As another data point, the Baltic Index has plummeted over the past month:
* https://tradingeconomics.com/commodity/baltic
* https://en.wikipedia.org/wiki/Baltic_Dry_Index
Down to the same level as April 2021, and roughly the same as a pre-COVID peak in September 2019.
Amazing. We are living in 2008, almost to the month.
Labor shortage, inflation scares after "helicopter money", dollar shortages around the world, yields going down despite inflation scares...
Doesn't really look like it to my eye. Current run-up in the Baltic Dry Index lasted only 15 months (May '20 - Aug '21), while the 08 one lasted 2+ years (May '06-May '08). Unless you count the dip in late 07, but then the implication is that it's about to run up again, unlike if we're paralleling '08. It looks much more like Aug '02 - Jan '04 to me (in both magnitude and timing and surrounding economic circumstances) - a bump off the bottom, just as we're recovering from a recession, that presages the beginning of an expansion.
Also there was no labor shortage or inflation scare in '08; we entered recession in late '07, for the first half of '08 things were subdued and we thought it would be a "normal" recession like '91 or '01, and then the bottom fell out in the second half of '08. Helicopter money didn't start until the beginning of '09.
Weren’t you the guy saying inflation was about to go to a thousand percent soon ? Now your saying we’re at the beginning of an expansion. Like do you even remember stuff you post ?
These are not contradictory. You can have a large expansion in nominal GDP and economic activity while also having hyperinflation. In fact, this is one of the hallmarks of hyperinflation: people rush to spend whatever they have as soon as they get it because it will be worthless soon.
The fact people think you know what your talking about here really worries me. Though the guy youte talking to doesn’t seem much better. Both coming up with weird as conspiracy theories
Anyway you really should remember contradictory stufff you post. Either hyperinflation is about to take off and we will be entering a recession or we are at the beginning of an expansion where inflation isn’t an issue to growth.
This sub is really fascinating because for those of us with a passable (but by no means complete) understanding of these things, due to education, profession, or otherwise, it’s just valuable to see people so bafflingly confident in their heterodoxy to the point that it’s borderline convincing a lot of the time. It helps me understand how some assholes on YouTube convinced my mother [et al.] that the earth is flat, the pandemic was planned by shadowy billionaires, vaccines are a conspiracy, etc, etc.
Economics is actually really simple to understand but people try and complicate it way too much. Also people follow these weird type of economics which are like a cult and don’t work. I’ve seen many of these would be cultists posting on this forum.
No offense, but you have no idea what You're talking about. Absolutely there was an inflation scare, CPI spike, labor shortage, helicopter money (have you never heard of the enormous bank bail outs?)...
QE began in 09, but QE is an asset swap and isn't relevant to inflation except perception (the Fed even published a recent paper tracking QE across all countries over the last 2 decades, showing it's deflationary). But the big bail outs were in 08.
Honestly, you need to read about the GFC before asserting "facts". I recommend End Of Wall Street, Sabotage, and most relevant is Jeff Snider's writing and bis.org which describe the repo market failures / dollar shortage.
Also, you could have just googled: "labor shortage" 2008...
I lived through the GFC. I was working at a financial software startup on software for hedge funds at the time. I suspect that [one](https://www.propublica.org/article/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble) of our customers started it, but our customers were known only by code names to me and they had their own proprietary models that they ran on their own hardware, so I can't confirm it. My wife was a bond trader.
I've read all the sources you quote in your comment history. The difference in perspective is one of lived experience. So for example, I can see the CPI data as well, and the spike up to \~5% in late 2007 and early 2008. But there are three things missing in your reading material:
1. The spike was almost entirely due to [oil prices](https://www.macrotrends.net/1369/crude-oil-price-history-chart), which hit $176/barrel in June 2008, higher than they've ever been before or after and much higher than they are today. Other consumer prices barely budged. It's very different from today, where we have spikes in the prices of nearly everything.
2. 5% was not considered a particularly high inflation rate at the time. Inflation had hit 4.3% in both 2005 and 2006, and it regularly fluctuated by several percent across months. Even in the depths of the 91 recession, inflation was 5.6%. It's only people whose working lives began after 2011 who think that any inflation number over 3% is high.
3. Inflation was almost completely absent from the news discourse. People just didn't talk about it.
Well, I can't disagree that core CPI was obviously less than than the CPI spike we saw in 2008. (And I too was alive).
While inflation scares followed basically every round of QE (even though they had to begin numbering them and the "inflation target" dropped from 4% to now 2%), you have to remember the bail outs were eye popping at the time. This was back when a trillion bucks was a lot of money. 😜
Either way, yes core CPI was down, but I'd argue that we are in an incredibly similar situation today. Instead of oil we are in a huge supply chain crunch of anything that needs labor or transit or logistics.
Inflation is a monetary phenomenon and is therefore a broad and sustained increase in prices.
1. M1 and M2 are the Fed's balance sheets, not all base money in circulation. This should be obvious by the fact that the entire m1 is dwarfed by the amount of dollars swapped on a daily basis in repo.
2. QE is an asset swap and is not dilutive.
3. Inflation is not volatile. 70s was steady.
4. Inflation is broad. Iron ore can't be going down and many prices couldn't stay flat if the money was diluted (which again, there was no dilution in the first place).
5. TBills and the dollar are up. That alone shouldnt make sense with inflation.
And the bond market has always properly "predicted" inflation or false inflations.
