Bank of England: 'Have Fun Staying Poor'

An economist's shocking admission... People and businesses 'need to accept' they're poorer... Stop asking for a raise... Oh, the arrogance... He lives in his parents' house... The latest meme-stock trade...

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The Bank of England's chief economist said the quiet part out loud...

Inflation is still growing at 10% annually, by official numbers, in the United Kingdom. Here's what England's central bank really thinks about what the public should do about it. The Guardian recently reported his admission...

British households and businesses "need to accept" they are poorer and stop seeking pay increases and pushing prices higher, the Bank of England's chief economist, Huw Pill, has said.

This is one of the more shocking public admissions I (Corey McLaughlin) have heard in a while... and I read a lot.

And you haven't heard the worst part yet. The economist who made these comments lives in a £1.5 million flat in London owned by his parents.

You can't make this stuff up, because it's the truth...

And it's so telling and revealing of what those behind the scenes at central banks can tell themselves (or at least the public)... and how the world got into this inflation mess in the first place.

It reminds me of some wise words I once heard from the author Maya Angelou... "When someone shows you who they are, believe them the first time."

Conceptual economists living in a land of data and digital money-printers love to engineer real-time experiments on the real-world economy, then take no responsibility when things don't go as they planned.

Consider Huw Pill, whose analysis helps shape the Bank of England's policy decisions. He said on a recent podcast produced by Columbia Law School that a game of "pass the parcel" is taking place in the U.K. economy – as households and companies try to pass on their higher costs.

While he said it's natural for people to seek higher wages in response to higher prices or for restaurants to respond by charging more for their food, Pill said they should stop... for the good of everyone.

As an example, Pill said the U.K. is a big importer of natural gas, and gas prices have gone up beyond the prices of U.K. exports. He blames the people. Pill said in the episode of the podcast, titled "Inflation: Not Dead Yet"...

If the cost of what you're buying has gone up compared to what you're selling, you're going to be worse off. So somehow in the U.K., someone needs to accept that they're worse off and stop trying to maintain their real spending power by bidding up prices, whether higher wages or passing the energy costs through on to customers.

And what we're facing now is that reluctance to accept that, yes, we're all worse off, and we all have to take our share. Instead, [people] try and pass that cost on to one of our compatriots saying, "We'll be all right, but they will have to take our share too." That pass-the-parcel game that's going on here... that game is generating inflation, and that part of inflation can persist.

Well, yes. It's true. That part of inflation can persist as everyday people simply want to figure out a way to pay their bills and make payroll so their employees can afford food that's 50% or whatever more than a year ago.

But, um...

What about all the big-government policies that led to these high prices in the first place?

Like many central banks' decisions to throw unprecedented amounts of stimulus into the economy amid the pandemic, for far too long, and see what happens? Or the belief that inflation is "a hump," as European Central Bank President Christine Lagarde said in December 2021... A year and a half later, the U.K.'s hump is still growing.

Or, a little more specific, how about the decisions of European leaders over the years to become heavily dependent on Russian energy sources (I'm looking at you, Germany) rather than developing their own? The ripple effects have made their way around the U.K., driving prices higher as Russia went to war in Ukraine.

But, no, you peasants, have fun staying poor!

Do your part!

Such sage advice from Huw Pill, who makes £190,000 a year at his cushy government job... used to be a Goldman Sachs banker... and yet, at age 55, still appears to live off his parents.

As the Mirror, a U.K. tabloid, reported two days ago...

We can reveal he makes do in his mum and dad's posh apartment in a private lane in Kensington – one of London's most expensive areas.

Mr Pill declined to say if he pays for his home – or if he regretted telling a US podcast that Brits "need to accept they're worse off".

Unite union leader Sharon Graham said: "You couldn't make it up. He jets off to America to explain to a podcast audience that being worse off needs to be accepted – while of course he isn't. It is absolutely jaw-dropping that bankers like Huw Pill should lecture about sacrifice for the common good."

Indeed. It's not even clear if this guy pays his own mortgage. And yet...

'Someone needs to accept that they're worse off,' he said...

What a banker, and what arrogance. How about you, Huw? Move out of your parents' house (what are you, a 55-year-old Millennial?!), take a salary cut, and "be worse off." Then spend less, get a real job, pump your own gas, and see how you like it.

Maybe he is doing these things now, but I doubt it. As an irate reader of the Guardian wrote in a letter in response to the comments...

It's simply not true that "we're all worse off", as Mr Pill claims. Neither the prime minister nor King Charles appear to be in that category. Public sector workers and food bank clients don't need a senior economist to tell them who is worse off and who isn't.

