EC Why Inflation Isn’t Coming

Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out: the quality of our decisions and luck. Learning to recognize the difference between the two is what thinking in bets is all about. ~ Annie Duke via Thinking in Bets

In this week’s Dirty Dozen [CHART PACK] we look at US economic news sentiment and dive into what might be behind the divergence between the fundamental narratives and market prices. We then cover the inflation outlook and discuss why the Inflationistas are wrong before jumping into the schizophrenic positioning we’re seeing in the market and how it's being driven by Fed policy, plus more…

Let’s dive in.

***click charts to enlarge***

  1. In last week’s Dozen, I shared some studies which showed that measures of journalistic sentiment and narratives are at 80-year lows here in the US. So according to our newspapers, we’re living in an era that’s worse than those experienced during the depths of WWII. This week I was looking at the San Francisco Fed’s News Sentiment model which they describe as a “high-frequency measure of economic sentiment constructed from economic related news across 16 major US newspapers.”

What’s interesting about today is the large divergence between economic news sentiment and markets. The index is more indicative of a continuing bear market — that has yet to hit a sentiment extreme — yet the SPX keeps trucking along.

  1. The current sentiment and positioning picture is about as schizophrenic as I’ve ever seen it. While retail robinhooders are leveraging and hodl’ing, large hedge funders are sitting in piles of cash. And this Risky vs Safe Fund Flows chart from GS paints a completely different picture than all the talk we’re hearing about “market euphoria”.

  1. GS’s Risk Appetite Indicator is only back to neutral after hitting its most bearish extreme on record.
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Disclaimer: All statements are solely opinions and are for educational purposes only.

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