Inflation continues to fall

[EZEtoGRU]

Positive inflation news out today.  This is definitely a trend as inflation has been falling for 12 straight months now.  Separately, I read something yesterday about Florida being the inflation hot-spot in the country currently.

US inflation cooled in June for the 12th straight month | CNN Business

WWW.CNN.COM

---

What a difference a year makes.

 

[+ BOZO T CLOWN]

Inflation is STILL at a near record high:

2013 - 1.5%
2014 - 0.8%
2015 - 0.7%
2016 - 2.1%
2017 - 2.1%
2018 - 1.9%
2019 - 2.3%
2020 - 1.4%
2021 - 7.0%
2022 - 8.5%
2023 - 3.0% (to date)

Current US Inflation Rates: 2000-2023

WWW.USINFLATIONCALCULATOR.COM

---

The annual inflation rate for the United States was 3.0% for the 12 months ended June, according to U.S. Labor Department data published on July 12, 2023. This follows...

The three highest rates of inflation in the last 10 years were in 2021, 2022, and 2023.

Politics redacted.

BoZo

 

[+ stevenkesslar]

15 hours ago, EZEtoGRU said:

Positive inflation news out today.  This is definitely a trend as inflation has been falling for 12 straight months now.  Separately, I read something yesterday about Florida being the inflation hot-spot in the country currently.

US inflation cooled in June for the 12th straight month | CNN Business

WWW.CNN.COM

---

What a difference a year makes.

 

The thing that is also interesting, and somewhat inexplicable, is that when it comes to inflation the US is doing so much better than  (name a country on the planet Earth.)  Right now escaping the misery of inflation is increasingly a good reason to live in America.

Current inflation rate:

United Kingdom  8. 7 %

Australia  7 %

Germany  6.4 %

Euro Area  5.5 %

Mexico 5.1 %

India  4.8 %

France 4.5 %

Canada  3.4 %

Russia  3.2 %

United States  3 %

This does suggest that the causes of the post-COVID global inflation spike are ............. well ............ global.  Last year when inflation was peaking the US was in the middle of that list of major nations.  Pretty much everybody was sharing the misery.  Now the US appears to be recovering from the spike quicker than most of the rest of the planet.

The good news on inflation probably helps explain why the looming US recession has been MIA for about a year now.  Europe is on the brink of recession.  And high energy prices seem like a logical thing to blame that on.  While US gas prices are still relatively high, they are down from a national peak of almost $5 last Summer to $3.57 now.  That's one thing that could be fueling an apparent soft landing. 

This is all good news.  The stock market sure seems to think so. 

We may be climbing a wall of worry.  But we still have to climb out of an inverted yield curve, which almost always ends in a recession.  (In 1966 it didn't, so there is hope.)

 

[EZEtoGRU]

Inflation in 2021/2022 was a global phenomenon driven primarily by the consequences of COVID.  The US has managed this situation better than most countries and is seeing the positive results through the monthly inflation numbers.

As far as a potential US recession goes, people like Jamie Dimon and Elon Musk have been preaching doom and gloom now for more than two years.  Yet the recession hasn't happened.  Beyond the improving inflation situation, monthly employment numbers have proved to be very resilient for more than two years now.  We still need many more workers in this country.  That can be a topic for another thread😉.

[samhexum]

On 7/12/2023 at 11:07 AM, EZEtoGRU said:

Positive inflation news out today. 

 

10 hours ago, stevenkesslar said:

The good news on inflation probably helps explain why the looming US recession has been MIA for about a year now. 

Wall Street got an extra dose of encouragement to bid up stocks after another inflation report reinforced bets the Federal Reserve is approaching an interest-rate peak.

All of a sudden, “disinflation” becomes the buzzword across trading desks, with investors looking on the bright side of data showing a slowdown in prices — even though core inflation is still running above the central bank’s 2% target. Equities gained further traction on news that Fed Bank of St. Louis President James Bullard — who called for aggressive hikes to fight the recent inflation surge — has resigned.

https://www.bloomberg.com/news/articles/2023-07-12/stock-market-today-dow-s-p-live-updates?srnd=markets-vp#xj4y7vzkg

[+ stevenkesslar]

7 hours ago, EZEtoGRU said:

Inflation in 2021/2022 was a global phenomenon driven primarily by the consequences of COVID.

