Have We Hit The Top?

[Gregmal]

4 minutes ago, crs223 said:

 

Sorry for the imprecise/confusing language.  I'll use your words:

 

Q: Should the fed ever undo printing?

 

a) No. Printing causes nothing bad.  No need to undo it.  The fed cannot make baby formula.

b) Yes. But maybe later, not now.  The fed cannot make baby formula.

c) I do not understand the question.

 

 

Lol yea kinda. I guess I’ll elaborate my thought process. 
 

You had the GFC which largely destroyed the financial system. Printing and asset purchases were in many aspects intended to rebuild the banks and thus nurse the economy back to health. So stimulus essentially.  Goal was to get back to something considered normal.

 

Various points since, we ve had scares and freeze ups like 2h 2011 and like for instance with COVID, the system probably needed an oil injection to keep going and see the other side. We were probably much closer than folks think with the GameStop situation as well. But again, goal was to basically keep the system working. 
 

Now? System seems to be running fine. We have supply and demand problems which are government inflicted. There is some stuff the Fed can do but largely there’s not much it has at its disposal to handle this other than potentially things that are far more destructive than elevated living costs for a few years. People keep saying “inflation needs to be tackled”… but again, outside of the cute snippets trying to sound concerned for everyone well being, it’s hard to see that inflation is gonna be worse going forward than it already has been. So the worst is behind us unless you believe we will see hyper inflation. If you do, what evidence is there for that? I don’t see any. So you have a temporary problem in which the economy and consumer has already taken the hardest punch…money and jobs are out there for those that want them….what’s the problem?

 

So I take all that and definitely ain’t in the wabuffo camp in terms of having that mental capacity or understanding to navigate every Fed action and where exactly it goes, but fall back on just wondering why they “need to unwind” anything, what is the hurry, or even if it has any material effects on anything relevant. There’s people who think a 50bps hike dropped the QQQ 30% ytd or whatever, I don’t. There’s people who think speculative excess is the reason for the job openings. I think that is probably partially accurate. But everything with a bow around it, I don’t see one way or the other what “undoing the printing” accomplishes assuming it is done or not undone in any sort of rational way. A healthy economy should be able to replace stimulus in its own right, and if it can’t, why would you take it? Is there some imaginary person you need to return it too lol? Government can basically borrow and print however they see fit. 

[Gregmal]

Put another way, there should be a net positive benefit to whatever actions get taken, all the time. Adding stimulus during rough economic times or liquidity during liquidity crunches  IMO does that. Removing it when it’s no longer needed and the system is self supported, is rational. Taking an action to tackle an issue that is 90% unrelated to your proposed action, makes no sense. Shrinking the balance  sheet “just cuz” IMO is pointless. What’s the net benefit?
 

People continue to just throw out headline grab phrases about “curbing” inflation, but then bring up these proposed Fed actions that don’t create a net positive benefit when tackling it. I mean you could wreck the economy and send everyone’s asset values to hell and yea inflation will be “contained”….but like I said earlier; that only benefits the rich scum bags. I mean would you rather pay 5-10% more for goods and services over the next few years or see your retirement assets and home equity decline by half? Generally, at least in my lifetime following this stuff, the Fed tends to err on the side of caution and prefers a happy medium. If they see too much negative consequence, in addition to knowing that 1) inflation likely already peaked, and 2) what they are doing isn’t productive…they will react accordingly.
 

If your dog has a tick on its head because you went to the woods for a camping trip what do you do? Remove it and realize you aren’t camping anymore so the situation is a one off but maybe there’s lingering effects of potential Lyme disease? Or cut it’s head off to “stomp out” the situation? Bizarrely, the later is metaphorically what a lot of people are thinking needs to be done and proposing the Fed will do. 

Edited May 24, 2022 by Gregmal

[crs223]

42 minutes ago, Gregmal said:

send everyone’s asset values to hell and yea inflation will be “contained”….but like I said earlier; that only benefits the rich scum bags. I mean would you rather pay 5-10% more for goods and services over the next few years or see your retirement assets and home equity decline by half?

