Kuppy on Inflation

[ERICOPOLY]

There ARE global supply chain issues due to covid.  And that IS inflationary.

 

I can't think of anything else that changed to kick off the inflation.  There were trillions given away under Trump and trillions under Biden.  But those outright check giveaways are over.

 

 

 

 

Edited November 10, 2021 by ERICOPOLY

[Spekulatius]

2 hours ago, Viking said:

The bond market is nuts. As it becomes clear inflation is NOT transitory how do bond yields stay low (across the curve)? Who puts their money in a vehicle that is guaranteed to lose them significant money (purchasing power)?

 

i get holding bonds if inflation is 1 or even 2%. But inflation running consistently at +4%? 
 

My guess is if we get a big sell off in financial markets it will be driven by a big spike in bond yields. Much higher bond yields would be a game changer.

 

Where is the ‘safety of principal’ or ‘adequate return’ parts (‘investment’ as defined by Graham).

I think there will be a Wiley E Coyote moment coming for the bond market.

[Guest]

5 hours ago, wabuffo said:

As it becomes clear inflation is NOT transitory how do bond yields stay low?

 

We've talked about this ad nauseum.   Technical issues this year with the monetary plumbing.  Hard as it is to believe - there are not enough treasury securities in circulation for the private sector that wants them due to the TGA drawdown + debt ceiling blockage.   Should get resolved during 2022.

 

wabuffo

 

Bill, 

 

What would need to happen for this not to get resolved in 2022?

[SharperDingaan]

The bond market is speaking very loudly - we just don’t want to hear the message.
Confidence in central bank ability to manage the moving parts.

 

The yield curve didn’t move up on rising inflation data; because a sudden new supply of money across the curve, offset the inflation impact. Supply > demand at all terms, dropped the interest rate at each term – by the change in the inflation rate  i.e.: Central bank management.

 

The only way there is minimal inflation impact is if CPI (Consumer) inflation is being offset by deflation in the I, G, or (X-M) of total demand. C is very large and growing at the CPI rate, G clearly isn’t shrinking – so there must be material deflation in both I and (X-M). Total deflation so large - that without a very inflated C+G, the yield curve could even be negative. Compare 12-month growth in totals today, against what they were a year ago.

 

Both US refining demand and labour force capacity is essentially back to what it was pre-covid. Yet post covid recovery activity has barely started (travel, infrastructure, etc.), and US energy prices cannot be meaningfully contained without US exports essentially being discontinued. Further reducing (X-M).

 

The mystery is I. At some point it will arrive with a vengeance, forcing the G and (X-M) to compensate. The central bank is expecting M (supply chains normalizing) and  lower social net payments (G) to do most of the heavy lift.

 

The takeaways?
No reason to be overly concerned, re a pending market correction. 
CPI probably going higher, crude oil exports curtailed, widening WTI-Brent spread.
Green infrastructure investment as soon as possible.

 

SD
 

Edited November 11, 2021 by SharperDingaan

[wabuffo]

What would need to happen for this not to get resolved in 2022?

 

US Treasury security supply needs to increase.  It would be helpful if the debt ceiling is resolved and the maximum is set at 3 trillion higher than where it is right now ($29T gross).

 

Here's a way to picture it graphically.  This is illustrative and not meant to be predictive.  Normally, the US Treasury's net issuance of securities matches its net spending. (i.e., its account balance at the Fed stays constant).  This has been true pre-GFC when the US Treasury used to keep a minimal balance (~$4B or so)  This meant that the US Treasury's cumulative deficit spending over its long history = the amount of US Treasury securities outstanding in private sector hands.

 

In 2021, the US Treasury started the year with a very large balance (~$1.8T) in its account but faced a deadline at the end of July because the debt ceiling was toggling back on (after a two-year) suspension.  The US Treasury had to draw it down to $100b (where it was before the suspension - i.e., this was a control put in place by Congress to prevent the US Treasury doing what it did which was to run up its balance during the suspension).