If we're talking about COVID, inflation, and investing, there's another aspect of inflation that should be noted.  And the verdict is out on that, too.

Something important happened in January 2021 that changed the inflation game.  And, no, it's not what you're thinking.  That's the month that S & P 500 earnings rebounded from under $100, and took off like a space ship for a year.  Anyone who owned stocks, and especially tech stocks,  knows the relationship between rising inflation and big capital gains in 2021.

S&P 500 Earnings

The numbers in that website are clear.  And the same point is expressed in the chart above.  S & P 500 earnings were at about $140 end of 2019.  Thanks to COVID, by the end of 2020 they tanked to a low of $94.13 in December.  Then starting January 2021 it was off to infinity and beyond for a year, peaking at $197.88 in January 2022.  It correlates to the huge S & P 500 rally, of course.  So inflation may have been miserable for people going to the gas station.  But it wasn't miserable for corporate America, and people investing in their stocks.

Now the question is how much of the sugar high is sustainable, and whether a recession will put a dent in it.  At least for now it looks like S & P 500 earnings are stabilizing at around $175.  Way higher than right before COVID, but way lower than the sugar high of January 2022.  Breaks my heart, but I don't feel all that bad for corporate America.  I'll take the 3 % inflation, thank you.  😀

7 hours ago, EZEtoGRU said:

As far as a potential US recession goes, people like Jamie Dimon and Elon Musk have been preaching doom and gloom now for more than two years. 

Add Mike Wilson of Morgan Stanley to your list.  (This is him six months ago. Compare the S & P then to what it is today.)  Last year he was saying the S & P slide would continue into the first half of 2023, due to an "earnings recession."  He was sure wrong about that.  At least to the extent that he was predicting the S & P might revisit 3500, or lower. Oops!  Now he's saying it will happen in the second half of 2023.  We'll see.  Gloom springs eternal.  😉

I've been having a fierce debate with one of my geeky nephews for about a year.  And he is winning, both factually and financially.  Partly because I listened too much to guys like Wilson.  I figured we were in a secular bear market like 2000 and 2008.  And it sure looked that way by the end of 2022.  So the idea that the S & P would keep going down to 3500 or lower made sense.  I bought a lot of tech stocks last October and November, and sold most of them in January and February thinking I'd make some nice but modest bear market rally profits. 

My nephew argued that we're still in a secular bull market, but we just had this COVID sugar high.  I can't find an exact online version of it.  But he sent me a chart of the S & P 500 starting around 2011, where he just blocked out the years 2021 and 2022.  If you do that, it looks like the same bull market trend line, with this zig zag distortion way down and then way up and then down again.  That chart I did post above, which is about a year old, makes the point about the long term trend.  At least for now, we're right back into the bull market trend that started after the GFC. 

My nephew bought SOXL (semiconductors/AI) last Fall as low as $7 a share, and just kept buying.  As of today his cheapest shares have quadrupled.  My epiphany came a few months ago.  I was thinking we are just having a long bear market rally, and surely it will be sell in May and go away.  Instead, May was when you were supposed to buy NVDA and AVGO.  Oops!  I bought a bunch of AMD late last year and sold it at like a 20 % profit in February, because I listened to Mike Wilson.  Oops!  Happily, my nephew has kicked my ass and is laughing his way to the bank.  Except he hasn't sold yet.  Who knows how high it will go?

Mostly, inflation and the resulting corporate profit sugar high has been good to stock investors.  I still think the verdict is out on a recession, though.  Again, gloom springs eternal.  

