MacroVoices #387 Jeff Snider: On Deflation and Soft Landing
Jeff Snyder argues the current inflation is a supply shock from pandemic disruptions, not monetary inflation, and compares it to historical examples from 1946-1948. He predicts a deflationary recession rather than a soft landing, citing declining producer prices globally and inverted yield curves as evidence.
Summary
In this MacroVoices episode, Jeff Snyder makes a comprehensive case that the recent inflation surge is a transitory supply shock rather than the beginning of a new secular inflation period. He distinguishes between consumer price inflation (what we've experienced) and true monetary inflation (like the 1960s-70s), arguing that supply shocks cause prices to surge quickly then gradually decelerate over 2-3 years regardless of monetary policy. Snyder presents extensive historical analysis comparing current conditions to the post-WWII period of 1946-1948, when similar supply disruptions and pent-up savings drove inflation that eventually resolved into deflationary recession. His analysis shows producer prices are already deflationary globally, including in China, Germany, and Europe, with the US following this trend. He argues yield curve inversions and forward rate markets are signaling recession and future rate cuts, contradicting the popular soft landing narrative. Snyder believes the Federal Reserve's current optimism about avoiding recession mirrors their 2019 stance just before they began emergency rate cuts, and that similar economic indicators today are actually worse than in 2019. He sees the recent stock market rally as a 'bull trap' based on misplaced confidence in the soft landing scenario, predicting it will collapse when employment data weakens. The discussion covers global economic weakness, particularly in Germany (already in recession) and China (experiencing severe trade contraction), suggesting a globally synchronized deflationary trend rather than isolated regional problems.
About this episode
MacroVoices Erik Townsend and Patrick Ceresna welcome Jeff Snider to the show to discuss the inflation story over one of Jeff’s infamous chart decks and whether the “soft landing” forecast that’s become popular is accurate. https://bit.ly/3QlP5RZ Download Jeff’s Charts: https://bit.ly/459utkc Visit Eurodollar University: https://www.eurodollar.university/ Check out Eurodollar University on YouTube: https://www.youtube.com/@eurodollaruniversity Download Big Picture Trading chartbook 📈📉 https://bit.ly/3qgZ8xa ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/2JjZR7J Check out Nick's YouTube channel: https://www.youtube.com/c/Optionfinity Join OptionFinity discord: https://discord.gg/Rvnsv6Y Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- Snyder argues supply shock inflation roars out quickly but takes 2-3 years to fully resolve, unlike monetary inflation which sustains year after year
- The current inflation pattern closely matches the 1946-1948 post-WWII supply shock case rather than the 1960s-70s great inflation
- Producer prices are already deflationary in the US, Europe, China and Japan, which historically leads consumer price disinflation
- Chinese producer prices are at levels only seen during major recessions like 2008-2009, serving as a bellwether for global economic conditions
- Yield curve inversions and forward rate markets are predicting substantially lower interest rates in the future, inconsistent with continued inflation
- The Fed's current optimism about avoiding recession mirrors their 2019 stance just before emergency rate cuts, despite similar or worse economic indicators today
- Germany is already in recession with trade volumes at Great Recession lows, suggesting Europe is further along in the deflationary cycle than the US
- The near-term forward spread has been inverted since November 2022, indicating markets expect rates to be substantially lower 18 months ahead
- Current economic data shows the US economy is actually weaker in 2023 than in 2019 when the Fed was worried enough to begin cutting rates
- The stock market rally represents a 'bull trap' where investors are buying the soft landing narrative before employment data turns negative
- Bond markets globally have remained steady despite aggressive rate hikes and quantitative tightening, indicating confidence in the deflationary scenario
- The globally synchronized nature of producer price deflation suggests this is not a regional issue but a worldwide deflationary trend
Topics
Transcript
Thank you. Eric Townsend and Patrick Ceresna. Macrovoices episode 387 was produced on August 3rd, 2023. I'm Eric Townsend. Inflation is finally coming back down, but is it about to reverse course higher again? Or are we truly in the immaculate disinflation that Juliette de Klerk described in her recent Macrovoices interview? To answer that question, Eurodollar University founder Jeff Snyder returns as this week's feature interview guest. We'll discuss the inflation story over one of Jeff's infamous chart decks before moving on to consider whether the soft landing forecast that's become popular is accurate. And I'm Patrick Ceresna with the Macro Scoreboard week over week as of the close of Wednesday, August 2nd, 2023. The S&P 500 futures were…
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