Reflation 2025: Something’s Gotta Give

“The Great Inflation of the 1970s destroyed faith in paper assets, because if you held a bond, suddenly the bond was worth much less money than it was before.”

—Ron Chernow

December 12, 2024— On paper, yesterday’s CPI was exactly what markets wanted to hear…

Consumer price inflation held steady month over month, which is just enough to keep the Federal Reserve on track for another quarter-point rate cut by year-end.

And allow trading algos to push the market higher.

The bots take an immediate view of the future. Human beings have the luxury of taking a longer look forward… and back.

The inflation data for the past few months hints that the disinflation trend ballyhooed by the Biden administration.

The indicator we’re mostly concerned today is the producer price index (PPI) which showed 3% inflation in November, up nearly half a percentage point from October.

We stand on the cusp of re-inflation in 2025, hesitate as we might call it a Grey Swan event.

Inflation often comes in waves with some big spikes. And we may be witnessing a scene reminiscent of the 1968-1980 inflationary wave.

Turn Your Images On

That’s why we have to chuckle a bit at yesterday’s market reaction. Sure, we didn’t get re-inflation for November. That’s “good enough” to give the market the quick shot of adrenaline for stamina here the top.

Mind you, higher inflation shows up first in asset prices.

The Joneses don’t complain when their home value or stock portfolio is growing like gangbusters. It’s only when taking the family out to McD’s suddenly costs $45 for a family of four Mr. and Mrs. Jones realize inflation has gotten out of control.

Meanwhile, let’s add some nuance to our Grey Swan view on inflation for 2025: Globally, central banks are already lowering interest rates rapidly.

Today, Switzerland followed Canada’s decision on Wednesday to cut rates by 0.5%. A half-point move is pretty notable. If inflation ticks up, these fast rate cuts will have proven to be the wrong move.

So what’s Jerome Powell to do? The Fed can’t step on the brakes… and the gas pedal at the same time. Something’s gotta give.

As Grey Swan Investment Fraternity contributor John Rubino shows with a few telltale charts below, re-flation is here already. As the kids say, John brings the receipts. ~ Enjoy, Addison

Crash Alert: Priced for Perfection in an Imperfect World

John Rubino, John Rubino’s Substack

The last few US inflation reports have been ominous, with the general trend morphing from sharp decline to gradual increase. Here’s the Core Services index, which is now rising at a 4% annual rate:

Turn Your Images On

Stocks, meanwhile, are priced for perfection, with the second highest price/earnings ratio on record:

Turn Your Images On

Investors are getting cocky, as evidenced by the soaring popularity of leveraged ETFs:

Turn Your Images On

And gold has shaken off its post-election correction and is now threatening its all-time-high:

Turn Your Images On

Can the Fed keep easing into all this?

Today’s stock market enthusiasm is based in part on the expectation of ever-easier money for the balance of the decade. But can the Fed really deliver this in the face of soaring financial assets, off-the-charts speculation, and rising general inflation? Wouldn’t that spike inflation? Probably. So at some point in 2025 the Fed will have to stop lowering rates.

What happens then? Well, check the above P/E chart for what became of the last few priced-for-perfection markets. ~ John Rubino, John Rubino’s Substack

Regards,

Addison Wiggin,
Grey Swan

P.S. Thanks for your feedback so far as we build out the Grey Swan community. We value all feedback, but it’s always nice to get a compliment, like that from John, who writes:

You convinced me, long ago, that, like Bill Bonner, you are a terrific writer founded on solid economic principles.

In your writing today, it also occurred to me that the motto of the denizens of the swamp should be: “We came, we saw, we burrowed.”

Clever.

Responding to yesterday’s P.S. on living in “Smalltimore” longtime reader Basil writes:

If you’ve lived in Central MD for any length of time, you cross paths with the name, Mangione. A very surreal event in a very surrealistic year. Cannot condone the act of which Luigi is accused. But Obama, indeed, sold us down the river to AHIP. One reason the name Obama sticks in my craw. They wrote the legislation.

United Healthcare was forever a flagrant outlier in the biz. (see William McGuire and his $400M disgorgement).

Sad times, Addison. Pray for all impacted. Thank you.

Share your thoughts on reflation, the economy in 2025, healthcare reform, and other pertinent Grey Swan topics here: addison@greyswanfraternity.com.

“The Great Inflation of the 1970s destroyed faith in paper assets, because if you held a bond, suddenly the bond was worth much less money than it was before.”

—Ron Chernow

December 12, 2024— On paper, yesterday’s CPI was exactly what markets wanted to hear…

Consumer price inflation held steady month over month, which is just enough to keep the Federal Reserve on track for another quarter-point rate cut by year-end.

And allow trading algos to push the market higher.

The bots take an immediate view of the future. Human beings have the luxury of taking a longer look forward… and back.

The inflation data for the past few months hints that the disinflation trend ballyhooed by the Biden administration.

The indicator we’re mostly concerned today is the producer price index (PPI) which showed 3% inflation in November, up nearly half a percentage point from October.

We stand on the cusp of re-inflation in 2025, hesitate as we might call it a Grey Swan event.

Inflation often comes in waves with some big spikes. And we may be witnessing a scene reminiscent of the 1968-1980 inflationary wave.

Turn Your Images On

Mind you, higher inflation shows up first in asset prices.

Meanwhile, let’s add some nuance to our Grey Swan view on inflation for 2025: Globally, central banks are already lowering interest rates rapidly.

So what’s Jerome Powell to do? The Fed can’t step on the brakes… and the gas pedal at the same time. Something’s gotta give.