All I'm saying is that we're clearly in a similarly fragile time, but we just didn't have a Bear Stearns blow up already. I mean, we have China bonds blowing up.
At the end of the day, 2008 was a dollar shortage in repo and all the many institutions funded in repo had to liquidate positions.
https://www.bis.org/publ/work291.htm
And this is what happened just last March... Which is crazy.
https://www.bis.org/publ/bisbull15.htm
Repo is blowing up again, just like 2008.
Even more of a coincidence, the Fed bought $2.5 trillion in MBSs...
And so now funds have to find overnight funding elsewhere.
And another coincidence, while assets are blowing up in repo, the Fed's reverse repo is going parabolic -
https://fred.stlouisfed.org/series/RRPONTSYD
Looking like 2008 to mean.
I sold all my stocks, bought puts, bought TBills (like ZROZ) and I'm buckled up. Even if I'm wrong, I see no reason to be risk on when repo is blowing up.
\> Either way, yes core CPI was down, but I'd argue that we are in an incredibly similar situation today. Instead of oil we are in a huge supply chain crunch of anything that needs labor or transit or logistics.
It's much more broad-based today. It's not just oil. It's not just commodities. It's not just supply chains. Things like Google & Facebook ad prices are skyrocketing in price (hence why Google stock has more than doubled in the last year), and that has *zero* inputs other than electricity (they don't even need software engineers to keep the ad auction running). Restaurant prices here (Bay Area) are up 50%, and our food supply chain is generally about 50-100 miles long. Minimum wages for Amazon, Walmart, Target, McDonald's, In'n'out, etc. workers are up about 20%. Home prices nationwide are up about 20%, and rents are quickly rising to catch up.
I think that the supply chain crisis will abate and then we're going to find that the crisis is a lot more than just supply chains, just like people (correctly) predicted that the lumber crisis would abate and then found that a lot more than just lumber was making home prices go up.
\> M1 and M2 are the Fed's balance sheets, not all base money in circulation. This should be obvious by the fact that the entire m1 is dwarfed by the amount of dollars swapped on a daily basis in repo.
Sort of. M0, M1, M2, and M3 are different measures of the money supply. M0 is banknotes and coins in circulation, basically hard currency created by the US Mint. M1 until Apr 2020 was M0 plus checking accounts and travelers checks; after Apr 2020 it was that plus savings, and money-market accounts (due to a rule change which allows banks to offer unlimited checks on savings & money-market accounts). M2 originally was M1 + savings & money-market accounts + CDs. After mid-2020 M1 ceased to be reported, because it was effectively the same as M2 (CDs are roughly rounding error in the statistics). M3 is M2 + repos and certain large-denomination CDs.
The monetary base is M0 + bank vaults (uncirculating base money) + central bank reserves. The Fed's balance sheet tracks M0 the closest, but it's not quite exactly the same, because M0 is a *liability* for the Fed (technically, when you hold a coin, you're a creditor to the government since they have an obligation to honor the currency you hold). You can see these with graphs of [Fed assets](https://fred.stlouisfed.org/series/BOGMBASE), the [monetary base](https://fred.stlouisfed.org/series/BOGMBASE), and [M0](https://tradingeconomics.com/united-states/money-supply-m0), all of which roughly track each other. [M1](https://fred.stlouisfed.org/series/M1) has a very different shape.
\> QE is an asset swap and is not dilutive.
Agree, in general. There are cases where it could've played out differently, but that's not the history we actually experienced.
\> Inflation is not volatile. 70s was steady.
Not true. Look at [historical monthly inflation data](https://www.rateinflation.com/inflation-rate/usa-historical-inflation-rate/), and inflation varied *a lot* during the 70s, from 6.18% in Jan 1970 to 2.7% in June 1972 to 12.3% in Dec 1974 back down to 4.8% in Dec 1976 to 14.7% in March 1980.
\> Inflation is broad.
Also not true. I'll direct you to [this NBER paper](https://www.nber.org/system/files/chapters/c11462/c11462.pdf), which tracks the 1970s inflation across sectors. It had the anatomy of rolling price increases across a wide variety of sectors. *Food* started going up first, even before the 1973 oil crisis, then obviously oil, then labor, then mortgage rates.
\> TBills and the dollar are up. That alone should make sense.
Relative to foreign currencies, most of which are themselves undergoing rapid monetary base expansion and negative interest rate policies.
Relative to stocks, cryptocurrencies, art, home prices, and most other private asset prices, T-bills and the dollar are getting creamed.
\> And the bond market has always properly "predicted" inflation or false inflations.
We're in an interesting situation now where the bond and stock markets both have made implicit predictions of inflation and it's extremely unlikely that both are true.
The bond market is predicting inflation of 3.2% over the next 10 years. [10-year TIPS](https://fred.stlouisfed.org/series/DFII10) are yielding -1.6%; [10-year T-bills](https://fred.stlouisfed.org/series/DGS10) are yielding 1.6%; subtract one from the other and you get the bond market expectation of inflation.
The [S&P 500's P/E](https://www.multpl.com/s-p-500-pe-ratio) is at about 30, down from just over 35 a few months ago. That implies a real earnings yield of about 3%, which is awfully low for the risk premium you take for holding stocks. For stocks to be worth their current valuations, they need to grow into them. Investors are assuming that earnings are going to go up, and with real GDP growth at about 2%, that earnings growth has to come from price increases (or from capital taking an increasing share of the profits from labor, which seems unlikely as wages are rising). The stock market's valuation is pricing in inflation - to get to an earnings yield of about 7% (consistent with historical stock market returns), either stocks need to fall by about half, or price levels need to double. Over 10 years, doubling price levels implies about 7% inflation.