 

This chart show what the amount of US Treasury securities would be outstanding if net issuance matched the huge 2021 deficit spending of the US Treasury (orange line) vs the actual inventory of US Treasury securities in private hands (blue line).

 

See what starts happening in an around the end of February?  That's the "oh shit! moment" for Janet Yellen.  She realizes she has six months to bring down the TGA.   So net issuance falls while spending goes on - and the TGA starts to draw down.    A huge gap opens up by the summer.   This is the reason the Fed started doing its reverse repo lending (ie lending out US Treasury securities overnight which has now reached over $1.4t rolling over daily.)

 

You can also see the point in late Sept/early October when a small relief was allowed in the debt ceiling.  Net issuance surged but has now once again hit the short-term revised debt cap.   Meanwhile spending continues.  The US Treasury continues to create new deposits (and reserves) in the banking system - but cannot withdraw those deposits/reserves with new net Treasury securities.

 

BTW - I think this little real-life experiment proves that US Treasury security issuance isn't really borrowing.  Its not "financing the deficit".   The US Treasury security issuance is an interest rate control mechanism.  It removes the reserves that the spending creates.   If there is no borrowing, but the spending continues, rates fall (and not rise as some of the macro dogma says).   If the Fed had not begun its aggressive reverse repo operations, we would be drowning in negative rates.

 

I think when the debt ceiling is raised (depending on how high), there will be a pretty rapid amount of Treasury security net issuance.  The US Treasury has said that they would like to get the TGA back up to $750b - $1T.  Add to that the Fed pulling back (and possibly letting its holdings go into run-off) and there could be a pretty good snap-back.  

 

But as the chart shows, there is a very large gap that needs to be closed - so it could take all of 2022 to close it.

 

Bill

Edited November 10, 2021 by wabuffo

[spartansaver]

3 hours ago, SharperDingaan said:

The bond market is speaking very loudly - we just don’t want to hear the message.
Confidence in central bank ability to manage the moving parts.

 

The yield curve didn’t move up on rising inflation data; because of a sudden new supply of money across the curve, offset the inflation impact. Supply > demand at all terms, dropped the interest rate at each term – by the change in the inflation rate  i.e.: Central bank management.

 

The only way there is minimal inflation impact is if CPI (Consumer) inflation is being offset by deflation in the I, G, or (X-M) of total demand. C is very large and growing at the CPI rate, G clearly isn’t shrinking – so there must be material deflation in both I and (X-M). Total deflation so large - that without a very inflated C+G, the yield curve could even be negative. Compare 12-month growth in totals today, against what they were a year ago.

 

Both US refining demand and labour force capacity is essentially back to what it was pre-covid. Yet post covid recovery activity has barely started (travel, infrastructure, etc.), and US energy prices cannot be meaningfully contained without US exports essentially being discontinued. Further reducing (X-M).

 

The mystery is I. At some point it will arrive with a vengeance, forcing the G and (X-M) to compensate. The central bank is expecting M (supply chains normalizing) and  lower social net payments (G) to do most of the heavy lift.

 

The takeaways?
No reason to be overly concerned, re a pending market correction. 
CPI probably going higher, crude oil exports curtailed, widening WTI-Brent spread.
Green infrastructure investment as soon as possible.

 

SD
 

I just want to make sure I understand you correctly.

 

The bond market is saying that the central banks have everything under control.

 

In order to believe that they have it under control you need to believe that inflation remains low. The aggregate demand equation is a useful equation for understanding inflation? To believe that inflation remains low you need to believe that a combination of: private investment declines, net exports becomes more negative, or government expenditures decline; all relative to the rise in consumption. If this does not hold true the bond market is wrong?  

[Cigarbutt]

2 hours ago, wabuffo said:

...Normally, the US Treasury's net issuance of securities matches its net spending. (i.e., its account balance at the Fed stays constant).  This has been true pre-GFC when the US Treasury used to keep a minimal balance (~$4B or so)  This meant that the US Treasury's cumulative deficit spending over its long history = the amount of US Treasury securities outstanding in private sector hands.