 

I'd prefer asset price tumble for a few years so I can buy more.  I think BRK would agree.

 

Trying to use your words, this is the message I hear:

1. Remove stimulus when no longer needed and the system is self supported
2. People can afford houses even with interest rates going up
3. There aren't enough workers to go around
4. Stimulus no longer needed and the system is self supported
5. Do not remove stimulus now
6. Goto 1

 

I agree with #1-#4.  #5 sounds inconsistent to me

[rkbabang]

22 hours ago, fareastwarriors said:

Saving America  one can at a time.

 

https://www.today.com/food/trends/arizona-iced-tea-99-cents-founder-don-vultaggio-rcna24899

 

Arizona Iced Tea founder says the 99-cent price tag will stay the same

 

 

.

Someone should create a crypto stable coin backed by Arizona iced Tea.

[Spekulatius]

3 hours ago, crs223 said:

 

Sorry for the imprecise/confusing language.  I'll use your words:

 

Q: Should the fed ever undo printing?

 

a) No. Printing causes nothing bad.  No need to undo it.  The fed cannot make baby formula.

b) Yes. But maybe later, not now.  The fed cannot make baby formula.

c) I do not understand the question.

 

 

The chart shown above has little to do with  money printing. Fiscal deficits cause money printing, but putting assets or reserves on the Fed's balance sheet doesn't.

 

The reason is simple  - these transaction leading to above do not put a single dime in anyones pocket. The stimi checks did and that's why they matter.

 

As @wabuffo stated many times before, watch what the treasury is doing rather than the Fed. of course the Fed matters too, but it's not because of money printing. The actions of the Fed makes it more expensive to borrow money, but mostly not because of what they did (raise interest rates a little), but because Mr Market is trying to front run what they may do in the future.

Edited May 24, 2022 by Spekulatius

[Gregmal]

29 minutes ago, crs223 said:

 

I'd prefer asset price tumble for a few years so I can buy more.  I think BRK would agree.

 

Trying to use your words, this is the message I hear:

1. Remove stimulus when no longer needed and the system is self supported
2. People can afford houses even with interest rates going up
3. There aren't enough workers to go around
4. Stimulus no longer needed and the system is self supported
5. Do not remove stimulus now
6. Goto 1

 

I agree with #1-#4.  #5 sounds inconsistent to me

I don’t really have an opinion on “removing stimulus” or #5 you mention above, because I still don’t have an exact idea on what is being asked to be “removed”…it varies across the board depending on which inflation loonie you talk to. Ackman wants to crank rates so his CDS pay off. Dalio is long old economy stuff and short tech. Etc, etc.

 

Should the Fed be buying asssets right now? Nope. Should we be putting liquidity into the system right now? Nope. Do we need to be aggressively jacking up rates? Nope. I’m not really of the opinion of anything for or against stimulus here, I think the Fed did it’s job and now just needs to sit tight and do little else but gets rates back to where they were pre COVID.

 

You asked me above if they should “unwind the stimulus of the past decade” and my response was “why?”. I am still asking why, and also, define “unwind”. Jack up rates excessively for the purpose of solving an issue that won’t be solved by rates? 
 

And above you indicate I am saying do not remove stimulus now. Definite what you are asking to be removed in real terms? We want folks to repay $300 per kid child tax credit? All I’m saying is things are fine and folks have completely fabricated the severity of this inflation issue. All the smart folks last year said it was transitory and they weren’t wrong, they just missed the timeline. But psychology wise now, all those folks that were wrong now bought into the other side and are again off. It’s not “proof” of anything that after crazy demand retailers like Target ordered too much shit at high prices and now are gonna print a few shitty quarters. That’s been an overwhelming wax on wax off theme since COVID started. The other issues like energy, will be solved at the polls. It’s not a Fed solvable issue. 