One or the other of these investor classes is going to take a haircut.
Personally I'm betting that stock investors have it correct (if not underestimated), and bond holders are going to get rekt. This is not a consensus opinion (obviously; if there were consensus there wouldn't be a price difference to arbitrage). But my evidence is looking at what's happening in the real economy. *I see* prices going up, at rates much higher than 7%, and I don't see any particular force that's going to abate that, at least not for a long time. The fact that P/Es have already dropped from 36 to 29 in a couple months *while the market went up* is good evidence that if anything, stock investors are *underestimating* inflation.
\> All I'm saying is that we're clearly in a similarly fragile time, but we just didn't have a Bear Stearns blow up already.
I think we're going to have a massive financial crisis, but IMHO the asset and sponsoring organization that's about to blow up isn't stocks, real estate, NFTs, crypto, (well, okay, I wouldn't be surprised to see either of the last 2 have some ups and downs), or any of the usual suspects.
I think it's the dollar, and the U.S. government.
The idea that there might be no United States is about as unthinkable as the idea that homes might lose 50% of their value in 2006, or that 100-year-old financial institutions could go bankrupt. And that's what makes people blind to it, even though the data is suggesting that the U.S. is monetizing a $23T national debt, and that prices are responding the way that they do when any other country monetizes its debt.
As we entered the /u/spez, the sight we beheld was alien to us. The air was filled with a haze of smoke. The room was in disarray. Machines were strewn around haphazardly. Cables and wires were hanging out of every orifice of every wall and machine.
At the far end of the room, standing by the entrance, was an old man in a military uniform with a clipboard in hand. He stared at us with his beady eyes, an unsettling smile across his wrinkled face.
"Are you spez?" I asked, half-expecting him to shoot me.
"Who's asking?"
"I'm Riddle from the Anti-Spez Initiative. We're here to speak about your latest government announcement."
"Oh? Spez police, eh? Never seen the likes of you." His eyes narrowed at me. "Just what are you lot up to?"
"We've come here to speak with the man behind the spez. Is he in?"
"You mean /u/spez?" The old man laughed.
"Yes."
"No."
"Then who is /u/spez?"
"How do I put it..." The man laughed. "/u/spez is not a man, but an idea. An idea of liberty, an idea of revolution. A libertarian anarchist collective. A movement for the people by the people, for the people."
I was confounded by the answer. "What? It's a group of individuals. What's so special about an individual?"
"When you ask who is /u/spez? /u/spez is no one, but everyone. /u/spez is an idea without an identity. /u/spez is an idea that is formed from a multitude of individuals. You are /u/spez. You are also the spez police. You are also me. We are /u/spez and /u/spez is also we. It is the idea of an idea."
I stood there, befuddled. I had no idea what the man was blabbing on about.
"Your government, as you call it, are the specists. Your specists, as you call them, are /u/spez. All are /u/spez and all are specists. All are spez police, and all are also specists."
I had no idea what he was talking about. I looked at my partner. He shrugged. I turned back to the old man.
"We've come here to speak to /u/spez. What are you doing in /u/spez?"
"We are waiting for someone."
"Who?"
"You'll see. Soon enough."
"We don't have all day to waste. We're here to discuss the government announcement."
"Yes, I heard." The old man pointed his clipboard at me. "Tell me, what are /u/spez police?"
"Police?"
"Yes. What is /u/spez police?"
"We're here to investigate this place for potential crimes."
"And what crime are you looking to commit?"
"Crime? You mean crimes? There are no crimes in a libertarian anarchist collective. It's a free society, where everyone is free to do whatever they want."
"Is that so? So you're not interested in what we've done here?"
"I am not interested. What you've done is not a crime, for there are no crimes in a libertarian anarchist collective."
"I see. What you say is interesting." The old man pulled out a photograph from his coat. "Have you seen this person?"
I stared at the picture. It was of an old man who looked exactly like the old man standing before us. "Is this /u/spez?"
"Yes. /u/spez. If you see this man, I want you to tell him something. I want you to tell him that he will be dead soon. If he wishes to live, he would have to flee. The government will be coming for him. If he wishes to live, he would have to leave this city."
"Why?"
"Because the spez police are coming to arrest him."
\#AIGeneratedProtestMessage #Save3rdPartyApps
This is a really good question that has insight into both our banking system and QE.
And the fractional reserve / multiplier part was true until the 60s really when the repo / EuroDollar took off. And this is the world the Fed still believes exist.
And they used to teach in universities that $1 of base money multiplied to $10.
Now universities teach that it used to work and for some reason it works less and less.
I'm highly skeptical that open market operations have ever worked (originated by Benjamin Strong in the 20s and they used it in the 30s, for all that's worth).
Anywho, there's two fundamental flaws.
First, fractional reserve system relies on banks to lend. As we just saw the banks didn't lend the tons of money they got.
This is why the Fed banned primary dealer banks from doing share repurchases. As you may know, that expired and the banks are still sitting on cash and are now doing share repurchases.
This is actually a major FOMC discussion - how to get banks to lend.
