The 2020's: A decade of Inflation

[CY09]

I do concur with you. Given the large amount of US debt, it is very difficult to keep financing it at high interest prescribed by the fed. They have very expensive national programs and a global policing operation called the US Defense Force to maintain. On top of it, a crippling interest burden will put US in perpetual bankruptcy.

Interest rates cant rise too high because of the above. The natural thought would have been to tweak the QT because it doesn't affect interests too much. What it affects more are the loss making silicon valley companies which are a large democrat supporter base, this is something Biden would not like to do.

[weijian]

I remember Bill Ackman as 1 of those early ones who called out inflation as a threat.

Much of what is presented is too much for me to understand So I will just copy/paste some of the conclusions as a shortcut for takeaways..

Pershing Square’s slide deck on inflation and the macro economy

Inflation is Extremely High and Likely to Persist

Once inflation has been quelled, the economy can experience a lengthy and robust expansion similar to the recovery that followed the Volcker-era tightening cycle

https://pscmevents.com/wp-content/upload...dium=email

[Behappyalways]

Live look at Jay Powell
https://mobile.twitter.com/AndreasSteno/...3833960448

[CY09]

https://www.cnbc.com/2022/07/27/fed-deci...2022-.html

One of the important Mr Market thoughts is this:

"Markets expect the Fed to start cutting rates by next summer, even though committee projections released in June show no cuts until at least 2024."

Private sector economists and valuebuddies layman do think the interest rate is a short term fix and eventually the Fed will cut. There is a slight disjoint from the Fed projections but even the Fed do think interest rates are too high for some reason.

Fed is likely taking a solution of 3% interest rate + 90 billion QT per month as the cure to inflation. To me, my view is that interest rate is not the useful medicine to the treatment. The sickness is because too much money is chasing too few goods, made even fewer by Russia and China. A ramp up of QT is the cure.

As the doctor I would prescribe for 1% or less interest rate but a doubling of QT per month. Silicon valley would hate me, but I think a purposeful asset deflation among the stocks and loss making companies is the better medicine.

[weijian]

Personally, I think wage inflation is the clearest ground indicator of what is to come.

For job searchers, $20 per hour is the new $15

More job searchers are looking for work that pays $20 an hour, surpassing searches for $15 an hour, according to data released Monday by job search platform Indeed.

https://www.axios.com/2022/08/30/for-job...the-new-15

[weijian]

Regardless of where inflation is, avoid expensive stuff, buying cheap stuff (that aren't frauds) and identifying growth compounders probably will always work.

The Stock Market’s Real Inflation Fighters Might Surprise You

Today, just about every brokerage and asset-management firm around is flogging the idea that stocks with plenty of pricing power are the panacea for stagflation.

But the price you pay for pricing power matters—a lot.

https://www.wsj.com/articles/stock-marke...1662130645

[Wildreamz]

The Stock Market’s Real Inflation Fighters Might Surprise You

Today, just about every brokerage and asset-management firm around is flogging the idea that stocks with plenty of pricing power are the panacea for stagflation.

But the price you pay for pricing power matters—a lot.

https://www.wsj.com/articles/stock-marke...1662130645

This is why long term thinking is important. Companies with pricing power are good investments irregardless of macro.

You would have bought Apple in 2016 (PE = 10) rather than today, for example.

[CY09]

https://www.cnbc.com/2022/09/13/inflatio...rices.html

Inflation has continued to rise contrary to market observers prediction. This cements a definite 75 basis hike in the next Fed meeting. However, I am unsure if this band aid is effective when the problem is that there is too much liquidity in the market. This has to be drained

[BlueKelah]

https://www.cnbc.com/2022/09/13/inflatio...rices.html

Inflation has continued to rise contrary to market observers prediction. This cements a definite 75 basis hike in the next Fed meeting. However, I am unsure if this band aid is effective when the problem is that there is too much liquidity in the market. This has to be drained

It actually dropped a bit from last months CPI of 8.5% and was only a bit above the prediction. Main thing was that all hopes of a "FED PIVOT" or rate hike tapering which market was still expecting even after the Jackson Hole Jerome Speech were dashed. Resulting in last nights big market sell-off. 

I believe will sell off from now till october when the recession data comes out with a 3Q negative GDP which FED can no longer say is not a recession anymore. 

Liquidity i think will continue to tighten as fed accelerates the QT and bond yields go higher. Money supply growth is already flat now. BUT it wont get tight enough unless FED starts to sell MBS it holds as it says it will but hasnt yet. 

You can see the MBS level is still high and not going down despite FED saying they intend to start selling those off. (i suspect some of these are toxic/junk type and could cause a housing collapse if fed start selling them off)
https://fred.stlouisfed.org/series/WSHOMCB

But the Treasuries are slowly going down as per FED's promise to reduce those holdings. But that will take a long time as you can see their tapering speed is not as fast as the QE adding on speed the past 2 years.
https://fred.stlouisfed.org/series/TREAST

So only thing left is interest rate hike to tighten liquidity short term, hence i think FED may even do 1% at next meeting as powell had hinted.

More "pain" coming i guess.

[Behappyalways]

Allow me to summarize again....

https://mobile.twitter.com/PriapusIQ/sta...6039573508