changegonnacome

Globalization might be responsible for the 40yr dis-inflationary trend we've experienced.......and we've got all the talk of it unwinding........but I think we've definitely got another candidate for dis-inflation now in AI based on what I've seen.....its completely turned upside down my view on where we go now......GPT4 is that good......in so many respects it solves the 'blank page' issue in various avenues of the working world......think of the email it takes 30 minutes to write or an outline/proposal/committee document so many of us spend time writing in their jobs or getting others to draft up for us.....GPT4 is not going to do it completely....but to me it looks like it can do perhaps 80% of the structural heavy lifting & whereby a human then would come in and add/edit deeper insights & thoughts outside of the mundane ones GPT4 drafts up.......it strikers me in the various roles I've had thats its akin to what you might ask a junior member of staff to draft up on your behalf having giving them a previous doc template they follow....... knowing full well that you will be required to take that draft & add deeper interlinked insights, context, internal org strategy/poltics...industry trends etc........ The games of cat and mouse in offices around this will be fun to watch.......as older staff members assume X task would take Y number of days to complete....and junior analysts use GPT to do it 15 minutes Oh the fun

Me too....its the noblest of professions IMO...as anybody finds out when a loved one is sick in hospital. As it pertains to nursing or medical in general....the risk-reward is skewed making it likely the last thing to get AI'd I think......even when technically it could via AI & robotics......the medical malpractice bar is so high....that a system needs to really show 2x 5x the level of proficiency of a human before it would be let sub for nurses etc. In fact AI/robotics would hopefully augment what nurses do best and I'm sure would love to do more of if time allowed & paperwork/menial tasks shrank....which is the social/caring aspect of their jobs....making the sick/elderly feel comfortable, putting them at ease etc......

That's a great point - you need to think about what activity is 'un-AI'able'.....jobs that take place in the 'real world' not the digital one are likely safe for longer........trades is a great one, nursing is another one

The terrible problem to be solved if/when this stuff starts ripping through the low level office process jobs first but then up into lets call them 'college grad jobs'..........is that the return to 'IQ' for that tiny sliver of workers is really going to go through the roof.....already has in the internet age, to a certain extent........but AI could really accelerate that trend.......if ever there was thesis for LVMH and beachfront property.......fewer and fewer people responsible (& getting paid) for producing all our 'stuff' ...........GPT4 could be it.

No they don't! I try my best....on that subject.........I've been messing around with Chat-GPT4 today properly for the first time....the latest iteration of the LLM that is 'hot' right now. I've thrown at it various iterations of 'work' done by functions from orgs I worked in, in the past. Well as someone who was a proponent of the theory du jour......that the next 40yrs had inflationary forces that would see interest rates rise, asset prices fall and permanent departure from ZIRP in some big 40yr cycle in the opposite direction in the West.......well I'm not so sure now.....the human is a damn innovative ape.....GPT4 and the few tasks I threw at it kinda of blew me away and I'm skeptical of these hot things.....we've got a productivity problem in the USA and we are running out of people in the West due to demographics......GPT4 or AI more broadly looks to me like the way out of the productivity trap.....a protector of margins for incumbent companies with strong brands.....not quite yet......its come a little too late for what we need to do get through this little inflationary bout........ but my oh my it looks hugely disinflationary to me longer term.

This debacle has planted the idea of money movement in peoples minds.......you can both make your money 'safer' and earn a higher yield elsewhere. Its a motivating combination & clearly its started an avalanche of moves Make no mistake about it - the aim of the Fed is to combat inflation via tightening financial conditions...........deposits leaving the banking system, higher interest rates being paid on deposits, inverted yield curve, impacting NIM's and banks desire & pricing on loans.......is part of the 'plan'. Credit (outside of jobs/wages) is the only other source of consumer SPEND in the economy (barring stimi's :)) . You whack credit, you hit the marginal dollar of spend. The marginal dollar of spend employs/supports the marginal employee. The marginal employ losses his/her job....precipitating further lowering of aggregate spend.....and the negative feedback loop continues. Its why a 1% move in up in unemployment is usually followed quickly by another 1% move.

Adding these workers, all things being equal, does not add to the total output of your enterprise relative to the last worker you hired and what they did in terms producing incremental goods/services. Diminishing output returns to marginal labor effectively. Think of it like a production line & one machine.....1st worker produces 100 widgets, 2nd worker added to the line leads to 50 widget increase (& 150 total).....widget demand keeps rising and so you add a 3rd person to the line (he/she is lazy bum and your stuck for workers and so you suck it up and hire them)....this third workers adds only 20 widgets (170 total widgets).....yet he/she gets paid the same as worker 1 & 2...........worker 3 is adding very little to the economy, yet is getting paid as if they are......their spend added to the economy increases spending growth ALOT......their labor added to the economy adds very little to aggregate output.....and you get inflation. The above example is how - JOBS = INFLATION

Short version is answered in my post above this one - the jobs that are lets call themTO BE LOST - add very little to the total output of goods and services being produced.......and so in reverse their loss will indeed lead to some fall in total output but just not as much as you would think......yet these workers are paid the same and therefore spend the same as deeply productive workers....... So the relationship between jobs lost, spend getting hit and TOTAL output falling is not 1:1 relationship on these workers.....you lose a little on the output side.....but ALOT on the total nominal spend.......its cruel math.....but its the reality & its how inflation gets 'fixed'.