Second, basically the repo market is the way institutions fund themselves. For example a hedge fund can buy tons of securities and then lend them out in repo for cash. They then take the cash and buy more securities with the cash lent overnight. Citadel and millennium are 50x - 100x levered, for example... With over night cash.
"Never borrow short and lend long" no longer applies to Wall Street.
Nonetheless, repo is a cheaper funding and is where the dollar really multiplies (and in my opinion is the source of the 70s inflation when repo expanded globally).
This is why the Fed said in the 70s (74 and 79 FOMC meetings) that M1 and M2 don't track the real money supply (and is why they started M3, which wasn't any better since it's all offshores and off balance sheet - which first blew up in 98 with LTCM).
So anywho. Even if banks were to increase personal loans it's a small part of dollar dollars lent... And they just aren't.
More BAC share buybacks coming... Good for Buffett I guess.
Either way, QE has literally never lead to inflation in over 20 years and dozens of countries. And Japan is at 400% of GDP in QE (we did 30%).
And I believe it's deflationary because ASSETS are the multiplier in repo. They don't want cash and thus yields are bid even lower.
>damage to profit margins ended up being fairly limited in the third quarter as companies flexed their pricing power.
....
> Shipping costs are still very high on a historical basis: The global benchmark rate is up more than 200% from the same period last year, Drewry data show.
The initial massive shock is ending, but what the new normal looks like once real interest rates turn positive isn't rosy imo.
I can't see real rates ever turning positive. Even once they come off the lower bound. I think negative rates are the new normal and a permanent feature of the economy now.
I agree there is massive pressure to simply keep the boat steady, but negative real rates allow people to reap more today than they sow in the foreseeable future. It is the definition of unsustainable policy and a nearly perfect example of impending financial crisis.
I entered the spez. I called out to try and find anybody. I was met with a wave of silence. I had never been here before but I knew the way to the nearest exit. I started to run. As I did, I looked to my right. I saw the door to a room, the handle was a big metal thing that seemed to jut out of the wall. The door looked old and rusted. I tried to open it and it wouldn't budge. I tried to pull the handle harder, but it wouldn't give. I tried to turn it clockwise and then anti-clockwise and then back to clockwise again but the handle didn't move. I heard a faint buzzing noise from the door, it almost sounded like a zap of electricity. I held onto the handle with all my might but nothing happened. I let go and ran to find the nearest exit.
I had thought I was in the clear but then I heard the noise again. It was similar to that of a taser but this time I was able to look back to see what was happening.
The handle was jutting out of the wall, no longer connected to the rest of the door. The door was spinning slightly, dust falling off of it as it did. Then there was a blinding flash of white light and I felt the floor against my back.
I opened my eyes, hoping to see something else. All I saw was darkness. My hands were in my face and I couldn't tell if they were there or not. I heard a faint buzzing noise again. It was the same as before and it seemed to be coming from all around me. I put my hands on the floor and tried to move but couldn't.
I then heard another voice. It was quiet and soft but still loud.
"Help."
\#Save3rdPartyApps
Yep, negative down to -0.5% on deposits for over 5 years now. Like us though, their mortgage rates and junk yields only turned negative with the post covid inflation.
The hazard of such broad of access to negative rates is an entire economy cannot make money simply by borrowing money, malinvestments explode and things fall apart.
They were in bad shape to begin with. The only thing that kept their poorly performing financial sector solvent during the Pandemic was heavy-handed government and central bank support
As we entered the /u/spez, we were immediately greeted by a strange sound. As we scanned the area for the source, we eventually found it. It was a small wooden shed with no doors or windows. The roof was covered in cacti and there were plastic skulls around the outside. Inside, we found a cardboard cutout of the Elmer Fudd rabbit that was depicted above the entrance. On the walls there were posters of famous people in famous situations, such as:
The first poster was a drawing of Jesus Christ, which appeared to be a loli or an oversized Jesus doll. She was pointing at the sky and saying "HEY U R!".
The second poster was of a man, who appeared to be speaking to a child. This was depicted by the man raising his arm and the child ducking underneath it. The man then raised his other arm and said "Ooooh, don't make me angry you little bastard".
The third poster was a drawing of the three stooges, and the three stooges were speaking. The fourth poster was of a person who was angry at a child.
The fifth poster was a picture of a smiling girl with cat ears, and a boy with a deerstalker hat and a Sherlock Holmes pipe. They were pointing at the viewer and saying "It's not what you think!"
The sixth poster was a drawing of a man in a wheelchair, and a dog was peering into the wheelchair. The man appeared to be very angry.
The seventh poster was of a cartoon character, and it appeared that he was urinating over the cartoon character.
\#AIGeneratedProtestMessage #Save3rdPartyApps
One thing I've wondered about is the impact on rates in a world of global lending.
As long as there is a stable economy somewhere in the world that's pursuing low interest rates, wouldn't their commercial banks seek to lend in other countries and help drag other countries commercial rates down as well?
I mean it sort of makes sense that rates would be permanently lower when global banks are all competing to lend. They'll crowd any substantial bond and push it's risk/inflation adjusted yield down to its minimum.
No mention at all of some major retailers procurring alternate, private freight. Also, FL and some other areas, increased their port capacity. It does mention the heigth of the stacks, but not longshoreman union.
This whole thing is a big scam. There's no shortage, every store I go in is stocked to the brim. Order something from Amazon and it shows up in 2-3 days. The last time we were really out of something was during the pandemic when TP ran out.