...

This chart show what the amount of US Treasury securities would be outstanding if net issuance matched the huge 2021 deficit spending of the US Treasury (orange line) vs the actual inventory of US Treasury securities in private hands (blue line)...

There is a conceptual issue here.*

 

Deficit spending has continued to match net government debt issues (it's both a concept and a mathematical demonstration). The rising TGA balance in cash deposited at the Fed was a swap of cash held by private participants who bought the newly issued government debt securities in exchange for cash proceeds which the Treasury temporarily deposited at the Fed (associated with a temporary decrease in bank reserves until the cash is 'created' in private bank accounts (not necessarily the same deposit accounts that funded the debt but overall resulting in no net deposits in the private system)). There may be an element of supply/demand timing but the government debt securities matching the money to be spent (or actually spent) already exist in the system. 

 

This is technical but (IMHO) potentially a very important distinction. It is now felt that the government can print money in private accounts without constraints (perhaps à la MMT) but, at least up to now, the Fed money has stayed within the financial plumbing system (matched with debt) and has not reached legal tender.

 

*This post may trigger a certain kind of animated image, which is fine.

[Spekulatius]

1 hour ago, spartansaver said:

I just want to make sure I understand you correctly.

 

The bond market is saying that the central banks have everything under control.

 

 

The bond market is saying no such thing. The bond market is saying there are not enough treasuries right now to meet the demand, so they get bid up which means that interest rates go down. It’s simple supply and demand.  At least that is @wabuffo thesis and it makes sense to me as well.

[spartansaver]

35 minutes ago, Spekulatius said:

The bond market is saying no such thing. The bond market is saying there are not enough treasuries right now to meet the demand, so they get bid up which means that interest rates go down. It’s simple supply and demand.  At least that is @wabuffo thesis and it makes sense to me as well.

I'm asking SD if I'm understanding what he wrote. I'm not sure that's what he meant and I was hoping he might be able to clarify.  

Edited November 11, 2021 by spartansaver

[SharperDingaan]

1 hour ago, Spekulatius said:

The bond market is saying no such thing. The bond market is saying there are not enough treasuries right now to meet the demand, so they get bid up which means that interest rates go down. It’s simple supply and demand.  At least that is @wabuffo thesis and it makes sense to me as well.

 

The fed is mamipulating the yield curve by artificallly altering the supply/demand of money at all points along the curve. Mechanically, it means cut the supply of money by enough to raise bond prices at that maturity, and lower the YTM. The reduction in YTM offsetting the increase in CPI, to produce no net change. Our earlier mechanics were described incorrectly, but we are saying the same thing.

 

Some argue that demand for money is similar to the C +I + G +(X-M) of total demand.  When the yield curve isn't changing, the total demand for money must equal the total supply, and net growth over the four components must equal zero. When the condition is present, one can test each component against independent observation, and draw conclusions.   

 

We know that growth in C + G has been high, therefore it must be low in I + (X-M), We know supply chain issues have worsened, and that current US activity is nearing pre-covid levels - so (X-M) must already be quite negative, and about to get worse as imports rise. The mystery is I 

 

Just a different assessment and  POV.

 

SD

 

 

Edited November 11, 2021 by SharperDingaan

[Gregmal]

https://www.cnbc.com/2021/11/17/biden-calls-on-ftc-to-probe-anti-consumer-behavior-by-energy-companies-as-gas-prices-soar.html

 

LOL. Buck stops here. Everyones fault but his own....Shut pipelines, terminate leases, sue companies for operating they way they have for decades....nah, their fault. 

[SharperDingaan]

The real problem is that WTI has been unsustainably manipulated downward via the existing SPR release, which is coming to an end. Over the last few weeks, the mild inventory builds have largely been attributable to the average weekly 2M/bbl week SPR release, and incremental demand is now rapidly drawing that down.

