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Meanwhile, Gold takes a dump, falling 1%:
https://www.tradingview.com/chart/?symbol=NASDAQ%3ATSLA
Remember how gold was going to protect you from hyperinflation?
Something nasty is brewing in the economy. It will be obvious when it hits but until then it will be confusing as hell.
The bond and eurodollar markets have been signally for about a year now that the nasty thing will be a recession that will force the Fed back into accommodative mode as early as this year.
The funny thing is that both can be true. Inflation can soar and the economy can crater. The Fed can be accommodative while inflation runs hot. It has happened before. If it happened again, it's hard to imagine a scenario that would cause greater confusion.
> On a monthly basis, headline CPI rose 1.3% and core CPI was up 0.7%, compared to respective estimates of 1.1% and 0.5%.
Here's the number to pay attention to. CPI increases are accelerating. Have a gander at this chart:
https://fred.stlouisfed.org/series/CPIAUCSL
Also notice how that chart only goes in one direction - up and to the right. There are very brief periods in which it reverses, only to return to trend with a vengeance.
> Something nasty is brewing in the economy. It will be obvious when it hits but until then it will be confusing as hell.
It's only confusing because of FUD from governments who know damn well we've entered a world-wide inflationary death spiral driven by the debt created to perpetuate the idea of infinite growth, even in the face of the system repeatedly trying to correct by popping bubbles. Turns out that reinflating the very bubbles that just popped is exactly the wrong strategy.
Also, in the US we are facing the fact that the vast majority of emergency debt created to combat economic shocks from COVID was embezzled by corporations and fraudsters.
Record profits across the board for corporations, highest CEO pay ratios ever recorded, massive housing bubble; the monied class is making off with their spoils and cashing the stock market in. Meanwhile they are sticking it to consumers with inflation (even shrinkflation) and then complaining about worker shortages!
We cannot make sense of it because we try to assess a global problem with American data.
It would be an easily explainable problem if the US and only the US printed a ton of money and got overheated market.
The problem is that virtually every country printed a ton of money during the pandemic. So the demand overheated globally.
On the supply side we have:
a) Chinese factories working intermittently due to COVID restrictions
b) Russia who cannot participate freely in the gas market anymore and their threat to cutoff Europe during winter
c) The supply chains are experiencing full scale bullwhip effects working overtime to satisfy demand that is not there anymore.
These incur huge import costs to any country.
So even if the US had printed zero additional dollars the past two years, we would still be experiencing inflation due to the vast raises of the cost of our imports.
The last few years of zero interest rates has meant that a lot of people made a shitload of money . There is plenty of cash and liquidity around.28 year old FAANG engineers with 600k in savings and a house (as an oldie I am in awe).
Inflation is here to stay for the next 5 years at least no matter what the Fed does about it . Plenty of people sitting on cash and multiple houses at 2.x% mortgages . They have plenty to splurge on that trip to Aruba.
> protect you from hyperinflation?
We are not in a hyper inflationary environment. Hyperinflation is when monthly inflation rate is above 50%, or more than 12,800% per year.
* Job markets are still extremely strong
* We're seeing June numbers. Gas prices lately have plunged relative to where they were
* supply problems are moderating
The one thing the fed should be worried about is another unexpected supply shock -either a COVID wave that affects Asia etc, or natural disaster that drastically affects energy. Then, the economy is in a deep bind and the fed has their hands tied.
Every single shiller was wrong.
Gold and crypto protect against inflation.
Bonds should be 20-40 percent of a portfolio.
Apple and MSFT and the rest of big tech are safe havens.
It's always a good time to buy a home, as supply is at a generational low and will remain like that for a decade, we will become like Canada so you shouldn't wait to buy.
My favorite one is, you can't time the markets. Quite obviously a lot of people correctly timed the market's trends starting around the end of 2021, and the reasoning was pretty sound. I'm kicking myself today for dismissing them.