Edited July 13, 2023 by stevenkesslar

[Guest]

On 7/12/2023 at 3:36 PM, BOZO T CLOWN said:

Inflation is STILL at a near record high:

2013 - 1.5%
2014 - 0.8%
2015 - 0.7%
2016 - 2.1%
2017 - 2.1%
2018 - 1.9%
2019 - 2.3%
2020 - 1.4%
2021 - 7.0%
2022 - 8.5%
2023 - 3.0% (to date)

Current US Inflation Rates: 2000-2023

WWW.USINFLATIONCALCULATOR.COM

---

The annual inflation rate for the United States was 3.0% for the 12 months ended June, according to U.S. Labor Department data published on July 12, 2023. This follows...

The three highest rates of inflation in the last 10 years were in 2021, 2022, and 2023.

Politics redacted.

BoZo

 

The spikes in 2021 and 2022 were due to the scarce supplies and supply-chain issues, especially as related to China's asinine "zero-Covid" policy. The spikes in fuel costs and resulting transportation costs were also obvious factors. 

 

Edited July 14, 2023 by Kevin Slater
sniping redacted

[+ augustus]

On 7/13/2023 at 9:30 AM, EZEtoGRU said:

Inflation in 2021/2022 was a global phenomenon driven primarily by the consequences of COVID. 

Untrue.  Inflation is caused by excessive money printing.  Switzerland and Japan have kept their inflation rates between 2-3% all through Covid and they have to import 100% of their oil.  

[+ stevenkesslar]

I thought this was an amusing take on inflation, coming from The Wall Street Journal

Companies and the Terrible, Horrible, No Good, Very Bad Earnings Season

Quote

That companies would like to raise prices faster than costs—greedflation—shouldn’t be surprising. After all, back in the 18th century, the economist Adam Smith laid out how economic actors behave in their own self-interest. The other thing Smith said was that competition acted as a regulator of self-interest, with the interplay of the two acting as an invisible hand guiding the economy. So maybe what we’re seeing now is that competition for customers and labor is regulating away a portion of companies’ hefty profit margins.

Quote

Of course, they would still love to raise prices and reduce labor costs. But all businesses have a plan until the invisible hand punches them in the mouth.

Apparently it's not inflation.  It's greedflation, stupid!  That's not me saying it.  That's The Wall Street Journal.

And I agree with them.  Capitalism is riding to the rescue.  Woo hoo!  Maybe if I'm lucky when the invisible hand is done with inflation, it will come be my Daddy and spank me or something.  😉

I mentioned Morgan Stanley's Mike Wilson above.  He's been saying for a long time that an earnings recession is coming.  Lately he's been saying he was correct, but premature.  As recently as April he's still calling for 3900, or a range of 3600 to 4200, as his year end S & P price target.  Whether he gets his price target or not, it looks like he may get his earnings recession.  And consumers will love it, probably.  If it means inflation is being tamed.   

While he hasn't exactly been spot on recently, even though Wilson has been insisting an earnings recession is coming he thinks whether we get an actual recession is a coin toss.  That's the way I'm playing it.  Or, as one person commented on Wilson's YouTube interview, "He's being rational.  Markets aren't."   😉

[BSR]

On 7/14/2023 at 12:40 PM, augustus said:

Untrue.  Inflation is caused by excessive money printing.  Switzerland and Japan have kept their inflation rates between 2-3% all through Covid and they have to import 100% of their oil.  

"Federal Reserve data show that in August 2019 there was $14.9 trillion total in circulation. By January 2022, there was $21.6 trillion."

Where did that additional $6.7 trillion come from ... leprechauns' gold? manna from heaven? the mother of all lottery jackpots?  Nope, the Fed just printed it out of thin air.  And when you print dollars out of nothing, the value of each individual dollar shrinks, thus inflation.

[BSR]

On 7/13/2023 at 6:30 AM, EZEtoGRU said:

As far as a potential US recession goes, people like Jamie Dimon and Elon Musk have been preaching doom and gloom now for more than two years.  Yet the recession hasn't happened.  Beyond the improving inflation situation, monthly employment numbers have proved to be very resilient for more than two years now. 

Let's hold off popping the champagne until at least October, after 2 more expected Fed rate increases and the resumption of student loan payments.

Credit, i.e. borrowed money, fuels the US economy, and bank lending hasn't tightened until quite recently.  By October, banks will be lending out far less money at an even higher rate.

