox, Sep 12th

China Will Never Cave On The Big Issues

We are fairly certain Trump will never force the Chinese to speak English as their primary language…err…change the structure of their economy.

A Potemkin trade deal?

It is looking more likely but a big political risk for President Trump as his right flank will begin to turn on him as looking weak.   The left will bring out massive firepower and label the deal a “No gainer, but massive pain.”

Deals Galore? 

We also wonder if the Administration is on the verge of a “deals galore” flurry with, say, China, North Korea, Iran, and the Taliban (“the Fab Four”) before the election?  We are perplexed by, and the way John Bolton exited the White House yesterday,

And as impulsive and unpredictable as the president’s actions may be, firing Mr. Bolton reveals a certain consistency in Mr. Trump’s worldview: Though attracted to never-been-done theatrics like bringing the Taliban to Camp David or meeting with Mr. Kim, the president is also moored by suspicion of military adventures and has a huge appetite for deals.

What Mr. Trump really wants from his foreign policy is a diplomatic victory as he heads into his 2020 re-election campaign. — NY Times, Sept 10th

Why do we have that sinking feeling the “Fab Four” are licking their chops and looking at each other, thinking

Time to feast! 

Place your bets, folks.

P.S…. We have given up on any short-term calls on the market as it already difficult enough fighting against the algos and trading ‘bots, much less the central planners who now manipulate the markets almost hourly with their twitter accounts and the dropping of tape bombs.  Pretty fracking disgusting.

SEC where the f&*k are you?   That’s right, we forget, a sitting president cannot be indicted.

Nevertheless, we are sellers at 3025-3100 on the S&P and feel pretty confident the market can be bought at much lower prices sometime during the next 18 months.  We do reserve the right to be wrong and to remain solvent, thus our stop at 3125.

Posted in China, Trade War, Uncategorized | Tagged | 2 Comments

My 9/11 Story — The Day History Changed


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It was early August 2001 when I asked my wife if we should fly into Washington, D.C. a few days early before my best friend’s wedding.  He was planning to marry his sweetheart on September 16, 2001, at St. John’s Episcopal Church.  My 6 and 3-year old daughters and myself were in the wedding party.

I wanted some extra time for the girls to see the great sites of the Capitol City, where I had attended graduate school and began my career several years earlier.

I secured some VIP passes from our congressman for tours of the White House and the U.S. Capitol.   The passes came in the mail around mid-August with the date for the Capitol tour scheduled at 8:30 am, September 11, 2001.

Just another day.  It was before history changed.




We also planned a trip to New York after the wedding as my girls wanted to visit their birthplace.  The oldest specifically requested a trip to the top of the World Trade Center’s (WTC)  Windows on the World.

Their last night in New York before moving to California was spent at the Marriott World Trade Center,  South Tower.

We booked our flights.

The return flight from New York was familiar. I had flown it at least a hundred times — United Flight #93, Newark to San Francisco.

Just another routine United flight.  It was before history changed.


















Washington, D.C.

We arrived at Dulles airport on Sunday night September 9th, and it felt good to back in Washington.

As we were disembarking, my 3-year old noticed the overhead air blowers were still on and blowing hard.  She shouted at me, “dad, they are wasting energy.”

The plane burst out in laughter.  California was in the middle of an energy crisis and experiencing brownouts on a daily basis throughout that summer.

September 10, 2001

The following morning we had some downtime, and because the White House was only a few blocks from our Georgetown hotel, I took the girls down to see the president’s house.  We arrived at the front gate, and I noticed the secret service on top of the White House with high powered binoculars looking into the sky.

I hadn’t seen this since the day after the U.S. bombed Libya in 1986, in retaliation of Gaddafi’s bombing of a Berlin disco, which killed some American soldiers.   I had an interview that next day in the Council of Economic Advisers (CEA) located in the Old Executive Office Building.   I recalled how tight security was; specifically, the sharpshooters on top of the White House.