Edited May 24, 2022 by Gregmal

[crs223]

56 minutes ago, Spekulatius said:

The chart shown above has little to do with  money printing.

56 minutes ago, Spekulatius said:

these transaction leading to above do not put a single dime in anyones pocket.

 

thank you.   Is #2 also true?

 

1. those transaction do not put a single dime in anyones pocket.

 

2. unwinding those transaction do not remove a single dime from anyones pocket.

[Spekulatius]

On 5/22/2022 at 7:46 PM, Gregmal said:

Anyone want this entire “inflation” thing put in a nutshell? Here you go.

 

How in the fuck do you create a shortage of baby formula? Answer: have the government shut down the largest factory producing baby formula! Easy. 
 

Now apply to oil and gas. Apply to farms/factories. Apply to restaurants. Apply to the pool of potential laborers. Apply to the entire economy as we saw over and over again the last few years. Making sense now?

This happened because the company owning this has been underinvesting and running the plant in substandard conditions:

https://www.cnbc.com/2022/05/25/watch-live-house-grills-fda-commissioner-abbott-executive-on-baby-formula-shortage.html

[Gregmal]

Nah. It’s like the crime surge in NY. Bail reform? Nah too obvious, so the media, in cahoots with the politicians, creates some “other” excuse. Blatant lies and distractions. I believe gaslighting is the word liberals use. Of course it’s not the obviously stupid stuff we did, it’s actually something else!
 

Bottom line is yea there were issues at the plant, but shutting it down and then, wouldn’t ya know, having a baby formula shortage? Dur da dur. Same thing happen now as happened with energy. They create the problem, and then hold hearings blaming the oil companies for negligence and greed….

Edited May 25, 2022 by Gregmal

[Spekulatius]

14 minutes ago, Gregmal said:

Nah. It’s like the crime surge in NY. Bail reform? Nah too obvious, so the media, in cahoots with the politicians, creates some “other” excuse. Blatant lies and distractions. I believe gaslighting is the word liberals use. Of course it’s not the obviously stupid stuff we did, it’s actually something else!
 

Bottom line is yea there were issues at the plant, but shutting it down and then, wouldn’t ya know, having a baby formula shortage? Dur da dur. Same thing happen now as happened with energy. They create the problem, and then hold hearings blaming the oil companies for negligence and greed….

Sorry, but that's nonsense . What has the crime surge in NY to do with this?  If you had a baby right now would right now, would you give it formula produced in this facility? It has bacteria found all over the place. Moreover this facility was inspected before (there are regular inspections) and none of this was found.

https://www.fda.gov/media/157073/download

 

Whoever manages this facility has been criminally negligent.

Edited May 25, 2022 by Spekulatius

[Gregmal]

So shutting one of the largest baby formulas factories in the country had nothing to do with a baby formula shortage following? No one thought to maybe have contingency plans? Or was the contingency plan to just hold hearing and blame the company? 

[Parsad]

1 hour ago, Gregmal said:

So shutting one of the largest baby formulas factories in the country had nothing to do with a baby formula shortage following? No one thought to maybe have contingency plans? Or was the contingency plan to just hold hearing and blame the company? 

 

The contingency is to ship it in from other countries.  Why on earth would you blame the government (either Republican or Democrat), for a company that was using substandard facilities to make baby formula? 

 

And do you think that officials just shut manufacturing facilities down without weighing consequences? 

 

Not that I'm defending this situation or others...but not every official is an idiot...nor is there much a government can do in the short-term, if years of underinvestment creates a shortage during a crisis.  Cheers! 

[Gregmal]

13 minutes ago, Parsad said:

 

The contingency is to ship it in from other countries.  Why on earth would you blame the government (either Republican or Democrat), for a company that was using substandard facilities to make baby formula? 

 

And do you think that officials just shut manufacturing facilities down without weighing consequences? 

