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Old 05-05-2022, 08:31 AM   #21
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Some thoughts to consider:

1. The FED policy moves are reactionary and since the Volcker years, have not been aggressive in addressing inflation.

2. When inflation reared its ugly head over a year ago, the FED insisted it was "transitory" and they would "let inflation run hot" for the time being. Thses statements by Powell have been published thousands of times in the media.

3. 400 PhD economists at the FED were wrong came to that conclusion (see 2. above).

4. Inflation was well underway before the Ukraine invasion.

5. Releasing crude oil out of the SPR is a political event as that oil takes months to get sold and into the "system". Actually, some of that oil was sold to foreign interests.

6. On a inflation adjusted price, our fuel products in the U.S. are not out of line.

7. With a few exceptions, the U.S. currently has fairly low fuel costs verses the rest of the world.

8. The FED's actions are meant to keep inflation going as long as it can to reduce the balance sheet debt (roughly $6 Trillion) and minimize the chance of the Democrats losing power in November's elections.

9. Who is currently getting the shaft with this high inflation are families on fixed incomes and small businesses who have no pricing power.

10. Keep your head down and keep thinning the cabbage (said to me in 1981 by a Japanese friend who's U.S. family was interned during WWII).

11. The short covering rally yesterday is over.....

12. None of the above is about you on a personal basis.
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Old 05-05-2022, 09:10 AM   #22
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The Fed can raise rates only so much given the level of national debt, corporate debt, and consumer debt that has to roll over. This isn't the early 80's. Equities are still overpriced and the stock market became one large casino in part due to the easy monetary policy. We still have stocks like GME (Gamestop) trading at over $100 and yet they continue to lose money. Just like the 2000 bubble took a few years to unravel, so will this one. Don't be surprised if we see a complete crash in the equity markets.
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Old 05-05-2022, 10:14 AM   #23
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The Fed can raise rates only so much given the level of national debt, corporate debt, and consumer debt that has to roll over. This isn't the early 80's. Equities are still overpriced and the stock market became one large casino in part due to the easy monetary policy. We still have stocks like GME (Gamestop) trading at over $100 and yet they continue to lose money. Just like the 2000 bubble took a few years to unravel, so will this one. Don't be surprised if we see a complete crash in the equity markets.
Yep, the FED has boxed themselves (and us) in a corner since 2009 when they started QE and enriched the top 0.01% by printing ton of greenbacks. Asset deflation is a bitch when your houses and land have appreciated 10 times over.

If anyone reviews the FED's "plan" of rolling off $90 - $100 billion of bonds and MBS's per month, you will see that it will be 4 years before the QT is over. Good luck with that.
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Old 05-05-2022, 10:29 AM   #24
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I have read that historically interest rates needed to go above the inflation rates in order to reduce inflation. With the one year Treasury at 2% and last inflation figures at 8.5%, that is a -6.5% real interest rate on the 1 year Treasuries. Based on that, I have been thinking it is quite possible we haven't seen anything yet on how high the Fed will eventually need to raise rates to get inflation under control.
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Old 05-05-2022, 10:34 AM   #25
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Yep, the FED has boxed themselves (and us) in a corner since 2009 when they started QE and enriched the top 0.01% by printing ton of greenbacks. Asset deflation is a bitch when your houses and land have appreciated 10 times over.

If anyone reviews the FED's "plan" of rolling off $90 - $100 billion of bonds and MBS's per month, you will see that it will be 4 years before the QT is over. Good luck with that.
None of us can control the FED. All we can do is react to the markets response to their actions/inactions. I see it as a repeating pattern of these rate hike hick-ups. If rates were really moving much higher the 30 year bond would be at 5% now. A lot of this inflation is due to corporate gouging. With so much easy money in circulation and high demand, why not raise prices? Goods and services are priced in accordance with what the market will bear. This is economics 101. However, at some point people just hold back on spending and prices collapse. We are seeing that in the semi-conductor sector and in particular graphics hardware. People have been cutting back on prescription drugs and healthcare due to ever rising costs far in excess of the rate of inflation.
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Old 05-05-2022, 10:47 AM   #26
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CATL, who is the largest Chinese EV battery maker with 35% world market share and who is supplying LFP cells to Tesla China factory, reported earnings yesterday. Its stock promptly lost 14%, because profits fell 41%.

