Is The Bottom Almost Here?

[CorpRaider]

I'ma need a -30% in the mannheim used car index pls, thx.

Edited March 14, 2023 by CorpRaider

[Gregmal]

13 minutes ago, CorpRaider said:

I'ma need a -30% in the mannheim used car index pls, thx.

Maybe late to the party but now you got it! 
 

Hey Jay, Ackman says we need 400 bps of hikes by year end to keep credibility!

 

Hey Jay! Klarman thinks short term rates should be a little steeper, still lotta inflation out there!

 

Hey Jay, Pelosi needs a hair appointment and inflation is making booking one tough. To much competition from too many people for too few services! Paul’s been healing so he s not currently in the market so no conflict of interest there!

 

Hey Jay, Einhorn just dropped an email stating that you can’t have sub 2% inflation unless Tesla gets back to 2013 prices!

 

Hey Jay, Thiel wants to have lunch. Said something about lending standards being too loose in Silicon Valley! Gotta get inflation in line.

 

Hey Jay, Corpraider said it’s impossible to solve inflation with the used car index up there, you should probably work on that?

 

 

This guy think he’s Santa or something?

[changegonnacome]

 

[CorpRaider]

I also would like all crypto at zero.  Thx.

Edited March 14, 2023 by CorpRaider

[wolverine890]

2 hours ago, Spekulatius said:

I don’t think so. This would be quite a statement actually. I don't recall them  putting out hard numbers on housing valuation.

No they haven't. I made a guess at what they meant by the following:

 

[changegonnacome]

Inflation at 6%......probably coming down to 5.x% in a couple of Q's......Fed Funds at 4.57%.......so we are STILL after all the baloney, bank blowups and ink spilled have a negative REAL inflation adjusted Fed Funds rate. 

 

People don't borrow at the Fed Funds I hear you say!

 

Exhibit A - Personal Line of Credit from FRC no less @ 3.95%......inflation is at 6%!!!!!! Thats a negative 2.05% cost of carry for this debt that you can pull down and spend on goods and services today....in an economy with an inflation problem. Remember the classical defintion - too much money chasing too few goods and services! Does that PLC strike you as financial conditions that are too tight?

https://www.firstrepublic.com/personal-line-of-credit?gnav=globalheader;personal-personal-line-of-credit

 

In terms of tighter financial conditions themselves......we are getting there - post SVIB blow-up....... a deposit interest rate war is likely to start & a flight to treasury's......NIM's will get killed......banks will react by either curtailing credit creation or raising the rates they charge meaning the TAM for loans on a DTI basis or just loan demand itself will just fall of a cliff. This is the PLAN - the Fed could have done without SVIB blowing up but they definitely want credit creation to be curtailed. SVIB is going to accelerate credit getting whacked.

 

So back to the basics:

 

Remember only two sources of funds that become nominal spend in the REAL economy are - credit & income/wages.

 

Remember the USA is at 3.7% unemployment...way below the natural rate....with horrible demographics and a dysfunctional immigration system...so whatever productivity growth miracle dreams you have forget them. Productivity is not surprising to the upside here to help FIX inflation. How could it...forget fantasies about kicking bums of medicare....or free childcare for everybody. It aint happening in the next two years if ever. Period.

 

Remember that the inflation rate is the delta between the growth in nominal aggregate spend & the growth in productivity (or put another way an increase in the REAL volume of goods & services being produced YoY against the volume of additional spend occurs).

 

So you can see the only way to reduce the delta between nominal spend & productivity is if you've hit the only two things you have any control hope over controlling - credit & wages.

 

SVIB is likely a credit event in system.......that will markedly change credit creation dynamics moving forward. Less credit driven spend will in turn lead to lower spend, lower spend results in a need for less workers....which hits that second source of funds - wages/income that turns into spend.