 

Not that I'm defending this situation or others...but not every official is an idiot...nor is there much a government can do in the short-term, if years of underinvestment creates a shortage during a crisis.  Cheers! 

To the bold question, Yes!

 

But why is this over and over a recurring theme? Everything the government starts meddling in, gets fucked up. Then they turn around and tell us that the obvious as day reasons(them!) arent really the issue, but rather its something else, and that something else always happens to be a self aggrandizing or serving position. Biden now blaming Putin for high gas prices even though the barrel was already up 50% year over year, but hey, now to solve this, we need to promote more green energy shit!  Or look at the grandstanding at this hearing. Or the "greed at the pump" hearing. Its about creating problems, blaming someone else, and then getting your moment in the sun where you can create sound bytes and Twitter likable quips. 

 

I absolutely believe they shut shit down for no reason, look at energy! We rag on China for their "zero covid" stance, but didnt we just have the same sort of shit going on in NY/NJ/CA just presented through the media differently? This time last year I still couldn't freely go into a restaurant in NJ. 

 

So overall you have, just in the past few years, bipartisan actions:

shut shit down and tell people to stay home, create economic/health/quality of life problems.

give out free money, create supply and demand shit storms.

hostility toward energy, soaring energy prices.

meddle in Ukraine, create a war. 

campaign on an open border and create a border crisis starting on "move in" date

illogical gun laws, lead the developed world in shootings

restrict/hostile zoning/building, housing shortage

mandate fire people for not getting the flu shot, making shorthanded companies even more shorthanded

close largest baby formula factory, now have baby formula shortage

 

Seriously, fuck these people. 

 

[changegonnacome]

I’m afraid your throwing out the baby with the baby formula & many of you are acting like your view on this inflation stuff going away soon all by itself ones supplies chains reconstitute……..is somehow contrarian ( @Gregmal  I’m looking at you  ). That view, is the consensus market view - look at the long bond, break even inflation etc etc. What your articulating is whats priced in. Holding this view, you are slap bang in the middle of the market consensus. Maybe your right - the market often is the best detective.

 

So whats not priced in, is the following - is that inflation we have now is a monetary inflation (exasperated by supply chain issues but not its root cause). That its likely to persist & embed itself into the economy unless dealt with & that the post-COVID world itself has an inflationary bias (re-shoring/resiliency vs. cost optimization, China Cold War, demographics) which will lead to structurally higher inflation moving forward . The long bond…..and other long duration assets have only modestly priced in this future - this version of the future does not seem that fanciful to me and the argument's for it are compelling. In this type of world everything doesn’t just “GO UP” over time as it has for the last 40 years…..but certain things will……low P/E, consumer staples with pricing power etc. etc. No harm, IMO, to be open to to the idea that what Grantham / Dalio are saying might turn out to be true….and position accordingly. Dont think your portfolio has to be in one camp or the other but you can do well with a bias to low P/E stocks with proven cash flows & pricing power that should do well in one world and pretty good in the other type thing. 

Edited May 25, 2022 by changegonnacome

[Gregmal]

53 minutes ago, changegonnacome said:

I’m afraid your throwing out the baby with the baby formula & many of you are acting like your view on this inflation stuff going away soon all by itself ones supplies chains reconstitute……..is somehow contrarian ( @Gregmal  I’m looking at you  ). That view, is the consensus market view - look at the long bond, break even inflation etc etc. What your articulating is whats priced in. Holding this view, you are slap bang in the middle of the market consensus. Maybe your right - the market often is the best detective.

 

So whats not priced in, is the following - is that inflation we have now is a monetary inflation (exasperated by supply chain issues but not its root cause). That its likely to persist & embed itself into the economy unless dealt with & that the post-COVID world itself has an inflationary bias (re-shoring/resiliency vs. cost optimization, China Cold War, demographics) which will lead to structurally higher inflation moving forward . The long bond…..and other long duration assets have only modestly priced in this future - this version of the future does not seem that fanciful to me and the argument's for it are compelling. In this type of world everything doesn’t just “GO UP” over time as it has for the last 40 years…..but certain things will……low P/E, consumer staples with pricing power etc. etc. No harm, IMO, to be open to to the idea that what Grantham / Dalio are saying might turn out to be true….and position accordingly. Dont think your portfolio has to be in one camp or the other but you can do well with a bias to low P/E stocks with proven cash flows & pricing power that should do well in one world and pretty good in the other type thing. 