 

OPEC has been releasing an incremental 400K/bbl per day per month, from Sep-Dec. Thereafter, incremental releases stop, as both OPEC/Russia believe the market will be close to oversupply (resumption of covid lockdowns in Europe). The current 2M/bbl week SPR release (20M/10wk total), is 285K bbl/day.

 

Prices will continue rising, and the administration needs someone to blame. The only folks currently benefitting are o/g bankers getting their loans repaid, and o/g shareholders. Not enough votes.

 

SD

[wabuffo]

I'm just gonna update this chart since a more "permanent" raise to the debt limit was just approved in Congress (and signed by the President into law).  Unlike the first relief package in October which was limited and quickly reached by US Treasury security issuance, this latest relief is much larger ($31.4T gross vs $29.8T current limit).

 

As I've speculated before, US Treasury yields have been severely suppressed by the lack of US Treasury issuance vs what it should've been if the Treasury kept a constant TGA balance.   While Fed buying has also been a factor - I reckon that the impact of the US Treasury running down its TGA balance has had 3-4 times the effect that Fed buying has had in 2021.

 

 

Of course, many macroeconomic factors affect Treasury yields - not just supply.  But this was a very large one-time "monetary plumbing" factor.   Combine this coming (a) reversal in supply (Yellen has said she wants to take the TGA back up to a $1 trillion dollar balance -- it's currently at $197b) with (b) the Fed stepping back from its purchases and we could see a very rapid surge in the amount of US Treasury securities held in private hands in the first half of 2022. (We've already started to see a reduction in daily reverse repo amounts since the debt ceiling unlock -- which makes sense as more Treasury securities are issued).

 

I also think the Fed is starting to worry about inflation and will be hiking rates late in 2022 as well.   There seems to be a convergence of factors here that will push yields higher (perhaps much higher) over the 2022-2023 time frame.

 

Will that be a headwind for equities?  Possibly.  I was more certain that equities were going to face a tougher go because US corporate tax rates were also going to go higher in 2022.  But the BBB plan is now DOA so the status quo remains in place.  Equity values are governed by pre-tax income & growth in income, tax rates and discount rates (as measured by Treasury yields).  If the economy continues its recovery perhaps equities can overcome the drag of higher rates.  We shall see, I guess.

 

Happy holidays y'all!

 

Bill

 

 

Edited December 24, 2021 by wabuffo

[boilermaker75]

On 11/10/2021 at 11:12 AM, Gregmal said:

It’s kind of ironic how the same people by and large who preached caring about and protecting others thru mask wearing and lockdowns basically sent the most vulnerable portion of the population to hell in a hand basket by voting for policies that any idiot with an IQ over 43 could have told you would have been disastrous. All because they didn’t like the other guys personality LOL. Not much sums up America better. My feelings >>>>>>your livelihood. 
 

However, if you’re smart and aware enough, it’s easy to mitigate this. I mean crude futures spent most of 2021 in backwardation because enough participants in the market believed the politicians and media with regard to the whole “transitory” narrative. Multi family still looks good. Land is good. Learn to love the stupidity of others and profit from it. 

 

“It’s not getting any smarter out there. You have to come to terms with stupidity and make it work for you,” Frank Zappa.

[Gregmal]

1 hour ago, boilermaker75 said:

 

 

“It’s not getting any smarter out there. You have to come to terms with stupidity and make it work for you,” Frank Zappa.

 

That was pretty much all of 2021. Totally obvious, easy setups fueled by stupidity and people taking media and politicians at their word... Mr. Market was tipping his pitches all year long. 

 

So when they yell "boo, variant" or whatever the current Pavlovian dog bell is, you can either fall in line, or...