Just for context,  I hadn’t been in Washington in five years before our September 11, 2001 visit, and, no doubt, security had ramped up considerably.   Put away those conspiracy theories.

Video Tape

I began filming the White House on the day before history changed, specifically the secret service with their high powered eyes trained on the sky above the White House.

I mentioned to my family there must be “some sort of terrorist alert.”  My very bright, and analytical,  3-year old immediately chimed in, “dad, they are trying to hurt the president.”

After thinking another minute, she asked, “dad, do they [the secret service] know we are good guys?”  It was somewhat hilarious, at least, at the time.  We have it all on tape.

Lafayette Park

It was hot and humid in Washington on September 10, 2011, the day before history changed.  I took the family across the street, sat them on a bench in Lafayette Park and went to fetch them some water from a street vendor.

Before leaving on the water run, I noticed a middle eastern looking man sitting on the bench next to my daughters.  He was fiddling with his cell phone and rapidly thumbing through a stack of ATM receipts.  I recall some were from Bank of America.

What struck me most was his fidgety and nervous demeanor.

He was casually dressed, in nice khaki slacks, an olive-green button down shirt, and sandal-like full toed shoes.  He smelled of cheap European cologne.  I will never forget his face.

During my search for water, for some reason, I had a bad feeling.  I began to think the man on the bench fit the profile of a terrorist.  I seriously thought about walking back across Pennsylvania Avenue to report the suspicious character to the uniform secret service officers at the White House north gate.  I am sure they would have laughed and dismissed me as some kook.

When I got back to the park the man was gone.  I asked my wife, “what happened to the guy sitting on the bench?  He reminded me of a terrorist.”   True story.

Racial profiling?  Do you really think I gave a shit?

I had a strong feeling based on his actions and my experience being so close to the first 1993 bombing of the World Trade Center when I worked on Wall Street.

September 11, 2001

About 8:00 am my wife woke us in a panic.   We had overslept and needed to hurry to get to the Capitol building.

I knew we wouldn’t make it on time, and, reluctantly, put the kibosh on our trip up to the Hill.   She and the oldest went down to the lobby to grab some breakfast.   My youngest, still suffering from jet lag, was sound asleep.

I was reading the Washington Post when they returned to the room in horror and said to turn on the television as a plane had crashed into the World Trade Center.

For the next few hours, I watched in shock and was on the phone constantly to my friend, the bridegroom,  who had a view of the WTC from his Greenwich Village apartment.

When American #77 went into the Pentagon about an hour later, it was only a matter of minutes before the F-14s were buzzing over our Georgetown hotel.

I went outside and saw people hustling up the sidewalk and noticed the military had come out on the street.  A military Humvee stationed at every corner in Georgetown.   This doesn’t happen in America.

Get Out Of Washington

I began to fear for the safety of my family and decided it was time to get out of Washington.  I told my wife, “if these people have chemical or nuclear weapons, we are smack in the middle of their target.”

As I was going out the door to rent a car, my oldest shouted, “dad, get a purple car.”  Yeah, right,  I thought.

I arrived at Hertz in Georgetown, and the clerk said I was lucky as there was one car left.  They pulled the car up to the office.  A purple Volvo!


On our way to Charlottesville, I was overcome with the incredible grief that all America was suffering,  especially thinking about my friends in the WTC.   I felt sick.

It was the end of American exceptionalism.  These things just don’t happen in America.

Seeing the American flags draped over the freeway overpasses on our drive to southern Virginia, I thought, as many others did on that day that changed history, this is my generation’s Pearl Harbor.

September 12

The next day at Jefferson’s Monticello, a busload of senior Japanese tourists pulled up to our third president’s home.  They were soon smitten with my 3-year old.  She was one helluva of a cute baby with a unique and very friendly persona.

The Japanese tourists asked to take pictures with her.   I warmly agreed and thought how surreal, the day after our own Pearl Harbor.  Surely some of these people were alive, and on the other side, on December 7, 1941.