It is often helpful to be contrarian but its also just as important to end up on the right side of things. It was consensus from February-October 2020 to "sell everything" because of covid. Yes, now I know everyone bought tons of shit during the height of the hysteria, but in real time, that was hardly the case. It was consensus that housing was a bubble about to get destroyed in 2020, in 2021 it was consensus housing would do well. It did well both years. Now its consensus that rates will kill housing but that isnt happening either. You can have biases and get feelings and they evolve and you just go with it. Last year everyone slept on rates rising and blew off absolutely outrageous real world inflation. Now its a headline and everyone is obsessing about it but it seems pretty obvious we have taken the punches of the worst of it. I dont know what "the market" is pricing in because Ive never bought indexes or "the market". But people claiming we're getting a 30-50% correction because of 3-5% inflation are out to lunch. As long as Ive been a member here, every couple months, people need something to be afraid of. And every time we have a 5% or more market decline, people start making up reasons for it. So IDK. I kinda just like to focus on where there's money to be made and ignore the noise. No one makes much money doing what everyone else is doing. Wasn't it like 12 months ago and even recently where everyone was drooling over Amazon at $3200 when they had Berkshire staring them in the face? Right now I dont see how you can go wrong buying good cash flows or hard assets with a growth profile. Who cares about everything else?

[Jaygo]

Gregmal and perhaps wabuffalo I am wholly in your camp here but sadly only theoretically, my gut tells me i am wrong and so are you.

 

My problem is that as much as I agree the curent inflation is very much tied to poor leadership, more so that errors in policy could quickly be righted thus allowing goods and services to flow smoothly filling demand and adjusting prices to the market. 

 

What if the errors in policy dont go away? if you've read atlas shrugged this will feel eerily familiar. What if the people who are pulling the strings dont stop, what if they decide that farmers are evil profiteers next? example is somehow energy has become  a dirty word, but people dont realize that they literally would not exist without cheap fossil fuels, no cheap fuel your ass would not be here nor would another 6 billion of your friends.

 

If I am not mistaken the great depression causes come down to a massive waterfall of bad policy decisions globally that increased protectionism and killed animal spirits. Is that not the road we are on now? all of this talk of limiting exports, reshoring and the like are very similar to what they had then. 

 

Not a prediction nor prognostication but it rests in my mind to balance my feeling of a good economy once capitalism is allowed to get back to business. 

[Gregmal]

22 hours ago, Jaygo said:

What if the errors in policy dont go away? if you've read atlas shrugged this will feel eerily familiar. What if the people who are pulling the strings dont stop, what if they decide that farmers are evil profiteers next? example is somehow energy has become  a dirty word, but people dont realize that they literally would not exist without cheap fossil fuels, no cheap fuel your ass would not be here nor would another 6 billion of your friends.

Interesting timing, but this piece sums it up well. At some point you really do have to wonder if it is deliberate.

 

https://nypost.com/2022/05/26/team-biden-might-be-purposefully-crushing-the-middle-class/

[Cigarbutt]

On 5/23/2022 at 12:46 PM, flesh said:

When someone with some balls/the emotionality of the moment allows a retrogressive analysis, all the deaths resulting from shut downs should be counted against those saved by shutting down. All excess suicides, drug od's, starvation (death and life years lost from malnutrition for however long), all medical procedures that weren't done, murders, plus what I'm not considering atm. These ramifications will be felt for years and for 5-10 years all the excess deaths worldwide (not just USA, major economies effect the world) should be counted. Also, some weight should be given to education lost/mental disorders etc. 

