2022 Theme: Inflation - Don't Worry, Davos & The Plutocracy Is Nearly Always Wrong
Delayed by four months thanks to Omicron, the great and the supposedly good are gathering in Davos, Switzerland for their annual self-congratulatory get-together.
It would be difficult to come up with an event that achieves less and commands more attention than a navel gazing elite coming together to, well, navel gaze. Deplore the Amber Head/Johnny Depp trial all you want but at least it is diverting.
There aren't many reasons to follow the goings-on in the Swiss Alps but one of the few might be that it can be an excellent counter-indicator for how the world is evolving.
By that we mean: whatever the elite consensus decides is the thing will almost certainly, by definition, not be the thing. Or at the very least it will be yesterday's thing.
Year after year the Davos colloquium has an unerring ability to be a day late (though perhaps not a dollar short) to whatever actual challenges or opportunities confront us.
Another cautionary note: it can also be useful to keep a careful eye out for any sort of pithy acronym or buzz phrase. multi-stakeholder capitalism? ESG? Digital public square?! "Meta?" "Bring your whole self to work" etc, etc.
(our personal least favorite is "Hot Desking")
Sadly, their terrible track record does nothing to change the fact that few catalysts can guarantee global adoption of a concept or trend like believing that it has been blessed by the Davos elect.
The 2020 meeting may have been a Covid super-spreader event (how fitting) but every Davos meeting is a vector for terrible jargon and corporate-speak as the global elite load up on whatever is new and then jet back to their respective cities to plague us all with the newly sanctified terror.
In any event, there is some good news on the Davos front and, for our mental health alone, we should keep our focus firmly on it:
The positive slant on "Global Economic Forum" is that, almost certainly, the topic of this year's delayed gathering will be "inflation" and how corrosive price pressures are damaging the global economy and causing further disruptions to globalization that has enriched so many of the same elite.
This hyper focus on the topic will almost inevitably and thankfully mark a short term inflation peak.
You can rest easy assured that for at least the few months it is likely that we will finally get a slew of "good" inflation data (i.e.: lower).
Now to be fair, it isn't just the endless ability of the global elite to get it wrong either. There is some real data giving some analytical heft to support the long term track record of the Davos-elite to get it all wrong.
For instance, long term inflation expectations have actually been plummeting for weeks. The 5 year, 5 year forward monthly change - a measure of what investors think long term 5 year inflation will be in 5 years time - is about to record a very steep drop for the month of May":
Ironically enough, this past Friday, right as the Davos conclave was hitting its stride, the Federal Reserve's preferred inflation measure came out with a meaningful deceleration.
The headline monthly change in the Personal Consumption Expenditure (or PCE) for April was just 0.2% which was quite the drop from March (0.9%) and was also the lowest number since November of 2020.
This deceleration can be perhaps best seen graphically here:
All of this may not be wonderful just yet - after all inflation is still very elevated, the core PCE number was up 4.9% from a year ago - but it is heartening that price pressures are beginning to ease.
It is also a positive sign that policy can affect change. The Federal Reserve (and other central banks around the world) have finally begun to raise rates at a rapid pace and this decisive action is thankfully - though belatedly - having an effect.
The follow through is critical because there is a very real worry that if inflation pressures truly take hold, then the only way to break the price rise cycle will be to cause a recession.
The "soft landing" spoken about by Jay Powell and his fellow central bankers intrinsically requires a very deft and responsive touch on the available monetary policy levers.
As it is the Federal Reserve's actions are already crimping growth. As our focus on the US housing market makes clear, it is truly very difficult to achieve much versus inflation without having a concomitant impact on growth.
Now just imagine if the US central bank had acted earlier rather than spend endless months sitting on their hands hoping that price rises would be transitory after all?
Don't worry, our elite are busy coming up with plenty of new policy mistakes in new areas to make up for finally coming around on inflation. The next story is just the latest and the greatest.
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