MacroVoices #354 Jim Bianco: CPI, FOMC, China & More

Episode Summary

Executive Summary: Macro Voices 354 centered on Jim Bianco’s macro view after a major CPI and FOMC week: inflation likely peaked but may settle closer to 4% than 2%, keeping the Fed hawkish longer. The panel also analyzed China’s abrupt retreat from zero-COVID, the unexpected resilience of crude despite bearish inventory/spill news, and market implications for bonds, stocks, gold, and credit.

Main Topics: CPI and inflation trajectory (Priority: 5/5): Bianco argued the latest CPI was weaker than expected and reinforced the view that inflation has peaked, but he believes the post-pandemic equilibrium is likely materially above the Fed’s 2% target, more like 3.5%-4%. FOMC policy path and terminal rate (Priority: 5/5): The Fed raised rates by 50 bps, and Bianco emphasized Powell’s hawkish stance and the gap between Fed guidance and market expectations, especially around when cuts begin. Treasury curve, recession signaling, and fixed income (Priority: 4/5): The conversation focused on yield-curve inversion, falling long yields, and what that implies for recession timing and the likely path of short- and intermediate-term rates. China zero-COVID reversal and reopening chaos (Priority: 5/5): Bianco described China’s sudden abandonment of zero-COVID reporting/policy as politically driven and likely messy, with unclear effects on supply chains, commodities, and inflation. Crude oil market confusion (Priority: 4/5): Eric highlighted that the market ignored bearish inventory builds and a major Keystone spill, suggesting crude is trading on macro sentiment rather than near-term supply fundamentals. Gold and the dollar (Priority: 3/5): Bianco linked gold’s rally to lower yields and a weaker dollar, arguing gold behaves more like a financial asset/fiat proxy than a pure crisis hedge in modern markets. Stocks, valuations, and recession paradox (Priority: 4/5): Bianco said equities remain expensive relative to recession risk but are being priced for an eventual Fed pivot and lower rates, creating an upside-down market where bad economic news can be bullish.

Key Arguments: Inflation likely peaked in June, but the key question is not whether it is falling; it is whether it settles near 4% rather than 2%. Structural post-pandemic forces are raising inflation: the end of cheap labor, cheap goods, and cheap energy. The Fed’s chairman is likely to get what he wants: higher-for-longer rates until inflation clearly returns toward target. The market and Fed are closer on the terminal rate than headlines suggest; the real dispute is timing of the first cuts. The inverted yield curve is signaling recession, but the recession may arrive later than the market wants to believe. High-yield credit remains relatively tight because markets still remember the Fed’s 2020 backstop and assume it may intervene again in stress. China’s zero-COVID exit is politically reactive and chaotic; reopening will not instantly normalize demand or supply chains. Gold has rallied with falling yields and a weaker dollar, but it is still trading like a fiat asset rather than a pure hard-money refuge. Crude oil price action is being driven more by macro flows and sentiment than by very bearish inventory and outage news. Equity valuations are elevated for a market that is already discounting a recession and eventual rate cuts.

Data Points: Headline CPI YoY: 7.1% - November-to-November inflation rate discussed by Jim Bianco Core CPI YoY: 6.0% - November-to-November core inflation rate SPX next-trade reaction to CPI: up 3% - Bianco said the S&P 500 moved about 3% on the next trade after CPI Fed rate hike: 50 basis points - December FOMC decision Cushing crude inventory build: 426,000 barrels - EIA inventory report U.S. crude inventory build: 10.2 million barrels - Weekly EIA crude inventories SPR drawdown: 4.7 million barrels - Offsetting part of the crude build Gasoline inventory build: 4.5 million barrels - Weekly EIA product inventory data Distillate inventory build: 1.4 million barrels - Weekly EIA product inventory data U.S. oil production: 12.1 million barrels/day - EIA report noted production down 100,000 barrels/day WTI move on Keystone spill news: up nearly $3 then reversed lower - Eric described immediate reaction to the pipeline outage January/February WTI spread: 7 cents contango - Eric noted prompt spread remained in contango despite bullish supply shock Historical yield-curve inversion: most inverted since 1981 - Bianco referenced 10-year vs 2-year inversion 10-year Treasury yield: below 3.5% - Discussed as long-end yield after recent selloff 2-year Treasury yield high: 4.71% - Bianco’s discussion of the short end of the curve Market terminal rate expectation: 4.75%-5.00% - Bianco described market pricing for the Fed funds terminal rate Fed year-end 2023 dot plot: 5.1% - FOMC projection for the policy rate Fed 2024 dot plot: 4.1% - Implied cuts in 2024 per the Fed projections Open jobs vs unemployed: 10 million open jobs vs 6 million unemployed - Bianco cited Powell’s labor-market framing SP 500 forward P/E: 18.5x - Bianco argued the market is not cheap SP 500 two-year forward P/E: 15x - Longer-dated valuation measure SP 500 three-year forward P/E: 17x - Longer-dated valuation measure China subway usage: 1.5 to 2 million riders/day - Bianco contrasted with normal 8 to 10 million riders/day in major Chinese cities Normal Beijing/major-city subway usage: 8 to 10 million riders/day - Benchmark for China mobility China oil demand reduction due to zero-COVID: ~2 million barrels/day - Bianco cited estimate of reduced Chinese oil demand Container shipping cost China-U.S.: about $2,000 per container - Down from about $15,000 at the start of the year Gold range referenced: $1,600 to $1,850 - Bianco suggested gold could retrace into the middle of that range Crude oil target for 2023 by JPMorgan: $100 average - Bianco said JPMorgan raised its 2023 average crude estimate Current SPX support/resistance: 3,900 support / 4,100 resistance - Patrick and Nick’s post-game technical levels NASDAQ support/resistance: 280 support / 300 resistance - Post-game technical levels on QQQs VIX support: 20 - Nick’s post-game VIX level

Pivotal Quotes: "I think that structurally in the post-pandemic era, we're going to probably settle out at a higher level than we did before. The old level was two, I think the higher level is going to be closer to four." — Jim Bianco: Bianco’s core inflation view after discussing CPI and secular inflation "The Fed's a benevolent dictator. The Fed chairman gets what the Fed chairman wants." — Jim Bianco: On the Fed’s hawkish policy stance and internal dynamics "We need things to go bad to get a good return. If things go good, we're going to get a bad return." — Jim Bianco: On why equity markets are pricing future rate cuts and recession

Implications: The podcast argues markets are still underpricing persistent inflation and a slower policy pivot, while China’s reopening could add volatility rather than clarity. Investors should expect conflicting signals, higher-for-longer rates, and asset-class dispersion rather than a clean year-end trend.