 

Post SVIB I think its possible the terminal rate will not need to go as high as previously thought.......the terminal rate question is kind of pointless guessing game at this point......25-50bps or there about's.....who cares exactly.......its headed to 5.x%-ish as JPow knows it needs to be there to at least be restrictive or neutral (inflation adjusted!)....the effect they are looking for & their resolve is the most important dot plot to watch out for.....and what I see is a Fed that isn't likely moving that rate until unemployment moves meaningfully into the 5% range....and what folks are going to find IMO shocking is how they are going to hold the Fed funds there and for how long.....as people, commentators, folks inside the beltway squeal murder......and the indices roll over & corporate profits roll over.

 

The Fed is very likely to make a 'new' mistake, they are only human after all.....but they wont make the 'old' one......which is cutting too soon! There is too much institutional knowledge still around from the 70's to do that and JPow has spoken enough on this point to suggest to me he will in the future be accused of lots of f-ups...the most glaring will be the late 2021/early22 accommodation/transitory stuff....the one f-up they wont pin on him is cutting too soon in 2023 such that inflation flares back up in 2024/25.

 

It aint pretty this, as we've seen that with SVIB.........but there isn't another way out of this setup. If you got any workable* ideas write him to me here I'd be interested to hear them.......and then post them to Constitution Ave., Washington D.C. 

 

* a workable solution is not one where you claim inflation doesn't exist and its a hoax.............the second non-workable solution is to do a JPow 2021 impression and claim its all transitory and inflation is already over  

 

[TwoCitiesCapital]

2 hours ago, Gregmal said:

So you’d agree that short term supply and demand imbalances or interference can create a situation that may not be what it appears? 
 

Either way I am bullish long term on oil and besides Short Selling Joe said he’d replenish the SPR at $70 so nice trade Mr President…but I just get a kick out of hearing about all this nonexistent inflation and the one thing that’s known to ooze sensitivity to inflation…oil, year over year is at like $72 from $125….which by itself is quite the confirmation that last years price spike which so many pointed to as proof of the sticky inflation, was also not indicative of reality. 

 

I deleted my prior comment because the number of days supply calc was off base and I didn't have time to correct. 

 

But I agree that oil prices being flat in the face of China having rolling closures most of that time and the release of SPR down to historic levels says a lot. Oil prices have the potential to go much higher when those factors aren't present - or may stay elevated through an economic contraction. 

 

I'm bullish on intermediate/long term oil too. That's some of my equity exposure I kept. I am just pointing out that you can't say "there's no inflation - oil isn't up" while ignoring massive temporary increases in marginal supply and the world's largest consumer of oil being economically constrained at the same time keeping prices flat. Flat oil prices during that is a small miracle. 

Edited March 15, 2023 by TwoCitiesCapital

[Spooky]

I don't really see how the current inflationary environment is good for low income earners - let's just say if they are getting a 6% wage increase but inflation is also 6% then they are just treading water and in reality it looks like  most people's wages are not keeping up with inflation, meaning they are actually losing purchasing power.

 

My own view is that the former 0% interest rate regime was much worse for the bottom 90% of people - all it did was to inflate asset prices and benefit those that already owned assets. People with collateral could essentially borrow money for free while others are locked out of getting credit. The free money also lead to a cycle of borrowing and investing creating the everything bubble. I'm glad we are back to a more normalized interest rate environment and hope we never go back to the central bank policies of the last 13+ years. Hopefully we continue to clear excess out of the system and asset prices correct meaningfully to allow ordinary people to be able to build wealth from here.

Edited March 15, 2023 by Spooky
typo

[Gregmal]

@changegonnacomewhat do you really think current inflation is? Like since Spring ‘22. What is the real

change? What specifically, in terms of increases, is causing it? I thought it was tomatoes but store brand hasn’t nearly jumped the way Heinz has. 
 

 

[Paarslaars]

9 hours ago, Dinar said:

Just because you want the poor to stay poor does not mean the rest of us want to!  I would be delighted if everyone around me prospered.  

I said "the rich want to". I'm still middle class mate...

 

And there is a BIG difference wanting everyone to prosper or just "everyone around you".

[mattee2264]

The Fed has a 2% inflation target based on CPI. Therefore in measuring progress against target you obviously need to look at US CPI which on a year-on-year basis is around 6%. 

 

Core CPI which strips out food and energy prices is 5.5%. Very little difference. And still well above target. 

