As we watch Jay Powell’s case dissipate on NYMEX WTI right before our very eyes, we can count on his ideology to try to make it for him in the absence of actual data. Economists will not budge no matter how much stacks against them; nor how many times we have to repeat this very exercise. This will be the fourth, in all likelihood.
Powell is sticking with his views, as is Mario Draghi in Europe, and Economists are falling right in line. Oil may be below $55 today, but inflation is still just over the horizon they will keep assuring us all the way to the bitter end.
In one camp, you have the likes of Societe Generale SA. The bank sees price pressures building into 2019, fueling demand for inflation protection, in part as investors anticipate more U.S. tariffs on Chinese goods. Morgan Stanley agrees, saying the import levies and job-market strength should pressure consumer prices higher next year.
It’s not an unimportant qualification, yet it is never one given out by the mainstream media. Who do you think it is that is pressuring WTI futures, or buying up UST’s and German bunds like they are in short supply (they’re not)? I don’t know for sure what either Societe Generale or Morgan Stanley is actually doing, obviously, but it isn’t an unreasonable guess to think both banks’ wide-ranging trading operations are in sync with everyone else’s on the deflation side of things.
In other words, when Bloomberg writes “Morgan Stanley agrees” what they really mean is Morgan Stanley’s Economists do. What the bank itself is actually trading underneath in the dank recesses of Lombard Street is almost certainly the opposite of the Economists’ expressed views here. One need only look to markets, and data, to find this great disconnect.
Thinking each bank views its own Economists without suspicion is how you end up with so many “unexpected” downturns.
