changegonnacome

Yep - but the Fed's dirty little secret of course, never muttered, is that they know to fix inflation that a deterioration in employment is required. Employment holding up, in my mind, is a clear sign that will need to continue to tighten till it fundamentally deteriorates. People seem to forget the Fed funds rate is 1.58% as of today......Core PCE inflation is ~5%........the price of money in real terms is negative 3%......this is still a highly accommodative Fed. There is more to go, maybe the Fed & Inflation meet somewhere in the middle later this year. I hope so, but dont so.

Your 100% correct - Bridgewater has done some work recently showing that the current market decline is basically ALL multiple contraction in response to higher discount rates( & to be clear the curve is currently pricing only a few more rate hikes). According to Bridgewater there is almost ZERO change in earnings expectations reflected in market pricing. So whats the takeaway? Effectively current market prices are predicting that most rarest of birds - a soft landing & a FED that gets it 100% right while bringing inflation back to 2%. I think the market is underestimating (1) how high the FED will raise rates (i.e. their backbone in the face of a weakening economy) (2) earnings progression into the back half of 2022 think earnings have held up better than I've expected....but the consumer is starting to weaken running down balance sheets/moving to credit/backing off housing etc. (3) Policy errors - either FED chickening out or going too far and something breaking. Expecting a soft landing in the face of an inflationary-rate hike cycle is the triumph of hope over experience. It's possible but not probable.

Agree somewhat…….US foreign policy energy & $ are being wasted in Ukraine…..when the real peer competitor ( China) is rising fast and making moves globally (BRI)….US needs to pivot back to Asia fast……being embroiled in the shit show in Eastern Europe is not smart and I’m sure Xi wakes up everyday hoping more military hardware & US military mind power is getting dumped into Ukraine to fight a fading fake boogeyman enemy like Putin/Russia.

100% - my basic thesis is that corporate profit margins peaked in 2021/early 22.....2021 will be seen as a goldilocks period for SPY valuations.....record profits, record profits margins, above trend multiples.....ultra low interest rates meaning NPV of those earnings was super high....were living through the unwind of that now.....multiples have come in, in response to raising rates in H1 22 maybe more to go there (the P).....and my thesis is profits/margins are going to get whacked next (the E)........in your P/E

Thanks for this - suspected it was too simplistic Sympathetic to that view although i do still retain a piece of my old economic doctrine/dogma that the banks are the transmission mechanism & ultimate 'printers' of new money by scale/scope.........but the double entry accounting of your deficit spend model feels more correct.........in the sense that everybody else in the system is somewhat operating in a closed loop & money is just a settlement layer where transactions goods/services/assets get 'net out'......deficit spending as you point out then is the only incremental money being beamed in from outside the system. Do you have a view on the scale of deficit spend in 2020/2021 relative to the actual economic shortfall of the the COVID/lockdowns? Clearly we over did it or did we?....do you have rough math in your head......did we do twice as much as was needed / three times? Finally do you have your own personal feeling on whats driving the inflation numbers and to what extent its supply chains, US aggregate productive capacity being reduced due to great resignation/boomers/fall off in immigration in addition to deficit spending/money printing (or classic Friedman inflation)? Trillion dollar questions I know

Yes your right @FCharlie on the charts thingy I saw that M1 way too many times I'm now triggered by an M chart .........but M2 is about 30% above trend is a better way to look at it from all the digging I've done....the 50% thingy is great headline but it belies the reality (this is versus the 6% annualized M2 growth that existed before COVID and where we would have been if it had just continued to today with M2 expansion)...there also lots of wonky central bank/ treasury money supply nuance going on in that figure too that it would be great if @wabuffo might explain for us? I'd be curious for him to cut through the M1/M2 chart noise and give a sense of what his assessment was of the scale/scope of helicopter money printed and dropped into the US through all the various government interventions (& maybe just individual market participants i.e. banks & borrowers..... for example cash out refis became very large part of all the additional money floating around).