And if you think, "Well, this is England, that's not us"... well, first look at where the Bank of England's chief economist got his last round of training. He got his PhD in economics from Stanford.

This kind of thinking is already apparent in the U.S., too...

As my colleague Dan Ferris pointed out on the Stansberry Investor Hour yesterday, it's like when some U.S. politicians criticize businesses making too much money as the reason for inflation...

Sure, businesses raising prices is part of the deal. But they're also the ones raising wages for workers, mostly on the lower-income end... I don't hear many in D.C. complaining about that... but oh, no, stop making money. What do they want corporations to do? Mimic the U.S. government and run $1.5 trillion annual deficits?

Maybe that's it.

Whatever the intention, don't forget the big lesson here. When someone or something shows you who or what they are, believe them...

For policymakers to ignore the big monetary-policy decisions that mostly got us to 40-year-high inflation is either a surefire sign of a lack of self-awareness or a belief that more government control or influence is the answer. It's a reminder that to navigate a climate like this, it's wise to have a plan to protect and grow your wealth.

And think about how to beat inflation yourself... because nobody else is going to do it for you. You can bet so long as central banks have control over fiat currency, there will be inflation fuel to be dealt with... and no responsibility taken on their part for causing it.

After discussing this dispiriting big picture, other things seem insignificant...

But, alas, the news marches on. And it is related.

Tomorrow, the Federal Reserve – the Bank of England's counterpart in our neck of the woods – will unveil its latest policy decision at 2 p.m. Eastern time. Wall Street is expecting another 25-basis-point hike in the central bank's "fight" against inflation.

And then we'll hear from Fed Chair Jerome Powell in a press conference about 30 minutes later. He will explain the Fed's decisions and thoughts on policy moving ahead. I'll have a report in tomorrow's Digest.

Traders will be looking for signs of whether the central bank will be inclined to cut rates later in the year. So far, all the messaging out of the Fed has been that it's not... but will most likely pause rate hikes near the 5% range after tomorrow's decision.

According to the CME Group's FedWatch Tool, bond traders are expecting the Fed to raise its fed-funds range by 25 basis points tomorrow, stop after that, and start cutting rates by the fall. These futures traders have put a 93% chance that by December, rates will be lower than the range the Fed will raise to tomorrow (5% to 5.25%).

Any signs of a different likelihood could ratchet up volatility in the markets. And there's another angle to watch...

Here's the thing that ties back into the recent comments of Mr. Huw Pill – and what you probably won't hear Powell say. Outside of the economy grinding to a devastating halt, inflation isn't going back down to the Fed's erstwhile 2% goal anytime soon.

When we look at the Fed's recent preferred inflation gauge – the personal consumption expenditures ("PCE") index – released last Friday, we see reasons why...

The core PCE for March came in at 4.6%... And the overall PCE, which includes food and energy, was lower at 4.2%, mainly because gas prices were down. The fact that the "core" number, which is typically lower than the general number, was higher is telling...

It means higher prices are still sticking in the economy, even as energy prices may be coming down. I looked at the food categories measured, and the only significant decline was in eggs, which have come down from their highs in January.

In other words, that $3 gallon of milk – or any other item whose price many folks didn't think much of in 2019 but would love to see now – is not coming back... just like how 35-cent milk from 100 years ago is an ancient relic.

Yet Powell might say tomorrow that inflation has come down enough that the central bank is going to hold interest rates where they are and see what happens in the economy... Be skeptical. Inflation, inflation, on it goes.

Do your part. Prepare for it to stick around.

'This part of the crisis' isn't over yet...

In our report yesterday on JPMorgan Chase (JPM) taking over failed First Republic Bank (FRC), I noted that despite JPMorgan Chase CEO Jamie Dimon declaring "this part of the crisis is over," other regional-bank shares were under pressure yesterday. Most notably, PacWest (PACW) fell 11% on Monday alone.

And we said that even if other regional banks with similar profiles to the previously failed ones can actually survive, panic is never far away with the threat of a hard landing ahead.

Nor is greed. Taking a look at the WallStreetBets message board on Reddit, it looks like short interest against regional banks has become the meme-stock trade of 2023...

Last week, PacWest reported in its earnings that its deposits actually began rebounding in late March, but today in the wake of the First Republic news, the stock was down by nearly 40% this morning... Trading was halted numerous times. The stock's down 70% this year.