CATL blames the problem on the high cost of materials, even though the LFP (lithium ferrous phosphate) cell chemistry makes no use of nickel and cobalt, which is used in other lithium cell chemistries for EVs and electronics.
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Old 05-05-2022, 11:02 AM   #27
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Originally Posted by daylatedollarshort View Post
I have read that historically interest rates needed to go above the inflation rates in order to reduce inflation. With the one year Treasury at 2% and last inflation figures at 8.5%, that is a -6.5% real interest rate on the 1 year Treasuries. Based on that, I have been thinking it is quite possible we haven't seen anything yet on how high the Fed will eventually need to raise rates to get inflation under control.
Exactly, as Volcker raised the rates in 1981 to 20% which was over the inflation rate at the time. That killed inflation, put a lot of people our of work, and cause a recession. The FED now has itself backed into the same corner but would rather see the U.S. population and small business slowly roasted over a fire pit for the next several years (or longer) rather than tackle the inflation they created through the 12 years of QE.
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Old 05-05-2022, 03:48 PM   #28
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Originally Posted by aja8888 View Post
Some thoughts to consider:

1. The FED policy moves are reactionary and since the Volcker years, have not been aggressive in addressing inflation.

2. When inflation reared its ugly head over a year ago, the FED insisted it was "transitory" and they would "let inflation run hot" for the time being. Thses statements by Powell have been published thousands of times in the media.

3. 400 PhD economists at the FED were wrong came to that conclusion (see 2. above).

4. Inflation was well underway before the Ukraine invasion.

5. Releasing crude oil out of the SPR is a political event as that oil takes months to get sold and into the "system". Actually, some of that oil was sold to foreign interests.

6. On a inflation adjusted price, our fuel products in the U.S. are not out of line.

7. With a few exceptions, the U.S. currently has fairly low fuel costs verses the rest of the world.

8. The FED's actions are meant to keep inflation going as long as it can to reduce the balance sheet debt (roughly $6 Trillion) and minimize the chance of the Democrats losing power in November's elections.

9. Who is currently getting the shaft with this high inflation are families on fixed incomes and small businesses who have no pricing power.

10. Keep your head down and keep thinning the cabbage (said to me in 1981 by a Japanese friend who's U.S. family was interned during WWII).

11. The short covering rally yesterday is over.....

12. None of the above is about you on a personal basis.
+1000. Totally spot on.
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Old 05-05-2022, 04:11 PM   #29
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Actually releasing some oil from the U.S. Strategic Petroleum Reserve does put downward pressure on the price of gas and oil meaning less inflation.

There is lots there, and it will be replaced in a year or two or three when prices are LOWER again... So it's like buy low and sell high.
The Biden administration announced today that they would start buying back oil for the strategic petroleum reserve. They plan to do the buying this Fall. I don't think oil prices will be lower in 4 months, but I suppose they could be.
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Old 05-05-2022, 04:32 PM   #30
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As mentioned earlier, Debt is now 124% of GDP. I think the conventional wisdom is at over 100% your economy is in trouble.

Three ways out.
1). Run a surplus to pay down debt.
2. Default.
3. Inflate it away. Debase the currency, hold interest rates at negative levels, inflated nominal GDP can eventually overtake Debt.

I bet the US Government chooses #3.

Strap in for the inflationary ride.
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Old 05-05-2022, 04:45 PM   #31
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Exactly, as Volcker raised the rates in 1981 to 20% which was over the inflation rate at the time. That killed inflation, put a lot of people our of work, and cause a recession. The FED now has itself backed into the same corner but would rather see the U.S. population and small business slowly roasted over a fire pit for the next several years (or longer) rather than tackle the inflation they created through the 12 years of QE.


We have a winner! That is what I am seeing also. Today I was out riding and I saw several local mom and pop stores that are having 50% off going out of business. These appear to be long term family business in a tourist area that are hanging it up.
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Old 05-05-2022, 06:57 PM   #32
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As mentioned earlier, Debt is now 124% of GDP. I think the conventional wisdom is at over 100% your economy is in trouble.

Three ways out.
1). Run a surplus to pay down debt.
2. Default.
3. Inflate it away. Debase the currency, hold interest rates at negative levels, inflated nominal GDP can eventually overtake Debt.