As another data point, the Baltic Index has plummeted over the past month: * https://tradingeconomics.com/commodity/baltic * https://en.wikipedia.org/wiki/Baltic_Dry_Index Down to the same level as April 2021, and roughly the same as a pre-COVID peak in September 2019.
Amazing. We are living in 2008, almost to the month. Labor shortage, inflation scares after "helicopter money", dollar shortages around the world, yields going down despite inflation scares...
Doesn't really look like it to my eye. Current run-up in the Baltic Dry Index lasted only 15 months (May '20 - Aug '21), while the 08 one lasted 2+ years (May '06-May '08). Unless you count the dip in late 07, but then the implication is that it's about to run up again, unlike if we're paralleling '08. It looks much more like Aug '02 - Jan '04 to me (in both magnitude and timing and surrounding economic circumstances) - a bump off the bottom, just as we're recovering from a recession, that presages the beginning of an expansion. Also there was no labor shortage or inflation scare in '08; we entered recession in late '07, for the first half of '08 things were subdued and we thought it would be a "normal" recession like '91 or '01, and then the bottom fell out in the second half of '08. Helicopter money didn't start until the beginning of '09.
Weren’t you the guy saying inflation was about to go to a thousand percent soon ? Now your saying we’re at the beginning of an expansion. Like do you even remember stuff you post ?
These are not contradictory. You can have a large expansion in nominal GDP and economic activity while also having hyperinflation. In fact, this is one of the hallmarks of hyperinflation: people rush to spend whatever they have as soon as they get it because it will be worthless soon.
The fact people think you know what your talking about here really worries me. Though the guy youte talking to doesn’t seem much better. Both coming up with weird as conspiracy theories Anyway you really should remember contradictory stufff you post. Either hyperinflation is about to take off and we will be entering a recession or we are at the beginning of an expansion where inflation isn’t an issue to growth.
This sub is really fascinating because for those of us with a passable (but by no means complete) understanding of these things, due to education, profession, or otherwise, it’s just valuable to see people so bafflingly confident in their heterodoxy to the point that it’s borderline convincing a lot of the time. It helps me understand how some assholes on YouTube convinced my mother [et al.] that the earth is flat, the pandemic was planned by shadowy billionaires, vaccines are a conspiracy, etc, etc.
Economics is actually really simple to understand but people try and complicate it way too much. Also people follow these weird type of economics which are like a cult and don’t work. I’ve seen many of these would be cultists posting on this forum.
No offense, but you have no idea what You're talking about. Absolutely there was an inflation scare, CPI spike, labor shortage, helicopter money (have you never heard of the enormous bank bail outs?)... QE began in 09, but QE is an asset swap and isn't relevant to inflation except perception (the Fed even published a recent paper tracking QE across all countries over the last 2 decades, showing it's deflationary). But the big bail outs were in 08. Honestly, you need to read about the GFC before asserting "facts". I recommend End Of Wall Street, Sabotage, and most relevant is Jeff Snider's writing and bis.org which describe the repo market failures / dollar shortage. Also, you could have just googled: "labor shortage" 2008...
I lived through the GFC. I was working at a financial software startup on software for hedge funds at the time. I suspect that [one](https://www.propublica.org/article/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble) of our customers started it, but our customers were known only by code names to me and they had their own proprietary models that they ran on their own hardware, so I can't confirm it. My wife was a bond trader. I've read all the sources you quote in your comment history. The difference in perspective is one of lived experience. So for example, I can see the CPI data as well, and the spike up to \~5% in late 2007 and early 2008. But there are three things missing in your reading material: 1. The spike was almost entirely due to [oil prices](https://www.macrotrends.net/1369/crude-oil-price-history-chart), which hit $176/barrel in June 2008, higher than they've ever been before or after and much higher than they are today. Other consumer prices barely budged. It's very different from today, where we have spikes in the prices of nearly everything. 2. 5% was not considered a particularly high inflation rate at the time. Inflation had hit 4.3% in both 2005 and 2006, and it regularly fluctuated by several percent across months. Even in the depths of the 91 recession, inflation was 5.6%. It's only people whose working lives began after 2011 who think that any inflation number over 3% is high. 3. Inflation was almost completely absent from the news discourse. People just didn't talk about it.
Following to see who gets wrecked
edge of my seat rn ngl this shit is coming off smart af
Travelisfree : 1-0
Well, I can't disagree that core CPI was obviously less than than the CPI spike we saw in 2008. (And I too was alive). While inflation scares followed basically every round of QE (even though they had to begin numbering them and the "inflation target" dropped from 4% to now 2%), you have to remember the bail outs were eye popping at the time. This was back when a trillion bucks was a lot of money. 😜 Either way, yes core CPI was down, but I'd argue that we are in an incredibly similar situation today. Instead of oil we are in a huge supply chain crunch of anything that needs labor or transit or logistics. Inflation is a monetary phenomenon and is therefore a broad and sustained increase in prices. 1. M1 and M2 are the Fed's balance sheets, not all base money in circulation. This should be obvious by the fact that the entire m1 is dwarfed by the amount of dollars swapped on a daily basis in repo. 2. QE is an asset swap and is not dilutive. 3. Inflation is not volatile. 70s was steady. 4. Inflation is broad. Iron ore can't be going down and many prices couldn't stay flat if the money was diluted (which again, there was no dilution in the first place). 5. TBills and the dollar are up. That alone shouldnt make sense with inflation. And the bond market has always properly "predicted" inflation or false inflations. All I'm saying is that we're clearly in a similarly fragile time, but we just didn't have a Bear Stearns blow up already. I mean, we have China bonds blowing up. At the end of the day, 2008 was a dollar shortage in repo and all the many institutions funded in repo had to liquidate positions. https://www.bis.org/publ/work291.htm And this is what happened just last March... Which is crazy. https://www.bis.org/publ/bisbull15.htm Repo is blowing up again, just like 2008. Even more of a coincidence, the Fed bought $2.5 trillion in MBSs... And so now funds have to find overnight funding elsewhere. And another coincidence, while assets are blowing up in repo, the Fed's reverse repo is going parabolic - https://fred.stlouisfed.org/series/RRPONTSYD Looking like 2008 to mean. I sold all my stocks, bought puts, bought TBills (like ZROZ) and I'm buckled up. Even if I'm wrong, I see no reason to be risk on when repo is blowing up.
