Looks like the oil companies are really enjoying this inflation, as are their shareholders.
https://www.cnn.com/2021/11/12/business/oil-gas-biden-portugal-tesla-nightcap/index.html
Looks like the oil companies are really enjoying this inflation, as are their shareholders.
https://www.cnn.com/2021/11/12/business/oil-gas-biden-portugal-tesla-nightcap/index.html
Streetwiseguy said:Boost_Crazy said:
In practice, it's very different, and an affront to state sovereignty. Citizens of each state get to s run and how things are prioritized. It is not the job of the federal government to balance things out. Imagine if the states were told at our country's founding that we would have "Robin Hood Plans" to take from some states to give to others. We would not have a United States.
No. You'd have Canada.
They have no idea...
There's a big, sucking noise coming from the East.
Snowdoggie (Forum Supporter) said:Looks like the oil companies are really enjoying this inflation, as are their shareholders.
https://www.cnn.com/2021/11/12/business/oil-gas-biden-portugal-tesla-nightcap/index.html
That's a pretty strange way of explaining that. I think a more reasonable explanation would be that OPEC members took such a bath in the last year and a half because of low use that they are being purposely very sluggish in bringing back production numbers to make up some of it.
And no, you can explain it to me as many times as you want, but I still don't get how reduced production but with NO actual shortages (you want to buy, but you can't) or no reasonable expectation that there MIGHT be actual shortages results in higher prices. (angry noises)
aircooled said:Snowdoggie (Forum Supporter) said:Looks like the oil companies are really enjoying this inflation, as are their shareholders.
https://www.cnn.com/2021/11/12/business/oil-gas-biden-portugal-tesla-nightcap/index.html
That's a pretty strange way of explaining that. I think a more reasonable explanation would be that OPEC members took such a bath in the last year and a half because of low use that they are being purposely very sluggish in bringing back production numbers to make up some of it.
And no, you can explain it to me as many times as you want, but I still don't get how reduced production but with NO actual shortages (you want to buy, but you can't) or no reasonable expectation that there MIGHT be actual shortages results in higher prices. (angry noises)
America was energy independent for the past decade or so, but now due to policy changes, we are relying on OPEC for oil again.
Indy "Nub" Guy said:aircooled said:America was energy independent for the past decade or so, but now due to policy changes, we are relying on OPEC for oil again.
America may have been producing as much as it used in the past, but the US oil industry is not nationalized and oil has always been a world market and (most of) the price is based on world supply and demand.
Also, the US gets very little oil from OPEC, maybe %15 of what it does import. The vast majority of US imports come from Canada. Europe is the one that is primarily dependent on OPEC (and Russian) supplies. But OPEC is a major world supplier and heavily affect world prices, and their and Russia's decision to not ramp up production is a major factor is the now very high world gas oil and gas prices.
Disclaimer: I'm a lay person and interested in this stuff because it impacts financial decisions for my family. If you disagree with it, feel free to read the source material cited in the articles.
What are consumers saying about inflation?
Part of predicting where inflation ends is understanding consumer psychology. If consumers decide that everything will be more expensive later (i.e. that inflation will continue to spiral), then their actions create a feedback loop that will actually reinforce raising prices. If I think toilet paper will cost twice as much next week, I'll buy more right now, which will put more pressure on the supply chain, or lead to the supermarket increasing prices, or the manufacturer increasing production which puts more pressure on suppliers etc.
So do consumers think this is a good time to buy stuff, or a bad time? According to a recent survey by U of M they seem to think this is a bad time to buy:
This aligns with consumer's prediction that inflation will be about 4.6% over the next year, and about 3% over the next 5-10 years. Source: https://www.nytimes.com/2021/11/12/opinion/inflation-consumers.html
Yeah, but what do the professionals say?
Investors are (supposedly!) smarter about these things. So what is the market predicting about inflation? The bond market is predicting that average inflation over the next 5 years will be about 3%. Source: https://ycharts.com/indicators/5_year_tipstreasury_breakeven_rate
So why is everybody loosing their E36 M3 over this?