Because productivity growth outpaced spending growth (job growth)......or more correctly spending growth OUTPACED productivity growth by only 2% Final thought on this so folks get to understand it.......the natural rate of unemployment is like ~4.5 - 5%........when you go from 5% unemployment to 3.7% unemployment.......you are pulling a pool of workers off the sidelines that are deeply deeply unproductive....yet you are paying them the same as productive workers previously hired. These unproductive workers...getting paid the same as the productive ones......add incremental spending growth into your economy but they offer diminishing and I would argue vastly diminishing output growth (productivity).........and so spending growth begins to outpace productivity growth by more than 2%......the delta widens and you get 3%......4% inflation. Jobs do = Inflation But its only the deeply unproductive workers added to the labor pool that cause it (inflation).....the last couple of million people added are the inflationary jobs! Not every job.....so that I'm being clear.

Dumb question........I know they cant grow the loan book.....that I get deposits turned into loans are assets on b/s........but are deposits (liabilities) collected at 1% and parked at the Fed at 4%.....do they turn into effective assets and are subject to the asset cap calculation then. I suspect so.....given the need WFC has had to get rid of deposits......if they are raising them at 1%....and cant do anything with them then they are losing money hence why they are turning them away. The answer in the short run then is exemptions to asset accounting for WFC.....obscure enough that Joe Six Pack & E.Warren doesnt get wind the 'asset cap' has lifted

Your right its baseless claim and imprecise use of language.......what I would say and I think its a fair comment across this thread....is that you are, lets call it, anxious declare inflation a nothing burger and over. But like I've said before....I enjoy talking to you....I lean, in this instance, too far bearish....at its extreme its a poor posture for an investor (over time) I might make money in 2022 & 2023 and lose it over the next decade....your the Yin to my Yang And I appreciate it, genuinly. My bad for throwing around lazy ultra-bullish labels on you.

Because productivity growth outpaced spending growth (job growth)......or more correctly spending growth OUTPACED productivity growth by only 2%

Jobs = inflation is a dupe? Not sure you’ve read what I’ve explained @Gregmal you either don’t get it or your ultra-bullish bias won’t let you get it. Too much spending chasing too few goods/services = inflation. Where do people get money to spend?……jobs (&credit)…but mainly jobs Jobs = Spend = Inflation (in an economy where spending growth exceeds productivity growth). I can’t get it simpler than that for you.

Haven’t looked recently is the cap even a problem for them right now?…..like what is it stopping them from doing exactly in this moment in time that they would be otherwise.

If JPow is a democrat....and he likely is.....and if the game in 2024 is to keep 'the Donald' out of the White House.....what would be the game plan......it would be to get this horrible monetary tightening pain game over with very very quickly.....a short sharp shock & awe recession with a spike in unemployment starting around now......such that your cutting early in 2024 and unemployment is falling into the election cycle. The only problem is the US economy is a big tanker and its hard to turn......and so even if you believe in conspiracies.....I'm not sure they have that much precision/control and they likely should have started aggressively tightening in Q1 2022 if that was the plan! I would also say as someone who has worked around government in the past it helped me immensely with one thing and that it has rid me of of any conspiratorial suspicions I had........senior politicians and their staff can barely conspire together to pick a place for lunch let alone the high level complex conspiracies attributed to them sometimes.

This has interesting implications across the curve...........raising potentially long rates........mortgages etc. sit out on the far end of the curve....meaning this is likely negative for housing in the short run........& we are likely headed back to 7%+ 30yr mortgages as a result of SVIB crisis....thanks tech bros