I've been saying since 3-2020 to deaf ears, I guarantee life years lost will be greater than those saved and perhaps even lives lost vs saved. 

When the Italian data came out and the average age of death was 78 with 2.5 comorbidities (numbers might not be exactly right) beginning of march 2020.... we should have done whatever it takes to protect the old/weak and nothing else. In this case I'm totally confident total deaths would have been reduced. 

I really hope someone does this work so we don't do it again. 

 

 

"There should be asterisks next to everything humans say. No?*

[Viking]

Where inflation goes from here is the million dollar question.
1.) ESG is highly inflationary - we need to build a completely new architecture while concurrently running the old one. 

2.) covid has been highly inflationary. We are getting a second covid shock thanks to China’s zero covid policy.

3.) the Ukraine war is highly inflationary. Energy prices in Europe have spiked. Agriculture prices have spiked. Commodity prices have spiked.
4.) deglobalization / reshoring was a trend before covid / war in Ukraine - and these two events have accelerated this trend which is inflationary.

5.) the US has a massive shortage of workers. Power is shifting to workers… unions at Amazon and Starbucks. Wages are rising. This is highly inflationary. 
 

With each passing month we are getting closer to inflation expectations getting embedded and a wage - price spiral getting more firmly established. 
 

Many of the inflationary pressures look secular (will run for years) to me. This suggests to me that inflation could stay higher than most people expect - perhaps still running 5% mid 2023 (with lots of volatility). And this tells me the Fed could be forced to tighten MUCH MORE than Mr Market currently thinks. 
 

If the Fed is forced to take the Fed Funds rate to something closer to 4% in the next 9-12 months the bond and equity markets are screwed. Mr Market currently thinks inflation is transitory (and will drop big time in 2023). I am not convinced. 
—————

For inflation to come down in a big way, what of my 5 items above will reverse over the next year?

 

What would cause inflation to drop precipitously? A recession. This outcome would also be terrible for equity markets. 

[Gregmal]

1) is political and there’s a good likelihood voters choose something else in November

 2) COVID is over, China will get the message too.

3) this is a fair point

4) debatable, but in the face of shortages and imbalance greed will prevail. Biden has already talked about pulling back tariffs.

5) the is massively bullish for the average person and especially the consumer.

 

In addition, pretending the market dropped 20% because nothing changed is a little off. The drop to them clearly signals uncertainty and expectation of higher rates and longer inflation otherwise, if the expectation is the same as last year, 1) why the sell off and 2) how do you reconcile -20-40% in many names over a 1-2 year expectation. Didn’t we learn during COVID that longer term, 1-2 years of earnings, even 0 earnings, doesn’t translate to very much off the long term DCF derived valuation of that market? Many wise folks, I believe Brooklyn Investor one of the first, ran a 0 scenario and came to the conclusion that MAYBE, 10% deserves to come off.

 

So we ll see. But saying the expectation is the exact same as last year despite overall market reaction and sentiment is something I’d bet heavily against. Everyone has their own take but generally, at least over the past two years, I’ve read this whole thing like a book. And the recent action seems exactly in line with what one would expect if all the transitory people from last year all of a sudden came to the conclusion that oh shit we were wrong and now this is going to be higher for longer….exactly the position you would have wanted(and I did) take last year, but this year…fade it.