Hate those M2 charts with a passion...........please dont use them - the crypto people use them the whole time to fit their Zimbawe debasement narrative.....the money supply wasnt increased by 50% in the space of a couple of months.....the M2 figure going up and to the right looks unbelievable because it is.......the FED for the purposes of liquidity for banks/depositors allowed the reclassification of savings accounts as checking accounts in 2020 i.e more than six withdrawls from a savings/money market account per month......what your seeing in that chart is savings account (money that existed already) get pulled from M1 into the M2 accounting figure as a result of that reclassification. Its one of my most hated charts on the internet.....spread the word that its TOTAL bullshit.....albeit I'm in agreement that we printed/borrowed too much money. Think your confused - my point here was that Greg's solution, in a way, is for the lower incomes folks to go take full on advantage of the jobs market.....which if they were succesfull en-masse in doing so would be a wage price spiral situation ala 70's. This is not my position the opposite in fact but one I cheekily applied to someone else's framework for how things could/should play out if 'he' was 'them' So again dont get confused with me saying that I think this will happen. So you'll see the bit you quoted from me isn't incompatible: "so prices are rising at a higher interval rate & faster than wages can keep up with.... therefore purchasing power is decreasing in the consumer across time in the low/middle income groups i.e. most Americans!." At the end of the day collective bargaining/union participation has been eroded to a huge extent in the US today vs. 70's.......the ability for labor collectively or individually to negotiate wages upwards is severely curtailed, especially at the low end. I think you get to your point about "sudden disinflation/outright deflation" eventually alright.... but what you'll have is unbelievable levels of suffering meated out to the lower classes in the scenario above I described i.e destruction of real purchasing power slowly, social/political instability...you thought Trump was an outside candidate... in 2024/2028 god knows what creature could emerge from a bitches brew I've described above. Whereas the alternative avenue is open for Powell - a modest rise in unemployment, a mild recession, price stability restored etc etc VERSUS an inflationary bust/years of stagflation/wage price spiral alternatives. I think though you've made an excellent point re: historical traditional disinflation end point.....my expectation would be the economy cracks in a big way all by itself if left alone right now...lets say the FED went on a three year vacation starting in mid-2021......as the lower-median workers ability to command goods and services above and beyond basic shelter/heat/food evaporates to nothing. Like I said I would consider that road akin to torturing your fellow man when you had a way to potentially solve the problem but it cost YOU some heat so you didnt (i.e. Powell chickens out from raising rates into the first sign of a weakening economy and put ends up in the worst of all worlds (stagflation).

I dont think anybody is saying this is soley the case........as I've said many times before whats hard for people and in some ways unique about where we are in the US is that we have a supply shock/commodity shock driving lets call it 50% of the inflation numbers I TOTALLY agree with you here.............. but where we differ is there is also old style monetary inflation happening at the SAME time because too much money was printed and dispersed across the economy via stimulus, cash out refis, SBA loans etc etc. Lets call this inflation 50% of the big number...........either way........diagnosing how we got here is off little use in a way..........inflation expectations embedding at 5 or 6% is no bueno. Think about what your saying in way......lets say GM/Ford/Tesla got their global supply chains 'fixed', chip shortage gone and they could really ramp production to meet demand.....this would be great in your world, the problem is inflation wouldn't magically 'go away'......see how are GM/Ford/Tesla gonna ramp employees/production in a 3.5% unemployment economy where for every person looking for a job, there are two openings? One answer is maintain pandemic car pricing & raise their new position wages aggressively and displace a worker somewhere else in the economy....who then has to be filled at higher wages......but remember there is two positions open for everyone looking for a job........a wage price spiral ensues.....stable, modestly growing prices, because we've had them for two plus decades, are one of the most under-appreciated economic characteristics of an advanced society/economy.