Apparently the 43.5 million Americans with student loan debt have been living it up during this deferment -- spending money that would otherwise have gone to loan repayment on things like shopping, vacations, and entertainment.  When all that "faux" disposable income disappears overnight, consumer spending will drop dramatically.

I had an interesting conversation with a guy who worked in ultra-high-end real estate (like private islands) back in the spring of 2007.  He warned that the fit was going to hit the shan because properties that used to sell in an instant were stagnating for months without an offer.

Shearson filed for bankruptcy more than a year later (Sept 2008), the worst of the recession didn't hit until 2009-2010, and NYC real estate didn’t bottom out until March 2012.  In other words, these things take a while to play out.  Jamie Dimon and Elon Musk didn't become self-made billionaires by being stupid about the economy.

Edited July 18, 2023 by BSR
Changed a date

[+ stevenkesslar]

On 7/13/2023 at 6:30 AM, EZEtoGRU said:

Inflation in 2021/2022 was a global phenomenon driven primarily by the consequences of COVID. 

 

On 7/14/2023 at 12:40 PM, augustus said:

Untrue.  Inflation is caused by excessive money printing.  Switzerland and Japan have kept their inflation rates between 2-3% all through Covid and they have to import 100% of their oil.  

 

27 minutes ago, BSR said:

"Federal Reserve data show that in August 2019 there was $14.9 trillion total in circulation. By January 2022, there was $21.6 trillion."

General comment.  I like this new and improved idea that we just stick to the facts.  

I take Auggie's two statements to be pretty much unrelated.  The first statement is a theoretical explanation of inflation.  The second statement is about two specific countries.  

I am a data whore, so I checked.  I think Japan and Switzerland provide excellent examples of why @EZEtoGRU's statement is true.  Both countries were hit hard by the same global forces COVID and Putin unleashed:  big spikes in food prices and even bigger spikes in energy prices.  Especially in Europe, which has brought it close to recession.

 

Helpfully, we know that food and energy were the worst culprits in Japan.  Now check out Switzerland:

 

 

Those charts make more sense if you click on the hyperlink above, since when I cut and pasted the JPG image it loses the titles.  But the first chart is overall inflation on consumer goods in Switzerland.  The second chart is specific inflation in food (red) and energy (green).  As you can see, the spike in energy prices in Switzerland was massive.  I doubt that the printing of money had much to do with those spikes.  That said, a lot of economists were arguing when COVID first hit that absent any type of intervention we could have a depression.  I tend to agree with them.

True, in both Japan and Switzerland inflation topped out in the 3's.  But also in both cases they started the COVID experience with deflationary pressures.  In both cases the inflation surge, from trough to peak, was above 5 %.  In the US it was more like 8 %.  But the COVID and Ukraine factors had exactly the same impact on inflation all over the world.  Including Japan and Switzerland.  No surprise, now that food and energy prices are hopefully getting back under control (no thanks to Vlad) global inflation is waning.

In the case of the US, putting my landlord hat on, one thing I think may be different is housing.  Housing makes up about one third of the CPI.  I was stunned by how much rents and home prices increased during COVID.  Talk about greedflation.  I became a hero to all my tenants by actually lowering rents 5 %.  When I raised them back in 2022, in almost every case it was to what they were before the COVID discount.  My prize is I get to keep good tenants who will never move.  But when I look at how much rent went up for comparable homes since 2020, it's insane.  I suspect housing, and the prevalence of adjustable rate loans, is a big part of why UK inflation is now 8.7 %.  As opposed to 3 % in the US, home of the low fixed rate mortgage.  At least for anyone who bought before 2022.

On 7/14/2023 at 12:40 PM, augustus said:

Inflation is caused by excessive money printing. 

As far as broad ideological bumper stickers go, I'm with you on that one, Auggie.

CFR Global Monetary Policy Tracker

I think that makes your case better than Japan and Switzerland.  Notice the toggle at the top of the chart of the world where you can change the month. 

