Cents and Sensibility: the Inflation Guy Podcast

It has become de rigeur in economics circles (word to the wise - always avoid such circles if you wish to retain your ability to think independently) to bemoan the death of the “Phillips Curve.” The Phillips Curve supposedly describes an inverse relationship between inflation and unemployment. "Supposedly”? In this succinct episode, the Inflation Guy explains why poor William Phillips' good name has been dragged through the mud unnecessarily. There is nothing wrong with his curve! In this podcast, the Inflation Guy refers to a chart. It's hard to see charts on audio, so here is a link to the chart in case you want to follow along: The Real Phillips Curve

When is a perfect forecast not a perfect forecast? When you got the reasons wrong. This ain't hurling hand grenades, where only the result matters - if you made a bunch of positive mistakes and a bunch of negative mistakes and they happen to offset, you're not a genius; you just got lucky. So today, Wall Street economists forecast 0.39% on Core CPI. That was exactly what they got. But for all the wrong reasons, and the reasons are important. In this episode, the Inflation Guy (whose forecast wasn't even right, so who is he to judge?!) highlights the two things which dragged down Core inflation...neither of which was expected by almost anyone. So the news overall is good, not great, and the Inflation Guy will tell you why. If you like the podcast, please click that like button and forward it to a friend!

The Inflation Guy doesn't understand why some people love to be the smartest person in the room. That's not fun at all! The Inflation Guy wants to be no better than the second-smartest, so he can always be learning. This is the first episode where he achieves this goal in a podcast format, with a real live guest who is deeply experienced in how insurance companies evaluate and address inflation risks. Bill Poutsiaka is a senior financial services executive who has been a CEO, Chief Investment Officer, and board member for global insurance and asset management businesses. Bill has served as an active director on the boards of public, mutual, private and non-profit organizations. These organizations have included global, domestic, large, small, multiline and highly specialized insurance and investment entities. His executive roles include Chief Investment Officer & SVP of AIG Property Casualty following the financial crisis; CEO of quantitative firm PanAgora Asset Management, and CEO Arkwright Mutual Insurance Co which he merged to form FM Global. More importantly, he is an old friend of the Inflation Guy. In this episode of the podcast, they talk about how insurance companies think about and address inflation risks...and also go 'into the lab' to talk about some of the things they ought to do, if they don't. Bill is currently consulting, doing board work, research on application of emerging data science methods, mentoring, advising/coaching fintech organizations and startups, publishing, and speaking at conferences and universities. If you want to get in touch with him, drop the Inflation Guy a message at InflationGuy@EnduringInvestments.com

In this episode, the Inflation Guy presents an introductory-level discussion of the concept of "delta," applying it to securities and explaining how the concept is used (in fairly plain English), but also applying it to exposures outside of the finance world. If you are someone who agreed with the tenor of a recent news article referring to the "arcane area of trading known as delta-hedging," you might find the Inflation Guy's perspective refreshing. If you like this podcast, please be sure to 'like' us, forward the links to your friends, and talk about us often. And return next week for more!

In this episode, the Inflation Guy discusses how volatility is a feature, not a bug - and how the Silicon Valley Bank debacle is not likely to lead to lower inflation at all. He also tells an interesting story about how deposit interest rates used to be capped, and how uncapped deposits have often been associated with bad outcomes at poorly-managed banks (and lots of them). Some sources for this podcast: Rolnick, Arthur J., “The Benefits of Bank Deposit Rate Ceilings: New Evidence on Bank Rates and Risk in the 1920s,” Federal Reserve Bank of Minneapolis Quarterly Review, Summer 1987. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=148ae4d7a7bd36d2a3e851fb543d6350cdfa20d4 “Deposit Deregulation,” Federal Reserve Bank of San Francisco, Weekly Letter, April 10, 1981. https://www.frbsf.org/economic-research/wp-content/uploads/sites/4/el81-15.pdf Banking Strategist website: history of US Bank Failures. https://www.bankingstrategist.com/history-of-us-bank-failures  

On Friday, the Inflation Guy thought no one would care about this month's CPI given the bank failures starting with Silicon Valley Bank. But actually, this number turns out to be quite important - the Fed needed a soft report, so that there would be no conflict between the rate trajectory needed to calm markets and support banks (lower) and that needed to quell inflation and inflation fears (higher). Whoops. Median CPI is still rising, putting the Federal Reserve...really, for the first time since the tightening began...in something of a box. Also, has anyone noticed that nearly 500bps of tightening hasn't slowed inflation? Maybe rate hikes are the wrong focus? Nah.

It has been a long time coming, but in this episode of the Inflation Guy Podcast, the IG talks about a new way to trade inflation - and it's a way that's available to the individual, and not just the hedge funds and large institutions! Inflation futures, although not fully mature, are here!

Go ahead, click. You know you want to hear about "Models Gone Bad." You might also hear about how some recent work the Inflation Guy has done is persuading him that he is also being too optimistic about the speed at which inflation will decelerate. And no one, at least recently, has accused the Inflation Guy of being optimistic about inflation.

The question that Inflation Guy addresses is causal: does the productivity enhancement promised by AI mean that future inflation will be lower, or not? But in order to boost productivity, we asked ChatGPT to write the synopsis. After trimming most of the 538-word answer, the only relevant bit was this: "In this episode, we explore the potential role of artificial intelligence (AI), a rapidly advancing technology that enables machines to learn from data and make predictions or decisions, in shaping the future of inflation. Can AI help us manage inflation more efficiently and effectively, or could it exacerbate the risks of inflation in unexpected ways? What are some examples of AI applications that have already influenced inflation dynamics, and what are some challenges and opportunities for further research and development?" That isn't at all what this episode is about. Although admittedly it sounds interesting.  

In this month's CPI Report from the Inflation Guy, he points out that a report that is broadly strong, with some negative outliers, does not have the same implications as one that is broadly weak, with some negative outliers. The market was expecting the latter, but got the former. That inflation target of 2% is not looking any closer today.