the Fed Funds rate is being kept below the neutral rate - despite all survey based measures of inflation roofing i.e. policy is deliberately being kept easy, despite inflation having been above 2% "target" for almost 5 years. basically, the central bank reaction function has clearly changed vs. those past oil spike episodes you show, and equity markets know this, which is why the commodity/equity correlation has broken down.
i think what this means for today is that for the commodity move to become bearish for risk, one needs to find which inflation measure forces central banks into being forced to turn hawkish and raise rates i.e. an inflation metric they cannot ignore because it's so obvious that it cannot be denied. in that respect, i think you are spot on that food price inflation is one candidate because it is always politically untenable and always forces central banks to hike.
food price inflation is unlikely to be imminent, however, because China is extremely well stocked in grains, seeds and veg oils and hence has no rush to be a big buyer on the world market, like they were in 2004-2007, 2020 and 2022-23. no food price inflation cycle in modern history has happened without major chinese buying. meanwhile the fertilizer component feeds through into higher baseline ag prices, but with a lag, as crop cycles play out over 6-12 months for most crops.
all in all, i think it's a waiting game. ag inflation will creep higher over time, but not at a pace that makes central banks look stupid - yet
Thanks and I appreciate the continued focus on food prices, especially as a catalyst for regime changes historically.
Larger macro question. Tudor jones interview the other day, Us cap-weighted equity mkts ATH, inflation persistent, AI capex spend and related stock prices justified if majority of workforce is eliminated (which is terrible for larger economy and crashes demand for all goods/services). Essentially massive bifurcation between stock market and real world. What are investors to do knowing they can’t sit in cash and ‘wait’? Shout we focus on commodities and real assets? MLPs? Help pls
the Fed Funds rate is being kept below the neutral rate - despite all survey based measures of inflation roofing i.e. policy is deliberately being kept easy, despite inflation having been above 2% "target" for almost 5 years. basically, the central bank reaction function has clearly changed vs. those past oil spike episodes you show, and equity markets know this, which is why the commodity/equity correlation has broken down.
i think what this means for today is that for the commodity move to become bearish for risk, one needs to find which inflation measure forces central banks into being forced to turn hawkish and raise rates i.e. an inflation metric they cannot ignore because it's so obvious that it cannot be denied. in that respect, i think you are spot on that food price inflation is one candidate because it is always politically untenable and always forces central banks to hike.
food price inflation is unlikely to be imminent, however, because China is extremely well stocked in grains, seeds and veg oils and hence has no rush to be a big buyer on the world market, like they were in 2004-2007, 2020 and 2022-23. no food price inflation cycle in modern history has happened without major chinese buying. meanwhile the fertilizer component feeds through into higher baseline ag prices, but with a lag, as crop cycles play out over 6-12 months for most crops.
all in all, i think it's a waiting game. ag inflation will creep higher over time, but not at a pace that makes central banks look stupid - yet
Thanks and I appreciate the continued focus on food prices, especially as a catalyst for regime changes historically.
Larger macro question. Tudor jones interview the other day, Us cap-weighted equity mkts ATH, inflation persistent, AI capex spend and related stock prices justified if majority of workforce is eliminated (which is terrible for larger economy and crashes demand for all goods/services). Essentially massive bifurcation between stock market and real world. What are investors to do knowing they can’t sit in cash and ‘wait’? Shout we focus on commodities and real assets? MLPs? Help pls