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Inflation
Jul 8, 2022 23:08:05 GMT
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Post by Norbert on Jul 8, 2022 23:08:05 GMT
I also think monetary policy is of great importance, but that that doesn't mean that other factors aren't also very important concerning inflation. Europe, for example, depends on Russian natural gas for residential and industrial purposes. Germany will be facing a cold Winter if Russia turns off Nord Stream I. Prices will soar. www.economist.com/the-economist-explains/2022/05/04/how-heavily-does-germany-rely-on-russian-energyI think that Central Bank policy combined with the Ukraine endgame are central for markets in the short to medium term. If we can figure these things out ahead of the markets, it will be to our advantage. If Ukraine is off limits, then why not declare the Fed to be off limits too? Maybe we should just limit the discussion to the price of butter?
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Post by Deleted on Jul 8, 2022 23:24:53 GMT
Norbert - I don't understand. It seemed like the topic was taking a turn. No one said Ukraine was off limits - which ground strategy might happen is not discussing inflation. I was just trying to bring it back to the topic. If someone starts talking about the inner machinations of the Fed - might do the same even though it is the body which has the mandate to stabilize price levels.
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Post by Deleted on Jul 8, 2022 23:39:19 GMT
Does anyone think inflation hasn't peaked? Even with a war going on? I think it has. The economy is slowing, money supply barely budging. Prices at the pump are down. My expectations are improving.
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Post by roi2020 on Jul 8, 2022 23:45:56 GMT
Inflation may (or may not) have peaked. I don't think the U.S. will return to "normal" inflation rates of ~2% in the near term.
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Post by Fearchar on Jul 8, 2022 23:54:31 GMT
I agree that inflation has peaked. However, M2 as a % of GDP is near 86%. Prior to COVID, M2 had never been more than about 70% of GDP. That 70% was itself an all time high.
So, even with the growth of money supply curtailed, it will take about
3 years of GDP growth to bring the M2 supply ratio nearer to what could be considered normal.
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Post by Deleted on Jul 9, 2022 0:05:47 GMT
Fearchar - can you explain?
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Post by alvinthechipmunk on Jul 9, 2022 0:42:49 GMT
I had Bloomberg on tv last night. One of their repeat appearance guys is Rick Rieder. I forget whether he's with Goldman, but his "thing" is Fixed Income. mozart522 ,@slooow , Fearchar , gman57 , Chahta , uncleharley , johntaylor , win1177 , mnfish , Norbert , retiredat48 , pbs.twimg.com/profile_images/900752660051017728/Q4-CGa1k_400x400.jpgHe's been making the point I've been making. We are going through a unique period of DE-GLOBALIZATION. There is going to be more inflation baked into the cake going forward. It might become manageable and to be expected, but things will not be as cheap as they had been. There is a Great Re-pricing happening, ongoing. That includes commodities. manufactured goods, everything. An end to the war would be great all around. But the new Cold War will persist. The shape of Markets around the world will take on different dimensions and capacities. Same goes for currencies around the globe. We can leave crypto out of the picture: a sanctioned but unethical thing which ought to be just simply criminalized. But governments are as stoopid as people. Likewise, only about half own consciences. Anyhow, in order to invest in the first place, one must put their conscience to bed....
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Post by Chahta on Jul 9, 2022 1:30:15 GMT
I also think monetary policy is of great importance, but that that doesn't mean that other factors aren't also very important concerning inflation. Europe, for example, depends on Russian natural gas for residential and industrial purposes. Germany will be facing a cold Winter if Russia turns off Nord Stream I. Prices will soar. www.economist.com/the-economist-explains/2022/05/04/how-heavily-does-germany-rely-on-russian-energyI think that Central Bank policy combined with the Ukraine endgame are central for markets in the short to medium term. If we can figure these things out ahead of the markets, it will be to our advantage. If Ukraine is off limits, then why not declare the Fed to be off limits too? Maybe we should just limit the discussion to the price of butter? Just taking a WAG, but I brought up not arguing about Ukraine in YBB's weekly thread on Barrons. A mixup by chance?