I'm not optimistic about our future because no official will say the obvious, the $14 trillion injected into the US economy is driving this inflation. To put this in scale, US GDP is $23 trillion. This is helicopter money on a scale we've never seen in the US, much of it going to large banks and corporations. What did people think was going to happen? Raising rates marginally isn't going to soak up all this money, and even when it does and inflation eventually goes back to 1-3%, we'll still see the higher cost of living that has accumulated over the last few years. That means the typical American will be at least 10% poorer. But at least they got those checks for a few thousand dollars a few years ago.
On my Show HN project https://news.ycombinator.com/item?id=32081943 I've downloaded this CPI-U series and plotted the inverse of it, showing the reduced real wealth by carrying a dollar forward (green line on homepage), or go directly to it: https://totalrealreturns.com/s/USDOLLAR (but there is some explanatory text about "baguettes" only on the homepage if you find the y-axis confusing!).
You can plot other assets too, such as gold https://totalrealreturns.com/s/GLD
>> The funny thing is that both can be true. Inflation can soar and the economy can crater.
The solution to that is raising interest rates. Possibly a massive rate hike. Look for the Fed to do a full percentage point or more next time. The party is over. They're trying to be gentle so as not to destroy the housing market like last time. But housing is going to drop, no question.
As others have mentioned, it's confusing if you don't know anything about how CPI works or how the reporting works
To bystanders it looks like inflation is up 8-9% every month, which is obviously false
If the growth of inflation resembles a step function, then the YOY change will be reported as being very high each month even if inflation is not changing on a monthly basis.
https://greyenlightenment.com/2022/07/03/sensationalism-and-...
Headlines that read "inflation rose 9% in $month$" are liable to cause a lot of confusion. A .5-.8 % monthly change looks way less bad than a 8-9% YOY change. The psychological implications of this are potentially huge because probably a lot of people think that inflation is rising 8%/month.
Key point: “ Much of inflation rise came from gasoline prices, which increased 11.2% on the month and just shy of 60% for the 12-month period. ”
This has nothing to do with monetary policy.
Some things to consider
* Job markets are still extremely strong
* We're seeing June numbers. Gas prices lately have plunged relative to where they were
* supply problems are moderating
The one thing the fed should be worried about is another unexpected supply shock -either a COVID wave that affects Asia etc, or natural disaster that drastically affects energy. Then, the economy is in a deep bind and the fed has their hands tied.
> Inflation rose 9.1% in June, even more than expected
No, prices rose 9.1% over the year ending in June, not 9.1% in June—why is all inflation coverage (or, at least, headlines) so bad, even in outlets that are notionally business/finance focussed either reporting annualized monthly or quarterly inflation as being the actual inflation in the month/quarter or reporting annual inflation through a month as being actual inflation in the month?
This will be the 3rd once in a life-time crash since I left school. This time I finally also have savings that I can lose in the crash.
If these monthly numbers are year-over-year, and if most of the inflation uptick happened within the last 12mo, then we're likely to see 8-9% every month now until we get a year of 8-9% months in no? After that, if inflation has stopped rising, it should in theory drop down fast.
The headline is quite confusing, and I think should be 'Inflation rose TO 9.1% year-on-year in June' or something like that.
Prices are up, wages are up, but last I checked (admittedly a month or two ago) profits were doing just fine. That profits are still solid under so many adverse conditions indicates to me that there is a lack of competition in the market, very little competitive pressure on pricing. The Fed isn't going to fix that with rate hikes, and there doesn't seem to be any interest in enforcing the anti-trust laws that we have on the books. I think we're in for an exciting ride, though I'm happy to hear why I'm wrong. :-)
https://twitter.com/paulkrugman/status/1530257168078974976
Paul Krugman just can’t stop being wrong. How this guy has any credibility anymore is beyond me.
Headline is misleading:
- it wasn't inflation that rose, but prices (inflation is the first derivative of prices wrt time)
- the rise wasn't 'in june' (a single month) but 'in the 12 months to june' (a year)
The common assumption was that stocks would hedge inflation, this is wrong.
nothing is a good hedge except real estate it would seem.