If only the democrats controlled the Congress, Senate and WH....and even then they might know they should do just that and take the money and pay down the national debt.......but what are they likely to do instead???????.....they would be likely to take that additional tax and SPEND it. So it doesnt solve our SPENDING problem in the real economy........if rich people are doing it or the government is doing it by taxing them (or giving the money to poor people to do it instead of rich people). Its still spend! There is an interesting experiment attempted by the Irish back in the 2000's...........when the government there facing high inflation but no control over monetary policy as it was controlled by the ECB.....introduced a national SAVINGS scheme....where for ever $4 you saved, the Gov would kick in $1 and the money got locked up for 3/5yrs.....an amazing deal!....it was an attempt to do whats needed now.....put a brake on spending growth. When I think of innovative approach to this problem a national saving scheme like this 'could' work....do I think its likely to happen. No. The Irish experience was mixed anyway - https://en.wikipedia.org/wiki/Special_Savings_Incentive_Account.....and when the savings mature you somewhat create an inflation problem in the future potentially as folks get a windfall in spending capacity almost like stimulus checks....I think the mistake the Irish made was that they should have laddered the maturity of the savings schemes. The above is about the only thing I think that could help right now.....the effect is the same in a way.....reducing spend will result in an increase in unemployment....thats just the way it is......one persons spending is another persons income. The beauty of a national savings scheme idea is that it would work almost immediately versus the long, variable and unpredictable (SVIB) lags that monetary policy works with.

Maybe headline CPI drops to those level (sub-4)......but what the Fed is watching is 'supercore'.....or what I just outlined on services....its unlikely to move without a significant move up in the unemployment rate Making people feeling poorer.....or acting with recessionary mindset such that they rein in their spending, up their savings....is part of Fed's game here.......the USA spending monster needs to be put back in its cage for a while, but its a mighty beast and isnt stopped easily!......Wall St/Tech St will help for sure......the banking failure headlines reminiscent of 2008 are helping here too for those on Main St. who remember.......but spending numbers, big picture, are led by Main St......and some pain has to flow through there unfortunately.

The month over month data is showing specifically services as the single biggest problem.....if you look at my posts from months ago you'll see me speak about domestically produced goods and services as the source of the problem and given that America produces actually very few goods it consumes and is mainly a service led economy this is where the inflation is showing up....Why? Because services costs are mainly driven by domestic wages. And we have unusually high wage increases. In the last inflation report just released service costs are continuing to rise at 0.5% monthly clip......not in 2022, not during COVID, not in weird base effects or YoY quirks .........right here, right now........that's 6% annualized.......service items include things like package delivery, haircuts, hotels, gardening services etc etc. Its a long long list....if it doesn't come off a factory line, its a service. So thats services..........the problem with inflation and the story from previous inflationary bouts is that if it present in one significant sub-category long enough, say services in this case, it in time transmits or flares back up in other categories........inflation has its own long and variable lags across categories.....services inflation sitting at 6% as it is........almost ensures in time that we will see domestic goods prices 'flare up' again later this year. Inflation then since Spring 22 on a YoY basis, moment in time......across all categories averaged out is likely running at 5.x%ish....modestly below the YoY prints with a higher numbers we are seeing in headline CPI. Based on current MoM reports and seeing really services as the problem....and knowing services make up ~77% of the USA economy as per 2021 data.....short hand, back of the envelope math then would be 6% inflation in services with other categories CURRENTLY showing modest inflation or none..... 6% haircut by its proportion of the US GNP (77%) = 4.62% is my estimate of CURRENT contemporaneous inflation driven almost wholly by services. That 4.62% estimate lines up pretty well with my model of looking at only two other data points.....nominal spending/income/wage growth (BLS data) against productivity growth.........again the delta there suggests we should have mid-4's inflation in 2023...simply based on the MoM payroll increases we saw in Jan.....against the common sense idea that the USA does not have any easy output (productivity) wins left with unemployment at 3.7%. As much as we may want it to - inflation is not just going to 'go away' by itself that idea is not supported by the data....it will require a change in aggregate nominal spending and/or a productivity output miracle....if we rule out miracles.....its going to require spending to fall significantly...given there are only two sources of funds for spending in the real economy.....credit & income (jobs).....credit needs to get whacked......but credit fueled spending is only a small part of TOTAL spend.....income from jobs is the most important source of spending........hence JPow might not say it......but creating some level of unemployment is going to be required here to rein in spending growth such that it exceeds productivity growth by only 2%...and we get 'back to 2'

Absolutely - I think of it like this.........the asset side is all about culture and management....and its this side of the biz that ordinarily get the common equity holder zeroed..........you need uncommon common sense mgmt and prudence to run the asset side of bank....you need an underwriting culture........this is the hard part to be sure of in bank anyalsis. The liability side in some ways is easier IMO - does the institution display an ideally seasoned/historically verifiable low cost sticky deposit franchise.....diverse, un-concentrated, geared to stable or growing sectors/geographies such that you can model out that deposit base. SVIB in some ways unusually got zeroed on both sides of the b/s......they messed up the asset side with duration risk........while not realizing they had a hugely correlated, concentrated and digitally flighty deposit base.....it was a fatal mix.