 

[rohitc99]

But the world has a long way to go. In May 2021 researchers at Freddie Mac, a “government-sponsored enterprise” which subsidises much of American mortgage finance, estimated that the world’s largest economy faced a shortage of nearly 3.8m homes, up from 2.5m in 2018. Other estimates put the shortfall closer to 5.5m. In England an estimated 345,000 new homes per year are needed to meet demand, but builders are further away from the target than they have ever been. Unless something profound changes, pricey property may be around for a while yet

 

https://www.economist.com/finance-and-economics/how-long-can-the-global-housing-boom-last/21807002

[Spekulatius]

I am hearing some crazy stuff at the company I work for. Some raw material prices like special qualities of fused silica have doubled. Other glass qualities are up 15-20%. Germanium prices are “through the roof”, whatever that means. We are thinking about inflation clauses in sales contracts to protect against input cost inflation. Quotes binding only for 30 days instead of the customary 60-90 days. Crazy. In my 20+ years in business , I have never seen something like this, not as broad based.

The dot.com boom also caused some crazy stuff in my line of business but not inflation like this.

[Gregmal]

Yea this all has been in the making for a while. Just had to follow the spin on the ball. 
 

Now imagine just ignoring all this cuz you didn’t like some guys opinion on vaccines lol?

Edited January 11, 2022 by Gregmal

[Viking]

Just imagine what $100 oil does to the inflation picture moving forward. Especially if oil stays elevated (as expected) in the $80-$90 range into 2023. Given the shortage of workers - wage increases should stay at elevated levels for some time. Given the shortage of houses - house prices (and rents) increases should continue to elevated levels. 
 

When you weave it all together it does suggest higher inflation for longer. The interesting thing is the Fed raising interest rates will do little to solve some of the root problems. Oil going to $100 will be caused primarily by limited supply (thank you ESG). Higher wages are being driven by an acute shortage of workers (thank you pandemic). A shortage of houses (thank you decade of under-building) is a key driver of the spike in housing prices. 
 

Don’t get me wrong… Fed policies are blowing up asset bubbles everywhere. If the Fed HAS to get much more aggressive to fight inflation the big obvious loser will be the stock market. The 2H of this year could be ugly.

Edited January 12, 2022 by Viking

[Gregmal]

Ugly? This is going to be beautiful!

 

The Fed WILL NOT tank anything, at least not anything that doesnt deserve to be tanked, they will straddle a line and do the bare minimum to keep things from going haywire. Its in no ones interest to blow up the markets, especially with mid terms in back half of the year. The government long ago decided to inflate their way out of problems. Then they did what they always do. Slow play it all and lie to us. Same at the Fed. Transitory inflation? Then "wading into 2022". Then "higher for longer". Its a classic sales technique when you have bad news for folks. Slowly introduce it to them while telling them theres hope it isnt true. Then once its undeniable and theyre already slowly boiling, go ahead and admit what everyone already knew. 

 

If you're long real businesses, real estate, and commodities, its gonna be another triple digit year. 

Edited January 12, 2022 by Gregmal

[Blugolds]

1 hour ago, Spekulatius said:

I am hearing some crazy stuff at the company I work for. Some raw material prices like special qualities of fused silica have doubled. Other glass qualities are up 15-20%. Germanium prices are “through the roof”, whatever that means. We are thinking about inflation clauses in sales contracts to protect against input cost inflation. Quotes binding only for 30 days instead of the customary 60-90 days. Crazy. In my 20+ years in business , I have never seen something like this, not as broad based.

The dot.com boom also caused some crazy stuff in my line of business but not inflation like this.

 

This doesnt really surprise me, if anything I would say that a "double" is relatively mild compared to other things I am seeing. 

 

I am in the process of getting a vacation home ready to sell as well as completing some projects at another vacation home I own. I purchased the majority of materials for the projects before the pandemic as that was the bulk of the work, but I still purchase a limited amount now as they both near completion. Prices on the majority of building materials are 3x or more. And I am buying at the major supplier with the absolute best prices...local lumber/suppliers are even higher than the majors.

 

Examples of what I paid 18 mo ago vs today:

250' roll of romex 12/2 electrical wire $45 → $155

2"x4"x8' framing lumber $2 → $7.39 (down from a high of $9)

4'x8' sheet of 7/16 OSB $9.99 → $34

3" Scheudle 40 PVC pipe DWV $9 → $33

 

Those are pretty significant increases...some are claiming that there are multiple factors coming into play to increase building material prices not solely inflation, weather, increased demand, natural disaster down south, worker shortages, supply chain issues etc, all certainly could play a roll.