When we hear "inflation" we automatically think of the stagflation of the late 70's that was finally brought under control by Volker in the early 80's. But that's not the only inflationary period of the post-war economy, and it's probably not the best analogy (we may have inflation, but we don't have stagnation). Krugman and others on "team transitory" has been arguing that the most similar period is probably the temporary inflationary spike after WWII. Source: https://www.nytimes.com/2021/11/11/opinion/inflation-history.html?searchResultPosition=2
But I hear really scary stuff about inflation!
Yep-we're all hearing that monetary policy is really loose and my uncle said the government is just giving out money and it's going to bankrupt our children. So why doesn't the Fed just increase rates to stop inflation in it's tracks right now? Because if rates increase too rapidly the economy will begin to cool off...and we're still not at full employment. So they're doing their best to thread the needle while the vaccines give people the confidence to go back to work and the supply chain sorts itself out.
Can you finish this with an automotive analogy?
You know when you're entering a fast corner and your driving coach tells you to not take your foot off the accelerator, despite the fact that amygdala is screaming at you to slow the berkeley down? That's basically where we are right now. What we see in front of us looks scary but if we lift off the gas right now things will get worse instead of better. So pucker up buttercup, and hold on.
Yesterday, the FED declared they're no longer using "transitory" to describe inflation
Powell also suggested a more aggressive tapering off of bond purchasing might be needed to slow things down a bit.
This all sets the table for the possibility of raising interest rates sooner than expected
STM317 said:Yesterday, the FED declared they're no longer using "transitory" to describe inflation
Powell also suggested a more aggressive tapering off of bond purchasing might be needed to slow things down a bit.
This all sets the table for the possibility of having to live through the berking late '70s yet again.
FTFY.
Let's hope he wasn't the last person to figure that out.
In reply to STM317 :
Good article. I thought the best part was at the end:
“To get back to the great labor market we had before the pandemic we’re going to need a long expansion,” he said. “To get that we’re going to need price stability.”
“The biggest change I saw in Powell was the lowering of the ceiling of the labor market,” said Derek Tang, an economist at LH Meyer/Monetary Policy Analytics in Washington. “Once that happens, the maximum employment door is open, so they can start talking about liftoff.”
Edit: More comments from Powell today basically indicating greater uncertainty about their forecast: https://abcnews.go.com/US/wireStory/powell-fed-inflation-fade-year-81495395
aircooled said:Let's hope he wasn't the last person to figure that out.
I have little doubt that he, along with Yellen, knew all along that inflation was anything but "transitory"...the only thing that changed was his receiving a second term as Fed Chair on Monday, November 22nd.
Overall, I think he's a decent and competent person but the fact that he decided to take a MASSIVE optics hit by making a 180 degree departure from his consistent narrative just eight days after receiving a second term signals to me he knows there's no time to waste...policies need to be changed immediately to reduce the risk of economic disaster from certain to just really, really high.
Added later...
My intent is not to scare anyone, I'm just sharing what I'm seeing / thinking and FWIW, I don't intend to move any money to safety, I'm all in with equities.
Inflation = too many dollars chasing too few goods and services...we'll either start spending less and working more or we'll be berked good and hard; it's that simple.
And no, you can explain it to me as many times as you want, but I still don't get how reduced production but with NO actual shortages (you want to buy, but you can't) or no reasonable expectation that there MIGHT be actual shortages results in higher prices. (angry noises)
Actually, I think the answer to that is easy. Just don't ask me to prove it.
My answer is:
Speculators
noddaz
CrustyRedXpress said:Disclaimer: I'm a lay person and interested in this stuff because it impacts financial decisions for my family. If you disagree with it, feel free to read the source material cited in the articles.
What are consumers saying about inflation?
Part of predicting where inflation ends is understanding consumer psychology. If consumers decide that everything will be more expensive later (i.e. that inflation will continue to spiral), then their actions create a feedback loop that will actually reinforce raising prices. If I think toilet paper will cost twice as much next week, I'll buy more right now, which will put more pressure on the supply chain, or lead to the supermarket increasing prices, or the manufacturer increasing production which puts more pressure on suppliers etc.
So do consumers think this is a good time to buy stuff, or a bad time? According to a recent survey by U of M they seem to think this is a bad time to buy:
Yeah, but what do the professionals say?