Inflation at 6%......probably coming down to 5.x% in a couple of Q's......Fed Funds at 4.57%.......so we are STILL after all the baloney, bank blowups and ink spilled have a negative REAL inflation adjusted Fed Funds rate. People don't borrow at the Fed Funds I hear you say! Exhibit A - Personal Line of Credit from FRC no less @ 3.95%......inflation is at 6%!!!!!! Thats a negative 2.05% cost of carry for this debt that you can pull down and spend on goods and services today....in an economy with an inflation problem. Remember the classical defintion - too much money chasing too few goods and services! Does that PLC strike you as financial conditions that are too tight? https://www.firstrepublic.com/personal-line-of-credit?gnav=globalheader;personal-personal-line-of-credit In terms of tighter financial conditions themselves......we are getting there - post SVIB blow-up....... a deposit interest rate war is likely to start & a flight to treasury's......NIM's will get killed......banks will react by either curtailing credit creation or raising the rates they charge meaning the TAM for loans on a DTI basis or just loan demand itself will just fall of a cliff. This is the PLAN - the Fed could have done without SVIB blowing up but they definitely want credit creation to be curtailed. SVIB is going to accelerate credit getting whacked. So back to the basics: Remember only two sources of funds that become nominal spend in the REAL economy are - credit & income/wages. Remember the USA is at 3.7% unemployment...way below the natural rate....with horrible demographics and a dysfunctional immigration system...so whatever productivity growth miracle dreams you have forget them. Productivity is not surprising to the upside here to help FIX inflation. How could it...forget fantasies about kicking bums of medicare....or free childcare for everybody. It aint happening in the next two years if ever. Period. Remember that the inflation rate is the delta between the growth in nominal aggregate spend & the growth in productivity (or put another way an increase in the REAL volume of goods & services being produced YoY against the volume of additional spend occurs). So you can see the only way to reduce the delta between nominal spend & productivity is if you've hit the only two things you have any control hope over controlling - credit & wages. SVIB is likely a credit event in system.......that will markedly change credit creation dynamics moving forward. Less credit driven spend will in turn lead to lower spend, lower spend results in a need for less workers....which hits that second source of funds - wages/income that turns into spend. Post SVIB I think its possible the terminal rate will not need to go as high as previously thought.......the terminal rate question is kind of pointless guessing game at this point......25-50bps or there about's.....who cares exactly.......its headed to 5.x%-ish as JPow knows it needs to be there to at least be restrictive or neutral (inflation adjusted!)....the effect they are looking for & their resolve is the most important dot plot to watch out for.....and what I see is a Fed that isn't likely moving that rate until unemployment moves meaningfully into the 5% range....and what folks are going to find IMO shocking is how they are going to hold the Fed funds there and for how long.....as people, commentators, folks inside the beltway squeal murder......and the indices roll over & corporate profits roll over. The Fed is very likely to make a 'new' mistake, they are only human after all.....but they wont make the 'old' one......which is cutting too soon! There is too much institutional knowledge still around from the 70's to do that and JPow has spoken enough on this point to suggest to me he will in the future be accused of lots of f-ups...the most glaring will be the late 2021/early22 accommodation/transitory stuff....the one f-up they wont pin on him is cutting too soon in 2023 such that inflation flares back up in 2024/25. It aint pretty this, as we've seen that with SVIB.........but there isn't another way out of this setup. If you got any workable* ideas write him to me here I'd be interested to hear them.......and then post them to Constitution Ave., Washington D.C. * a workable solution is not one where you claim inflation doesn't exist and its a hoax.............the second non-workable solution is to do a JPow 2021 impression and claim its all transitory and inflation is already over

You've nailed it in Charlie Munger style conciseness - beautifully put - its unpopular but its 100% true. The Fed has two mandates - price stability & more recently employment........they will never say it out loud but they know and their public pronouncements confirm that one mandate supersedes the other........their 'real' goal is to maximize employment inside of the 2% inflation target because they know that doing so actually minimizes aggregate misery in the short run & optimizes stability and future growth of the US economy in the long run. Its hugely desirable.

Lots of chatter out there around why Signature Bank was so aggressively shut down when it seems it was still able to meet deposit demands. The story goes that regulators now want crypto exposure expunged & lanced from the US banking system. Why? Because they are beginning to come to the conclusion that a collapse in the crypto ecosystem (FTX) jumped like a virus into the traditional banking system compounding over time via Silvergate into the SVIB collapse. So the story goes that US regulators........are beginning to trace the SVIB bank run......back first to FTX......which caused a run on Silvergate as crypto bros all demanded their money back ASAP & where Silvergate had asset-liabilty mismatches and collapsed. This effectively began a search for 'Silvergate like' bank balance sheets and SVIB fit the bill.......and well the rest is recent history.............just shows that risks have a strange way of compounding and the 'tiny' crypto market long considered NOT systemic too small to matter can end up mattering alot. In this instance one can argue that the crypto tail started wagging the US financial system dog.