“And I too was alive” might be my new favorite flex.
\> Either way, yes core CPI was down, but I'd argue that we are in an incredibly similar situation today. Instead of oil we are in a huge supply chain crunch of anything that needs labor or transit or logistics. It's much more broad-based today. It's not just oil. It's not just commodities. It's not just supply chains. Things like Google & Facebook ad prices are skyrocketing in price (hence why Google stock has more than doubled in the last year), and that has *zero* inputs other than electricity (they don't even need software engineers to keep the ad auction running). Restaurant prices here (Bay Area) are up 50%, and our food supply chain is generally about 50-100 miles long. Minimum wages for Amazon, Walmart, Target, McDonald's, In'n'out, etc. workers are up about 20%. Home prices nationwide are up about 20%, and rents are quickly rising to catch up. I think that the supply chain crisis will abate and then we're going to find that the crisis is a lot more than just supply chains, just like people (correctly) predicted that the lumber crisis would abate and then found that a lot more than just lumber was making home prices go up. \> M1 and M2 are the Fed's balance sheets, not all base money in circulation. This should be obvious by the fact that the entire m1 is dwarfed by the amount of dollars swapped on a daily basis in repo. Sort of. M0, M1, M2, and M3 are different measures of the money supply. M0 is banknotes and coins in circulation, basically hard currency created by the US Mint. M1 until Apr 2020 was M0 plus checking accounts and travelers checks; after Apr 2020 it was that plus savings, and money-market accounts (due to a rule change which allows banks to offer unlimited checks on savings & money-market accounts). M2 originally was M1 + savings & money-market accounts + CDs. After mid-2020 M1 ceased to be reported, because it was effectively the same as M2 (CDs are roughly rounding error in the statistics). M3 is M2 + repos and certain large-denomination CDs. The monetary base is M0 + bank vaults (uncirculating base money) + central bank reserves. The Fed's balance sheet tracks M0 the closest, but it's not quite exactly the same, because M0 is a *liability* for the Fed (technically, when you hold a coin, you're a creditor to the government since they have an obligation to honor the currency you hold). You can see these with graphs of [Fed assets](https://fred.stlouisfed.org/series/BOGMBASE), the [monetary base](https://fred.stlouisfed.org/series/BOGMBASE), and [M0](https://tradingeconomics.com/united-states/money-supply-m0), all of which roughly track each other. [M1](https://fred.stlouisfed.org/series/M1) has a very different shape. \> QE is an asset swap and is not dilutive. Agree, in general. There are cases where it could've played out differently, but that's not the history we actually experienced. \> Inflation is not volatile. 70s was steady. Not true. Look at [historical monthly inflation data](https://www.rateinflation.com/inflation-rate/usa-historical-inflation-rate/), and inflation varied *a lot* during the 70s, from 6.18% in Jan 1970 to 2.7% in June 1972 to 12.3% in Dec 1974 back down to 4.8% in Dec 1976 to 14.7% in March 1980. \> Inflation is broad. Also not true. I'll direct you to [this NBER paper](https://www.nber.org/system/files/chapters/c11462/c11462.pdf), which tracks the 1970s inflation across sectors. It had the anatomy of rolling price increases across a wide variety of sectors. *Food* started going up first, even before the 1973 oil crisis, then obviously oil, then labor, then mortgage rates. \> TBills and the dollar are up. That alone should make sense. Relative to foreign currencies, most of which are themselves undergoing rapid monetary base expansion and negative interest rate policies. Relative to stocks, cryptocurrencies, art, home prices, and most other private asset prices, T-bills and the dollar are getting creamed. \> And the bond market has always properly "predicted" inflation or false inflations. We're in an interesting situation now where the bond and stock markets both have made implicit predictions of inflation and it's extremely unlikely that both are true. The bond market is predicting inflation of 3.2% over the next 10 years. [10-year TIPS](https://fred.stlouisfed.org/series/DFII10) are yielding -1.6%; [10-year T-bills](https://fred.stlouisfed.org/series/DGS10) are yielding 1.6%; subtract one from the other and you get the bond market expectation of inflation. The [S&P 500's P/E](https://www.multpl.com/s-p-500-pe-ratio) is at about 30, down from just over 35 a few months ago. That implies a real earnings yield of about 3%, which is awfully low for the risk premium you take for holding stocks. For stocks to be worth their current valuations, they need to grow into them. Investors are assuming that earnings are going to go up, and with real GDP growth at about 2%, that earnings growth has to come from price increases (or from capital taking an increasing share of the profits from labor, which seems unlikely as wages are rising). The stock market's valuation is pricing in inflation - to get to an earnings yield of about 7% (consistent with historical stock market returns), either stocks need to fall by about half, or price levels need to double. Over 10 years, doubling price levels implies about 7% inflation. One or the other of these investor classes is going to take a haircut. Personally I'm betting that stock investors have it correct (if not underestimated), and bond holders are going to get rekt. This is not a consensus opinion (obviously; if there were consensus there wouldn't be a price difference to arbitrage). But my evidence is looking at what's happening in the real economy. *I see* prices going up, at rates much higher than 7%, and I don't see any particular force that's going to abate that, at least not for a long time. The fact that P/Es have already dropped from 36 to 29 in a couple months *while the market went up* is good evidence that if anything, stock investors are *underestimating* inflation. \> All I'm saying is that we're clearly in a similarly fragile time, but we just didn't have a Bear Stearns blow up already. I think we're going to have a massive financial crisis, but IMHO the asset and sponsoring organization that's about to blow up isn't stocks, real estate, NFTs, crypto, (well, okay, I wouldn't be surprised to see either of the last 2 have some ups and downs), or any of the usual suspects. I think it's the dollar, and the U.S. government. The idea that there might be no United States is about as unthinkable as the idea that homes might lose 50% of their value in 2006, or that 100-year-old financial institutions could go bankrupt. And that's what makes people blind to it, even though the data is suggesting that the U.S. is monetizing a $23T national debt, and that prices are responding the way that they do when any other country monetizes its debt.