So if you go to June 2019, the Summer before COVID when the economy was humming along, you'll see the world is a mix of red, blue, and grey.  Meaning monetary policy was all over the map.  By March 2020, when COVID entered with a bang stage left, the whole world is blue.  Meaning global monetary easing in every single nation.  Geez, could that possibly have anything to do with global inflation?  Now, June 2023, most of the world, including almost all of Europe and North and South America, is red.  Meaning monetary tightening.  Cause and effect?  Probably.

We could have a debate about what some other planet might have done in Spring 2020.  But we know how that would go.  The fact is that pretty much every nation on the planet we actually live on did the same thing when COVID made its grand entrance.  They printed money.  The undeniable good news is that many of the specific COVID drivers - huge spikes in energy, food, and housing prices - seem to be gradually getting back in balance.  As the Wall Street Journal argued, we can thank capitalism for that.

 

 

[samhexum]

On 7/13/2023 at 4:27 AM, stevenkesslar said:

The thing that is also interesting, and somewhat inexplicable, is that when it comes to inflation the US is doing so much better than  (name a country on the planet Earth.)  Right now escaping the misery of inflation is increasingly a good reason to live in America.

Current inflation rate:  United Kingdom  8. 7 %

 

On 7/13/2023 at 9:30 AM, EZEtoGRU said:

Inflation in 2021/2022 was a global phenomenon driven primarily by the consequences of COVID.  The US has managed this situation better than most countries and is seeing the positive results through the monthly inflation numbers.

US Stock Rally Plows Forward Amid Peak-Rate Bets

US stocks rose on Wednesday as investors cheered cooling inflation in the UK and looked ahead to a kickoff in tech earnings due at the close of New York trading.

 

 

[EZEtoGRU]

1 hour ago, samhexum said:

 

US Stock Rally Plows Forward Amid Peak-Rate Bets

US stocks rose on Wednesday as investors cheered cooling inflation in the UK and looked ahead to a kickoff in tech earnings due at the close of New York trading.

 

 

Yes the economy seems to be full steam ahead…even as inflation continues to abate.   The Stock market is loving it!

[+ stevenkesslar]

On 7/18/2023 at 12:26 AM, BSR said:

Let's hold off popping the champagne until at least October, after 2 more expected Fed rate increases

 

On 7/18/2023 at 12:26 AM, BSR said:

In other words, these things take a while to play out.  Jamie Dimon and Elon Musk didn't become self-made billionaires by being stupid about the economy.

On the second quote, I can't resist saying it. 

Alan Greenspan, Hank Greenberg, and Angelo Mozilo didn't become crazy rich and respected by being stupid about the economy.  Or being stupid about making or packaging mortgages.  (I think AIG's Greenberg was a billionaire, Countrywide's Mozilo maybe close?) 

That said, somehow, they literally did completely destroy the empires or reputations they built, by being stupid.  Or perhaps by being egotistical.  And believing that their shit (and derivates of it) didn't stink.

My nephew would love you.  He's kind of a libertarian at heart.  We have these long email exchanges where he will send me articles by investor types who think there is nothing good about America that the Fed can't and won't completely fuck up. 

The easy go to place for me is Alan "Deer, Meet Headlights" Greenspan.  In the world that soft and doe-like Alan lived in, Greenberg and Mozilo could not have destroyed everything they built, including their reputations.  Because capitalism - like Daddy - knows best.  And therefore regulates itself.  Until it doesn't   (See Global Financial Crisis and Subprime Mortgage Crisis for additional detail.) My argument is simple, and close to factual.  If poor Alan stopped jacking off to Ayn Rand and paid attention to what was actually happening, like Michael Burry did, maybe he could have stopped it  Or at least made it less awful.  Regardless, Burry made a lot of money.  And Christian Bale had fun playing him.  And I had fun watching Christian Bale play him.  So nothing awful really happened, maybe.  😉

But I digress.  So, yeah, things take time.  But as of July 2023, I don't see the case that Powell's Fed crashed the plane.  If anything, it seems like we missed the hard landing.  And maybe even the soft landing.  Because we barely had to land to refuel the plane at all.  Wall Street, correctly or not, seems to think the plane is climbing into clear blue skies.  Regardless, best to keep your seat belt buckled.  