It was the first few days of the grave new crisis, the nation was grieving and in complete shock, just as the Pearl Harbor generation was on that dark December day, which changed history 60 years earlier.   And there was my child chumming it up with and a pearl in the eyes of these beautiful Japanese seniors, who were once considered the enemy of the “greatest generation” just a little over half-century prior.

It gave me a glimmer of hope that the country would make it through the dark days.

The Japanese are now one of our closest allies, which could never have happened without forgiveness.  No peace without justice,  no justice without forgiveness.

Whenever I have a chance and feel it’s safe or not inappropriate, I ask my Japanese friends if they forgive the U.S. for bombing Hiroshima and Nagasaki.   I have never received an unequivocal answer.  Not once.

It seems the official position is to sweep it under the rug,

In 2007, during Shinzo Abe’s first term as prime minister, Defense Minister Fumio Kyuma referred to the bombing of Hiroshima and Nagasaki as “something that couldn’t be helped.” – LA Times,  April 2016


Nevertheless, the day after the September 11th attacks, I began to think about that man I encountered in Lafayette Park the day before.

I contacted the FBI to report the incident.

At first, they seemed to mock me.  Asking how was he dressed, probably thinking I would reply,  “in Arab garb,” such as thobe and a ghutra and egal.

I spoke with the FBI several times after that.  They always remained aloof and never provided information.

Enter Bob Woodward

I then contacted the Washington Post’s Bob Woodward, who put me in touch with his research assistant.  We had about an ½ hour conversation in which he conveyed to me that Al-Qaeda liked to scout out their targets just before hitting them.

Was the White House a target?

Several reports specifically identified Capitol Hill and the White House as targets on Sept. 11. One said a bin Laden associate — erroneously — “gave thanks for the explosion in the Congress building.”

A key figure in the bin Laden financing organization called Wafa initially claimed “the White House has been destroyed,” before having to correct himself. – Washington Post, January 28, 2002

I can’t remember if it was the FBI or Woodward’s guy who confirmed that the 9/11 terrorists were emptying their bank accounts just prior to the attack and transferring the cash back to the UAE.

From September 5 through September 10, 2001, the hijackers consolidated their unused funds and sent them to Hawsawi in the UAE – National Commission on Terrorist Attacks

The ATM receipts were convincing enough but my suspicions about the man in the park were confirmed when the FBI released the photos of the 9/11 hijackers,


I will never forget that face.

I had sat my daughters down on a park bench across the street from the White House on the day before September 11, 2001 with one of the hijackers.  His name was Khalid Al Mihdhar,  a senior Al-Qaeda operative, who crashed American Airlines Flight #77 into the Pentagon.

How twisted was it that on September 10, 2001, the secret service were on top of the White House combing the sky for potential terrorists, and one of the Al-Qaeda hijackers was sitting right under their nose, less than 1,000 feet away?

The Wedding

My friends bravely decided not to cancel their wedding the next Sunday, and we participated and shared with them their joy under extremely stressful conditions.

The church was located just across the street from Lafayette Park, a stone’s throw from the White House, and where president-elects traditionally attend their pre-inaugural church service.

During the middle of the wedding, with the country and all of us still nervous and on pins and needles, an army of sirens began to blare.  It seemed like it lasted for an hour.  Almost certainly everyone in the church thought another attack might be underway.

I thought the presbyter was going to stop the wedding.   We got through it.

Back Home

When the government lifted the ban on air travel,  we caught one of the first flights out of Dulles back to the west coast.  That was one nervous flight.

One of our flight attendants freaked out when a passenger refused to sit down.  I have no doubt our plane was crawling with air marshals.

We Made It

We did get through it.  The nation got through it.

The world is much different now.

September 11th was too close to my family,  but we escaped the ultimate tragedy.

Not so for many of our friends, fellow Americans, and good citizens from other countries who lost their lives on that day that changed history.

