Bright and early on Wednesday morning, some of the more sober-minded market mavens were out bemoaning the fact that everyone else had developed an unhealthy obsession with Wednesday's CPI print.
To be sure, those folks were correct to suggest that there was something patently absurd about market pariticpants implicitly suggesting that the fate of the universe somehow hung on a single month's inflation report.
That said, there was a good reason why everyone was so terrified. After all, the proximate cause for February's market mayhem was the above-consensus AHE print that accompanied the January jobs report. Average hourly earnings long ago replaced the headline payrolls number as the most important piece of information in the jobs data. But recently, that dynamic has been turbocharged by worries about the fiscal outlook on the heels of Trump's deficit-funded tax cut and signs that he's ready to forge ahead with stimulus despite the fact that piling expansionary fiscal policy atop an overheating economy risks pulling forward the end of cycle.
As Albert Edwards wrote in his Valentine's Day missive, "this is probably the singularly most irresponsible macro-stimulus seen in US history; to say it is ill-timed and ill-judged would be a massive understatement."
Bottom line: if expansions don't die of old age but rather are murdered by the Fed, well then Trump is giving Jerome Powell a motive.
As I write this, stocks are sharply higher on the day and that's great, but there is no question as to whether people are getting increasingly nervous about the bond selloff and the extent to which Trump's policies are bound to exacerbate the situation by adding fuel to the fire in terms of price pressures and forcing the market to reappraise the timeline on Fed hikes. Irrespective of where stocks actually close on Wednesday, what you should note is the knee-jerk reaction in futures when the CPI number came in hotter-than-expected. Have a look at this:
People are terrified. Period. You can argue that the knee-jerk was exacerbated by the amount of undue attention the CPI number got in the media (i.e. you can say this was blown out of proportion and therefore what you see in that chart was in part a function of irrationality), but then you have to take into consideration everything said above about the context. This was supposed to be a smooth transition away from monetary accommodation with the Fed gradually normalizing as inflation slowly rose to target but remained well-anchored. Now what you've got is a situation where a fiscal policy shock has the potential to make that gradualistic approach inadequate to address the inflation dynamic. So if you're looking for where to point the finger when it comes to the "undue" attention Wednesday's number received, well don't point it at the media or at traders' inherent tendency to act irrationally, point it at fiscal policy because that's why this is such a big deal.
Ok, so you'd think that if Trump was hell-bent on pushing this as far as it could possibly go with the tax cuts and the spending, he'd at least not do anything absolutely egregious to send a signal to markets that not only does he not care about the economics of this, he doesn't even care about the optics.
But this is Trump we're talking about. So do you know what he's going to do? He's going to keep insisting on a fucking multi-million dollar military parade, that's what he's going to do.
I mean just think about this from the market's perspective for a minute. Here's a situation where everyone is extremely concerned about the fiscal outlook and is basically looking for some kind of conciliatory rhetoric out of the White House - you know, something along the lines of this: "Look, we understand the numbers and contrary to popular belief, we're not morons. Further, we understand your concerns, but we think that over the medium-term it will become abundantly clear that expansionary fiscal policy is not the folly it seems and we believe that for the following reasons... [insert some semblance of a believable rationale].
Instead of that, we got this on Wednesday:
There are so many jokes there that it's difficult to know where to start, but really, the look on Mick's face as he tries to "explain" this says it all:
He is in readily observable pain right there.
And it's no wonder. Here is the White House budget director, a man known as a deficit hawk, being forced to try and rationalize a goddamn military parade at a time when everyone is lampooning the administration for its lack of fiscal discipline.
Just take a minute to try and appreciate how truly hilarious it is that Mick, who in 2010 famously proclaimed "we really believe you can’t spend money you don’t have," had to say this on Wednesday:
I’ve seen various different cost estimates from between, I think, $10 million and $30 million, depending on the size of the parade, the scope of it, the length of it, those types of things. Obviously, an hour parade is different than a five-hour parade, in terms of the cost and the equipment.
If you watch that video again, it's not even clear who is more incredulous - the people listening or Mick himself seemingly marveling at the absurdity of his own predicament in real-time.
So if you're wondering why Wall Street is paying so much attention to these inflation numbers, it's because Trump has decided to not only abandon rationality when it comes to the timing of fiscal stimulus, but to in fact flout his blatant disregard for economics by insisting on a $30 million spectacle that literally no one besides him wants, including, as far as anyone can tell, the military.
Well wait, that's not entirely fair.
It might not cost $30 million. As Mick notes, "that depends on the length and the size of it."