To extend the plane analogy one stop further, I'd argue the problem is not how the plane is flying now.  The real problem is the destination.  Debt Valley, anyone?  You can check out anytime you like.  But you can never leave.

And I am being serious.  Here's two geeky and fun videos my nephew and I exchanged recently:  

Druckenmiller on How AI is Dominating His Long Portfolio

The End Game For Central Banks Inflation Fight | Lyn Alden

That's a bit more than an hour of viewing.  Which I personally find more satisfying than Ayn Rand.  Spoiler alert:  they talk about politics, too.  But there is a common investing/inflation theme in there from two really smart people.  One of whom is known for consistently making gigantic shit loads of money.  Yes, Virginia, we have a debt problem.  And whether we have a recession or not, as Druckenmiller says, the real problem is not now.  It's probably about a decade from now.  Assuming we just enjoy the ride, and forget about the hell we are going to.  Cocktails, if not cocks, are free.  Why not?

I'll summarize what I like about both arguments, with an emphasis on Lyn Alden's language.  This is more like the 1940's than the 1970's.  Banks are not lending too much.  And, yeah, we could have a mild recession as soon as this Fall for that reason alone.  (Or instead of not lending enough, some more regional banks might fail.)  But this is more like the 1940's in that we just won a world war.  Instead of beating a bad ass Nazi, we beat a bad ass virus.  And we racked up a huge mountain of debt doing so, that was already a huge hill of debt anyway.  So now we'd best focus on paying it off.  And - bad news - few or none of us are randy Straight guys in their 20's seeding a Baby Boom.  Which turns out to help grow an economy and pay off debt.  We're older Gay guys who are the reason (Social Security and Medicare) it will only get harder to avoid deficits.  So we can enjoy our cocktails and blue skies now, even if we have some mild bumps on the flight.  But we might almost want to have a heart attack enroute.  Because if we don't change our course, we may not have much fun where we are going.

That's what Lyn and Stanley are saying.  And I emphatically agree with both.  If I went much further, I'd venture into political terrain and get in trouble.  But simply from the perspective of guys like Stanley who like being smart and rich, it makes sense to think about how to keep the investment engine going.  Or, to paraphrase somebody, if I do die enroute I want to be reincarnated as the bond market.  🤑

So if we want to think about investment stuff that take a while to play out, I agree with S & L that the proper focus is how to avoid fucking ourselves by arriving in Debt Valley.  With only shitty options for how to get out.  Because that will make a little bit of 9 % inflation look mild by comparison.

Edited July 20, 2023 by stevenkesslar

[samhexum]

1 hour ago, stevenkesslar said:

My nephew would love you.  We have these long email exchanges

So brevity runs in the family?

😇😁😜

Edited July 20, 2023 by samhexum
for absolutely NO @%!*ing reason at all!

[Bucky]

17 hours ago, EZEtoGRU said:

Yes the economy seems to be full steam ahead…even as inflation continues to abate.   The Stock market is loving it!

Yet the "question of the day" on Bloomberg Television is "Is Tech's Time Up" as the aggressive YTD run-up may have run it's course.  

[EZEtoGRU]

We now have the longest consecutive market rally since 2017…and inflation keeps falling!!

[+ stevenkesslar]

20 hours ago, Bucky said:

Yet the "question of the day" on Bloomberg Television is "Is Tech's Time Up" as the aggressive YTD run-up may have run it's course.  

Inquiring minds want to know.  What did they say?  That is, of course. the trillion dollar question.

I posted above that video of Bruckenmiller, who knows about these things.  He pointed out that even in bad times (like recessions) certain things flourish.  As that headline indicated, he's long on AI and companies like NVDA.

That said, he wasn't really making any predictions regarding market timing.  Even if he is right and these companies like NVDA will be worth more two or three years from now, we're going to have peaks and valleys along the way.

