Piper Sandler: Deflation is already here

[MichealKnight]

I'm not into the high flying, we'll be profitable someday, but until then we're gonna have cute modern offices and energy drinks and work from home and eat extra guac at Chipotle stocks. I do admit, I'm burned on one - I got into MTTR at 10 and it's 5 now. While my "get off my lawn" account - yes - I call it that - full of stocks I see in my cupboard and kitchen and medicine cabinet - is actually holding up fine.

Anyhow, I'll play the resident simpleton - it's an easy part for me to play.

Higher PEs.....

Could it be, that America's population has GROWN compared to 20- 30 years ago? In that there's more people buying the same stocks- thus pushing up multiples?

Also, due to communication and technology - is it possible that the investor classes abroad, especially *growing* investor classes abroad - have more money, and ACCESS to buy American equities?

Could these factors push up PEs a little bit?

[Gumby]

Inventory overhang was one of the deflationary factors mentioned in the video that opened this thread. Seems like they were right about that.

https://www.cnbc.com/2022/06/07/targ...inventory.html

[CaptTom]

Quote:

Originally Posted by Gumby Inventory overhang was one of the deflationary factors mentioned in the video that opened this thread. Seems like they were right about that. https://www.cnbc.com/2022/06/07/targ...inventory.html

I was wondering when I was going to hear about all those pandemic-related products we see filling the shelves and discount racks. I expect any business with an excess of masks and disinfectant wipes is going to have to reduce that inventory.

But that's not the same as the inventory reduction strategies common before all the supply-chain disruptions.

I never worked in retail, but I've had relatives who did. It must be hard to try to predict future demand. So many factors to consider!

[NW-Bound]

Quote:

Originally Posted by Gumby Inventory overhang was one of the deflationary factors mentioned in the video that opened this thread. Seems like they were right about that. https://www.cnbc.com/2022/06/07/targ...inventory.html

After Walmart and Target get rid of the overstocked merchandise, what will be the cost of the new batch of orders?

Only then will we know more about the effect of inflation, or lack of it.

[Magus]

Quote:

Originally Posted by NW-Bound After Walmart and Target get rid of the overstocked merchandise, what will be the cost of the new batch of orders? Only then will we know more about the effect of inflation, or lack of it.

Bingo - these folks have never been in merchandising and procurement for retailers, that much is obvious.

[Christine]

I found this interesting.


Cathie Wood is out with a new video about the FED, macros, fiscal policy and indicators.

Her opinion is that the FED has panicked. Causing lots of additional problems. Since we are in a global recession already. Interest rates up 7 fold is unheard of. We have never seen that before.


Deflation is the much bigger risk:

• Credit Default Swaps are up dramatically
• The Yield Curve is inverting and recession is already here
• Consumer Sentiment has never been lower! And it goes back to the 40's.
• Employment layoffs are happening.
• Housing showing weakness on almost all metrics.
• Consumers have shut down. Walmart and Target feeling this and cutting prices.
• 2 consecutive months of negative GDP growth is the technical definition of a recession - and we are there now.
• The CPI and PPI that the FED looks at is lagging indicators. Copper is a better forward indicator. It peaked in March.
• The ISM Supply Chain Report peaked in March last year - orders are down into negative territory.
• Shipping Indexes are down more than 50% since the peak.
• Used car prices has started going down.

And in the Markets:

• Worst YTD in bonds in anyones lifetime - worst since 1788!
• Stocks are down. Worst YTD since 1962
• Crypto down a lot even after becoming more mature

The full video is here:

https://www.youtube.com/watch?v=cRoOtsxlRNY

I am a noob so any mistakes in my highlights are my own.

[aja8888]

At a lot of the financial blogs I read, she is called "Cathie Woodshed" as that's where her funds have been taken to.

She'd love nothing better than a FED interest rate cut so her funds wouldn't be further smacked around.

[OldShooter]

She is amazing. And very calculating. The purpose of this video is to acquire and retain buyers for the smoking wrecks of her funds. From day one she has been in this to maximize her fees and here, at the end stage of the ARK game, she is still working on maximizing them. She will retire a rich woman.

[aja8888]

Quote:

Originally Posted by OldShooter She is amazing. And very calculating. The purpose of this video is to acquire and retain buyers for the smoking wrecks of her funds. From day one she has been in this to maximize her fees and here, at the end stage of the ARK game, she is still working on maximizing them. She will retire a rich woman.

Agree. She is in her 60's and already rich!

[Gremlin]

Quote:

Originally Posted by aja8888 She'd love nothing better than a FED interest rate cut so her funds wouldn't be further smacked around.