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Post by bizman on Jul 9, 2022 4:23:51 GMT
I had Bloomberg on tv last night. One of their repeat appearance guys is Rick Rieder. I forget whether he's with Goldman, but his "thing" is Fixed Income. mozart522 ,@slooow , Fearchar , gman57 , Chahta , uncleharley , johntaylor , win1177 , mnfish , Norbert , retiredat48 , pbs.twimg.com/profile_images/900752660051017728/Q4-CGa1k_400x400.jpgHe's been making the point I've been making. We are going through a unique period of DE-GLOBALIZATION. There is going to be more inflation baked into the cake going forward. It might become manageable and to be expected, but things will not be as cheap as they had been. There is a Great Re-pricing happening, ongoing. That includes commodities. manufactured goods, everything. An end to the war would be great all around. But the new Cold War will persist. The shape of Markets around the world will take on different dimensions and capacities. Same goes for currencies around the globe. We can leave crypto out of the picture: a sanctioned but unethical thing which ought to be just simply criminalized. But governments are as stoopid as people. Likewise, only about half own consciences. Anyhow, in order to invest in the first place, one must put their conscience to bed.... In addition to Deglobalization being a big tailwind for inflation in the future, don't forget Greenflation. The massive need for copper, nickel, cobalt, lithium, etc. will only be accommodated through much higher prices. Hard to see the supply meeting the demand in the next 10 years even with that because of the old ESG concerns, and regulations shutting down or discouraging "dirty" behaviors like creating new mines. Massive investment will be required for that. Also massive investment will be needed to shut coal plants and transition to renewables, all while increasing generation by 30% or so to shift the entire transportation industry from fossil fuels to electric. Not to mention trying to build in enough margin of safety that all those Teslas don't turn into paper weights because of routine blackouts. Someone will need to incentivize and pay for all of these needed investments to change the world. I think that someone looks like you and me with higher prices for energy and transportation, etc. An unanswerable that is key for the future is, though a recession may diminish inflation temporarily, does it put a dagger in its heart or do we have inflation spike after recessions like the 1966-1982 period? While I want a happy ending, simply hoping and extrapolating the last 20 years for the next 20 leaves a lot to be desired.
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Post by alvinthechipmunk on Jul 9, 2022 4:52:46 GMT
bizman You make very clear and obvious points--- when people stop and think through what you've described. An insightful post, that one. I wonder whether many more folks who have the space and the land will grow "Victory Gardens" again, given the higher prices for everything from A to Z. Tomatoes are too much work and need to be staked. Potatoes need to be mounded. ... We have room for some pots, and are growing jalapenos and okra, instead. After I plant the mango seed I've set aside, we'll see whether it takes root at all, and whether we get a decorative but sterile tree or a fruit-producing one. We have a couple of decorative things in pots, too. And the stray little thing I rescued which was growing at the edge of something else has turned out to be a WEED: Virginia Creeper. But I rather like its shape and color. So I'm going top keep it watered.When I see it has once again "grown like a weed" and is getting too long, I just tie another knot in the thing. Fun, re-discovering my green thumb. I used to plant nasturtiums. Big seeds that don't get lost. And those things will grow in sand, in mud, or in a closet. The flowers and leaves are edible, too. Yes INFLATION is the thread here. It gives rise to lots of unintended things. Some more directly connected to the topic than others. On second thought, I guess I'll yank up that Virginia Creeper, after all... dengarden.com/gardening/plantingvirginiacreepersbeware
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Post by Fearchar on Jul 9, 2022 12:24:33 GMT
Fearchar - can you explain? Yes; Here is a chart that Scott Grannis maintains: Up until around 2012, M2 as a % of GDP was never more than about 60%. Between then and 2019, M2 was gradually increased to about 70%, and everything was fine. With COVID, there was an unprecedented infusion of cash and M2 briefly peaked near 93% of GDP. I'm just eye balling it, but I don't believe M2 really ought to be much more than about 75% of GDP. Appears the most recent point is near 87%. I don't believe M2 all by itself contributes to inflation. It's the spending though that makes the difference. Recall, we didn't have much inflation in 2019, when M2 hit its peak. But then the economy was locked down and people were not spending much either. It's what has been happening lately, that has pushed prices up. People are spending!!! So, a few more years of excessive spending and growth should return the M2/GDP ratio to what should be a sustainable level.
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Post by uncleharley on Jul 9, 2022 12:38:26 GMT
The thing that has happened recently is called the acceleration of money. Simply put, A supply of money, large or small, has very little effect on the economy until it is spent. When money is spent or circulated in the economy it has a multiplying effect. Joe spends $10 at Sams store and Sams profit just increased, enabling Sam to borrow money to expand the store. Etc, Etc. That is why money supply leads inflation. That is why I am skeptical about the idea that we are near a peak in inflation or interest rates. IMHO, you ain't seen nuthin yet.
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Post by johntaylor on Jul 9, 2022 14:07:20 GMT
Heard an investor the other day saying he picked it apart into demand inflation, supply inflation, cyclical inflation, structural inflation, local inflation, and global inflation.
For example, if supply chain problems were resolved, couldn't that lower prices?
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Post by Fearchar on Jul 9, 2022 15:02:04 GMT
Heard an investor the other day saying he picked it apart into demand inflation, supply inflation, cyclical inflation, structural inflation, local inflation, and global inflation. For example, if supply chain problems were resolved, couldn't that lower prices? Supply chain problem will eventually be resolved. Could take a few years, but then why would suppliers lower prices? Suppliers are have experiencing difficulty filling job openings right now. Workers are feeling the pinch from inflation and can be choosey in what ever job they do. So, wages will be going up and suppliers will be stuck paying those higher wages. That impacts the price they need to charge. In other words, Prices are not likely to be going down. It would take a serious recession for that. Some sectors of the economy may see a recession, but then resolving supply chain issues is just the opposite of a recession.