The great jobs market is a symptom of too much money chasing too few goods and services = inflation. Early inflation cycles work out fine - Walmart hikes prices & hikes wages.....everybody wins.....the problem is that wages never keep up with monetary inflation.....inflation happens every day in tiny little ways across the economy, wages reset much less often ,yearly or if someone leaves a job for another (attrition levels of less than 15% even in shitty jobs is quite common).........so prices are rising at a higher interval rate & faster than wages can keep up with.......... therefore purchasing power is decreasing in the consumer across time in the low/middle income groups i.e. most Americans!...........corporates try to push price again to preserve THEIR margin but they cant (the consumer is weakening in the face of a loss of purchasing power).....etc etc I think what Powell would say is that the number of job openings should be brought broadly in line with the number of people seeking employment such that we have stable prices across the economy. If you think about what your advocating for as an alternative Greg....which is a bunch of low/middle income workers to get your industriousness and really get out there and hustle their employer for pay increases or hyperactively change jobs every 12 weeks for a higher salary the next shop over.....................your really advocating for a wage-price spiral in disguise.

If that is the case then unfortunately as much as I'd like to chalk this one up to the media just looking for its COVID 2.0 story/clickbait.....monkeypox is something that will have an impact................ what makes it different though and its an important difference which drove all the lockdown ideas of COVID was the asymptomatic exponential spread i.e. by the time you felt sick you'd already infected 100 or 200 people......from everything I'm reading having the symptoms of monkeypox and being infectious with monkeypox overlap with a high correlation - this will requires less of the cracking a peanut with a sledgehammer approach that COVID required.

Its not just the above Greg.....this is not Europe............its monetary inflation in the US, the Fed realizes this hence Powell's resolve/messaging...........inflation in Europe is supply chain/commodity/energy driven, the European economy is by lots of measures operating below its long run potential......Europe has in economic terms 'slack'. Do you think the USA has any 'slack' or is it operating at or above its theoretical capacity? Just look at the facts > for every person seeking employment there are two job openings. Is that an economy with slack? or one operating above and beyond its productive capacity because too much money is chasing too few goods and services? This is not an economy with slack just suffering from some temporary external supply issues (yes it has that too).......but the reality is massive monetary stimulus was added to the economy, at the same time that vast swathes of labour withdrew from the economy (great resignation, baby boomers throwing in the towel, immigrants flee'ing Trump-land / immigrants deciding not to move to the USA). There is a very strong argument, that while Larry Fink from Blackrock argues correctly that aggregate demand in the USA is only at 2019 levels..........the productive capacity of the US is not back at 2019 levels for all the reasons I just listed.

Monkeypox has some characteristics from a quick skirt around which make it NOT the next global pandemic. From what I can gather: Good News: Monkeypox doesn't spread asymptomatically or pre-symptomatically..........theoretically widespread monkeypox awareness PLUS track, trace, isolation if required should be VERY effective in mitigating the spread. Bad: Monkeypox in young children, unlike COVID, is something to be concerned about and will result in mortality in a not insignificant amount of cases........you dont want this spreading around households/schools....it will have genuine consequences.

Walmart results showing classic signs of what I've talked about here - Margins - input costs rising (wages/goods) into a weakening inflation squeezed consumer.........Walmart pushing price to restore margins without tanking volume, which worked in 2021, isnt working now and isn't going to magically start working now or later this year. Profits get whacked. Then if you take Walmart workers as some type of bellwether for low paid/unskilled workers........what are the odds with unemployment rising later this year (or not) and Walmarts corporate margins getting squeezed.....that the average Walmart worker who in 2021/22 got unasked for pay rises......gets one handed to them for fiscal 2023 such that it compensates for inflation running at 5%. Answer ZERO. Workers may agitate but Walmart will cry pain. Walmart is worse off. Joe Sixpack is worse off. Inflation steals from us all but those on fixed incomes/low paid/unskilled the most. What I've just described is why Jay Powell should and I think will be aggressive into a weakening economy......nobody wins with inflation, nobody wins with stagflation......stagflation is what happens when Central Bank's chicken out.........you have to purge inflation from the system, short term pain for long term gain. Let's see if Powell has the balls to the right thing.