The SPDR S&P Regional Banking Fund (KRE) finished down nearly 7% today... And as our colleague Chris Igou wrote to his DailyWealth Trader subscribers today, the entire financial sector, as represented by the Financial Select Sector SPDR Fund (XLF) has just flashed a big technical warning sign.

Amid the bank failures we've seen and thoughts that the worst might be over, you may be waiting to pick up the pieces with cash on hand. But Chris advised against buying up shares of financial stocks just yet. Another drawdown could be looming ahead.

New 52-week highs (as of 5/1/23): Biogen (BIIB), Berkshire Hathaway (BRK-B), Covenant Logistics (CVLG), DraftKings (DKNG), iShares MSCI Mexico Fund (EWW), General Mills (GIS), Hologic (HOLX), Hershey (HSY), Eli Lilly (LLY), McDonald's (MCD), Meta Platforms (META), Madison Square Garden Sports (MSGS), Motorola Solutions (MSI), OMRON (OMRNY), O'Reilly Automotive (ORLY), Procter & Gamble (PG), Roper Technologies (ROP), Starbucks (SBUX), Spotify Technology (SPOT), and Consumer Staples Select Sector SPDR Fund (XLP).

In today's mailbag, we have some feedback on yesterday's Digest about the latest bank failure, plus Dan answers another question about his Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com and tell us what's on your mind.

"I'm fairly sure that if one of these banks were located in the heartland, not being fueled by a bunch of Tech wizards, but by hard-working Americans with more than $250,000 in their account, there wouldn't have been the big bailout. Thank you." – Stansberry Alliance member Steve J.

"Hi folks, Actually there were 5 banks so far that defaulted in U.S., CS [Credit Suisse] also was affected by Fed's interest rates unless you didn't count it because it was a known for a while now. Keep up the great work, thank you." – Paid-up subscriber Gord P.

Corey McLaughlin comment: Yes, Credit Suisse is part of the same story. But I didn't include it yesterday in the statistic about "three of the four largest bank failures in the U.S. happened in the past two months" only because it's not U.S.-based. But to your point, the Swiss bank does have a lot of U.S. clients.

"I absolutely agree with your statement 'The problem is, we can't have a modern standard of living without fossil fuels. We also need cement, steel, plastics, and ammonia-based fertilizers.' How can the powers-that-be not understand this? How can all the 'Greenies' not understand this?..." – Paid-up subscriber Tom W.

"Hello Dan, I love your work. I'm thankful that you love your job... which means you aren't going anywhere soon.

"Something you said resonates with me. Understandably your comment RE; take the other side of the herd mentality was tongue in cheek, but yet so true. Buy the quality dislocations and not the falling knives. The trick is determining which is which.

"In that vein... we already know statistically that stock options are going to expire worthless like 80% of the time. There... presto we've found the falling knife. Would selling options in this sideways market (10 or more years) make sense?

"I'm not saying go hog wild going naked short puts and calls, but rather committing more capital towards credit spreads. Would this strategy be well suited in this environment if you believe the thesis that we have a decade-long sideways market?

"I personally like it more than covered call writing on my value stocks. If we are the new Japan, I don't want to get lifted (exercised) out of all my value stocks. Not when they ripped 8 fold in Japan in the 90's." – Paid-up subscriber Jack F.

Dan Ferris comment: Jack, the best time to bet on credit spreads is when they blow out, like on those occasions when high-yield spreads are 1,000 basis points above Treasurys. Mike DiBiase is all over this in our Stansberry Credit Opportunities letter.

For options strategies, I defer to folks like Retirement Trader editor Dr. David "Doc" Eifrig and Ten Stock Trader editor Greg Diamond. They've forgotten more about trading options than I'll ever know.

I see nothing wrong with the basic idea of selling puts on good stocks after declines and selling calls on them after rallies (while keeping your options' capital requirements in mind), but it's a one-at-a-time assessment. If we really are in a sideways market, it would be logical to conclude that this approach should produce a decent result often enough to make it worth doing.

Hi Dan, After reading Friday's Digest, like you, I'm somewhat disheartened too!

"I've been a Flex Alliance member since 2011 and hands down, the service Stansberry provides is excellent. Do you guys always get it right? No, but you cut services that don't perform and have the integrity to offer people alternatives if this happens. But I think the biggest shift I've made over the years is that losses will happen, but as long as I keep my position sizing within my comfort levels, I've learned to be ok with losing because you guys have a track record of success.

"I particularly like the Doc Eifrig services but truth be told, all you guys are great. So I would encourage anyone on the sidelines to jump in on the Stansberry services as a first step." – Flex Alliance member Angelo C.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 2, 2023