Edited July 21, 2023 by stevenkesslar

[Guest]

On 7/14/2023 at 3:40 PM, augustus said:

Untrue.  Inflation is caused by excessive money printing.  Switzerland and Japan have kept their inflation rates between 2-3% all through Covid and they have to import 100% of their oil.  

If there's a decrease in supply (such as supply chain issues from "zero-Covid " policies or embargoes), but the demand remains the same, prices will increase.

And, yes, if Russia is successful in blocking out Ukrainian food exports, food prices will increase (as already seen in Commodities futures). I would think that a wise response would be for NATO leaders to announce that their ships will export the Ukrainian grain and food products. I can't imagine even someone as stupid as Putin would attack NATO ships. That would be suicide. 

[+ augustus]

2 hours ago, Unicorn said:

If there's a decrease in supply (such as supply chain issues from "zero-Covid " policies or embargoes), but the demand remains the same, prices will increase.

You don't explain how Switzerland and Japan, which import 100% of their oil and more of their food than we do, managed to keep their inflation rates in the 2-3% range.  A decrease in the supply of any goods or services will not increase inflation across the economy to double digit levels without a corresponding increase in the money supply.  A steady money supply will simply mean other goods and services will see a decrease in costs as the existing money stock is spent on the goods or services in short supply.  That is why the Fed has raised interest rates and is DECREASING THE MONEY SUPPLY to bring the CPI down.  Yeah, DECREASING THE MONEY SUPPLY.

If the supply chain issue caused this inflation (and not the 40% increase in M2 money supply in 2 short years), then the Fed WOULD NOT BE RAISING INTEREST RATES AND TRYING TO SHRINK M2 MONEY SUPPLY.   

[+ augustus]

On 7/18/2023 at 4:09 AM, stevenkesslar said:

We could have a debate about what some other planet might have done in Spring 2020.  But we know how that would go.  The fact is that pretty much every nation on the planet we actually live on did the same thing when COVID made its grand entrance.  They printed money.  The undeniable good news is that many of the specific COVID drivers - huge spikes in energy, food, and housing prices - seem to be gradually getting back in balance.  As the Wall Street Journal argued, we can thank capitalism for that.

 

Yes, your key words are "they printed money".   And in a big way.  They printed money because governments were running huge deficits and the central banks printed money to buy up that debt (it's called monetizing the government's debt).  That is why US M2 money supply grew by 40% in 2 years, which is unprecedented outside of war time. 

Now M2 is shrinking and will probably cause a recession as monetary policy tightens severely and the spending like PPP is no longer supported.  

[shadeheffashade]

On 7/23/2023 at 3:27 AM, Unicorn said:

If there's a decrease in supply (such as supply chain issues from "zero-Covid " policies or embargoes), but the demand remains the same, prices will increase.

And, yes, if Russia is successful in blocking out Ukrainian food exports, food prices will increase (as already seen in Commodities futures). I would think that a wise response would be for NATO leaders to announce that their ships will export the Ukrainian grain and food products. I can't imagine even someone as stupid as Putin would attack NATO ships. That would be suicide. 

Inflation is also impacted by the supply of money...if there's more money floating around, there's more transactions which means a higher degree of inflation.

Anyway, the real reason why inflation went down is not because of the Fed or supply chain constraints easing, it's because the media stopped talking about it. What people don't realize is that numerous empirical studies have shown that inflation EXPECTATIONS (consumers pricing in inflation) has a bigger effect on inflation than anything else people claim is causing inflation, I believe it is a one-to-one increase and now that's it no longer the number one story on every news channel most people have forgotten about it.

Politics redacted.

[+ stevenkesslar]

On 7/23/2023 at 2:04 AM, augustus said:

Now M2 is shrinking and will probably cause a recession as monetary policy tightens severely and the spending like PPP is no longer supported.  