As Grey Swan Investment Fraternity contributor John Rubino shows with a few telltale charts below, re-flation is here already. As the kids say, John brings the receipts. ~ Enjoy, Addison

Crash Alert: Priced for Perfection in an Imperfect World

John Rubino, John Rubino’s Substack

The last few US inflation reports have been ominous, with the general trend morphing from sharp decline to gradual increase. Here’s the Core Services index, which is now rising at a 4% annual rate:

Turn Your Images On

Stocks, meanwhile, are priced for perfection, with the second highest price/earnings ratio on record:

Turn Your Images On

Investors are getting cocky, as evidenced by the soaring popularity of leveraged ETFs:

Turn Your Images On

And gold has shaken off its post-election correction and is now threatening its all-time-high:

Turn Your Images On

Can the Fed keep easing into all this?

What happens then? Well, check the above P/E chart for what became of the last few priced-for-perfection markets. ~ John Rubino, John Rubino’s Substack

Regards,

Addison Wiggin,
Grey Swan

P.S. Thanks for your feedback so far as we build out the Grey Swan community. We value all feedback, but it’s always nice to get a compliment, like that from John, who writes:

You convinced me, long ago, that, like Bill Bonner, you are a terrific writer founded on solid economic principles.

In your writing today, it also occurred to me that the motto of the denizens of the swamp should be: “We came, we saw, we burrowed.”

Clever.

Responding to yesterday’s P.S. on living in “Smalltimore” longtime reader Basil writes:

If you’ve lived in Central MD for any length of time, you cross paths with the name, Mangione. A very surreal event in a very surrealistic year. Cannot condone the act of which Luigi is accused. But Obama, indeed, sold us down the river to AHIP. One reason the name Obama sticks in my craw. They wrote the legislation.

United Healthcare was forever a flagrant outlier in the biz. (see William McGuire and his $400M disgorgement).

Sad times, Addison. Pray for all impacted. Thank you.

Share your thoughts on reflation, the economy in 2025, healthcare reform, and other pertinent Grey Swan topics here: addison@greyswanfraternity.com.

The narrative for BTC and other cryptocurrencies is that every government around the world has high debt-to-GDP ratios. It means they are going to print more currency. It means there is a need for alternative currency. In the past, this alternative currency was gold.

Gold is not very portable. It’s a good store of value. It’s not as great of a store of value as BTC in terms of actually storing it. BTC, you can store it on a hard drive or at Coinbase. Gold, if you have bars you have to keep them in a bank or you have to dig a hole in your backyard. And you can’t send gold around the world as easily as you can send BTC.

I still think this rally has legs. If you go back to where the breakout happened, we were really in November of 2024 that was the beginning of this bull market in my mind because that was the first time we hit an all-time high in a couple years. Then we rallied. We pulled back. We tested that level again.

The uptrend, in my mind and with what I’m seeing, is still intact. We’re just in an oversold condition right now.

Nvidia’s $900 billion round-trip this week wasn’t about some revelation in Jensen Huang’s chip factory. The business is firing on all cylinders – and may yet be one more reason for the market to soar higher into 2026.

The culprit was the macro — one gust of wind from the labor market and trillions in valuation shifted like sand dunes.

Nvidia’s earnings lifted the market at the open, but the jobs report’s undertow snapped sentiment like a dry twig. As we pointed out this morning, the S&P notched its biggest intraday reversal since April.

The first half of the move was classic Wall Street choreography: blowout earnings, analysts breathless with adjectives, and every fund manager terrified of underweighting the patron saint of AI.

In April, following the “Liberation Day” low, the indexes took off in the morning only to crash later in the day. The first and only other time in history we have seen a strong bullish opening followed by a sharp bearish close was during the 2020 recovery from the Covid shock.

In both cases, the markets were rebounding from exogenous shocks.

That’s not where we are today. The index-level charts may look composed, but underneath plenty of individual stocks are trading as if they’ve already slipped into a private bear market of their own.

We’ll see how the day unfolds. It’s options-expiration Friday — the monthly opex ritual when traders roll positions forward, unwind old bets, and generally yank prices around like terriers with a chew toy.

Every major tech shift has followed a similar pattern. As information moves faster, the money follows.

The telegraph made news global and opened up a world of investment opportunities. Radio, and then television, ignited a new wave of prosperity for investors. And the internet made communication instant, creating fortunes for those who saw what was coming.

Now standards like x402 are doing the same for AI and digital payments, potentially putting Jamie Dimon’s empire in jeopardy.

If you have Coinbase building the payment rails, Circle handling settlement and projects like Worldcoin and Particle Network solving for identity and wallets — do you really need a bank to validate transactions and keep track of who owns what?

All of these companies are helping to build a new layer of fintech infrastructure. And they’re all working toward an economy that runs continuously, without the need for corporate scaffolding.

The uptrend, in my mind and with what I’m seeing, is still intact. We’re just in an oversold condition right now.

The culprit was the macro — one gust of wind from the labor market and trillions in valuation shifted like sand dunes.

The first half of the move was classic Wall Street choreography: blowout earnings, analysts breathless with adjectives, and every fund manager terrified of underweighting the patron saint of AI.

In both cases, the markets were rebounding from exogenous shocks.

Every major tech shift has followed a similar pattern. As information moves faster, the money follows.

Now standards like x402 are doing the same for AI and digital payments, potentially putting Jamie Dimon’s empire in jeopardy.

All of these companies are helping to build a new layer of fintech infrastructure. And they’re all working toward an economy that runs continuously, without the need for corporate scaffolding.