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Piper Sandler: Deflation is already here
Old 05-21-2022, 12:20 PM   #1
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Piper Sandler: Deflation is already here

Nancy Lazar, Piper Sandler's Chief Global Economist is talking about the Economy with Cathie Wood from ARK.



"We are in a situation now where the economy is starting to slow and now the FEDs are starting to raise rates"


One of the signs of this is that inventories at companies like Walmart and Home Depot is growing rapidly.






The whole video is 46 minutes long and I found it very interesting. Nancy Lazar have many graphs illustrating the current situation.



TL; DW: Buy good growth stocks.
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Old 05-21-2022, 02:24 PM   #2
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I mentioned in another thread that a strip mall near where my car was getting worked on had a temporary looking store that was nothing but Amazon and Target returns. The owner told me he buys the returns by the pallet and then sells everything for $12, then $9, and so on until he starts over the next week with new truckloads of merchandise.
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Old 05-21-2022, 03:32 PM   #3
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Quote:
Originally Posted by Christine View Post
Nancy Lazar, Piper Sandler's Chief Global Economist is talking about the Economy with Cathie Wood from ARK.

"We are in a situation now where the economy is starting to slow and now the FEDs are starting to raise rates"

....
Much to think about. Thanks for posting that.
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Old 05-21-2022, 06:42 PM   #4
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Deflation? I think not. Even if prices go back down to what they were before the current inflation spike (and they probably won't), that isn't deflation, it's a blip.

But I'm sure if prices fall 1%, the headlines will be screaming about disastrous deflation.

I really hope I'm proven wrong. Some deflation would be just fine with me right about now.
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Old 05-21-2022, 08:55 PM   #5
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Disclaimer: I haven't watched the video, but will.

Having stated the above, let me guess: We will soon be in a recession causing inflation to cease. In addition, disruptive technologies will be deflationary and will result in lower prices throughout the economy.


In a proper functioning economy, this is what should happen. Increases in productivity as a result of innovation SHOULD cause prices to decrease (aka deflation). We've had this occur in the past, and not just in the great depression. Between 1865 and 1900 prices fell, even though the economy was growing at a robust rate.

It is a modern "phenomenon" where we've been taught that falling prices (deflation) was a bad thing, and that a "normal" economy should have moderate inflation (e.g. 2%). In my opinion, this is bull.

Having stated the above, I don't think it is going to happen. The US Government has $30 trillion plus in debt plus tons of off-book liabilities. The easiest path for politicians is to either never pay that off or to try to pay it off with inflated dollars (thus reducing the debt in real terms). The alternative - fiscal discipline won't happen (and perhaps can't happen given how much debt per taxpayer it represents).

A quick glance at the debt clock shows we owe almost $243K per taxpayer. At the assets per citizen ($582,654) vs. liabilities per citizen ($$508,615), we are pretty much broke.
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Old 05-21-2022, 10:49 PM   #6
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I watched the video. Nancy Lazar cited the overstocked inventories at Walmart and Target as proofs that supply has outstripped demand, and will lead to lower prices in the near future.

She also mentioned Cisco's bad outlook, who recently lowered next quarter projection from +5.9% sales growth to possibly as bad as -5% decline, due to poor spending by businesses.

I will not complain if the prognosis turns out to be correct, but there are other factors to consider. The high price of fuel and commodities such as metals and agricultural minerals drives up the cost of everything and contributes to inflation too. What if this means a stagflation rather than a deflation?
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Old 05-22-2022, 02:41 AM   #7
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I have been smelling the stench of stagflation for a while. The general discontent and malaise feel 1970's-ish to me. But I have no scientific data to back up what is really just intuition.
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Old 05-22-2022, 04:54 AM   #8
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I watched the video. Will have to watch it again. There is much to digest. It s reasonable to forecast /expect contractions after so much money has been pumped into the system to shore up the consumer, stock market and economic activity. I don't know about the "massive boom" she mentions after contractions. I guess that depends on what the FED does.