Investors are (supposedly!) smarter about these things. So what is the market predicting about inflation? The bond market is predicting that average inflation over the next 5 years will be about 3%. Source: https://ycharts.com/indicators/5_year_tipstreasury_breakeven_rate
So why is everybody loosing their E36 M3 over this?
When we hear "inflation" we automatically think of the stagflation of the late 70's that was finally brought under control by Volker in the early 80's. But that's not the only inflationary period of the post-war economy, and it's probably not the best analogy (we may have inflation, but we don't have stagnation). Krugman and others on "team transitory" has been arguing that the most similar period is probably the temporary inflationary spike after WWII. Source: https://www.nytimes.com/2021/11/11/opinion/inflation-history.html?searchResultPosition=2
But I hear really scary stuff about inflation!
Yep-we're all hearing that monetary policy is really loose and my uncle said the government is just giving out money and it's going to bankrupt our children. So why doesn't the Fed just increase rates to stop inflation in it's tracks right now? Because if rates increase too rapidly the economy will begin to cool off...and we're still not at full employment. So they're doing their best to thread the needle while the vaccines give people the confidence to go back to work and the supply chain sorts itself out.
Can you finish this with an automotive analogy?
You know when you're entering a fast corner and your driving coach tells you to not take your foot off the accelerator, despite the fact that amygdala is screaming at you to slow the berkeley down? That's basically where we are right now. What we see in front of us looks scary but if we lift off the gas right now things will get worse instead of better. So pucker up buttercup, and hold on.
If you look at America historically we've always inflated our way out of trouble . It's how we paid for the revolutionary war and paid for the Louisiana purchase.
How the government "bought back" all those war bonds of the Second World War. Vietnam and now Afghanistan and Iraq.
Most seniors have income based on Social security which is adjusted for inflation. Those with retirement income use that to pay their fixed mortgage payments. Retirement accounts based on assets will inflate in direct relationship to inflation rates.
Yes cash and bank savings won't increase at the rate of inflation. Those will slowly lose out. Very few seniors are foolish enough to stick it in coffee cans or under the bed. You can't help them. So a tiny ( but vocal) percent will lose.
Workers will get steady pay raises in addition to raises based on merit or performance. All the while their mortgage is at a fixed rate. Hence the pre inflation in home values. But at some point the vast majority of homes will flare to their actual value. Meanwhile the fix mortgage will help dealing with inflation.
Inflation is the tool I used to gain the appreciation I have had in real estate value.
If I were a young betting man I'd buy realestate that offered recreational appreciation. Water front absolutely ( maybe not a lot of South Florida water front) but also rural in with a wealthy base. Areas around National parks and Mountain View's. Bottom line land because they aren't making more of it. And the population continues to grow.
Time to start putting the brakes on this thing. It seems like the current expectation is to begin raising rates this spring, and continue gradual increases for the next 36 months.
"As expected, the Fed’s policymaking group following the December meeting kept its benchmark interest rate anchored near zero. However, officials also indicated that they foresee up to three quarter-percentage point increases in 2022, as well as another three hikes in 2023 and two more the year after that.
Officials at the meeting indicated that inflation gauges “had been higher and were more persistent than previously anticipated,” the minutes stated. While members said they think growth will be “robust” in 2022, they also said inflation poses a strong risk, perhaps even more so than the pandemic."
"Along those lines, the committee announced it would speed up the tapering pace of its monthly bond-buying program. Under the new plan, the program would now end around March, after which it would free up the committee to start hiking rates.
Current fed fund futures market pricing is indicating about a 2-to-1 chance of the first hike coming in March, according to the CME’s FedWatch Tool. Traders figure the next increase would come in June or July, followed by a third move in November or December."
Inflation is higher and more persistent than Nobel-prize winning economic advisers predicted?
Color me shocked. *gasp*
Some of you apparently never lived through the '70s, and it shows.
In reply to Duke :
I get you have strong feelings about this, but why not post an argument as to why we're headed for 70's style stagflation? I think we'll end up at something like 3-4% over the next 5 years but am always open to having my mind changed. I'd never considered French's POV and thought it was interesting.
There's enough heat in the world already, why not try to add some light?