Imagine being paid to do a single job - keep inflation under control - and then being so horribly wrong that you conclude a year ago that inflation was transitory.
and as usual all the promised inflation hedges: gold, bitcoin, oil, all falling.
I guess we can expect the Fed to raise rates even higher in a few weeks now? This'll really be interesting for the ramifications on the PE/VC community given how they live off of low interest rates but of course, I worry more for everyday consumers who get hurt by this. But how this affects homebuilding will also be interesting, I know anecdotally from friends who have been searching for houses for a while that now people are actually listening to offers and things are even getting knocked down in price but I hope that homebuilders still go out and build new houses even if the market slows a bit.
To the economists out there: how much is inflation a self-fulfilling prophecy? Are people who set prices known to think: "hey, we're in an inflationary market, let's jump our prices too!"?
> Excluding volatile food and energy prices, so-called core CPI increased 5.9%, compared to the 5.7% estimate.
I'm not an economist, and as a layman I'm confused why they exclude something as 'core' as food and energy from core CPI; apparently 'core' is commodities like apparel, new vehicles, used vehicles, medicine, alcohol, and tobacco, and services like shelter, medical care, and transportation. Food is up 12% year-over-year, so not much more than the overall stat, the big contributor is petroleum products: Piped natural gas service is up 38%, gasoline commodities are up 60%, and fuel oil commodities up a whopping 98%.
The chart at BLS.gov [1] is a decent way to explore these parameters; before submission to /r/dataisbeautiful I'd ask that the sub-levels should have slightly different colors for each bar (keep the 'green' for 'other' distinction, but use multiple shades of green), and that there was some indication at upper levels of the fraction from each sub-category. For example, energy services are listed at 19.4%, but only have two categories of electricity at 13.7 and natural gas piping at 38.4. The average of those two is 26%, which is larger than 19.4...for what reason?
[1] https://www.bls.gov/charts/consumer-price-index/consumer-pri...
Which means the Fed will continue to let ~$90B out of its $9T portfolio of treasuries and agency-sponsored mortgage-backed bonds mature and be paid off every month, without recycling the proceeds back into newer holdings to replace the old ones. The innocuous-sounding name for this process if "quantitative easing," but its impact may be far from innocuous.[a]
Consider: Every treasury that matures must be refinanced by the US Treasury by issuing new treasuries, and most mortgage-backed bonds are paid off before maturity via home sales financed with new mortgages. Therefore, bond investors other than the Fed -- that is, mutual funds, ETFs, sovereign wealth funds, pension plans, individuals, etc. -- will have to buy an additional ~$90B of newly issued treasuries and mortgage-backed bonds, give or take, every month, going forward.
And that means all investors other than the Fed must find ~$90B/month x 12 = ~$1.1T/year to buy newly issued treasuries and mortgage-backed bonds. In practical terms, they will have to withdraw ~$1.1T/year in aggregate from all other financial assets they own. The price of all such other financial assets, including "safe havens" like gold and Bitcoin, may not behave as predicted by any model!
--
[a] You can see it has already started here: https://fred.stlouisfed.org/graph/?g=RINc
No PHD needed, just a ruler.
https://tradingeconomics.com/united-states/money-supply-m2
Switch to 10 Year view. Put your ruler on the line. You should get a bit under 18,000.
It's actually 22,000. So pretty simple maths. It's 22% inflation from simple 'printed too much money'. This is monetary policy gone wrong. Though if you zoom it, they did stop printing money and have been pulling out a minuscule amount in the last few months.
So there's 22% inflation just from monetary policy. Then you have inflation from various other sources like cancelling oil projects causing supply issues. You have carbon taxes causing pretty big harm to the food industry. Afterall I'm not familiar with any combine harvesters or tractors that get good mileage. Long story short, there's about 40% inflation locked in. If it doesnt rise above 9.1%, then it's years more of this.
