Future of Economy and Inflation

npage said:
Will this mean restaurants, stores and whoever actually lower prices? This is something I am curious about from those who lived through inflation in past.



Or are prices so sticky, these prices are the new norm. Just keeping it simple I find it hard to believe the local hot dog stand guy goes to his new high wage employees and says you are going back to $7/hr from $15/hr and we just lowered our menu prices 30%?



Maybe though? I am just trying to think about the future cost of living a bit, or should I say stop panicking so much.
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The only prices I remember going back down were commodities. Particularly fuel and foods.
I can't imaging wages going back down without a serious recession.
 
npage said:
Will this mean restaurants, stores and whoever actually lower prices? This is something I am curious about from those who lived through inflation in past.

Or are prices so sticky, these prices are the new norm. Just keeping it simple I find it hard to believe the local hot dog stand guy goes to his new high wage employees and says you are going back to $7/hr from $15/hr and we just lowered our menu prices 30%?

Maybe though? I am just trying to think about the future cost of living a bit, or should I say stop panicking so much.
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It means that future price hikes will be lower. Wages are not dropping for the lowest paying jobs. Consider that in many states that tipped wages are as low as $2.13 per hour. Is it any wonder that millions of people are leaving those jobs for $15-20$ jobs at Amazon or other companies.
 
Magus said:
Yeah its baked in thats why the stock market is down 2.5+% today and bonds are down 1%. And again, its about the change not the absolute numbers. Bond yields across the board are much higher than 3, 6 and 12 months ago, which is a sign of inflation expectations, not deflation. If deflation worries were going up, bond yields would be way down over that time period, not higher. You inflation is transient folks (and you even further - deflation is here) are seriously hilarious. remember you are the one who claimed the market is down on deflation worries. The market is down on inflation worries.

The bond market is not larger than the stock market. It's about $40 trillion, the majority of which is government, and that is heavily influenced by the Fed Res and primary bank requirements. The market value of the US stock market is about $48 trillion, all private.




Some of the questions are silly but most are not. I not only listen to them, I write our prepared comments, and do all the prep for Q&A and read/listen to all 30 of our peers every quarter, among others. The real action happens after the earnings calls anyway when you have follow up calls with them in private. If you are that bullish on deflation, I hope you are 100% cash and equiv and long term bonds. But again for the 3rd time, EVEN IF you are right (you aren't), the Federal Reserve will go 180 degree reverse in huge order. They will absolutely not allow deflation under any circumstances.
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Go back and review my past calls on interest rates and inflation dating back several years. When the so called Wall Street consensus was rates were rising, I went on record stating that rates were going to invert and fall. Six months later, Wall Street starting talking about rate inversion. Rates then inverted and began to fall. Even the self proclaimed bond experts got it wrong.

I manage my own 8 figure portfolio as well as my parents similar sized portfolio of short and medium term corporate notes. Unlike most fund managers who are too clueless to realize that a 10 year note from Apple with a coupon of 1.25% at par or above carries more risk than cash stuffed in a mattress, I chose to hold cash and wait for buying opportunities as yields rise. Back in March 2020 when the world was panicking and those clueless fund managers were liquidating their holdings, I was buying corporate notes and preferred stocks like the public was buying toilet paper. Earlier in the year, I stated that 2022 was going to be one of the best buying opportunities for fixed income not seen since March 2020 and the best buying opportunities will be later in the year close to tax loss selling season. I stand buy that prediction. I'm holding a lot of cash now and my cash reserves are growing monthly waiting for those same clueless fund managers being forced to liquidate their holding as investors bail and creating those 9-10% yields on short term corporate notes. Yes yields are rising but with $30 trillion in national debt and rising, record levels of consumer and corporate debt, how high can they really go? As for bond fund investors who put their faith in those those clueless bond fund managers who have been buying up those low coupon debt over the past two years, the pain will continue for quite some time.

The bond market is much larger that the stock market and the difference will widen further as the stock market bubble continues its implosion. Like during the 2000 dotcom bubble, valuations and earnings didn't matter until they did.
 
NW-Bound said:
A few things will see the price lowered. A majority of goods and services will have the price stuck.

In 1980, my megacorp gave every employee a 6-month raise to keep up with inflation. It was also so that existing employees would not make less than newcomers, as they had to raise starting pay to attract new hires.