I think there is generally a lot more control over the general monetary situation there used to be (not necessarily a good thing of course). Because of this, I don't really expect the extremes of the 70's (where they clearly had less control). (Just a guess of course)
Of note: Whatever the US situation, we are still, by far, the most stable choice for a currency and as such will likely fair better then other countries (which are being affected by the same economic issues).
Also of note: The current situation at Long Beach looks to be about 25 ships waiting. So that is greatly improved. As to the rest of the supply chain, not sure, but I am sure it's still struggling.
I do think the interest and quantitative easing situation is some very very late braking and it would probably have been a much better idea to do some nice downshifting and trail braking before we got so far into this "corner"
All the talk about the 70s piqued my interest. For anybody else that might be interested in interest rates and inflation in the US over the last 65 years or so:
Note that interest rates were lowered at or immediately following every recession (shaded bars) and in the last 20 years, they've actually gotten ahead of the recessions although the pandemic data isn't shown here. Not much room to cut rates when current rates are at zero, so this seems to be a bit of a tightrope. Hopefully, having just gotten through a recession, and with the economy seemingly pretty strong that outcome can be avoided.
In reply to aircooled :
I had seen that the LB port situation was getting better, but it looks like they're just playing with the numbers and having a large number of ships sit outside the official "port" area. There are better articles explaining the specifics but this is all I could find right now:
https://www.wsj.com/articles/southern-californias-container-ship-backlog-moves-farther-out-to-sea-11639132381
Dunno if the Fed or politicians have more or less control over monetary issues than they did in 1980, but the same tool (rate hikes) that Volker used to kill inflation is still available, and I assume Powell will use it. We'll see if he can thread the needle/make the turn/etc. without triggering a recession.
Ahhhhh, interesting. And sneaky....
Found them! Most all those ships scattered off of Baja California are bound for LA / Long Beach. Looks to be about 30 more.
If you can't solve a problem, just move it! (LA did have a potentially serious oil spill as the result of all those ships though)
In reply to CrustyRedXpress :
It'll definitely be a delicate balance with interest rates. One big difference between now and Volker's time is the massive amount of debt. A substantial increase in the interest rate would make the cost of that debt (and future debt, since we know there's no way the Govt could instantly go from deficit spending to a balanced budget quickly) would be astronomical.
As mentioned earlier, we are more or less in an "inflate or die" situation so that aforementioned debt becomes less valuable.
Flynlow (FS) said:When the Fed stops printing money, to include raising interest rates and ending "quantitative easing" (god I hate that term....it would have stopped already if it had been CORRECTLY named "free money handouts, but only to the largest banks on wallstreet"). All the news stories, for or against, focus on the $1.5T plan (over ten years, so 150B/year) in Congress. I wish equal attention were paid to the $1.44T EVERY year by the Fed in asset purchases.
Burying our kids under a mountain of debt? They're burying everyone today!
And yes, I know stopping the ride of free money is gonna hurt for a bit. It's supposed to. Like a hangover, it's a reminder that drunken (spending) binges have consequences.
Quoting myself here, and expanding since 1.) the topic got brought back up, and 2.) the fed announced it is scaling back asset purchases/quantitative easing as well as raising rates next year.
I really worry about this, and wish I had a way not too. Might go a little tin-foil hatty, and if so I apologize. I'm putting this into words for the first time. But I'm mostly pulling a stand up comedian and talking about this to a room full of strangers as therapy.
Background: The biggest cause of the great financial crisis was not people lying on their mortgage apps, or unqualified buyers....despite what the media and big banks want you to believe. It was fraud and over-leverage on the part of Wall Street, aided and abetted by the Fed. To join my theory, you need to know three terms: MBS (Mortgage Backed Security), CDS (Credit Default Swap) and CDO (Collatorized Debt Obligation). An MBS is a bond, made up of a whole bunch of individual mortgages. To try and use GRM words: Think of a big ocean-going ship, delivering cars. Each car is a mortgage, representing a real house, something tangible that you can own. When you need to move a whole bunch of them at once (such as selling them to investors, pension funds, etc.), you need a big carrier vehicle. So the ship is the MBS, carrying all the mortgages together. A Credit Default Swap (CDS) is insurance on that ship: if it sinks, and all those cars become worthless, the insurance pays out. A CDO is similar to an MBS, in that they are both ships (bonds), but they can carry anything. They're made for packaging and selling, then delivering, large pools of assets to customers. The Wall Street banks are the brokers (like commercial truck dispatchers). They don't make money on cars, or ships, or anything tangible. They make money by finding a buyer, loading up a ship with goods, and sending it to them. Similar to how they don't care if stocks go up or down, they care whether or not they change hands, since they make money on trade commissions.