 

There are always going to be arguments about whether CPI is an accurate measure of inflation. But for many years the argument has been that CPi UNDERSTATES inflation especially relative to old measures such as RPI. So it is difficult to make the argument that the Fed is overstating inflation. You can try and argue that a lot of the inflation is "transitory" and will disappear without any action from the Fed. But it is difficult for them to make that argument again after being so wrong last time round. 

 

But I agree that these problems in the banking sector will speed up the tightening of financial conditions especially if it results in more caution from stock market investors and lower stock prices. I think the right course of action is for the Fed to keep interest rates around 5% and keep them there for a year or two and let the long and variable lags work through the system. 

 

Credit Suisse down over 20% today and markets taking another tumble today. 

[Spekulatius]

14 hours ago, SHDL said:

 

They'll probably pause the hikes soon if not at the next meeting. They have a perfectly good excuse to do so now that they've thrown a big wrench in the banking system which should tighten credit by a lot for a while. The big question is whether they have already overdone it or not. 

I agree- the banking crash equals quantitative tightening. The banks are the main transmission mechanisms for credit and all of them collectively will increase the liquidity on their balance sheet somewhat. That means less security purchases and more importantly less lending.

[Cigarbutt]

1 hour ago, Spekulatius said:

I agree- the banking crash equals quantitative tightening. The banks are the main transmission mechanisms for credit and all of them collectively will increase the liquidity on their balance sheet somewhat. That means less security purchases and more importantly less lending.

For perspective, all over the news, it's being said that the entire banking sector is scrambling for cash? From a wider perspective, this is unusual and has a similar flavor than around the time of the 2019 repo crisis when banks seemed to be struggling when reserves were being decreased and when reserves were still widely ample from a wider historical perspective.

"all of them collectively will increase the liquidity on their balance sheet somewhat. That means less security purchases"

Can you elaborate on the previous sentences, especially the bolded parts?

[changegonnacome]

11 hours ago, Gregmal said:

@changegonnacomewhat do you really think current inflation is? Like since Spring ‘22. What is the real

change? What specifically, in terms of increases, is causing it? I thought it was tomatoes but store brand hasn’t nearly jumped the way Heinz has. 
 

 

 

The month over month data is showing specifically services as the single biggest problem.....if you look at my posts from months ago you'll see me speak about domestically produced goods and services as the source of the problem and given that America produces actually very few goods it consumes and is mainly a service led economy this is where the inflation is showing up....Why? Because services costs are mainly driven by domestic wages. And we have unusually high wage increases.

 

In the last inflation report just released service costs are continuing to rise at 0.5% monthly clip......not in 2022, not during COVID, not in weird base effects or YoY quirks .........right here, right now........that's 6% annualized.......service items include things like package delivery, haircuts, hotels, gardening services etc etc. Its a long long list....if it doesn't come off a factory line, its a service.

 

So thats services..........the problem with inflation and the story from previous inflationary bouts is that if it present in one significant sub-category long enough, say services in this case, it in time transmits or flares back up in other categories........inflation has its own long and variable lags across categories.....services inflation sitting at 6% as it is........almost ensures in time that we will see domestic goods prices 'flare up' again later this year.

 

Inflation then since Spring 22 on a YoY basis, moment in time......across all categories averaged out is likely running at 5.x%ish....modestly below the YoY prints with a higher numbers we are seeing in headline CPI.

 

Based on current MoM reports and seeing really services as the problem....and knowing services make up ~77% of the USA economy as per 2021 data.....short hand, back of the envelope math then would be 6% inflation in services with other categories CURRENTLY showing modest inflation or none.....

 

6% haircut by its proportion of the US GNP (77%) =

 

4.62%

 

is my estimate of CURRENT contemporaneous inflation driven almost wholly by services.

 

That 4.62% estimate lines up pretty well with my model of looking at only two other data points.....nominal spending/income/wage growth (BLS data) against productivity growth.........again the delta there suggests we should have mid-4's inflation in 2023...simply based on the MoM payroll increases we saw in Jan.....against the common sense idea that the USA does not have any easy output (productivity) wins left with unemployment at 3.7%.