Something I don’t see a lot is the postponement of Student Loan debt. It’s $1.6 trillion, and people that owe the money (me included) are living lives like they aren’t ever going to pay it back. That’s a huge monetary injection into the economy, and will probably have major shocks when the payments continue.
Writing is on the wall. The recession (depression?) is already here. The housing market has already taken the hit - it crashed upward in price this time around and now activity is grinding to a halt in most markets around the United States. Contract activity is down 20% or more in most major areas, both YoY and QoQ. The fed rate hike spooked buyers and most activity is institutional, many of whom are going to offload when the short-term rental market bottoms out. The question most people should be asking is what should I park my assets in to weather this. My opinion is that there isn’t much that’s going to be safe this time around. Burry’s water meme might come true finally.
Ugh. Second derivative again. Haven't seen a headline like that since the 1970s.
One of the Fed's key charges is to maintain price stability by maintaining inflation at around 2% YOY.
It should be clear by now that the Fed is unable to achieve its goals and is a failure according to their own stated goals.
The reality of the situation is that we need a double-digit rate increase to soak up all this inflation (at least 14% according to Taylor Rule) which will promptly crater the markets and throw us in a long recession just like in the 80s. So instead we're getting half a percent every other month which is one of those things that the FED does to pretend they're working on a solution. It seems like the question going forward is going to be whether Jerome Powell is going to be saving the economy or his seat and so far it's looking like the latter.
This is more relevant than ever: https://benoitessiambre.com/macro.html
I’ve been re-reading John Kenneth Galbraith’s “The Affluent Society” recently. Originally published in 1958, but some sections were updated by Galbraith in 1998. Here are some interesting and relevant paragraphs:
"The public response to inflation is interesting. It is widely deplored and condemned. Politicians of both parties have taken a strong position against it. Conservatives, anciently the self-designated custodians of the 'honest dollar,' have continued to stress this tenet of their faith. Businessmen, bankers, insurance executives and nearly every type of professional public spokesman at one time or another have warned of the dangers of continued inflation. Meanwhile, liberals have deplored failure to take effective action while often proposing none themselves. Next only to the virtues of competition, there is nothing on which the conventional wisdom is more completely agreed than on the importance of stable prices. Yet this conviction leads to remarkably little effort and, indeed, to remarkably few suggestions for specific action. Where inflation is concerned, nearly everyone finds it convenient to confine himself to conversation. All branches of the conventional wisdom are equally agreed on the undesirability of remedies that are effective. [...]
Monetary policy [that is: a rate increase at the Fed] collides with the process of consumer-demand creation and, since it works on business investment, is in conflict with our emphasis on growth. It is also ineffectual, discriminatory and, possibly, dangerous. Fiscal policy [that is: gov’t taxation to reduce the money supply] is sharply at odds with the commitment to a level of output that ensures full employment and the accompanying economic security. Direct controls [that is: price controls on things like oil/gas], which in theory might reconcile high employment with price stability, are under a heavy ideological cloud. [...]
... [1998 update from Galbraith:] The United States has seen some years of relatively low unemployment and very mild inflation, though no diminished fear thereof. The new situation reflects the declining power of unions and the growing importance of industries -- consumer services, entertainment, the arts, professions and much advanced technology -- where they are absent or unimportant. Here the wage/price interaction and spiral is not a factor. As often in economic life, change in controlling circumstances has brought appreciable economic change, how permanent one does not know."
Curious what effects this will have on capital holders deployment of capital. From my loose understanding, in a low rate environment, capital holders try to control for risk. It’s hard to make up a loss on .5%.
On the other side, if inflation is near 10% - then why wouldn’t you spend the capital you have on a productive asset? Your cash is going to zero from simply doing nothing.
This goes along with record profits, so maybe this more of a example of how currently the US market is not competitive. Companies can just raise prices and there is no counter-balancing market forces where competing companies offer lower prices and get the business.
Good thread by Paul Krugman:
https://twitter.com/paulkrugman/status/1547202926149378048?t...
