Prices, Inflation/Deflation, Interest Rates & The Fed

cosine

Sparrow
I think the best material right now is in podcast and youtube form. I find myself learning largely by following events over periods of time.

The whitepapers from this company are more innovation-focused than interest rate focused. I'd upload them but even PDFs are too large for this forum:
 

cosine

Sparrow
Deflation Argument here.

7:20 in the Video as follows:
- inflation expectation is rising, so people are anticipating needing savings to cover higher costs.
- Jobs are not secure.
- people begin hoarding money as they are anticipating inflation and will need the money.
- savings rates are jumping in US, just like in Japan.
- This money hoarding, reverses the effect of inflation, and you actually end up with DEFLATION.

Also: All debt is going to consumption (eg. groceries, rona tests), not production (eg. equipment). At some point the debt has to be handled, purse strings need to be tightened, money saved.

From Investopedia: https://www.investopedia.com/terms/d/deflation.asp

Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. During deflation, the purchasing power of currency rises over time.

KEY TAKEAWAYS​

  • Deflation is the general decline of the price level of goods and services.
  • Deflation is usually associated with a contraction in the supply of money and credit, but prices can also fall due to increased productivity and technological improvements.
  • Whether the economy, price level, and money supply are deflating or inflating changes the appeal of different investment options.

I don't currently see how prices will decline. For sure, some consumer goods have, but real estate, higher education, healthcare, tech companies, smartphones... etc have skyrocketed. The money supply is growing at an enormous 15% annually, and the markets have been screaming upwards.

I don't see how the Fed stops printing money, it has to keep pace with totally reckless spending out of Congress. The S&P is tremendously valued right now, with super high P/E ratios, and an insane amount of money tied to index funds.

Maybe the bubble will pop and stocks will drop, but I don't see how interest rates go up in the short-term, or how we actually have deflation. Please let me know of any strong counter-arguments, I am looking to find a decent understanding.
 

Coja Petrus Uscan

Hummingbird
Gold Member
Being stuck in fiat in one account I decided to switch to TRY (Turkish lira). I switched from USD to EUR before the US election and then to TRY. Up about 12%.

Screenshot-at-2021-02-03-01-35-04.png
 

datdude84

Pigeon

Biden is going to immediately push another $1.9T on top of the $2.4T of foreign stimulus hooey that was approved in late 2020.

The money printing won't stop anytime soon; Ray Dalio is right, cash is trash. As soon as you make it, buy investments. Peter Schiff is right about the printing, but he's wrong in that he thinks it will all go into gold prices. It's going to go into tech stocks, just like the previous rounds.

And of course bonds are tied to $USD, so they're trash as well. They won't crash soon though since apparently the Fed wants to keep interest rates at zero until 2023 at least.

We are riding such an enormous wave of inflation, it's just taking a long time to show up in cheap plastic goods at Target. For now it will show up in healthcare, higher education, housing, and most of all tech stocks.
This is accurate! I also think we will continue to see "shrinkflation." We might not see the prices on the goods we buy at Target rise, but the amount that's inside the package will shrink. And although I agree that Peter Schiff isn't completely right, I would still have a small position in physical gold/silver (or mining stocks) to have a little exposure.
 

cosine

Sparrow
I would still have a small position in physical gold/silver (or mining stocks) to have a little exposure.
I agree, even if crypto skyrockets, precious metals aren't going to end.

Also, if you have some good path to commodities like crops... people aren't going to stop consuming agricultural products, whatever the price may be. Unfortunately I don't know enough about the best paths to invest in those.

Yet another path, I think one I'm more interested in, is metals involved in electric vehicles and batteries. There's ETF routes like LIT(lithium mining ETF), or individual companies like MP. Ultimately you are in the mining sector, but it's something that is in demand and physical use much more than gold.

Lithium demand is rising, but it's abundant, and in multiple S. American countries.

Cobalt is much less abundant, and demand is going up dramatically as well for use in EV's. Most of the world's supply is in DRC, and sadly China is beating us handily in that space. DRC people clearly won't end up rich off their resources like in the Persian Gulf, they're just getting enslaved by the Chinese.
 

Coja Petrus Uscan

Hummingbird
Gold Member

The more I think about it, the more it make sense that the central banks are and will do all they can to stave of a real recession. With negative interest rates in the euro and a few countries, all they would have to fight off a recession is money printing and government borrowing. With the March 2020 Covid crash they know they are able to print and borrow over a major recession, as far as most are concerned. At the slightest hint of recession, or insolvency of bank, insurers, gambling houses they will do whatever they have to, to paper it over. They can't be in a situation where central banks feel they need to drop interest rates to -2% or more. There isn't the room for businesses that have very slim margins to pay 2% to hold money.
 

DanielH

Pelican
Yesterday my wife asked why the stimulus checks don't factor in the cost of living where you live. I.e why NYC or NJ residents don't get more than Mississippi residents. It makes perfect sense using game theory. They don't need to pacify NYC or NJ residents, they're already either completely bought into the system voluntarily (think of affluent white and jewish liberals) or through welfare (minorities), so there is no need to worry about them. In the case of white liberals, there's little risk of them rioting, and even if they did, they would be completely ineffective since they are unarmed. In the case of the blacks, it is obvious our government doesn't take them seriously and I'll let you think of the reasons for why that is.

But rural and semi suburban conservative whites are the ones that needed to be pacified. They have guns, often military training and some serious equipment. If there were no stimulus checks, think of the opposition the Globalist American Empire (GAE) would have gotten by now from working class whites. Every stimulus check that we get transforms us more into a welfare recipient dependent on the state. That being said, I do not support violence against the state. I am just making observations.
 