 

As much as we may want it to - inflation is not just going to 'go away' by itself that idea is not supported by the data....it will require a change in aggregate nominal spending and/or a productivity output miracle....if we rule out miracles.....its going to require spending to fall significantly...given there are only two sources of funds for spending in the real economy.....credit & income (jobs).....credit needs to get whacked......but credit fueled spending is only a small part of TOTAL spend.....income from jobs is the most important source of spending........hence JPow might not say it......but creating some level of unemployment is going to be required here to rein in spending growth such that it exceeds productivity growth by only 2%...and we get 'back to 2'

 

 

 

[Gregmal]

6 minutes ago, changegonnacome said:

 

The month over month data is showing specifically services as the single biggest problem.....if you look at my posts from months ago you'll see me speak about domestically produced goods and services as the source of the problem and given that America produces actually very few goods it consumes and is mainly a service led economy this is where the inflation is showing up....Why? Because services costs are mainly driven by domestic wages. And we have unusually high wage increases.

 

In the last inflation report just released service costs are continuing to rise at 0.5% monthly clip......not in 2022, not during COVID, not in weird base effects or YoY quirks .........right here, right now........that's 6% annualized.......service items include things like package delivery, haircuts, hotels, gardening services etc etc. Its a long long list....if it doesn't come off a factory line, its a service.

 

So thats services..........the problem with inflation and the story from previous inflationary bouts is that if it present in one significant sub-category long enough, say services in this case, it in time transmits or flares back up in other categories........inflation has its own long and variable lags across categories.....services inflation sitting at 6% as it is........almost ensures in time that we will see domestic goods prices 'flare up' again later this year.

 

Inflation then since Spring 22 on a YoY basis, moment in time......across all categories averaged out is likely running at 5.x%ish....modestly below the YoY prints with a higher numbers we are seeing in headline CPI.

 

Based on current MoM reports and seeing really services as the problem....and knowing services make up ~77% of the USA economy as per 2021 data.....short hand, back of the envelope math then would be 6% inflation in services with other categories CURRENTLY showing modest inflation or none.....

 

6% haircut by its proportion of the US GNP (77%) =

 

4.62%

 

is my estimate of CURRENT contemporaneous inflation driven almost wholly by services.

 

That 4.62% estimate lines up pretty well with my model of looking at only two other data points.....nominal spending/income/wage growth (BLS data) against productivity growth.........again the delta there suggests we should have mid-4's inflation in 2023...simply based on the MoM payroll increases we saw in Jan.....against the common sense idea that the USA does not have any easy output (productivity) wins left with unemployment at 3.7%.

 

As much as we may want it to - inflation is not just going to 'go away' by itself that idea is not supported by the data....it will require a change in aggregate nominal spending and/or a productivity output miracle....if we rule out miracles.....its going to require spending to fall significantly...given there are only two sources of funds for spending in the real economy.....credit & income (jobs).....credit needs to get whacked......but credit fueled spending is only a small part of TOTAL spend.....income from jobs is the most important source of spending........hence JPow might not say it......but creating some level of unemployment is going to be required here to rein in spending growth such that it exceeds productivity growth by only 2%...and we get 'back to 2'

 

 

 

Thanks. Don’t think I’d argue too heavily if we wanna use 4-5% right now. Just don’t see anything over and look at oil continuing to be inflationy…but by summer I think it’s a given CPI is sub 4. Possibly even sub 2. Oil halved. Housing stalled. And now everything else detonating. Get the bankers and techies feeling poor for a little while to cool services and it’s game over. Don’t know if it’s today exactly. But we are getting close to the turning point. 

[Ross812]

12 minutes ago, changegonnacome said:

 

The month over month data is showing specifically services as the single biggest problem.....if you look at my posts from months ago you'll see me speak about domestically produced goods and services as the source of the problem and given that America produces actually very few goods it consumes and is mainly a service led economy this is where the inflation is showing up....Why? Because services costs are mainly driven by domestic wages. And we have unusually high wage increases.

 

In the last inflation report just released service costs are continuing to rise at 0.5% monthly clip......not in 2022, not during COVID, not in weird base effects or YoY quirks .........right here, right now........that's 6% annualized.......service items include things like package delivery, haircuts, hotels, gardening services etc etc. Its a long long list....if it doesn't come off a factory line, its a service.