 

We have a family friend that is currently having a new home built. $200k over budget already and it is not yet complete, due to increase in material cost and some labor price increases, not job scope growth..just that the subs have increased their prices as well as making an increased percentage on materials that have also increased. ie. subs tack say 10% on materials for a new deck etc. That 10% on $1000 worth of materials vs now $3000 in materials. Keep in mind that the General on the job generally takes a mark up also as a percentage of the total project cost...so the snowball starts compounding, increased material costs =  increased sub percentage = increased general percentage.  Since the bulk of my projects are complete, these increased prices will only mean an extra $2-3k on my bill, I obviously dont like it but I wont lose any sleep...but if you had just broke ground or are mid way through a 5k sq ft home and hiring everything out...now we're talking real money. 

 

Combine this with the probability of the fed beginning to raise rates. Our friends will be fine, they can afford it, but how many Americans are in the process of having a home built, are tremendously over budget on the project and had approval for a set number to be financed. If you have a construction loan, you are not locked in yet. So hypothetically you plan to have a home built for say $500k....it is now $700k, not yet complete and the sub 3% rate you thought you would lock in at now is increasing potentially, that could make your expected vs actual monthly liability significantly more. Just an interesting thought. Also if a homeowner was approved by the bank for say $500k and now has to go back to the bank for an additional couple hundred grand, how does the bank feel about it? Is it easy to increase your ask by 30-50% ? Like I said it doesnt really pertain to our friends, but hearing about this made me wonder how many others are in a similar situation with less financial "flexibility".

[Spekulatius]

13 minutes ago, Gregmal said:

Ugly? This is going to be beautiful!

 

The Fed WILL NOT tank anything, at least not anything that doesnt deserve to be tanked, they will straddle a line and do the bare minimum to keep things from going haywire. Its in no ones interest to blow up the markets, especially with mid terms in back half of the year. The government long ago decided to inflate their way out of problems. Then they did what they always do. Slow play it all and lie to us. Same at the Fed. Transitory inflation? Then "wading into 2022". Then "higher for longer". Its a classic sales technique when you have been news for folks. Slowly introduce it to them while telling them theres hope it isnt true. Then once its undeniable and theyre already slowly boiling, go ahead and admit what everyone already knew. 

 

If you're long real businesses, real estate, and commodities, its gonna be another triple digit year. 

That I am not sure about. The cost that I talking about above have very little to do with energy inputs,  it’s just broad industrial input cost inflation. My concern is that this will not be pretty.

If we continue to run at a 7% inflation rate by the middle of this year, the Fed will have to step up the interest rates much more than is currently anticipated. I am talking 5% or something like this.

 

This will not be pretty and probably cause a recession.

[Gregmal]

10 minutes ago, Blugolds11 said:

Combine this with the probability of the fed beginning to raise rates. Our friends will be fine, they can afford it, but how many Americans are in the process of having a home built, are tremendously over budget on the project and had approval for a set number to be financed. If you have a construction loan, you are not locked in yet. So hypothetically you plan to have a home built for say $500k....it is now $700k, not yet complete and the sub 3% rate you thought you would lock in at now is increasing potentially, that could make your expected vs actual monthly liability significantly more. Just an interesting thought. Also if a homeowner was approved by the bank for say $500k and now has to go back to the bank for an additional couple hundred grand, how does the bank feel about it? Is it easy to increase your ask by 30-50% ? Like I said it doesnt really pertain to our friends, but hearing about this made me wonder how many others are in a similar situation with less financial "flexibility".

And then all of a sudden we see why theres virtually nothing decent left under say $400-500k and what was left got "overpaid for" by an iBuyer who flipped it to Blackrock and now....well you can rent that home for $3300 a month! 

 

To the rest of the folks, the FNMA limits will get bumped, lenders encouraged to lend more, and probably some sort of stimmies or credit to "ease" the pain. 