I miss my friends who lost their lives that day.

Please God, bless their families and all those who lost loved ones, and the brave Americans who have made the ultimate sacrifice protecting us,  and the many who still work to keep us safe.

Everyone Has A Story

Every person remembers exactly where they were, what they were doing on the day that changed history.

I have wanted to write this story down for 17 years but just couldn’t do it.  Now my children will have it to pass on to their children.

Everyone has a 9/11 story.  Write it down.  It’s cathartic.


Posted in Geopolitical, Uncategorized | Tagged , | 1 Comment

Household Leverage Ratios By Wealth Distribution

We are just starting play with the wealth distribution data and will have much more coming your way.  What we have seen so far is shocking.

The distribution of wealth has deteriorated significantly over the past 20 years and is now so skewed toward the top that average U.S. household wealth is close to $1 million, though the median household wealth is only around $70k.

In fact, the aggregate level of wealth of the bottom 50 percent peaked in Q1 2000, the height of the dot.com bubble, and is down almost 10 percent in nominal terms.  Whereas, the aggregate wealth level of the top 1 percent is up almost 120 percent over the same period.

If  I brought a number or a forecast like that to my manager when I was a very young economist working on the World Bank’s capital flows model back in the day, he would say,

“You are forecasting revolution.”

Note the relative leverage ratio of the bottom 50 percent.  For several quarters after the GFC the bottom 50 percent, not all households but in aggregate, were technically insolvent, where debt levels were greater than the value of assets ( > 100 percent on the chart).

These data put the current political climate and debate around debt forgiveness in context. They also reflect the two-speed U.S. economy.

Stay tuned for some more shocking data.

Long pitchforks.

Debt_Aseet Ratio


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Tariff Nation

“I hereby order Fed Chairman Jerome Powell to cut interest rates to fix this chart, which is responsible for tanking the global economy”  — Tariff Boy


Source:  Stratfor

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The internet’s second revolution | The Economist

The second half of humanity is joining the internet. People in countries like India will change the internet, and it will change them.

Read more from The Economist here: https://econ.st/2zVWeQQ

Click here to subscribe to The Economist on YouTube: https://econ.st/2xvTKdy

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QOTD = Quote of the Day

For better and for worse, Mr. Trump is a chronic waffler. As such, the American public would do well to stay vigilant about what his administration is up to — and not be shy about applying pressure.

It has long been clear that Mr. Trump is not the decisive, resolute leader he imagines himself to be. His presidency is littered with plans and pronouncements that were walked back or abandoned — some good, some not so good. – NY Times

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Gotta Love David Tepper!

Just your average, normal, billionaire Master of the Universe hedge fund manager, and owner of the Carolina Panthers on opening day Sunday.

He hasn’t changed one bit since the days when we first met him and has never forgotten his roots.  Not a pretentious or snobby bone in him.

What is the yield-to-death?”

Those words spoken by the legendary hedge fund king, and new owner of the Carolina Panthers, David Tepper, to my salesperson in 1993 when we were trying to convince him to buy a chunk of Peruvian busted bank loans at around 8 cents on the dollar.

Due Diligence

Tepper was half joking of course but he was covering all the bases as his fledgling hedge fund, Appaloosa Management, began to venture into the new emerging asset class of LDC debt.

He was, as any good trader and investor, skeptical and concerned about the country’s political stability.   The Shining Path, the Maoist guerrilla group terrorizing the country; the risk of a military coup d’etat, and all the uncertainties, which come with investing in an emerging market country.

I recall he did pull the trigger, and if my memory serves me correct,  it was, or one of, his first investments in the emerging markets.   If he held the position, and I am sure he did, the loans appreciated close to 1,000 percent over the next few years. GMM,  Sept ‘18

We love David Tepper.



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Nature Beats Hollywood In Special Effects

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What to expect from the August jobs report

About that 75 bps Fed cut in September….

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