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Post by Deleted on Jul 9, 2022 15:38:23 GMT
UH's mention of acceleration (aka velocity) of spending is pretty important. It's the reason QE didn't lead to inflation - the banks held onto the increased reserves and didn't make it to the consumer. This time, the cash came straight to the consumer.
I agrees with Fearchar - wages will be continuing up and prices won't fall unless demand is hammered by a serious recession. Moderate inflation can be quite indicative of a healthy economy so long as input costs (labor) are benefitting increasing ability to spend.
Without being a scholar on this, I know just enough to be dangerous.
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Post by javajoe on Jul 9, 2022 17:11:59 GMT
I agree with uncleharley and @slooow Any discussion of money supply (aka "printing money") needs to be juxaposed with what that new money is actually doing. See chart below: fred.stlouisfed.org/series/M2VStill lots of capital sitting on balance sheets waiting to be deployed. I'll be watching this chart closely as well as wage growth (or lack thereof). -Javajoe
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Post by uncleharley on Jul 9, 2022 17:18:03 GMT
I agree with uncleharley and @slooow Any discussion of money supply (aka "printing money") needs to be juxaposed with what that new money is actually doing. See chart below: fred.stlouisfed.org/series/M2VStill lots of capital sitting on balance sheets waiting to be deployed. I'll be watching this chart closely as well as wage growth (or lack thereof). -Javajoe WOW!!!! That chart begins in 1958, 64 yrs ago! Does anyone know what happened in the late 90's besides the tech boom?
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Post by Deleted on Jul 9, 2022 18:44:01 GMT
Well - there was the boom in the 90s that ended in 2001. Then didn't housing start picking up a few years later? Not sure what the graph is saying? That right now the denominator is money supply and numerator is gdp - I understand - but what's the interpretation here? No one is spending?
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Post by uncleharley on Jul 9, 2022 18:57:33 GMT
Could it be Demographics? Baby boomers reaching middle age and being able to save more for retirement. Now retired and spending less?
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Inflation
Jul 9, 2022 18:59:43 GMT
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Post by Norbert on Jul 9, 2022 18:59:43 GMT
What is the graph saying? Here's a 2015 analysis by the Fed: "The graph shows the evolution of the velocity of M2 for the United States from 1959 to 2015. During recessions (shown by gray bars), the velocity of money tends to decrease, since the amount of transactions in an economy decreases. Consumers tend to save more and firms tend to invest less—that is, they hoard cash instead of spend it. As the graph shows, this was the case during the “dot com bubble” crisis of 2001 and more recently during the financial crisis of 2007. In general, the velocity of money starts to increase after a recession is over, when confidence is restored. However, since 2007, the velocity of money in the U.S. has been decreasing, which means consumers and firms are still holding onto cash instead of spending it. This behavior, which also reflects a decrease in inflation, suggests that confidence in the recovery is still low. When confidence is restored, we should expect to see a rebound in the velocity of money." fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/Uh is probably right. Maybe toss in globalization ... domestic jobs moving overseas? Plus Fed "pushing on a string" stimulus? Growth of asset prices without corresponding economic confidence for a significant part of the population (growing inequality).
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Post by retiredat48 on Jul 9, 2022 19:44:08 GMT
I agree with uncleharley and @slooow Any discussion of money supply (aka "printing money") needs to be juxaposed with what that new money is actually doing. See chart below: fred.stlouisfed.org/series/M2VStill lots of capital sitting on balance sheets waiting to be deployed. I'll be watching this chart closely as well as wage growth (or lack thereof). -Javajoe WOW!!!! That chart begins in 1958, 64 yrs ago! Does anyone know what happened in the late 90's besides the tech boom?My bold added above. R48 retires, 1993, setting off an avalanche of young people desiring to FIRE. That is, Financial Independence, Retire Early folks. Websites started. My oldest daughter (in her twenties) goes on a three year Ocean sailing trek with her eventual husband. (They did it in reverse...retired for awhile, then went to work!). They are now FIRE'D at age 50. Non-retirees, google FIRE. R48
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Post by Deleted on Jul 9, 2022 19:54:18 GMT
"The velocity of money measures the number of times a dollars spent to buy domestically produced goods and services per unit of time."