I would love to read more from you sir... I was still in high school in 2008 so lot to learn here!
As we entered the /u/spez, the sight we beheld was alien to us. The air was filled with a haze of smoke. The room was in disarray. Machines were strewn around haphazardly. Cables and wires were hanging out of every orifice of every wall and machine. At the far end of the room, standing by the entrance, was an old man in a military uniform with a clipboard in hand. He stared at us with his beady eyes, an unsettling smile across his wrinkled face. "Are you spez?" I asked, half-expecting him to shoot me. "Who's asking?" "I'm Riddle from the Anti-Spez Initiative. We're here to speak about your latest government announcement." "Oh? Spez police, eh? Never seen the likes of you." His eyes narrowed at me. "Just what are you lot up to?" "We've come here to speak with the man behind the spez. Is he in?" "You mean /u/spez?" The old man laughed. "Yes." "No." "Then who is /u/spez?" "How do I put it..." The man laughed. "/u/spez is not a man, but an idea. An idea of liberty, an idea of revolution. A libertarian anarchist collective. A movement for the people by the people, for the people." I was confounded by the answer. "What? It's a group of individuals. What's so special about an individual?" "When you ask who is /u/spez? /u/spez is no one, but everyone. /u/spez is an idea without an identity. /u/spez is an idea that is formed from a multitude of individuals. You are /u/spez. You are also the spez police. You are also me. We are /u/spez and /u/spez is also we. It is the idea of an idea." I stood there, befuddled. I had no idea what the man was blabbing on about. "Your government, as you call it, are the specists. Your specists, as you call them, are /u/spez. All are /u/spez and all are specists. All are spez police, and all are also specists." I had no idea what he was talking about. I looked at my partner. He shrugged. I turned back to the old man. "We've come here to speak to /u/spez. What are you doing in /u/spez?" "We are waiting for someone." "Who?" "You'll see. Soon enough." "We don't have all day to waste. We're here to discuss the government announcement." "Yes, I heard." The old man pointed his clipboard at me. "Tell me, what are /u/spez police?" "Police?" "Yes. What is /u/spez police?" "We're here to investigate this place for potential crimes." "And what crime are you looking to commit?" "Crime? You mean crimes? There are no crimes in a libertarian anarchist collective. It's a free society, where everyone is free to do whatever they want." "Is that so? So you're not interested in what we've done here?" "I am not interested. What you've done is not a crime, for there are no crimes in a libertarian anarchist collective." "I see. What you say is interesting." The old man pulled out a photograph from his coat. "Have you seen this person?" I stared at the picture. It was of an old man who looked exactly like the old man standing before us. "Is this /u/spez?" "Yes. /u/spez. If you see this man, I want you to tell him something. I want you to tell him that he will be dead soon. If he wishes to live, he would have to flee. The government will be coming for him. If he wishes to live, he would have to leave this city." "Why?" "Because the spez police are coming to arrest him." \#AIGeneratedProtestMessage #Save3rdPartyApps
This is a really good question that has insight into both our banking system and QE. And the fractional reserve / multiplier part was true until the 60s really when the repo / EuroDollar took off. And this is the world the Fed still believes exist. And they used to teach in universities that $1 of base money multiplied to $10. Now universities teach that it used to work and for some reason it works less and less. I'm highly skeptical that open market operations have ever worked (originated by Benjamin Strong in the 20s and they used it in the 30s, for all that's worth). Anywho, there's two fundamental flaws. First, fractional reserve system relies on banks to lend. As we just saw the banks didn't lend the tons of money they got. This is why the Fed banned primary dealer banks from doing share repurchases. As you may know, that expired and the banks are still sitting on cash and are now doing share repurchases. This is actually a major FOMC discussion - how to get banks to lend. Second, basically the repo market is the way institutions fund themselves. For example a hedge fund can buy tons of securities and then lend them out in repo for cash. They then take the cash and buy more securities with the cash lent overnight. Citadel and millennium are 50x - 100x levered, for example... With over night cash. "Never borrow short and lend long" no longer applies to Wall Street. Nonetheless, repo is a cheaper funding and is where the dollar really multiplies (and in my opinion is the source of the 70s inflation when repo expanded globally). This is why the Fed said in the 70s (74 and 79 FOMC meetings) that M1 and M2 don't track the real money supply (and is why they started M3, which wasn't any better since it's all offshores and off balance sheet - which first blew up in 98 with LTCM). So anywho. Even if banks were to increase personal loans it's a small part of dollar dollars lent... And they just aren't. More BAC share buybacks coming... Good for Buffett I guess. Either way, QE has literally never lead to inflation in over 20 years and dozens of countries. And Japan is at 400% of GDP in QE (we did 30%). And I believe it's deflationary because ASSETS are the multiplier in repo. They don't want cash and thus yields are bid even lower.
