Summary

Don began by discussing the Omicron virus by pointing out the hysteria that people feel about it, like with the Delta variant. Did Delta derail the great global bull market? No. So if this turns out to be the same thing for Omicron, should it derail the great global bull market? Don doesn’t think so. Don believes the problem for the markets, the global economy, no matter what we say about the pandemic is not that little, microscopic virus that makes people sick and kills them. What's going to matter is what governments do to restrict economic activity, and what individuals do voluntarily, just out of fear or prudence to restrict their own personal economic activity. On the TrendMacro social distancing index there is no correlation between immobilizing yourself in lockdown, ceasing economic activity and controlling COVID and consequently you've caused a depression for no reason. It hurts economically.

Don then moved on to talk about runaway inflation. The Fed's 2% target (based on the PCE) is equivalent to 2.5% CPI. To explain the eruption of inflation, Don explained the difference between 6.2% of current inflation and the feds target inflation of 2.5%. The difference is 3.7%. The thing that creates the difference are exceptional individual items in the CPI portfolio. Gasoline is up 50% year over year. This is because oil is up 100% year over year, which is typical. Gasoline is weighted 3.8% in the consumer basket that they use to calculate CPI. In a single item, gasoline is 1.9% out of 3.7%. One little item. It's just one thing and it explains weirdly a lot. Rent of your apartment or house year over year are up 3.5%. It adds 1.12% to inflation. Used cars and trucks. They're up 26% year over year in the United States. So that contributed 0.86%. You add up 86, 112 and 190. Don explained that entire 3.7% with 16 basis points leftover for good measure. This doesn't even deserve the word inflation, if it's three items. Don says you can’t explain inflation with just 3 out of 300 items. Another way of putting it, if you took just these three items out, inflation year over year would have been less than 2.5%. This is more than transitory, it's non-existent. Inflation doesn't even exist at the moment. Don argues we are not at the top of the business cycle. We are closer to the bottom. In terms of the labor market, in terms of the bottlenecks, we're still in recession. So that means when you pull someone out of unemployment. Sure, you're paying him more, but he's producing more. So, you're impacting both the supply side and the demand side. It’s not inflationary.

Don transitions into talking about the federal reserve and interest rates. The fed tries to use their policy to lower long-term rates, except every single time the fed has done QE it is a universal failure. The one thing they did that worked, was operation twist across 2011 and 2012. And that wasn't even asset purchases, that was just selling short term and buying long-term. So, when's the fed going to tighten rates? Don quotes the feds statement on longer run goals and monetary policy. He said it has one trick word in it that you've got to be aware of: inclusive. It's a politically correct word. It means diversity. That means that it doesn't exactly help the United States government to have unemployment at 1.12%, but white unemployment be better than that, at 0.97% black unemployment be twice as bad at 1.95% higher than it was before the pandemic. Latino at one and a half times what it is for whites. Asians, almost two times, almost as bad as blacks. These all have to go to zero. Now we could get the white unemployment rate back to zero by mid-year. It's going to take longer than that for blacks, Latinos, and Asians, until that happens, we will have not reached inclusive, maximum employment. And Don guarantees that no American is going to tighten interest rates by one basis point until the unemployment rate is at zero. So no, the fed is not going to tighten too late because there's no inflation really. And the fed is not going to tighten too soon because it may be for political reasons. And why not? Don believes that actually is a good thing. The statute says maximum employment. So, this was great. And if there's no inflationary threat, why not?

So, is the great post pandemic bull market over? Don thinks it's going to boom on, he thinks we're in something like a post-war boom, we're living through something that the world hasn't lived through maybe since World War II, we had the destruction of the world in the forties and a booming recovery that stood on the shoulders of new technologies, all kinds of restarts and start overs as a whole new energy. That's what's happening now, is the great post pandemic bull market over? No.

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