This! Inflation has run amok. The FED should be raising interest rates, Ark Investment Management funds be d*mned. (With sincere condolences to those who have money invested in those funds)

Gremlin

[milford]

Quote:

Originally Posted by OldShooter She is amazing. And very calculating. The purpose of this video is to acquire and retain buyers for the smoking wrecks of her funds. From day one she has been in this to maximize her fees and here, at the end stage of the ARK game, she is still working on maximizing them. She will retire a rich woman.

+1 her PR team is amazing in keeping her image as an "investing guru" as they say perception is reality.

The first time I heard about her was about 2 years ago from a friend that's a pharmacist who had no prior investing knowledge. Him his pharmacist friends were talking about this Cathie Wood savant that they would just buy the dip and wait for ARK funds to shoot up in a few days and then sell. That was the moment I knew the stock market was already in a bubble or very close to the top.

[Christine]

OK I get that you may not buy any ARK funds soon. I don't have any either btw.


But since you are dismissing her ideas would you say that these numbers and indicators all are irrelevant to the current inflation vs recession debate?


And if so - what are you looking for to indicate that things are changing and the inflation would be coming down?

[DrRoy]

Quote:

Originally Posted by copyright1997reloaded 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.

The first quarter GDP was negative. Presuming that the second quarter is also, then we are already in a recession. It is usually like that.

[Chuckanut]

Quote:

Originally Posted by Christine But since you are dismissing her ideas would you say that these numbers and indicators all are irrelevant to the current inflation vs recession debate?

As I said, I became suspicious when she talks about a 7x increase in interest rates. Its' true in relative terms. But in absolute terms, starting from our historically very very very low interest rates, I don't think the current rates are that high.

Housing shows weakness? Technically correct , but only compared to an extremly strong seller's market of the last few years. On an absolute basis, it is still a strong market.

Consumers have shutdown? Target and Walmart are cutting prices. Well... yes on some things. But, that is because of lot of previously ordered stuff arrived late to the party and people no longer want to buy winter coats in Spring and Summer.

Employment layoffs are happening. Yes, at some places. In my area anybody who wants a job can find one.

Crypto down - Please........ That was always a wild speculation. I noticed she called it 'more mature'. Well, a 2 year old is more mature than an 18 month old. But, they are still closer to each other than to a 40 year old.

IMO, her reasoning is flawed.

[OldShooter]

Quote:

Originally Posted by Christine ... since you are dismissing her ideas would you say that these numbers and indicators all are irrelevant to the current inflation vs recession debate?

Well, before we talk about economic forecasting, lets talk about a much simpler problem: a trout stream:

Assemble your favorite team of experts along the shore and have them give you a prediction of what the ripples, whorles, and splashes will be along a line across the stream an hour from now. Impossible, right? But we have all the mathematics of incompressible flows nailed. If we can't even predict a simple trout stream when have the math, what can we reliably predict? Answer: not much.

Now consider economic forecasting. No mathematics pertains. Literally billions of actors. External events like the weather, man-caused events, ... When you consider this, you can easily conclude that economic forecasting is, like the trout stream, impossible.

"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. Nothing has changed in the half-century since Dr. Solomon made this observation.

For further research, I recommend that you read "the signal and the noise" by Nate Silver, particularly the chapter titled "How to Drown in Three Feet of Water."

Quote:

Originally Posted by Christine ...And if so - what are you looking for to indicate that things are changing and the inflation would be coming down?

Same way I check to see how my garden is doing. I take a look out the window. Getting today's numbers is as close as I can get to knowing anything useful. Listening to thousands of chattering monkeys, each making credible-sounding predictions, is a waste of time. Cathy is actually worse than the average chattering monkey; she is a monkey with an agenda.

[prudent_one]

Quote:

Originally Posted by Chuckanut As I said, I became suspicious when she talks about a 7x increase in interest rates. Its' true in relative terms. But in absolute terms, starting from our historically very very very low interest rates, I don't think the current rates are that high.

It's this kind of misrepresentation that kills my respect for her. Yes, 7x is true. However, without the context of how low the starting point was it's very deceptive. You can't say it's lying but it's certainly not telling the whole truth in a way that is meaningful.

Heck, why not wave our arms wildly in a panic even more vigorously. The fed funds rate in March 2020 was 0.05%. Today it's 1.58%. That's more than 30x higher! Run for your lives!

[copyright1997reloaded]

Quote:

Originally Posted by DrRoy The first quarter GDP was negative. Presuming that the second quarter is also, then we are already in a recession. It is usually like that.

All Hail Ark!
(If this doesn't make sense, visit the ARK fund discussion here: https://www.early-retirement.org/for...ds-103952.html where I predicted its fall to earth on 12/27/20 and again on 1/3/21.