[Gregmal]

16 minutes ago, Spekulatius said:

That I am not sure about. The cost that I talking about above have very little to do with energy inputs,  it’s just broad industrial input cost inflation. My concern is that this will not be pretty.

If we continue to run at a 7% inflation rate by the middle of this year, the Fed will have to step up the interest rates much more than is currently anticipated. I am talking 5% or something like this.

 

This will not be pretty and probably cause a recession.

It was talked about in another thread but how do you have an inflation when every well capitalized company needs workers and workers by and large are either fat enough not to work already or happy to make more money? The consumer is in great, dare I even say outstanding shape. I read somewhere today that Jamie DImon just said he hasn't seen a widespread robustness like this in 4 decades.

 

5% rates puts us back....to mortgage rates that were low enough to fuel the first housing bubble. Where does a recession really come from? Simply just saying "higher rates" ignores what has to go into the sausage machine to get them. If things remain this robust and rates get raised a few %, 1) its NBD, and 2) its because people are doing really well. Unless the thought is that they Fed "causes" the recession, and like I said, I just dont see how thats in anyones interest and I dont think Ive ever seen a scenario where that happened before. 

 

Like what really happens if rates go up a bit? Houses come down 20% in value and the entire world of people dying to buy one get a stab? Or they just say "NO!" because "recession" and choose not to spend their hoards of cash and fend off the ample liquidity pool in the mortgage system? Do people making $80k a year stop fielding those 20-30% raise offers "just cuz". Do companies who NEED workers now say "no we dont cuz recession" or "cuz rates went to 3%"?

 

I just dont see it. Its actually pretty bullish to me how scared everyone is of a few % point bump on rates. Or if you say 6% treasury people think its Armageddon. In actuality these things dont really signify anything bad. Its actually the opposite. I just wouldnt want to be long SPCE or some crap like that. 

 

Unless by recession you just mean a meaningless GDP print or some shit. Which if its that I wouldnt care at all about it. 

[Viking]

50 minutes ago, Gregmal said:

Ugly? This is going to be beautiful!

 

The Fed WILL NOT tank anything, at least not anything that doesnt deserve to be tanked, they will straddle a line and do the bare minimum to keep things from going haywire. Its in no ones interest to blow up the markets, especially with mid terms in back half of the year. The government long ago decided to inflate their way out of problems. Then they did what they always do. Slow play it all and lie to us. Same at the Fed. Transitory inflation? Then "wading into 2022". Then "higher for longer". Its a classic sales technique when you have bad news for folks. Slowly introduce it to them while telling them theres hope it isnt true. Then once its undeniable and theyre already slowly boiling, go ahead and admit what everyone already knew. 

 

If you're long real businesses, real estate, and commodities, its gonna be another triple digit year. 

We know the Fed will be ending Taper in March. It looks like the first interest rate increase may be as soon as March. We now also know they will be reducing the sizeof their balance sheet in 2022. The issue is everything happening pretty much at the same time in an accelerated way in 2022 driven by the inflation print (and all the people yelling hysterically for someone to do something… the US is in an election year). 
 

Over the past 10 years EVERY TIME the Fed tried to get more hawkish the stock market threw a tantrum and the Fed quickly reversed course. The Fed was able to quickly reverse course because DEFLATION was the big, big worry.
 

So i fully expect, as the Fed gets more hawkish, for the stock market to throw another tantrum (like 2018; down 20%). Everyone will expect the Fed to reverse course. Except this time INFLATION will be the Fed’s big, big worry. So my guess is the Fed may not come to the stock markets rescue this time… (at least not as quickly).
 

I expect a shitload of volatility as there will be way, way too many balls flying around at the same time and i fully expect a bunch to hit the ground likely at the same time.
 

My plan will be to build cash in the coming months. i love cash because it allows me to lock in gains. And it makes it easy to ride out any storm. And it provides the opportunity to buy when there is blood in the streets.  

Edited January 12, 2022 by Viking