So yes, offshoring (globalization) of goods and services is the likely suspect. As consumers, we don't have flexibility to choose the country of origin, at least I don't perceive having it.
fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/
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Post by fishingrod on Jul 9, 2022 20:08:02 GMT
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Post by mnfish on Jul 10, 2022 11:01:56 GMT
The thing that has happened recently is called the acceleration of money. Simply put, A supply of money, large or small, has very little effect on the economy until it is spent. When money is spent or circulated in the economy it has a multiplying effect. Joe spends $10 at Sams store and Sams profit just increased, enabling Sam to borrow money to expand the store. Etc, Etc. That is why money supply leads inflation. That is why I am skeptical about the idea that we are near a peak in inflation or interest rates. IMHO, you ain't seen nuthin yet.+1 - Unprecedented amount of "new" money created and spent. Fed balance sheet increased 136% in the last 3 years and 314% from 2008 to 2019. Maybe the recipients didn't spend it all but even so that's a lot of new money.
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Inflation
Jul 10, 2022 13:10:16 GMT
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Post by Norbert on Jul 10, 2022 13:10:16 GMT
"The velocity of money measures the number of times a dollars spent to buy domestically produced goods and services per unit of time." So yes, offshoring (globalization) of goods and services is the likely suspect. As consumers, we don't have flexibility to choose the country of origin, at least I don't perceive having it. fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/ Very interesting. This suggests that the 2015 Fed analysis I posted was wrong in pointing to declining US confidence as the culprit. In fact, the soaring US trade deficits (NAFTA, China in WTO, etc) skew the chart we're looking at? This stuff is ultra complex, not my area of expertise. I will venture to disagree with Sara here about the importance of Russia on certain commodities prices. When the global supply/demand balance is tight, a marginal producer can have a large impact. On that front, I wonder what the Saudis will say to our president this week.
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Post by Fearchar on Jul 10, 2022 14:16:15 GMT
On that front, I wonder what the Saudis will say to our president this week. لنذهب براندون
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Inflation
Jul 10, 2022 15:02:26 GMT
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Post by Norbert on Jul 10, 2022 15:02:26 GMT
😄
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Post by Deleted on Jul 11, 2022 0:21:11 GMT
"The velocity of money measures the number of times a dollars spent to buy domestically produced goods and services per unit of time." So yes, offshoring (globalization) of goods and services is the likely suspect. As consumers, we don't have flexibility to choose the country of origin, at least I don't perceive having it. fredblog.stlouisfed.org/2016/04/a-plodding-dollar-the-recent-decrease-in-the-velocity-of-money/ Very interesting. This suggests that the 2015 Fed analysis I posted was wrong in pointing to declining US confidence as the culprit. In fact, the soaring US trade deficits (NAFTA, China in WTO, etc) skew the chart we're looking at? This stuff is ultra complex, not my area of expertise. I will venture to disagree with Sara here about the importance of Russia on certain commodities prices. When the global supply/demand balance is tight, a marginal producer can have a large impact. On that front, I wonder what the Saudis will say to our president this week. Norbert - can you quantify the contribution to overall global inflation from the war? I don't think the impact is self-evident as to the impact on US inflation - the primary area we invest it. No doubt prices have gone up in response to the war. I just question the degree of overall impact. The game was well afoot before the war. If and when it ends, I think we all expect a global rally, but not due to potential price stabilization - at least in my opinion. Inflation is a complex subject, and I have never represented any expertise...but, I do pay great attention to those I believe have exhibited such. Anyways - of interest is Powell's recent testimony. It looks to me that the war has not had a great impact on overall US inflation. He did say the war has impacted fuel and food prices. From Powell's recent testimony from an article date 6/22/22 - “In January of 2021, inflation was at 1.4%. By December of 2021, it had risen to 7% — a fivefold increase. Now, since the war in Ukraine began in late February, the rate of inflation has risen incrementally another 1.6% to a current level of 8.6%. So again, from 7% to 8.6%.”
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Inflation
Jul 11, 2022 2:10:00 GMT
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Post by Norbert on Jul 11, 2022 2:10:00 GMT
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Post by archer on Jul 11, 2022 3:05:15 GMT
Related to inflation is interest rates and related to interest rates is the issue of soft landing vs recession. So, I assume recession isn't off topic. And in regards to inflation, I found this article interesting, but lack the understanding to critique it. From what I gather from the article, we have so far to go for real yields to climb to an historically dangerous (as to allow recession) it will be next to impossible to come to pass. From the article: "Real yields are negative. We have never, ever, ever had a recession with negative real yields (or even when real yields were 1%). Now, one can argue that the rate is going higher and that the inflation level is going lower, and from that math, you get something different. Let’s say you end up at 4% in the fed funds rate, and 3% inflation, both numbers I believe are highly unlikely any time soon (the FF rate will not get to 4%, in my opinion, and the inflation rate will not get to 3% any time soon). EVEN THEN, you have a real yield of 1%. I believe a lot of the present circumstances lack much precedence in history, but regardless, there is just not an easy path for predicting recession here from a yield predictor standpoint."
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