Aside from this video and statements made, Cathie Woods' ARK fund is down 75% the last 2 years-24% in 2021 and 45% so far in 2022. This after being up 150% during the start and first year of the pandemic.

https://www.forbes.com/sites/jonatha...h=599f22211b93
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Old 05-22-2022, 07:14 AM   #9
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I have been smelling the stench of stagflation for a while. The general discontent and malaise feel 1970's-ish to me. But I have no scientific data to back up what is really just intuition.
This thought has been running through my mind since the first signs of inflation began to appear in the stores, which was long before the "experts" started talking about inflation.

I suspect we're on the leading edge here, too. Presumably we'll be seeing stagflation in all the headlines soon, from the same "exerts" who think prices have only gone up 7-9%. Anyone who's been to the supermarket lately knows better.

That said, I seriously I'm wrong!
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Old 05-22-2022, 07:31 AM   #10
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From the perspective of a small light manufacturer, our Family Business, in business for 65 years has seen a lot of cycles, and I can related to a lot of what was said in the video. All areas of our production costs are up year over year for 2 years since the pandemic, our production oil and shipping costs are up 30% just in one year. We had to stockpile raw inventory due to supply chain issues and the concern of not receiving in time. Just a month ago we had to offer full time employment to our year round seasonal employees because (1) we wanted to keep them (2) some were leaving for Target jobs, and (3) it's hard to fill these production manufacturing positions, etc. That increase in labor and benefit cost is a 22% hit to the bottom line (after all depreciations).

On the flip side, just as Cathie Woods said in the video, we saw stellar (both dollar and unit) growth in sales the last 2 years. However because operational costs were also high, profits did not increase. We held our own with a slight increase for our products but now am concerned about profit decline finishing 2022 and going into 2023.

Also as someone mentioned, interesting enough, we saw a decrease in Amazon sales. But because our sales increased we don't know if they simply came directly to us instead of Amazon.
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Old 05-22-2022, 08:09 AM   #11
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Temporary inventory issues as people's spending habits change coming out of the pandemic and no more helicopter money combined with massive input cost increases does not cause long term deflation. Any retailer will simply adjust their ordering to be a bit more conservative, which is actually likely to cause shortages -> pushing inflation up higher. Until you see PPI and commodities dropping, the rest is just short term noise. With PPI at 12% and rising, its unlikely we'll see any deflation anytime soon.
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Old 05-22-2022, 09:11 AM   #12
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Temporary inventory issues as people's spending habits change coming out of the pandemic and no more helicopter money combined with massive input cost increases does not cause long term deflation. Any retailer will simply adjust their ordering to be a bit more conservative, which is actually likely to cause shortages -> pushing inflation up higher. Until you see PPI and commodities dropping, the rest is just short term noise. With PPI at 12% and rising, its unlikely we'll see any deflation anytime soon.
I didn't watch the whole video, but it seems unlikely we will go from 8% plus inflation to deflation quickly. The U.N. is predicting worldwide food shortages in part stoked by the Ukraine war. There is only one candidate for every two jobs in the U.S. right now. That won't likely change quickly unless there is a recession, where there are less jobs and some people will come out of retirement due to stock market losses.

The last time we had deflation was after the 2008 recession and then it was pretty brief. If we do have deflation will likely be a good bet to buy long duration TIPS because the real yields will go up to 2 - 3% again, and prolonged deflation is pretty unusual in the U.S., except for after the Great Depression. Even then it lasted only a few years.
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Old 05-22-2022, 09:39 AM   #13
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I didn't watch the whole video, but it seems unlikely we will go from 8% plus inflation to deflation quickly. The U.N. is predicting worldwide food shortages in part stoked by the Ukraine war. There is only one candidate for every two jobs in the U.S. right now. That won't likely change quickly unless there is a recession, where there are less jobs and some people will come out of retirement due to stock market losses.

The last time we had deflation was after the 2008 recession and then it was pretty brief. If we do have deflation will likely be a good bet to buy long duration TIPS because the real yields will go up to 2 - 3% again, and prolonged deflation is pretty unusual in the U.S., except for after the Great Depression. Even then it lasted only a few years.
Inflation in the US is a 20th (and now 21st) century phenomenon. The country had decreasing prices between 1815-1860 and 1865-1900. We have been conditioned that falling prices are bad.