Edited May 27, 2022 by Gregmal

[Viking]

1.) by ESG, an immediate and obvious example is the move to electric vehicles. It IS happening. Tesla is a real company. And EVERY major automaker is accelerating their pivot to electric vehicles. The question is how fast it happens from here. The primary constraint will be material shortages… highly inflationary. The bottom line is climate change is real. How most governments are responding today is pretty idiotic; that does not mean massive change is not coming in the future in lots of verticals. 
2.) covid is NOT over. China is kind of an important player in the global economy and they are ALL IN on their zero covid policy. Xi has staked his reputation on it and he is facing re-election shortly. Even the US still requires ALL foreign travellers coming into the US to show proof of a negative covid test (independent 3rd party verified) performed < 24 hours before flight time. Most importantly, we are not out of the woods yet in terms of how the virus will mutate from here. My understanding is the most likely outcome is future mutations will continue and be more contagious and likely less troublesome (in terms of hospitalizations and deaths). But there is also a small chance we good get a mutation that is more contagious AND more deadly than anything we have seen yet. 
4.) deglobalization / on shoring IS happening. It is not theoretical. One example is all the chip factories getting built in the US. There are tens of billions of dollars requiring years of investment (just think of all the man hours of employment just to supply and build each plant). There are lots of other examples. Geopolitics will prevail.

5.) massive labour shortage: you say this is massively bullish for the average person. Ask the ‘average person’ who had a job in the 1970’s how happy they were with inflation. Inflation was/is horrific for the ‘average person’. For the simple reason wage increases for lots of people DO NOT come close to offsetting cost of living increases so real incomes fall and people get VERY ANGRY = lots of social unrest. Today the US has the tightest job market in history AND CONSUMER CONFIDENCE HAS TANKED. 
 

Bottom line, inflation is likely to remain much more sticky than Mr Market is currently thinking. And this means interest rates are likely to move higher that Mr Market expects today. We will see  

Edited May 27, 2022 by Viking

[Gregmal]

For the average worker, the one who wants it, and has some ambition; we ve already seen probably 20% raises. I would probably model 5-10% annual wage growth at the middle class blue collar level for the next 5 years, at least. Everyone from AOC to Trump now claims to be repping these folks. 
 

We’ve already seen many places give in with benefits. Starbucks offers crazy shit like IVF to 15 hour a week employees. Barring any sort of insanity inducing action from government or central banks, the worker is gonna be in the drivers seat for a while, and far outstrip inflation which maybe is gonna be 2-4% from here. 
 

ESG is bullshit. We re moving to other methods but what’s hugely being overlooked? What happens when Republicans retake control and open door energy production domestically? I actually think Canada seizes this opportunity as well. Was looking at stuff like Melcor and Dream with the Alberta exposure. It’s always good to have a lot of stuff that’s en vogue. That’s oil and gas right now. It’s too easy and too much low hanging fruit for one of the parties to basically endorse drill baby drill. Lowers costs for everyone, creates jobs, demonstrates independence from evil OPEC. It’s going to happen. 

[Parsad]

5 hours ago, Viking said:

Where inflation goes from here is the million dollar question.
1.) ESG is highly inflationary - we need to build a completely new architecture while concurrently running the old one. 

2.) covid has been highly inflationary. We are getting a second covid shock thanks to China’s zero covid policy.

3.) the Ukraine war is highly inflationary. Energy prices in Europe have spiked. Agriculture prices have spiked. Commodity prices have spiked.
4.) deglobalization / reshoring was a trend before covid / war in Ukraine - and these two events have accelerated this trend which is inflationary.

5.) the US has a massive shortage of workers. Power is shifting to workers… unions at Amazon and Starbucks. Wages are rising. This is highly inflationary. 
 

With each passing month we are getting closer to inflation expectations getting embedded and a wage - price spiral getting more firmly established. 
 

Many of the inflationary pressures look secular (will run for years) to me. This suggests to me that inflation could stay higher than most people expect - perhaps still running 5% mid 2023 (with lots of volatility). And this tells me the Fed could be forced to tighten MUCH MORE than Mr Market currently thinks. 
 

If the Fed is forced to take the Fed Funds rate to something closer to 4% in the next 9-12 months the bond and equity markets are screwed. Mr Market currently thinks inflation is transitory (and will drop big time in 2023). I am not convinced. 
—————

For inflation to come down in a big way, what of my 5 items above will reverse over the next year?

 

What would cause inflation to drop precipitously? A recession. This outcome would also be terrible for equity markets. 