 

So thats services..........the problem with inflation and the story from previous inflationary bouts is that if it present in one significant sub-category long enough, say services in this case, it in time transmits or flares back up in other categories........inflation has its own long and variable lags across categories.....services inflation sitting at 6% as it is........almost ensures in time that we will see domestic goods prices 'flare up' again later this year.

 

Inflation then since Spring 22 on a YoY basis, moment in time......across all categories averaged out is likely running at 5.x%ish....modestly below the YoY prints with a higher numbers we are seeing in headline CPI.

 

Based on current MoM reports and seeing really services as the problem....and knowing services make up ~77% of the USA economy as per 2021 data.....short hand, back of the envelope math then would be 6% inflation in services with other categories CURRENTLY showing modest inflation or none.....

 

6% haircut by its proportion of the US GNP (77%) =

 

4.62%

 

is my estimate of CURRENT contemporaneous inflation driven almost wholly by services.

 

That 4.62% estimate lines up pretty well with my model of looking at only two other data points.....nominal spending/income/wage growth (BLS data) against productivity growth.........again the delta there suggests we should have mid-4's inflation in 2023...simply based on the MoM payroll increases we saw in Jan.....against the common sense idea that the USA does not have any easy output (productivity) wins left with unemployment at 3.7%.

 

As much as we may want it to - inflation is not just going to 'go away' by itself that idea is not supported by the data....it will require a change in aggregate nominal spending and/or a productivity output miracle....if we rule out miracles.....its going to require spending to fall significantly...given there are only two sources of funds for spending in the real economy.....credit & income (jobs).....credit needs to get whacked......but credit fueled spending is only a small part of TOTAL spend.....income from jobs is the most important source of spending........hence JPow might not say it......but creating some level of unemployment is going to be required here to rein in spending growth such that it exceeds productivity growth by only 2%...and we get 'back to 2'

 

 

 

If only there were some way the government could reduce income progressively impacting the higher earners more than the lower earners... 

[changegonnacome]

11 minutes ago, Gregmal said:

but by summer I think it’s a given CPI is sub 4. Possibly even sub 2.

 

Maybe headline CPI drops to those level (sub-4)......but what the Fed is watching is 'supercore'.....or what I just outlined on services....its unlikely to move without a significant move up in the unemployment rate

 

11 minutes ago, Gregmal said:

Get the bankers and techies feeling poor for a little while to cool services and it’s game over. Don’t know if it’s today exactly. But we are getting close to the turning point. 

 

Making people feeling poorer.....or acting with recessionary mindset such that they rein in their spending, up their savings....is part of Fed's game here.......the USA spending monster needs to be put back in its cage for a while, but its a mighty beast and isnt stopped easily!......Wall St/Tech St will help for sure......the banking failure headlines reminiscent of 2008 are helping here too for those on Main St. who remember.......but spending numbers, big picture, are led by Main St......and some pain has to flow through there unfortunately.

Edited March 15, 2023 by changegonnacome

[Gregmal]

Let’s also not forget what starts in a few months and culminates in November 2024….the setup actually seems pretty clear. Not yet, but soon. 

[Spekulatius]

1 hour ago, Cigarbutt said:

For perspective, all over the news, it's being said that the entire banking sector is scrambling for cash? From a wider perspective, this is unusual and has a similar flavor than around the time of the 2019 repo crisis when banks seemed to be struggling when reserves were being decreased and when reserves were still widely ample from a wider historical perspective.

"all of them collectively will increase the liquidity on their balance sheet somewhat. That means less security purchases"

Can you elaborate on the previous sentences, especially the bolded parts?

With their deposits, banks either do loans (their primary purpose) or buy bonds (MBS or treasuries). With securities I mean income securities (treasuries, MBS). Intentionally or not, the banks sucked up a lot of them in 2021, basically doing what the Fed has been doing with quantitative easing. They won't buy more of those long dated debt securities now and likely just run off the ones that they own as they amortize (MBS) or come due.