This is accurate! I also think we will continue to see "shrinkflation." We might not see the prices on the goods we buy at Target rise, but the amount that's inside the package will shrink. And although I agree that Peter Schiff isn't completely right, I would still have a small position in physical gold/silver (or mining stocks) to have a little exposure.

"Shrinkflation" has been a regular fixture for F&B companies for years. That $5 block of chocolate that went from 220 grams to 200 grams has increased in cost by 10% (by weight). By minimising any increase on the ticket price, it has artificially supressed the CPI index. The actual inflation rate (by weight) of foodstuffs would be significantly higher than the 2-3% most people believe it is.

In an environment of low interest rates, the required rate of return to cover interest expense and inflation, is significantly reduced. A higher level of debt can be undertaken without adverse effects on the servicability of the loan. In all markets, capital seeks the most efficient use, which is normally directed to the asset class that has the highest rate of return.

Asset Prices would increase significantly in a low interest rate environment. With talk of potential negative interest rates moving forward, the purchase of real assets would act as a store of value.

Over the last 50 years, Long Term Bonds had performed significantly well. In the 1970s, the environment was a high interest rate/high inflation one. By the end of the 1990s, both levels were significantly lowered. A Bond issued in the 1970s would have a coupon (the bond "dividend") to account for the environment of the 1970s, not that of the 1990s. The coupon for 1970s bondholder would have become more valuable over time.

A lot of money is made on what is commonly known as a "carry trade". It involves borrowing funds from a low interest rate environment, to a higher interest environment. For example, borrowing Euros from the European Central Bank at 0% per annum, and lending US Dollars at 0.25% (the current Fed rate). If the Euro:USD rate remains unchanged, the profit margin would be the 0.25% difference between the two rates. If the Euro drops compared to the US Dollar, then the profit potential increases. The inverse is true if the Euro strengthens.

The above does not constitute financial advice. Do your due dilligence before embarking on any new financial transaction.
 
Yesterday my wife asked why the stimulus checks don't factor in the cost of living where you live. I.e why NYC or NJ residents don't get more than Mississippi residents. It makes perfect sense using game theory. They don't need to pacify NYC or NJ residents, they're already either completely bought into the system voluntarily (think of affluent white and jewish liberals) or through welfare (minorities), so there is no need to worry about them.

I wondered the same thing.

I think a couple more reasons are:

1. They don't want any more spotlight on how vast the COL differences have become.

2. The system would overheat if the were paying in San Francisco or NYC dollars.


Once the leftists took over it was supposed to be no holds barred on money being spent. But now when Joe Bud-man reminded everyone of their coming $2000 stimulus checks (his words) in a recent speech, there was the follow-up "$600 of which already went out". They got cold feet all of a sudden and nobody knows why. I think some concerned economic advisors are whispering to our government officials in the shadows that the entire charade is dangerously close to busting.
 

cosine

Sparrow
This actually makes me a bit sympathetic to the actual crime George Floyd committed, using a counterfeit $20 bill.

I doubt he made the counterfeit bill himself, but the gov't and the Fed can just print trillions buy "purchasing" what the banks are selling and it's OK. The Fed doesn't even have to go through the process of running physical printers now, they just "magic" the numbers around.

I have become dramatically more bullish on bitcoin recently. It seems like the decentralized answer to government theft. You get to keep it away from the banks too. For the coming 5-20 years, I think bitcoin will be fantastic to own.

Ultimately, I do think the best-performing safe haven asset will be real estate in desirable areas. Gold just sits there, real estate can generate cash flow. Bitcoin could have a better version come out(some altcoin/s***coin gains dominance) or an entirely new digital network takes over. But we can't create more land.
 

Arado

Pelican
Gold Member
Are Central Bankers really this clueless about the economic damage and social degradation they are causing via stealth inflation and asset bubbles? Or are they just rubbing it into the plebs faces?



Owning Gold became illegal in the early 30s, following which treasury yields were kept below inflation for an extended period of time, esentially inflating away the debt until foreigners called the USD's bluff and started redeeming their dollars for gold, eventually causing the US to drop the gold standard.

 

Pendleton

Pelican
This actually makes me a bit sympathetic to the actual crime George Floyd committed, using a counterfeit $20 bill.

I doubt he made the counterfeit bill himself, but the gov't and the Fed can just print trillions buy "purchasing" what the banks are selling and it's OK. The Fed doesn't even have to go through the process of running physical printers now, they just "magic" the numbers around.

I have become dramatically more bullish on bitcoin recently. It seems like the decentralized answer to government theft. You get to keep it away from the banks too. For the coming 5-20 years, I think bitcoin will be fantastic to own.

Ultimately, I do think the best-performing safe haven asset will be real estate in desirable areas. Gold just sits there, real estate can generate cash flow. Bitcoin could have a better version come out(some altcoin/s***coin gains dominance) or an entirely new digital network takes over. But we can't create more land.
And if you are acquiring the property with fixed rate debt, you are in effect shorting the USD. How much are those dollars you are using to pay back your mortgage going to be worth in year 10, 20, 30?
 
Are Central Bankers really this clueless about the economic damage and social degradation they are causing via stealth inflation and asset bubbles? Or are they just rubbing it into the plebs faces?



Owning Gold became illegal in the early 30s, following which treasury yields were kept below inflation for an extended period of time, esentially inflating away the debt until foreigners called the USD's bluff and started redeeming their dollars for gold, eventually causing the US to drop the gold standard.


That first tweet is cruel. I imagined Bernanke and Yellen sharing a box of rich chocolates while dictating it to a social media intern.
 
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