Piper Sandler: Deflation is already here

[prudent_one]

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]

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/forums/f44/ark-funds-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]

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]

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.

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!

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.

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]

All Hail Ark!
(If this doesn't make sense, visit the ARK fund discussion here: https://www.early-retirement.org/forums/f44/ark-funds-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