And this is why they say that high inflation hurts retirees and investors more than workers.
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I graduated in 1982 with a B.S. in Business Admin with a major in Management Information Systems. I promptly moved to Boston and began applying for jobs. I lucked out and landed a programming job within a few months. I found out later there were between 600 and 800 applicants for 2 entry level programming jobs.

My poor father had it tough. He graduated from college in 1930 and was one of three from his class that landed jobs that year. In 1931, no one from his University landed jobs. This was an all engineering school.

He retired in 1973 with two kids to put through college. I remember he kept telling me, "inflation will kill you!" I didn't quite understand what inflation was but I figured I might as well smoke if inflation was going to be what took me out.
 
Freedom56 said:
Go back and review my past calls on interest rates and inflation dating back several years. When the so called Wall Street consensus was rates were rising, I went on record stating that rates were going to invert and fall. Six months later, Wall Street starting talking about rate inversion. Rates then inverted and began to fall. Even the self proclaimed bond experts got it wrong.
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I've been heavily involved in Investor Relations and wall street for 12 years and rising rates were not a concern until the last 6 months. And frankly I don't care about your track record on rates unless you were in the heavy inflation camp a year ago and now backtracking but again you forget the Fed Reserve will throw the huge machine in reverse extremely quickly at the first sign of inflation easing, much less deflation. The banks cannot survive deflation and the Fed Reserve will not allow it. You can bet against the bazooka all you want. We have basically 80 straight years of history that proves this out.

The bond market is much larger that the stock market and the difference will widen further as the stock market bubble continues its implosion. Like during the 2000 dotcom bubble, valuations and earnings didn't matter until they did.
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You can keep saying this but for the second time this is not true. The bond market is $40 trillion (US, largely US Fed Gov) and the stock market is $50 trillion (US). Unlike 2000, valuations are already down to historical average of 15-16x forward earnings.
 
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Magus said:
You can keep saying this but for the second time this is not true. The bond market is $40 trillion (US, largely US Fed Gov) and the stock market is $50 trillion (US). Unlike 2000, valuations are already down to historical average of 15-16x forward earnings.
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Some facts for you:

https://www.sifma.org/resources/research/fixed-income-chart/

The bond market size is $52.9 trillion in the US. Worldwide the bond market capitalization is $119 trillion vs $70 trillion for the stock market.

With bonds the capital is returned at par value at maturity. The size is based on issuance value at par. There is no par value for equities and valuation is 100% speculative. So far over $1 trillion of market capitalization has been wiped out from two stocks alone, Facebook and Tesla. The bad news is they are still overpriced.
 
Freedom56 said:
Some facts for you:

https://www.sifma.org/resources/research/fixed-income-chart/

The bond market size is $52.9 trillion in the US. Worldwide the bond market capitalization is $119 trillion vs $70 trillion for the stock market.

With bonds the capital is returned at par value at maturity. The size is based on issuance value at par. There is no par value for equities and valuation is 100% speculative. So far over $1 trillion of market capitalization has been wiped out from two stocks alone, Facebook and Tesla. The bad news is they are still overpriced.
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The bond market value in the link you gave was the value they calculated on 12/31/21 where bond values are down significantly since then. I found a link that had it at $41 trillion at the end of May.

I don't disagree there there are still some stocks out there that are overvalued, but as a whole the PE ratio of the S&P 500 is only about 1x turn higher than the long term average (which with below average interest rates is actually in line or below average using CAPM model) and the Russell 2k is below its long term average. Bonds do have risk, both to inflation and repayment ability (see lower grade junk bonds yields have gone up 600 bps this year), no matter what Par is.
 
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Popeye said:
Maybe I didn’t notice before but the spread between regular and premium is quite large around here. Regular was $4.99 and Premium was $5.99!
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Yup... I just got some non-ethanol premium for the boats, jet ski, mower, etc and it was $6.09 and regular leaded was $5.07. Luckily we only use 20-30 gallons over the summer so the $1 premium for non-ethanol isn't a killer. Sure glad that I long ago got rid of a car that I had that required premium unleaded even tough it s a very fun car.
 
pb4uski said:
Yup... I just got some non-ethanol premium for the boats, jet ski, mower, etc and it was $6.09 and regular leaded was $5.07. Luckily we only use 20-30 gallons over the summer so the $1 premium for non-ethanol isn't a killer. Sure glad that I long ago got rid of a car that I had that required premium unleaded even tough it s a very fun car.
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You meant regular unleaded?
 