We mostly agree on the factual points.  The "printing money" part is simply a fact.  I posted the CFR charts that said, in effect, the whole world was an ocean of printing money  in Spring 2020.  Now, here's an opinion.  The alternative was a deep recession, or even depression, in 2020.  I'd say the same about going into debt.  We were fighting a global war against a virus.  Some would argue, with good facts on their side, that we erred on the side of too much debt.  That's debatable. And the points are all related.  The reason we might avoid the recession is that we stimulated the economy enough to pull it past what would have been a recession if we stimulated it less. As one example, in 1966 and 1967 we had all the classic signs of a recession, including an inverted yield curve.  And yet the recession went missing.  I would not bet on it.  But I would not bet on the opposite, either.

There is a Goldilocks analogy here.  People might not like that we went from too hot to just right.  But the alternative could have been that we went from just right pre-COVID to way too cold.  Then again, you are right that just because we were too hot doesn't mean we can't end up too cold.  In the real world, running an economy is just harder than making porridge.  😉

But my opinion now is that, having won the war, we should be pivoting to the idea of gradually lowering and paying off the debt.  To not do so invites more inflation, I believe.  That is an opinion, too.  But an informed one.

On 7/23/2023 at 1:36 AM, augustus said:

You don't explain how Switzerland and Japan, which import 100% of their oil and more of their food than we do, managed to keep their inflation rates in the 2-3% range.

He doesn't.  But I did.  Here ya go again.  Here's the website on long-term inflation in Switzerland.

As I said above, just posting the JPG cuts off the labels.  But Japan had a 40 year high in inflation.  In the case of Switzerland, it was more like a 30 year high.  So the idea that somehow Japan and Switzerland escaped the inflation that gripped most of the planet is simply not a factual statement.  ESPECIALLY if you want to break out food and energy.  The difference in those two countries is that they started from deflation and went to inflation a bit above 3 %.  In both cases it was an inflationary surge of about 5 % from valley to peak.  Worse than they'd experienced in 30 to 40 years.  Those are simply facts.

The surprising thing is that the overall inflation spike in Switzerland was "only" 5 %, given that oil prices spiked something like 30 %, as the green part of the chart above clearly shows. Food prices, the red part, also spiked.  But not by as much.  

On 7/13/2023 at 6:30 AM, EZEtoGRU said:

Inflation in 2021/2022 was a global phenomenon driven primarily by the consequences of COVID.

That's the statement you were attempting to refute by bringing up Switzerland and Japan, Auggie.  But the facts are not on your side.  Switzerland and Japan clearly experienced 30 to 40 year highs in inflation, like most of the industrialized world. 

Now that some of the global factors @EZEtoGRU correctly identified are abating, we might be in a better position to distinguish between national or regional factors.  Since you want to make national distinctions, Auggie, would you like to speculate about why inflation in the UK is 7.9 % today, versus 3 % in the US?  What is the US doing right, compared to the UK?

Since most of us live in the US, my main point is from an investment perspective.  As Druckenmiller says in that video I posted above, long term too much debt kills the goose laying the golden egg.  He did say, as a counterpoint, that regardless of anything, including a recession, stocks like NVDA will likely flourish.  But I agree with him that if we want to talk about long-term inflationary pressures that could derail a bull market, we should be focusing on the debt. I think you and I agree on that.

Edited July 25, 2023 by stevenkesslar

[+ augustus]

1 hour ago, stevenkesslar said:

In the case of Switzerland, it was more like a 30 year high.  So the idea that somehow Japan and Switzerland escaped the inflation that gripped most of the planet is simply not a factual statement.

 

1 hour ago, stevenkesslar said:

That's the statement you were attempting to refute by bringing up Switzerland and Japan, Auggie.  But the facts are not on your side. 

Actually, the facts are on my side.  I clicked on that link you cited and in no way did Switzerland have an inflationary surge like the US and other places, despite the monthly variations.  You are misreading that graph.  You simply have to scroll down on that site and see the yearly CPI numbers for Switzerland and they were:

Year    Switzerland    Ø EU       Ø USA      Ø World
2022      2.84 %         8.83 %      8.00 %       8.27 %
2021      0.58 %        2.55 %       4.70 %      3.48 %
2020     -0.73 %        0.48 %      1.23 %       1.92 %

You see! I was right all along.  And Switzerland imports 100% of its oil too.  

Edited July 25, 2023 by augustus