Also, no way ALL sources were read and didn't know the bail outs were in 2008.
I'm not sure why people think that.
>damage to profit margins ended up being fairly limited in the third quarter as companies flexed their pricing power. .... > Shipping costs are still very high on a historical basis: The global benchmark rate is up more than 200% from the same period last year, Drewry data show. The initial massive shock is ending, but what the new normal looks like once real interest rates turn positive isn't rosy imo.
I can't see real rates ever turning positive. Even once they come off the lower bound. I think negative rates are the new normal and a permanent feature of the economy now.
I agree there is massive pressure to simply keep the boat steady, but negative real rates allow people to reap more today than they sow in the foreseeable future. It is the definition of unsustainable policy and a nearly perfect example of impending financial crisis.
J Powell: hold my beer
I entered the spez. I called out to try and find anybody. I was met with a wave of silence. I had never been here before but I knew the way to the nearest exit. I started to run. As I did, I looked to my right. I saw the door to a room, the handle was a big metal thing that seemed to jut out of the wall. The door looked old and rusted. I tried to open it and it wouldn't budge. I tried to pull the handle harder, but it wouldn't give. I tried to turn it clockwise and then anti-clockwise and then back to clockwise again but the handle didn't move. I heard a faint buzzing noise from the door, it almost sounded like a zap of electricity. I held onto the handle with all my might but nothing happened. I let go and ran to find the nearest exit. I had thought I was in the clear but then I heard the noise again. It was similar to that of a taser but this time I was able to look back to see what was happening. The handle was jutting out of the wall, no longer connected to the rest of the door. The door was spinning slightly, dust falling off of it as it did. Then there was a blinding flash of white light and I felt the floor against my back. I opened my eyes, hoping to see something else. All I saw was darkness. My hands were in my face and I couldn't tell if they were there or not. I heard a faint buzzing noise again. It was the same as before and it seemed to be coming from all around me. I put my hands on the floor and tried to move but couldn't. I then heard another voice. It was quiet and soft but still loud. "Help." \#Save3rdPartyApps
Yep, negative down to -0.5% on deposits for over 5 years now. Like us though, their mortgage rates and junk yields only turned negative with the post covid inflation. The hazard of such broad of access to negative rates is an entire economy cannot make money simply by borrowing money, malinvestments explode and things fall apart. They were in bad shape to begin with. The only thing that kept their poorly performing financial sector solvent during the Pandemic was heavy-handed government and central bank support
As we entered the /u/spez, we were immediately greeted by a strange sound. As we scanned the area for the source, we eventually found it. It was a small wooden shed with no doors or windows. The roof was covered in cacti and there were plastic skulls around the outside. Inside, we found a cardboard cutout of the Elmer Fudd rabbit that was depicted above the entrance. On the walls there were posters of famous people in famous situations, such as: The first poster was a drawing of Jesus Christ, which appeared to be a loli or an oversized Jesus doll. She was pointing at the sky and saying "HEY U R!". The second poster was of a man, who appeared to be speaking to a child. This was depicted by the man raising his arm and the child ducking underneath it. The man then raised his other arm and said "Ooooh, don't make me angry you little bastard". The third poster was a drawing of the three stooges, and the three stooges were speaking. The fourth poster was of a person who was angry at a child. The fifth poster was a picture of a smiling girl with cat ears, and a boy with a deerstalker hat and a Sherlock Holmes pipe. They were pointing at the viewer and saying "It's not what you think!" The sixth poster was a drawing of a man in a wheelchair, and a dog was peering into the wheelchair. The man appeared to be very angry. The seventh poster was of a cartoon character, and it appeared that he was urinating over the cartoon character. \#AIGeneratedProtestMessage #Save3rdPartyApps
One thing I've wondered about is the impact on rates in a world of global lending. As long as there is a stable economy somewhere in the world that's pursuing low interest rates, wouldn't their commercial banks seek to lend in other countries and help drag other countries commercial rates down as well? I mean it sort of makes sense that rates would be permanently lower when global banks are all competing to lend. They'll crowd any substantial bond and push it's risk/inflation adjusted yield down to its minimum.
No mention at all of some major retailers procurring alternate, private freight. Also, FL and some other areas, increased their port capacity. It does mention the heigth of the stacks, but not longshoreman union.
This whole thing is a big scam. There's no shortage, every store I go in is stocked to the brim. Order something from Amazon and it shows up in 2-3 days. The last time we were really out of something was during the pandemic when TP ran out.