+1 I'm rooting for Ukraine and its people.........but some times your best friend, can be your worst enemy........the current strategy aided and abetted & fundamentally enabled by 'the West' has Ukraine on a pathway to Allepo'izing its whole country. This is not wise if alternative potential outcomes exist. The above is not a zero probability outcome for every Ukrainian city larger 250,000 people

Nord Stream Gas Flows to Drop to 20% of Capacity, Russia’s Gazprom Says https://www.wsj.com/articles/nord-stream-gas-flows-to-drop-to-20-of-capacity-russias-gazprom-says-11658760473?mod=hp_lead_pos3 Here we go.....its leverage time.....lets see if its aimed at negotiating a settlement to the conflict later this winter.......the grain deal and this are what I would expect from a Russia looking for 'peace with honor'. Like it or not Macron is correct in that it is not wise to humiliate Putin/Russia........even in a scenario where the West/NATO/Ukraine has stifled Russia & shown its undoubted superiority.

https://www.marketwatch.com/story/u-s-july-flash-pmi-data-show-worrying-deterioration-in-economy-11658498760 Cant ignore PMI + the canary in the coal mine that is ad budgets.....very interesting to see if FED makes the standard policy error here which is beloved by spineless central bankers everywhere.........which is to back off hikes at the first sign of trouble such that inflation remains persistently high but just enough hikes to put the economy into stagnation.......good old stagflation. I dunno I get the sense from Jay Powell that he's aware of this folly....and might avoid it. Let's see.

Yep I agree on the digital advertising front - curious thing this cycle is that in the last recession digital advertising was like 13% of total ad budgets i think.....Google escaped unscathed that time as aggregate budgets got slashed but its segment remained resilient......this time around digital ad spend is almost 50% of total ad spend........so today when ad budgets get slashed you cant not cut your digital spend and get where you need to be from a budgeting perspective you HAVE to cut GOOG & FB........some GOOG holders are going to be shocked & stunned to find it not growing its top line 20% YoY & dump IMO....I think its the best god damn business in the world and pray and hope it gets cheap-ish.

Which is driving my feeling the point of maximum opportunity for Russia to extract a good deal/peeling off of sanctions from the international community is early/mid this winter (before 2023).......at some point soon Europe will squeal in pain and will be ripe to advocate for a settlement between Putin & Zelensky.....i expect diplomacy to ramp up very soon.

Got ya - yeah he sure made a big song and dance about this at Davos......whats his game.....just desperate to be 'in the room' with the powerful?

If you believe Soros from his Davos talk....its actually not a realistic threat from Putin but it seems to work to scare European leaders. Soros's take was this (i believe he sent a letter to Mario Draghi pointing this out) and I havent done any DD on whether this is even remotely true (maybe O&G folks on here will know) but he effectively said you should think of Russian natural gas as a by product of Russian oil production........the wells they have producing oil, produce gas in Siberia.......the gas is effectively sold off at a very basic cost+ model, there is no margin on Russian gas as it isnt fungible and can be only sold to those at the end of gas pipelines like nordstream.....and anyway the real money margin is in the oil......this is fungible and can put on trucks > tankers and sold to the chinese/iranians/global markets or whatever. Refusing gas deliveries would require the shutting down on some Siberian wells. I think Soros's point was that EUROPE should shut off nordstream itself or threaten too or heavily curtail usage....knowing that if Putin had nowhere to send the gas it would actually force the closure of his oil fields which would really harm him & his fiscal positon......anyway this seemed kind of fanciful but who knows. https://www.businessinsider.com/soros-urges-europe-heavy-taxes-on-russian-natural-gas-putin-2022-5

Came across this little additional trick which seems like a way to get more cash into these above and beyond annual limits when the rates are so juicy as they are now...............effectively using a giftbox with a future delivery date for your spouse in the next fiscal year but trick is interest starts to accrue on day 1 of the 'giftbox' creation even though delivery date might be six months away. Anybody doing this? Thread below here: https://www.early-retirement.org/forums/f28/the-i-bond-thread-113668-46.html#post2793413 Looks like a way to leverage the current high rate & skirting the annual thresholds (it still uses up thresholds in later years)....so effectively if your team transitory......you like this alot I guess.