[changegonnacome]

45 minutes ago, Ross812 said:

If only there were some way the government could reduce income progressively impacting the higher earners more than the lower earners... 

 

If only the democrats controlled the Congress, Senate and WH....and even then they might know they should do just that and take the money and pay down the national debt.......but what are they likely to do instead???????.....they would be likely to take that additional tax and SPEND it.

 

So it doesnt solve our SPENDING problem in the real economy........if rich people are doing it or the government is doing it by taxing them (or giving the money to poor people to do it instead of rich people). Its still spend!

 

There is an interesting experiment attempted by the Irish back in the 2000's...........when the government there facing high inflation but no control over monetary policy as it was controlled by the ECB.....introduced a national SAVINGS scheme....where for ever $4 you saved, the Gov would kick in $1 and the money got locked up for 3/5yrs.....an amazing deal!....it was an attempt to do whats needed now.....put a brake on spending growth. When I think of innovative approach to this problem a national saving scheme like this 'could' work....do I think its likely to happen. No.

 

The Irish experience was mixed anyway -  https://en.wikipedia.org/wiki/Special_Savings_Incentive_Account.....and when the savings mature you somewhat create an inflation problem in the future potentially as folks get a windfall in spending capacity almost like stimulus checks....I think the mistake the Irish made was that they should have laddered the maturity of the savings schemes.

 

The above is about the only thing I think that could help right now.....the effect is the same in a way.....reducing spend will result in an increase in unemployment....thats just the way it is......one persons spending is another persons income. The beauty of a national savings scheme idea is that it would work almost immediately versus the long, variable and unpredictable (SVIB) lags that monetary policy works with.

 

Edited March 15, 2023 by changegonnacome

[changegonnacome]

15 minutes ago, Spekulatius said:

With their deposits, banks either do loans (their primary purpose) or buy bonds (MBS or treasuries). With securities I mean income securities (treasuries, MBS). Intentionally or not, the banks sucked up a lot of them in 2021, basically doing what the Fed has been doing with quantitative easing. They won't buy more of those long dated debt securities now and likely just run off the ones that they own as they amortize (MBS) or come due.

 

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

[changegonnacome]

49 minutes ago, Gregmal said:

Let’s also not forget what starts in a few months and culminates in November 2024….the setup actually seems pretty clear. Not yet, but soon. 

 

If JPow is a democrat....and he likely is.....and if the game in 2024 is to keep 'the Donald' out of the White House.....what would be the game plan......it would be to get this horrible monetary tightening pain game over with very very quickly.....a short sharp shock & awe recession with a spike in unemployment starting around now......such that your cutting early in 2024 and unemployment is falling into the election cycle.

 

The only problem is the US economy is a big tanker and its hard to turn......and so even if you believe in conspiracies.....I'm not sure they have that much precision/control and they likely should have started aggressively tightening in Q1 2022 if that was the plan!

 

I would also say as someone who has worked around government in the past it helped me immensely with one thing and that it has rid me of of any conspiratorial suspicions I had........senior politicians and their staff can barely conspire together to pick a place for lunch let alone the high level complex conspiracies attributed to them sometimes.

Edited March 15, 2023 by changegonnacome

[CorpRaider]

Hey everybody we're below 28 CAPE/2020 low.  We're all going to get laid!

Edited March 15, 2023 by CorpRaider

[Gregmal]

Election cycles when it comes to re election campaigns tend to have positive news flow. Hardly conspiracy there. Off the base of last year and now this, with a few months time the setup looks really good. Still not pound the table territory but getting there. Its crazy to me to still be raging about inflation. This will become evident soon. $66 on oil. If Powell wants to say "more hikes cuz waiters are in demand" soon he won't even have that. Pretty soon even Jay will have no choice but to admit he screwed the pooch sitting here focusing on inflation by focusing on something that has nothing to do with inflation. But its cute how they convinced him jobs = inflation. Will go down as one of the great dupe jobs in history. 

[Gregmal]

For instance, didn’t we make a big deal about exactly ONE whole datapoint from January retail spending confirming a looming wage price spiral? Then along comes February data and it’s just ignored lol.