Welcome to Eight Ball

Welcome to our newest weekly newsletter covering the world's most important event markets.

Litquidity Capital
June 17, 2022

Welcome to our brand new newsletter: Eight Ball.

We created Eight Ball to bring forecasts made by actual traders with money on the line into the limelight. Pundits and so-called "analysts" consistently write predictions for what is happening in the economy and the world that end up giving people an inaccurate view of what’s really happening. Eight Ball uses data from real-money prediction markets provided by Kalshi to give traders the insights they need to make successful investment decisions.

Each week, we will provide a snapshot of predictions for top events in the news before diving deeper into a few key stories. This week, we cover high inflation, future fed interest rate hikes, and soaring gas prices.

In the News

Inflating Like a Balloon 

Inflation (most definitely not transitory by the way) is going crazy, and the Federal Reserve is trying to fix a bullet hole with a band-aid. Biden can’t blame everything on Putin anymore – inflation is here, and months after the war in Ukraine started, it looks like it’s here to stay.

How bad can it get?

Markets are currently forecasting a 48% chance of a CPI level of 7.0-8.9% this year, and an alarming 15% chance it to be greater than 8.9%. For context, the Federal Reserve has aimed to keep core inflation around ~2% over the past decade, and most of the time, they couldn’t even manage that.

Out of the frying pan, into the fire.

Unfortunately, there are some things that we can’t stop doing just because of high inflation. You can’t stop buying food or driving to your job (or your mom’s house) because gas prices are high. These things we do require cash flow. The impact isn’t as heavy for wealthier people who own assets that appreciate over time, but for the less wealthy, expenses make up a larger percentage of one's income. Markets are projecting annual inflation numbers to hit their highest levels in decades, and the most vulnerable among us are going to get hit the hardest.

Powell-ing the Pavement

With inflation skyrocketing, the Fed decided to get aggressive. Powell has vowed to do whatever it takes to beat back inflation, economy be damned. Markets have listened, and they are now pricing a high likelihood of 11+ interest rate hikes this year to be almost certain. Unfortunately, while raising rates does fight inflation, it also causes the prices of assets like stocks and real estate to fall. This becomes problematic when combined with high inflation because our bank accounts and portfolios are losing value. According to Politico, eight of the last nine times the Fed has tried to raise rates to curb inflation, they’ve ended up pushing the economy into a recession.

Markets are forecasting a much more drastic rate hike schedule than they were just three months ago.

Three months ago vs. today.

With inflation levels remaining elevated and the Fed raising rates by 75 bps earlier in the week, market forecasts have now increased by 2.75%! High inflation is scary, but if the Fed gets too aggressive, we may soon find ourselves with a cure that’s much worse than the disease. 

Stop Gassing Me Up 

Gas prices are up, morale is down, and that tinder date better be really cute if they want you to drive over to them. Guess we’re walking everywhere from here on out. Gas prices have hit historic highs, and according to CNN, the average gas price at 1/5 of gas stations and across 10 states is $5 per gallon!

Markets are forecasting a 75% chance the national gas average is still above $4.90 by July, 11th. 

Between conflict in Ukraine, COVID lockdowns ending in China, low OPEC production levels, and high consumer demand, Americans will feel pain at the pump for a while. Combine that with a slowing economy and rising interest rates, and we could have some nasty times ahead.

Elevated gas prices definitely make alternative transportation look more attractive - maybe Elon will sell enough new Teslas to make up for the break-up fee on that Twitter bid.

Forecasts powered by Kalshi

As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.

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