How much longer can we really exclude food and energy?
They have been excluding these for years, but I think they have real impacts on people's lives.
I get they are hoping to smooth things out, but who are they really helping here?
This is bad and they need to turn it around quickly but it’s not going to be painless. People will suffer the consequences of easy money coming home to roost.
What’s sad is the third world dictatorship pandering we see with regards to dealing with inflation via fuel subsidies and other exacerbating gimmicks.
First you do all you have in your power to deprioritize fossil fuels and then you accuse fossil fuel companies AND franchisees of being thd culprits in order to hide bad policy decisions.
In addition they say this is the cost of transitioning to green energy. So, what is it. A cost we need to bear, bad policy decisions or bad service stations?
We need actual people who on know what’s they’re doing in appointed positions.
I don't understand why there's so much support for stimulus checks right now. Isn't their effect the exact opposite of what you'd want during high inflation?
what these stats don't mention at times, that it's more than 9% they quote here month on month on a relative dollar basis.
Do we have trustworthy media that analyzes the cause of inflation? I find it insulting that Biden government first denied everything and then blamed Russia for everything even before the war started. I mean, really? Russia has the GDP of a single city in China, and they have their own shit to deal with. On the other hand, I'm curious why Biden government does not blame Trump government, at least to some degree. Trump's government expanded credit for trillions of dollars too, right?
Somehow people got really partisan when it came to issues like inflation, when I just wanted to know the truth.
P.S., I also find it insulting that Biden blames gas station owners and corporates for their greed. I thought "hoarding and profiteering" is the term that communist countries used to justify their tyranny. Case in point, that is exactly the reason that Chinese government used to nationalize millions of business back in the 1950s, and tens of thousands of people were executed for being "greedy" or "anti-revolution".
I also find it insulting that politicians were advocating price control. They didn't know that price only reflects the value of goods or how price control played out in the Nixon era? Somehow the left in the US are really receptive to the idea of price control and punishing companies. Did I miss something obvious, or the Democrat base are really into the communist shit?
Meanwhile the Nasdaq is opening positive and the S&P and Dow are only slightly negative.
We are attempting to evaluate the situation based upon past experience which, in all likelihood, will not apply as we move forward. Things are changing, and economics, sociology and the like are not of the immutable laws realm like physics. We have built a world predicated upon vast supplies of cheap energy with comparatively very high energy density which will not be replaced like-for-like. What must change is how we function, what we depend upon and what we value as a global community.
We - i.e. all of us who inhabit the place we call earth - need to really come to terms with all that is happening and stop hanging on to the antiquated belief that, at some point, all will be “normal” again. It won’t. And that doesn’t mean we have to give in or give up. But we do have to change - our habits, our beliefs, our worldview. When you look at, discerningly look, scrutinize and acknowledge, all that is going on, all the crises (or perhaps you prefer cataclysms, catastrophes, calamities ... - pick your favourite) including climate, energy, water, food, economic, justice, humanitarian, authoritarian, autocratic, diplomatic, political, geopolitical, … we absolutely must see the forest and the trees and step out of the comfortable illusions and delusions we tenaciously embrace. We must begin to deeply adapt to changes coming and ruggedize our lives.
In some ways it astonishes me that people are so deeply certain of their certainties, of the “can’t happen” mentality, but in other ways, I get that we have been groomed to believe that capitalism, companies, governments, and technology will solve all of our problems if we just continue to be good little consumers and not rock the boat.
But massive and sustained discontinuities are coming. And fast.
With gold being down oddly enough, I read somewhere that some banks like Citi and another (trying to find source rn, but on mobile) have large short positions on paper gold, artificially pushing it down.
Gold price just doesn’t make sense, especially with a near record interest in it during the last few years.
"Inflation swindles everybody"
- Warren Buffet
Dumb question: If last month was 9% inflation, and the month before that was 7% inflation - does that mean we’ve experienced a 16% inflation?