 

I never thought inflation was transitory, as we've been watching manufacturers and retailers dealing with some production inflation for the last couple of years...the shrinkage in product size for the same price since early 2019.  But the amount of cash flowing into bank accounts has created inflationary pressure in many more areas than just production costs...distribution, labor, commodities, microchips, etc.

 

And I've expected a correction around 30-35%...we had already hit 31% on the Nasdaq and 20-21% on the Dow and S&P500.  I find it hard to see a larger correction than that with the way consumers and the economy are powering on.  You look at the recent earnings reports from many retailers, travel-related companies, restaurants...consumers are spending and in a big way.  They're just moving to different areas of industry to spend some of their dollars that have opened up after the pandemic.

 

It's going to be interesting to see how they can do it, but rising rates should have a reasonable effect on current inflationary pressure.  I think we'll get a better idea after the 3rd quarter how these 0.5% rate hikes are affecting spending and the economy.  But I just don't see a prolonged recession happening yet...too much money still on the sidelines in checking accounts and corporate balance sheets! 

 

Look at Macy's recent report...terrific sales, increased revenue and earnings, cash on the books, lower costs due to efficiencies put in place during the pandemic and they've paid down over a third of the debt accumulated during the slowdown.  Look at the comments by Jamie Dimon and Brian Moynihan...both see a robust economy with consumers spending, and debt still under control.  

 

Much of the nutso valuations have corrected anywhere from 40-90% (AMZN - PTON) primarily in the areas that had excessive expectations.  Speculative assets have equally collapsed and hit the floor...crypto, meme stocks, SPAC's, Cathie Wood's ass!  Most of the areas that weren't excessive are probably trading in the 7-12 times P/E range on normalized earnings now...retailers, restaurants, banks, manufacturers, industrial, distribution, etc.  While the overall market at the bottom recently was around 18 times P/E. 

 

Is there more pain to come...probably some.  But this is nothing like 2008/2009 or the pandemic...not sure it's even that similar to 1999.  History doesn't repeat, but it may rhyme!  So yes, another correction, but not necessarily like the others...except that it always ends!  Cheers!

 

 

[SharperDingaan]

Recent reporting has Canadians with roughly 3B of Covid accumulated cash in the bank - the 'pre-loaded spend' that Finance Ministers refer to; it will be roughly 3T for the US, at the typical 10:1 multiple. Consumers have lots of money, they want to spend it (travel, airlines), but investors don't want to hear it - not the narrative.

 

CB's are not raising rates for fun. If this 'pre-loaded spend' comes out faster than expected; rate increases will be in 75bp hikes, not the 50bp hikes of late, and 1,000 point index drops will be common place. Obviously, not good for those investors who insist on HODLing in a bunker. 

 

ESG is vilified because it makes debt rollover much more difficult; most people see the transparency as a reasonable ask, and recognize that at the physical level it is an evolving standard. Demonstrate movement towards obtaining a social license, and a sustainable business model, and there are no issues. However times have changed - it is 2022, not 1972.

 

Choose not to incorporate ESG, pay your loans back as they come due, and explain to your workforce why you've laid them off. 'Cause the business IS there - the problem is the dinosaur running the place, and its inability to move with the times. Looking for someone to blame, and roaring loudly, is not going to roll your loans.

 

Lots of market opportunities.

 

SD

Edited May 27, 2022 by SharperDingaan

[Spekulatius]

@SharperDingaan it's important to note that ESG is a three letter word and stands for Environment, Social and governance. Sounds like 90% of the mindshare is in the E, but social means treating Employees, customers, suppliers and doing good at the societal level and governance means that management is transparent and foremost treats shareholders right.

 

The EV company that produces shoddy vehicles and has unsafe work practices, gets there raw materials from conflict areas, pollutes the environment there and has overpaid management and dilutes shareholders to no end should have a low ESG rating just to put out a fictional example.