Think of it this way - let's pretend that we could have a magic thing that represented deferred spending (money). Further imagine that the supply of that magic token was limited, and guaranteed (magically) to only grow (in supply) with the growth of population, i.e. the # of these magical money tokens per capita was somehow set. Now, as time progresses, there is learning and innovation. We learn how to make things more efficiently, we invent things that help us do that, to become more productive. Given this, one would expect over the long run that the cost of goods would be lower...because we are more productive at creating them. While the cost of services might not drop as much, they too should drop as those services become easier to produce (in terms of human capital). Thus, prices should (in the long turn) fall at about the same rate as productivity increase.

Now unfortunately we don't have that magic thing. We have other things that have some of those attributes (e.g. Gold in terms of approximate supply, Fiat currency in terms of "guarantee" of use but not in term of supply). So here we are, with debt determined via fiat, and government who has incentive to devalue the currency over time (aka Inflation).

I like to think of this as "Ka-BOOM". That is, in a downturn we go from "return on investment" to thinking of "return OF investment", and that is deflationary. We take less risk and like the falling water levels in Lake Mead, the bodies rise to the surface. (That's my sarcastic way of saying the companies that have too much leverage fail, and the consumers that have too much leverage go bankrupt). That is the "Ka" part.

But I feel/think/believe we have a government that will do everything it can if a severe downturn occurs to stop it - at any cost. And the easiest approach (to prevent another 1929-1940) situation is to turn on the money printing presses. So here's a wild a*s prediction - the Fed will stop tightening by the end of the year, declare "victory", by the end of the year...even though they haven't even done ANY QT activities yet (scheduled to start in June). That is the "Boom" part.
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Old 05-22-2022, 10:05 AM   #14
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It all goes back to gas and oil. Who sees that improving over the next three years? This time is different in my opinion.

“We” chose to NOT be energy independent. Gas is over $6 a gallon in California that will not change while policies remain on their current trajectory.

Prices on goods and services will not go down with transportation costs high. The printing press is not helping either and that’s not stopping either. The piper needs to be paid and we are all gonna have to pay.

Is this pessimistic, yes, but I just don’t see change coming soon enough to save us.
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Old 05-22-2022, 10:49 AM   #15
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I think the track record of economic forecasting is clear:

"The only function of economic forecasting is to make astrology look respectable.” Often attributed to John Kenneth Galbraith but apparently actually from Ezra Solomon, a member of the Council of Economic Advisors during the Nixon administration.

For those interested, I recommend Nate Silver's book "the signal and the noise." His chapter on economic forecasting is "How to drown in three feet of water." The chapter alone is worth the price of the book.

My approach to the economy is based on a copilot checklist:
1) Sit down.
2) Shut up.
3) Hang on.
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Old 05-22-2022, 11:02 AM   #16
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I think the track record of economic forecasting is clear:

"The only function of economic forecasting is to make astrology look respectable.” Often attributed to John Kenneth Galbraith but apparently actually from Ezra Solomon, a member of the Council of Economic Advisors during the Nixon administration.

For those interested, I recommend Nate Silver's book "the signal and the noise." His chapter on economic forecasting is "How to drown in three feet of water." The chapter alone is worth the price of the book.

My approach to the economy is based on a copilot checklist:
1) Sit down.
2) Shut up.
3) Hang on.
Show me 5 economists and I will show you at least 10 forecasts - unless one is missing an arm.
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Old 05-22-2022, 11:07 AM   #17
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Show me 5 economists and I will show you at least 10 forecasts - unless one is missing an arm.
Harry Truman: “Give me a one-handed Economist. All my economists say 'on one hand...', then 'but on the other...'
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Old 05-22-2022, 01:35 PM   #18
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No, just a lot of inflation, and it's much higher than 8%.
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Old 05-22-2022, 02:33 PM   #19
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To be fair, even when an economist accurately predicts what will happen, he/she cannot tell exactly when it happens. If anything, he/she tends to be too early. And what the market does is something different than what the economy does.

An economist's prognosis is not easily turned into a market timing aid. There are too many weird random things going on at the same time. It's like watching the waves of the ocean, you may miss the tide going in or out.
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Old 05-22-2022, 02:44 PM   #20
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Interesting discussion, but they focused too much on possible deflation, and not enough on the likely recession. I can’t imagine that’s good for growth stocks.
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