Anyway, back to the present: Multiple things can be true at the same time. We can have inflation AND be in a recession. Doesn't that make us happy?

We have been in an everything bubble. Asset prices across a spectrum of assets have been bid up. All one has to do is look at house prices vs. median income to see an example of that. Same for stocks, bonds, crypto, and likely other asset classes. This is the result of a decade of easy money. The result of this is inefficient capital allocation and tons of businesses and projects that should not have been done, but were because the cost of capital was so cheap.

After the dot com bust, the fed reduced interest rates to 1% and the result was the housing boom, massive speculation in housing and the eventual bust (along with the great recession). That was just from 1% for a considerably shorter duration. As of April, the Case Shiller housing price index was at 300.1, 3X the 2000 value. Compare that to the median family income, $41,190 in 2000 and $67,521 in Sept 20 (latest data available), a 64% increase. One can think of this as the "rich" selling houses to each other at higher and higher prices using that excess $ sloshing through the system.

OTOH that excess money (not to be confused with wealth) is pouring into things that are NEEDED (vs. wants). Food, fuel, other real things...and the result is inflation at the same time the asset price bubble is deflating.

Buckle up.

[OldShooter]

Quote:

Originally Posted by prudent_one It's this kind of misrepresentation that kills my respect for her. ...

From the little bit of reading and watching I have done, my conclusion is that her objective is to convince people that the smoking wrecks of her bubble funds are not her fault. It's all due to external factors beyond her control. "So ... folks ... don't sell my funds. Stay in and keep paying me fees. Someday I will be right."

[Christine]

Quote:

Originally Posted by DrRoy The first quarter GDP was negative. Presuming that the second quarter is also, then we are already in a recession. It is usually like that.

Thanks - it's my first recession that I actually follow and try to understand. Earlier I was a brain dead worker bee who did not follow the finance news.

Quote:

Originally Posted by OldShooter For further research, I recommend that you read "the signal and the noise" by Nate Silver, particularly the chapter titled "How to Drown in Three Feet of Water."

Thank you!

Quote:

Originally Posted by Chuckanut As I said, I became suspicious when she talks about a 7x increase in interest rates. Its' true in relative terms. But in absolute terms, starting from our historically very very very low interest rates, I don't think the current rates are that high.

Quote:

Originally Posted by prudent_one It's this kind of misrepresentation that kills my respect for her. Yes, 7x is true. However, without the context of how low the starting point was it's very deceptive. You can't say it's lying but it's certainly not telling the whole truth in a way that is meaningful.

I think both views have some merit. People should not be surprised that rates are going up. But some are. And interest payments while not 7x for retail rates are still up by a decent multiple.



I sure hope companies are better at this than ordinary people buying houses. Most people in Norway choose variable interest rates on their mortgages but don't budget for rates going up like this.
A typical new home owner only pay interest for the first few years so these hikes blow their monthly payments up a lot.

[Koolau]

Quote:

Originally Posted by copyright1997reloaded All Hail Ark! (If this doesn't make sense, visit the ARK fund discussion here: https://www.early-retirement.org/for...ds-103952.html where I predicted its fall to earth on 12/27/20 and again on 1/3/21. Anyway, back to the present: Multiple things can be true at the same time. We can have inflation AND be in a recession. Doesn't that make us happy? We have been in an everything bubble. Asset prices across a spectrum of assets have been bid up. All one has to do is look at house prices vs. median income to see an example of that. Same for stocks, bonds, crypto, and likely other asset classes. This is the result of a decade of easy money. The result of this is inefficient capital allocation and tons of businesses and projects that should not have been done, but were because the cost of capital was so cheap. After the dot com bust, the fed reduced interest rates to 1% and the result was the housing boom, massive speculation in housing and the eventual bust (along with the great recession). That was just from 1% for a considerably shorter duration. As of April, the Case Shiller housing price index was at 300.1, 3X the 2000 value. Compare that to the median family income, $41,190 in 2000 and $67,521 in Sept 20 (latest data available), a 64% increase. One can think of this as the "rich" selling houses to each other at higher and higher prices using that excess $ sloshing through the system. OTOH that excess money (not to be confused with wealth) is pouring into things that are NEEDED (vs. wants). Food, fuel, other real things...and the result is inflation at the same time the asset price bubble is deflating. Buckle up.

Yep, when they shovel money out of low-flying aircraft, you gotta do something with it. Bid up stocks, bid up houses, bid up steak, on it goes. Too many dollars chasing too few goods. What we learned in Econ 101 (55 years ago in my case.) YMMV