Following so far?
So right before housing fell off the rails in 2007-2009, the entire US housing market (as measured by MBS bond value) was worth......call it $900 billion dollars: https://www.forbes.com/sites/greatspeculations/2019/12/09/mortgage-backed-securities-held-by-us-commercial-banks-surpasses-2-trillion-cause-for-concern/?sh=4216bc364358 Might be off a little on the numbers, I have rough estimates in my head, but I am trying to cite something for you all. And that makes up everyone, the responsible people who paid their mortgages and were well qualified, the people who lied and later went bankrupt, everyone. That is the US citizen's part of the tab, and not all of it went bad/bankrupt.
Where we ran into trouble was Wall Street was making money hand over fist loading up these ships (MBS) with cars (mortgages) and sending them out to buyers. Some people got worried that they were doing too much of it, and took out insurance (CDS) in case prices crashed. Well they didn't crash, at first. What happened was Wall Street ran out of cars to put on the boats. So they started repackaging worse and worse mortgages. And then eventually they repackaged the insurance policies as if they WERE mortgages (synthetic CDO = made up crap). They were shipping the boats out with nothing onboard but paper IOUs and booking & billing them as if they were full of cars. Eventually, they had sent so many ships out, that they had booked $62 trillion (that's $62,000,000,000,000) against a market that was only worth $900 billion. So the US citizen's burden and reprimand is whatever % of $900 billion in mortgages we collectively lied about on applications and eventually stopped paying. The bill that is 68x larger than that (again, $62 trillion) is on Wall Street. For reference, the average estimated value for all of corporate america's debt (every company in the US put together) is ~$10 trillion.
But surely the buyers on the other end of all these ships realized they were getting nothing but IOUs, right? Eventually. Except for a couple, like AIG, who just kept buying the ships full of nothing until they went bankrupt.
And that is where a free market story should have ended. The buyers wised up and told Wall Street to go berkeley itself, and only bought ships carrying ACTUAL goods, we all shook our heads at the collective stupidity, learned our lesson, and dug ourselves out of the hole.
Except, here's where quantitative easing comes in, and why I HATE IT. So very, very much. Everything so far is just facts. Maybe a little ranty, maybe a little cry in my beer. Tin foil hat time: I don't know what the Fed's book looks like. I DO know that the two things they have been buying since 2009 are 1.) Treasuries and 2.) Housing Backed Securities (https://www.reuters.com/business/federal-reserves-taper-how-does-it-work-2021-11-03/). I really wish #2 said MORTGAGE Backed Security, but it doesn't. Maybe they've only been buying high quality MBS's, and their books are full of shiny cars. My fear is they looked down the barrel of financial ruin in 2007, when AIG and the other gullible buyers went under, and rather than reform the system, they just took over as the "dumb" buyer, because otherwise the system would break, and so they buy $40 billion dollars every month worth of empty ships of IOUs.
To me, there is no reason (or excuse) for quantitative easing. Play with your interest rates all you like to heat up and cool down the economy. But if you (the big bank) can't find a retail/commercial/private party buyer for your E36 M3 product, it is not the Fed's job to step in and buy something that is worthless at an inflated value. Let the berkeleying free market work.
In reply to Flynlow (FS) :
Agreed. The whole situation is more than a little FUBAR.
The problem is when finances become part of politics and while most politicians know what needs to be done, being the one that creates that pain faces political suicide. Easier to keep the status quo and delay. So the can gets kicked... and will keep getting kicked regardless of the party in charge. At least until the can gets so heavy it can't get kicked anymore. But so far, they just keep kicking it with a heavier boot. When it ends is the $64T question nobody really knows the answer to.
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