I bet the US Government chooses #3.

Strap in for the inflationary ride.
I’ll vote for #3, too much cash in the system for too few goods or services, and too few workers to change that. MD dropped gas tax for couple months and is considering more, CA is debating a gift card to all as an offset to higher gas prices, although tax there is twice the rest of states. More money sloshing around with no supply to soak it up, lemme think, inflation?

We took out a long term 2 3/8% mortgage precisely to counteract this. My $2,800 pay,ent will take less and less of our pensions the longer this continues. I DON’T WANT this but we prepared for it. My buddy has a pension from IBM he has been drawing for 25 years with no COLA adjustments. He has taken care with his savings but these are the ones that will suffer. Buy friskies stock!
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Old 05-06-2022, 05:57 AM   #33
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OK, so what if debt is 124% or 400% of GDP for that matter ? GDP doesn't pay down the debt, only increased tax rates/base and cost effective responsible spending from Congress will. I realize growing GDP is an important component for enlarging tax revenues but in and of itself, the metric means nothing until spending is addressed. Tell me I'm wrong.
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Old 05-06-2022, 07:21 AM   #34
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OK, so what if debt is 124% or 400% of GDP for that matter ? GDP doesn't pay down the debt, only increased tax rates/base and cost effective responsible spending from Congress will. I realize growing GDP is an important component for enlarging tax revenues but in and of itself, the metric means nothing until spending is addressed. Tell me I'm wrong.

While I agree with you, I look at it as a budget that spending is inline with income. I borrowed to by a car or house, but my monthly spend is less than or equal to my income. If you don't have that balance then as a person you can:
1) Decrease spending

2) Increase income
3) Become bankrupt


As a country you can
1) Decrease spending, that is cut programs or at least stop the annual increases
2) Increase income, that is higher tax rates or higher income to increase taxes. An increase in GDP can increase tax base if you don't adjust rates higher.

3) Let inflation do the work. Your $7T of debt over a period of years will deflate to 2002 dollars that you can manage to pay interest on.
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Old 05-06-2022, 08:29 AM   #35
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Plenty of doom and gloom out there.

"‘We are nowhere near the bottom,’ top economist says as global markets crater"

https://www.cnbc.com/2022/05/06/nowh...ts-crater.html
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Old 05-06-2022, 09:51 AM   #36
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Plenty of doom and gloom out there.

Too say nothing of in this thread...
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Old 05-07-2022, 09:37 PM   #37
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More than inflation, in other threads we also talk about shortage of water in the West due to the drought, and very likely power shortage in California this summer.

It's bleak.
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Old 05-08-2022, 08:26 AM   #38
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More than inflation, in other threads we also talk about shortage of water in the West due to the drought, and very likely power shortage in California this summer.

It's bleak.
Yeah, we could keep adding on to that list.
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Old 05-10-2022, 08:20 AM   #39
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Originally Posted by RetireBy90 View Post
While I agree with you, I look at it as a budget that spending is inline with income. I borrowed to by a car or house, but my monthly spend is less than or equal to my income. If you don't have that balance then as a person you can:
1) Decrease spending

2) Increase income
3) Become bankrupt


As a country you can
1) Decrease spending, that is cut programs or at least stop the annual increases
2) Increase income, that is higher tax rates or higher income to increase taxes. An increase in GDP can increase tax base if you don't adjust rates higher.

3) Let inflation do the work. Your $7T of debt over a period of years will deflate to 2002 dollars that you can manage to pay interest on.
Lots of people try to equate personal finances with how the US manages debt, and it's really sad how politicians always try to mislead people down that path to foster more anger.

The two have nothing to do with each other when you hold the world's default fiat currency. As long as the US dollar dominates, debt can always be handled.
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Old 05-10-2022, 10:22 AM   #40
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Lots of people try to equate personal finances with how the US manages debt, and it's really sad how politicians always try to mislead people down that path to foster more anger.

The two have nothing to do with each other when you hold the world's default fiat currency. As long as the US dollar dominates, debt can always be handled.

The vast majority of the population are total disasters at managing their personal finances. Almost two thirds are living paycheck to paycheck irrespective of their income level. At some point individuals and governments hit a debt wall.
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