Assuming we've hit peak inflation, what is the nature of inflation decreasing and what is its impact on markets?

1. PEAK INFLATION
29 JULY 2022

2. WAR ROOM
Idea Generation
Macro Coaching
Scenario Updates
HiddenLevers runs on SCENARIOS like Instagram runs on PHOTOS
Fed Underwrites Economy
Climate Disasters
Real Estate “Post” Covid
COVID 2.0

3. MACRO THEMES
Earnings Apocalypse
(never came)
Central Banks mirroring Fed
Most
Hated
Rally
Russia NatGas
Showdown
(never came)

4. sources: HiddenLevers, TradingEconomics, TradingEconomics
ECON PULSE CHECK
OIL Housing Inventory
Mortgage Market Index
Increasing cyclically
Nat Gas
CPI
+51%
Highest Since 1981
-8.6% in July
+61% in July
Jobless claims
22yr Low

5. TRENDING SCENARIOS
COLD WAR 2.0 – fading globalization = inflation
FED SHOCK THERAPY – 3 hike hopium

6. sources: HiddenLevers,
INFLATION + ENERGY NEEDS UPDATE
PEAK
INFLATION
LIKELY
HAPPENED
priced in
from Feb 2022 War Room

7. sources: HiddenLevers, FactSet, Bloomberg, Business Insider
PEAK INFLATION DISINFLATION VIBES
China freight rates down 60% from peak
Semi-conductor Chips
Glut growing abroad, while Senate
passes CHIPS act – build chips at
home (slow clap)
Commodities rolled over
Exception = NAT GAS
INVENTORY GLUT NEWS
Bed Bath + Beyond
Target
Walmart
Gap
Macy’s
Retail Inventories rising for
past 12 months

8. Sources:, HiddenLevers, FRED, FRED, FRED , CNBC, NYTmes YAHOO
12 month of inflation – entrenched behavior risky for Fed
spiraling inflationary mind-set – people will just pay it
WMT warning: inflation crippling margins
BUT not a bell weather for all retail
Consumer
Spending
Retail Sales
Consumer Debt
Walmart Q2 Projections
Sales +7.5% +5%
Income -13% Flat
Quarter EPS -8% Flat
YTD EPS -11% -1%
PEAK INFLATION CONSUMER SNAPSHOT
bacon pedicure starbucks chilean seabass
What are
you cutting
back on?

9. sources: HiddenLevers, Bloomberg
PEAK INFLATION GLOBAL PHENOMENON
power of central banks + other
policy makers to tweak wages and
prices is dwarfed by impact of
seismic macro forces – in this case
de-globalization
2021 – Asleep at the Wheel 2022 – Getting the Message
2022 – energy supply chain reset

10. Sources:, HiddenLevers, WSJ, FRED, FRED
Money Supply (M2)
M2 Growth Peaked in Feb 2021 at 27%
Core CPI Started accelerating 13 months later
M2 + Balance sheet decreases = CPI decreasing
Will drop in M2 and rates be enough?
Fed Balance Sheet
Fed Funds Rate
Now 2.25%
Slightly Decreasing
PEAK INFLATION MONEY SUPPLY
Ahem….

11. sources: Fred
PEAK INFLATION FED ACTION
2018
4 HIKES
75 BPS TOTAL
FED PROMISES TO STOP
2022
4 HIKES TO 2.25%
225 BPS TOTAL
“ADDITIONAL HIKES APPROPRIATE”
-24%
-18%
Fed dovishness apparent, as in 2018. Fed funds stance is “neutral” in 9.1% inflation, and will not give guidance

12. sources: HiddenLevers, Toews Corporation
PEAK INFLATION FIXED INCOME LOSES
1916-1920
5-year period
44% real losses
1945-1981
36-year period
18% real losses
2021-2022
1.25-year period
30% real losses
Unspoken incentive for inflation – govt can inflate their way out of debt

13. sources: HiddenLevers,
PEAK INFLATION EQUITY RETURNS
Stocks do well in past inflationary eras
but only after an initial hit
Valuations still in the upper quartile except growth tech
Toews on Cumulative Inflation
Just because we are past peak inflation
doesn’t end the story
If this episode of inflation is like the last
three, then we are nowhere near done

14. sources: HiddenLevers, Toews Corporation
PEAK INFLATION HEDGES
Hedges 3M 6M 12M
USD +4% +10% +16%
TIPS ETF (TIPX) -1.0% -1.5% -2.0%
GOLD -8% -3% -5%
GOLD MINERS (GDX) -26% -14% -23%
SILVER -18% -16% -25
OIL -7% +9% +29%
OIL EQUITIES (XOP) +1.3% +27% +64%
NAT GAS +31% +110% +122%
FARMLAND (LAND) -34% -13.35% +8%
FARM EQUITIES (CORN) -19.03% +9% +20%
AVOCADOS (EATV) +14.11% +3.66% -24%
REITS (VNQ) -11% -6% -9%
BITCOIN -42% -36% -39%
CRYPTO INDEX -43% -36% -42%
BONDS -0.5% -7% -10%
MUNICIPAL BONDS +2.5% -4% -7%
Most assts meant to be hedges were not.
For actual hedges for cumulative inflation
– need derivatives
CUMULATIVE HIGH INFLATION IN USA

15. PEAK INFLATION GOOD
Monetarism a la
Milton Friedman
Bye bye
stimulus programs
Now 75 bps above pre
pandemic levels
SHRINKING M2
IS ENOUGH

16. PEAK INFLATION BAD
Re-shoring from China
more expensive
US takes Russia’s place
more expensive
US labor shortage
more expensive
ENERGY + LABOR
NEW NORMAL

17. PEAK INFLATION UGLY
Inventory pile ups at big
box retailers
Consumer spending on
discretionary tanking
64% say they are
financially unhealthy
CONSUMPTION
COLLAPSE

18. GOOD
UGLY
CPI TANKS BUT ONLY
BECAUSE THE FED
TIGHTENING DESTROYS US
CONSUMER
ENDING OF STIMULUS
PROGRAMS + FED HIKES
MEANINGFULLY DECREASE CPI
CPI NORMALIZES HIGHER
THAN PRE-PANDEMIC, DUE TO
SEISMIC CHANGES IN
GLOBAL ECONOMY
PEAK INFLATION MACRO RISK PARITY
BASELINE
ENERGY + LABOR
NEW NORMAL
SHRINKING M2
IS ENOUGH
CONSUMPTION
COLLAPSE
S+P 500
3000
-25 %
S+P 500
5000
+23 %
S+P 500
4500
+11 %
GDP
1.6%
FLAT
GDP
2.5%
+0.9% more
GDP
-2%
-3.6% less
CPI
4.5%
-4.1 less
CPI
2%
-7.1% less
CPI
-2%
-11.1 less

19. Fed had to make unprecedented moves because
12 months of record CPI entrenches inflation in
consumer behavior – cumulative inflation is key
Fed majorly dovish – 2.25-2.5% fed funds rate
described as “neutral” in 9% inflation environment
Bonds in inflationary environment can’t be a
winning idea, not safe
PEAK INFLATION WHAT TO SAY
Focus on large macro movements instead of short-
term price movements + rate manipulations

20. AUGUST WAR ROOM
DOLLAR SUPREME EUROPE LOSING WAR