Freedom56 said:
Go back and review my past calls on interest rates and inflation dating back several years. When the so called Wall Street consensus was rates were rising, I went on record stating that rates were going to invert and fall. Six months later, Wall Street starting talking about rate inversion. Rates then inverted and began to fall. Even the self proclaimed bond experts got it wrong.

I manage my own 8 figure portfolio as well as my parents similar sized portfolio of short and medium term corporate notes. Unlike most fund managers who are too clueless to realize that a 10 year note from Apple with a coupon of 1.25% at par or above carries more risk than cash stuffed in a mattress, I chose to hold cash and wait for buying opportunities as yields rise. Back in March 2020 when the world was panicking and those clueless fund managers were liquidating their holdings, I was buying corporate notes and preferred stocks like the public was buying toilet paper. Earlier in the year, I stated that 2022 was going to be one of the best buying opportunities for fixed income not seen since March 2020 and the best buying opportunities will be later in the year close to tax loss selling season. I stand buy that prediction. I'm holding a lot of cash now and my cash reserves are growing monthly waiting for those same clueless fund managers being forced to liquidate their holding as investors bail and creating those 9-10% yields on short term corporate notes. Yes yields are rising but with $30 trillion in national debt and rising, record levels of consumer and corporate debt, how high can they really go? As for bond fund investors who put their faith in those those clueless bond fund managers who have been buying up those low coupon debt over the past two years, the pain will continue for quite some time.

The bond market is much larger that the stock market and the difference will widen further as the stock market bubble continues its implosion. Like during the 2000 dotcom bubble, valuations and earnings didn't matter until they did.
Click to expand...

Why don't you tell us how you really feel? ;)
 
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Koolau said:
But it's the only way to get even close to inflation protection on cash. Naturally, YMMV.
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Yep closest you can get to “risk free” on cash and equiv at the moment. Biggest issue long term with those two of course is you can never actually get ahead. For someone older than 70 that’s probably not a big deal but for my 40 y/o self….I have about 5% of my NW in those two currently
 
In a bear market for nearly all assets, the guy who loses the least wins. Heh heh heh...

The only asset that has gone up is oil. And I neglected to fill up the 55-gallon tank of my RV. As if it would make a difference. Hah.
 
Magus said:
Yep closest you can get to “risk free” on cash and equiv at the moment. Biggest issue long term with those two of course is you can never actually get ahead. For someone older than 70 that’s probably not a big deal but for my 40 y/o self….I have about 5% of my NW in those two currently
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Yeah, one of the few advantages of being old. Getting old is great but being old is a drag so you have to take your little wins where you can.
 
daylatedollarshort said:
Well, you were the one dissing TIPS and I bonds, so I was wondering if you had a better alternative.
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I was not dissing I-bonds or TIPs. You asked if there was any risk to them and that is the only one I know of, especially I-bonds. Compared to everything else out there, that is much better as a no risk or very little risk option. TIPs also have hold to maturity risks I suppose if you need the cash earlier than maturity and the value drops.
 
Magus said:
Yep closest you can get to “risk free” on cash and equiv at the moment. Biggest issue long term with those two of course is you can never actually get ahead. For someone older than 70 that’s probably not a big deal but for my 40 y/o self….I have about 5% of my NW in those two currently
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You made me look.

My I bonds are currently 5.43% of investable assets. I have had them since early 2000s.

They used to be a higher percentage, perhaps close to 10%. They could not keep up with the rest of the stash. Yes, that's the price to pay for low risks.
 
NW-Bound said:
You made me look.

My I bonds are currently 5.43% of investable assets. I have had them since early 2000s.

They used to be a higher percentage, perhaps close to 10%. They could not keep up with the rest of the stash. Yes, that's the price to pay for low risks.
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I kinda envy you having that much in I-bonds from the early 2000s. That was the sweet spot for buying them since they actually paid some interest beside the inflation. Good on you!
 
Koolau said:
I kinda envy you having that much in I-bonds from the early 2000s. That was the sweet spot for buying them since they actually paid some interest beside the inflation. Good on you!
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I had I bonds with 5% base rate and sold them 6 months later.
 
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