Disagree - the international communities support led by the US & EU is the ONLY reason Ukraine has been able remain belligerent in the face of Russian aggression. I don't think anybody can deny that. As we head into the winter......the US is an ocean away both metaphorically & in reality from dealing with the down stream impacts of the conflict and sanctions regime...this is my point....the US can take a principled approach here but European leaders will start to get very pragmatic, very soon when the consequences for them really start to bite.........Europe is facing BOTH higher energy prices than the US (exasperated by a weakening euro vis-à-vis the dollar) but also potential shortages/rationing of ACTUAL gas/heat this winter. Last i checked no US citizen voter is being told to buckle up for a winter where they may not be able to turn on the heat in their homes..........or that their local governments are being told to identify municipal buildings that could be used to house 100's of senior citizens at night time in the event gas gets turned off. My point is European leaders (especially Germany) will become important influencers moving into fall/winter....as these countries and electorate are at the thin end of spear......Joe Sixpack doesnt like that a tank of gas for his F150 costs $100+......but could he countenance being told he cant have ANY gas and that he should plan to sit in his home this winter watching TV with his jacket on? The US administration's attitude would shift radically if this was the case......lets see if the US/EU solidarity on the Ukraine-Russia conflict remains but I expect a splintering coming very soon....which as I've said maybe the catalyst for some imperfect end/freeze to the conflict. You can already hear the solidarity creaking with Macron's off ramp/humiliation language (https://www.nytimes.com/2022/06/04/world/europe/ukraine-macron-russia-izium.html) https://www.dw.com/en/german-residents-make-plans-amid-fears-of-a-winter-gas-shortage/a-62482737

Prediction time , lets call it a hunch - I think a peace deal/conflict freeze whatever you want to call it………gets done before year end 22……maybe even sooner…….optimal timing based on the fact Russian casualties/shortage of soldiers/equipment means that a declaration of war from Putin is needed relatively soon if he wants to continue scaling into this conflict…..i think this is a red line for him which i dont think he’ll cross…………PLUS the point of maximum leverage for Russia will be in the early part of this winter………European political leaders will sell their soul once they get back from the beaches of Spain/France/Portugal in late August to avoid what seems inevitably a winter of discontent on the energy/inflation front & Putin knows when to press an advantage…….. all this points to Putin coming to the table I would think in November/December at the latest……I think potentially as early as August/September……..……spicy take but think it gets done…..wrinkle might the US Mid-terms & what suits Zelensky’s US partners but would expect an accerlation of talks to happen after the results are in.

Exactly I watch the savings rate fall, soon if not already average checking accounts balances falling, then credit card balances rising + interest rate on those CC …..you can see what’s happening out there on Main St. to Joe Sixpack….he’ll be Joe FourPack before he realizes and that’s called a recession . Hope it’s a mild one that’s sufficient to bring inflation down to 2-handle and we build out from there.

so two points: (1) when your purchasing power is already negligible and your at the margins of poverty……1,2,3% hurts…..it hurts like a MF!!!! And as I’ve mentioned before we are in the part or just passing the part of the inflationary cycle where you get 3% raises without asking/negotiating. Now as we’re about to find out with Q2 earnings, profits & margins are about to get whacked. You think HQ doesn’t tell store clerk Betsy, this December hey sorry you got a raise last year & the company isn’t doing that great so you know tough times Betsey….but inflation is still 5%…you do the math. (2) as we’ve talked about before what you believe and what I believe doesn’t matter….it doesn’t even matter if your right and I’m wrong….when I read the Fed minutes and I listen Jay Powell…..I happen to hear my point of view and my believe….but my belief doesn’t matter….. ultimately knowing what Powell believes reveals what he’ll do next and that is key to positioning for this market cycle…..nobody is immune to beta and like it or not the Fed is driving the Beta Bus