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A thread: The case for US #Inflation
"When we say inflation, we're not talking about 4% inflation. We're talking about the Fed achieving its goal just to start with that, of 2%"
"When we say inflation, we're not talking about 4% inflation. We're talking about the Fed achieving its goal just to start with that, of 2%"
but “Inflation is like a pregnancy. You don't get a little bit pregnant.”
Why is this important:
We are at this inflection point where a little inflation might have big impacts on some asset prices.
And here is the example to drive the point home:
Why is this important:
We are at this inflection point where a little inflation might have big impacts on some asset prices.
And here is the example to drive the point home:
“Because if you are long something like Apple, a mature stable 2% solid-growth company and US bond yields go from 1 to 2, to maintain it's interest rate differential then the yield then has to go from 2 to 3%, then Apple stock doesn't just have to correct 10%. It has to halve.”
Deflationary things:
* We have had a 40 year trend of deflation.
* Demographics are terrible. Baby Boomers retiring and old people reduce spending
* Huge debt burden: big drag on the economy.
* Technology is very deflationary.
* Pandemic: job losses and massive output gap
* We have had a 40 year trend of deflation.
* Demographics are terrible. Baby Boomers retiring and old people reduce spending
* Huge debt burden: big drag on the economy.
* Technology is very deflationary.
* Pandemic: job losses and massive output gap
* monetary policy: All the QE in the world doesn’t work as velocity of money keeps falling. Money goes to rich & just sits in their balance sheet.
* Fed's dot plot and their forecast for the next four years: not even the Fed believes they are going to achieve their own target
* Fed's dot plot and their forecast for the next four years: not even the Fed believes they are going to achieve their own target
So what has changed?
* Congress is no longer feeling constrained on what they can do. In fact, they're feeling almost an obligation to do more
* higher wages are coming. $15 by 2026. ~$7.5 now The poor spend all their money, so if you give them more, it goes into the economy.
* Congress is no longer feeling constrained on what they can do. In fact, they're feeling almost an obligation to do more
* higher wages are coming. $15 by 2026. ~$7.5 now The poor spend all their money, so if you give them more, it goes into the economy.
* Trade dispute between the US and China - is obviously inflationary. A reversal of a trend that's be deflationary for 30 years which is starting to reverse
* Regime changes tend to happen around recessions since significant policy changes require lots of pain.
* Regime changes tend to happen around recessions since significant policy changes require lots of pain.
* We have reached our limits on monetary policy. Now we are going down the fiscal route. Fiscal will get money into the economy.
* MMT (MOAR money today) was unthinkable only a few years ago and now everyone is embracing it
* Vaccines and economy opening
* MMT (MOAR money today) was unthinkable only a few years ago and now everyone is embracing it
* Vaccines and economy opening
* The fact that we did not have a deflationary impulse this year, despite having every reason to see it, should leave us very, very concerned for seeing a massive inflationary wave in 2021.
You don’t have to listen to me
Listen to what the market is telling us.
“The market is the best leading indicator for the market.”
The market might not always be right, but it’s not stupid either.
Just about every hard asset is ripping higher:
Listen to what the market is telling us.
“The market is the best leading indicator for the market.”
The market might not always be right, but it’s not stupid either.
Just about every hard asset is ripping higher:
“The gold market is sniffing it out. And it bottomed when rates peaked in the third quarter of '18. It's been on a terrific run”
Silver, platinum - these go up in reflationary times and outperform gold. We are seeing it now.
Bitcoin making new highs.
Silver, platinum - these go up in reflationary times and outperform gold. We are seeing it now.
Bitcoin making new highs.
Commodities are rising.
Iron ore bottomed in late 2015 at $38 and now ~$150
Copper, nickel, zinc, lead, Uranium, rare earths, you name it.
Oil up and will be a re-opening story
Soft commodities are rising - food prices go up
Iron ore bottomed in late 2015 at $38 and now ~$150
Copper, nickel, zinc, lead, Uranium, rare earths, you name it.
Oil up and will be a re-opening story
Soft commodities are rising - food prices go up
US Dollar breaking down. Commodity and import prices up.
“It's very easy to turn an economy off. It's very difficult to restart it. Likely a shortage of a lot of different things that we haven't even thought about yet, and shortages lead to acute price spikes in certain items”
“It's very easy to turn an economy off. It's very difficult to restart it. Likely a shortage of a lot of different things that we haven't even thought about yet, and shortages lead to acute price spikes in certain items”
The long bond rates are rising...
“They say the debt is so big, interest rates can't go up. But if you get 3-5% inflation further down the road, why couldn't interest rates be 2-4%, as long as your real rates are negative - you can fund your deficit in perpetuity, in many ways.”
“They say the debt is so big, interest rates can't go up. But if you get 3-5% inflation further down the road, why couldn't interest rates be 2-4%, as long as your real rates are negative - you can fund your deficit in perpetuity, in many ways.”
The CB's want the banks to lend: They want money supply growth.
How do you get it? By having a steeper yield curve. (banks borrow short and lend long and make the spread)
Money supply growth is inflationary.
Why compress back-end yields and ruin their banking sys
How do you get it? By having a steeper yield curve. (banks borrow short and lend long and make the spread)
Money supply growth is inflationary.
Why compress back-end yields and ruin their banking sys
Going to be a major change to market dynamics
No one has experienced it for nearly 40 years
The 4th turning and end of the long term debt cycle is upon us
"Be prepared"
No one has experienced it for nearly 40 years
The 4th turning and end of the long term debt cycle is upon us
"Be prepared"
