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Three indicators that inflation has peaked; Three articles about China; Best mountaineering/climbing films

By Whitney Tilson
Published June 1, 2022 |  Updated June 1, 2022
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1) If I'm right that inflation has peaked and will trend downward over the rest of this year to around 4%, this is very bullish for stocks.

Here are three recent data points pointing in that direction...

First, seasonally adjusted initial unemployment claims – a sign that the labor market is cooling – have started to trend up slightly after a long decline, as you can see in this chart by the St. Louis Fed:

Second, lumber prices, while still above pre-pandemic levels, have fallen by more than 50% in the last two months: Lumber Prices Slump With Rising Interest Rates. Excerpt:

Lumber prices have come crashing down in a new sign of how rising interest rates are deflating markets that boomed during the pandemic.

Wood prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns. Prices shot up in the summer of 2020 as cooped-up Americans remodeled en masse and demand for suburban houses soared. By last spring, lumber cost more than twice the prepandemic high. Now, two-by-four prices are flashing caution.

Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

Lastly, economist and New York Times columnist Paul Krugman has some important data in this recent column: The coming rage of the money hawks. Excerpt:

But the economy is probably cooling off as the Federal Reserve's monetary tightening gains traction. And the news flow on inflation has changed character. For most of the past year, just about every report on prices surprised on the upside. These days many, though not all, reports are surprising on the downside. Measures that attempt to gauge underlying inflation, like the "core" consumption deflator released this morning, are mostly, although not all, drifting down.

Furthermore, there is no hint in the data that inflation is becoming entrenched. Consumers expect a lot of inflation in the short run, but much less in the medium term:

Consumers don't expect long-term inflation. Federal Reserve Bank of New York

Workers expect to see raises of only about 3% over the next year, barely above historical norms:

Workers don't expect big raises. Federal Reserve Bank of New York

2) Here are the three most recent articles I sent to my China e-mail list (to subscribe to it, simply send a blank e-mail to: china-subscribe@mailer.kasecapital.com):

a) Wow... I knew there was widespread dissatisfaction, but not to this degree...

'The Last Generation': The Disillusionment of Young Chinese. Excerpt:

Ms. Cheng is part of a new trend known as the "run philosophy," or "runxue," that preaches running away from China to seek a safer and brighter future. She and millions of others also reposted a video in which a young man pushed back against police officers who warned that his family would be punished for three generations if he refused to go to a quarantine camp. "This will be our last generation," he told the police.

His response became an online meme that was later censored. Many young people identified with the sentiment, saying they would be reluctant to have children under the increasingly authoritarian government.

"Not bringing children to this country, to this land, will be the most charitable deed I could manage," wrote a Weibo user under the hashtag #thelastgeneration before it was censored. "As ordinary people who're not entitled to individual dignity, our reproductive organs will be our last resort," wrote another Weibo user.

The "run philosophy" and the "last generation" are the rallying cries for many Chinese in their 20s and 30s who despair about their country and their future. They are entering the labor force, getting married and deciding whether to have children in one of the country's bleakest moments in decades. Censored and politically suppressed, some are considering voting with their feet while others want to protest by not having children.

This is quite a departure for members of a generation previously known for its nationalistic penchant.

b) China's Economic Activity Collapses Under Xi's Covid Zero Policy. Excerpt:

China's economy is paying the price for the nation's Covid Zero policy, with industrial output and consumer spending sliding to the worst levels since the pandemic began and analysts warning of no quick recovery.

Industrial output unexpectedly fell 2.9% in April from a year ago, while retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop. The unemployment rate climbed to 6.1% and the youth jobless rate hit a record. Investors responded by selling everything from Chinese shares to US index futures and oil.

c) From Dr. Katelyn Jetelina's global update on the pandemic: State of Affairs: May 16. Excerpt:

China is doubling down on their zero COVID policy. With only 30% of the older population fully vaccinated, the country recently went into lockdown in the face of Omicron. But they didn't take this time to deploy a massive vaccination campaign. In fact, their vaccinations are decreasing. A recent Nature article found that if they lift their zero COVID policy without vaccinating, there will be over 1.5 million deaths and ICU demand 15 times greater than capacity. Together, this is making their long game unclear, disruptive, and dangerous.

3) As an avid mountaineer and rock climber, I watch all of the movies about this sport. Here are three recently released ones I enjoyed:

a) The Alpinist, about a young guy who free solos epic peaks on ice and snow. It gets a 93 from critics and 97 from audiences on Rotten Tomatoes. It's $3.99 on Amazon Prime and other services. Trailer here.

b) 14 Peaks: Nothing Is Impossible, about a Nepalese climber who shatters the speed record for climbing the 14 highest peaks in the world (all the ones above 8,000 meters). It gets an 83 from critics and 95 from audiences on Rotten Tomatoes. It's free on Netflix here.

c) Doo Sar, a Red Bull film about two Polish climbers (it's subtitled) who go to Pakistan and climb up and ski down two epic 6,000-meter peaks. It's free on Red Bull's website here.

As for the all-time best films in this genre, I recommend:

Best regards,

Whitney

P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.

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