Prices, Inflation/Deflation, Interest Rates & The Fed

AntoniusofEfa

Kingfisher
I am contemplating about buying some silver vs more Monero. I am not interested in an investment, but just a hedge against inflation. Stocks and ETFs are too much overpriced at the moment to be viable options.

Due to the pandemic, precious metal traders will only allow you to order online and collect, or order online and have it delivered. Either way, there will be a paper trail. It will be very comfortable for TPTB, if they will have a list of major gold and silver holders once the collapse comes.

Any thoughts about this? Monero has been a solid hedge so far, but the silver sitll seems to be underpriced.
 

kurtybro

Woodpecker
I am contemplating about buying some silver vs more Monero. I am not interested in an investment, but just a hedge against inflation. Stocks and ETFs are too much overpriced at the moment to be viable options.

Due to the pandemic, precious metal traders will only allow you to order online and collect, or order online and have it delivered. Either way, there will be a paper trail. It will be very comfortable for TPTB, if they will have a list of major gold and silver holders once the collapse comes.

Any thoughts about this? Monero has been a solid hedge so far, but the silver sitll seems to be underpriced.

I've heard about some people having legally binding agreements to sell their silver to another party in some other country, at a future date.

Or what if it just gets plain lost?
 

budoslavic

Owl
Gold Member

Treasury Secretary Janet Yellen is speaking at The Atlantic's "Future Economy Summit" this morning - a speech she pre-recorded yesterday - and has sparked some chaos with her comments.

The highlight was this...

"It may be that interest rates will have to rise a little bit to make sure our economy doesn't overheat'

And this didn't help...

"We've gone for way too long letting long-term problems fester in our economy"

Is she talking about Fed-sponsored wealth-creation widening the inequality gap?
 
My concern is that (maybe later this year?) once concerns about inflation penetrate into the mainstream that's when the rug pull comes and the Fed curtails the printing and asset prices crash, screwing over the little guy while the insiders who knew this would happen get to scoop up assets on the cheap. There's a balance between being all-in and being all in cash, and you can (ideally though hard in practice) adjust based on real interest rates and which assets are relatively cheap against each other (looking at ratios between real estate, metals, commodities, crypto, stocks).

Do you think that's really a possibility? i.e. money printing is reduced / interest rates go up - what about all the debt the government has racked up?


Also, if this happens - do you think this would make crypto values decline significantly?
 

budoslavic

Owl
Gold Member

BlackRock’s bond boss, overseeing trillions, says ‘every client’ is worried about inflation​

  • “Listen, every client call I’m on, including the one I just finished ... is talking about overheating,” BlackRock’s Rick Rieder told CNBC Tuesday.
  • Rieder serves as BlackRock’s chief investment officer of global fixed income.
  • His comments came after Treasury Secretary Janet Yellen said, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat.”
BlackRock’s Rick Rieder told CNBC on Tuesday he frequently has discussions about whether the U.S. economy will run too hot, too fast in its recovery from the coronavirus pandemic.

“Listen, every client call I’m on including the one I just finished ... is talking about overheating,” the chief investment officer of global fixed income at the world’s largest money manager said on “Halftime Report.”

“Everybody is talking about overheating,” added Rieder, who oversees more than $2 trillion of BlackRock’s $9 trillion in assets under management.

Rieder’s remarks came shortly after Treasury Secretary Janet Yellen’s headline-making comments on the American economy and interest rate policy at a seminar presented by The Atlantic.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat,” said Yellen, who also led the Federal Reserve from 2014 to 2018.

The Fed has maintained a highly accommodative monetary policy approach for more than a year to help the U.S. economy weather the coronavirus crisis. Interest rates are anchored near zero, and the central bank also is purchasing at least $120 billion worth of bonds each month.

Now, as Covid vaccines roll out broadly and pandemic-era restrictions ease across the country, the economy is expected to continue roaring back.

However, Fed Chairman Jerome Powell stressed last week that the recovery still has ways to go, reiterating the central bank’s commitment to current policy and its view that price increases will have a “transitory” impact on inflation.

The debate in the bond market, which played out in dramatic fashion earlier this year in a string of 14-month highs for the 10-year Treasury yield, is whether the Fed is being too complacent on inflation and risks losing control of the highly stimulated economy.

If that were to happen, central bankers could be forced to end their extraordinarily easy monetary policy put in place during Covid and raise interest rates sooner than expected.

Rieder, for his part, said he believes “the Fed is right about most of these costs are transitory.”

“I think most are,” Rieder said. “When you have a reopening like this, when you have a bid for copper and lumber and energy, you’re going to get some extraordinary numbers. And inventory levels have been drawn down across everything from houses to autos to anything retail, so you get a pop and I think most of that is a near-term impact.”

Even so, Rieder suggested there still could be a need for the Fed to adjust its policy approach, particularly around asset purchases.

“The longer that policy stays this easy, as long as the liquidity in the system is excessive, then you run the risk that you overheat or you run the risk that ... the exit from this policy may have to be a bit more aggressive,” he said.

While Rieder said he was “not that worried” about the potential for runaway inflation due to the deflationary nature of technology, he stressed: “I think in the near term the Fed is being very, very easy with liquidity with a system that’s got an awful lot of liquidity already in it.”
 
-What if the supply chain shock is a result of workers not taking jobs because they are getting paid more sitting on the couch watching Netflix than working in a lumber yard or a port? If they need higher wages to get off the couch that's inflationary.

-If the government did not spend trillions on handouts in the last year, I don't think we would have had these price increases, as natural deflation would have outweighed the supply chain shocks. We have to acknowledge that the printing has prevented the natural deflation from taking place, is that really so different from saying that the printing caused inflation?

-Is there any indication that once the supply shocks are addressed then the benefits are going to be significantly tapered and that the Fed will stop buying up most of the new debt?

Good questions.

1. The "workers aren't taking jobs because of unemployment" meme is disingenuous. Only the restaurants and bars are really adding jobs. Not only should most people not look to that industry as some new career choice, people who DID work in that industry are probably reluctant to return for the simple fact our society has decided to make those jobs highly volatile and unpleasant. As I've said elsewhere, you also have to realize that hiring managers posting jobs isn't them actually trying to fill jobs, necessarily. While so many people are talking about "help wanted" signs, my conversations with corporate hiring managers is they're posting but without intent to hire. There will be pay cuts, not wage increases going forward.

2. Follow the money. You'll find that price increases are a result of supply shocks and not "printing." Reflation isn't inflation, imho, and probaby doesn't actually amount to anything. This is why everyone talking like it is or worse like it's hyperinflation sounds foolish as they point to $60 oil. $60 OIL!!! This is also important in acknowledging which direction we're headed. If after all this printing, all we can get to is $60 (after oil went negative)... you should not bet on inflation over the next year let alone 10 years.

3. Supply chain shocks won't ever truly be addressed. The Fed will never stop buying the new debt, not until the very end anyway.

I think we have to focus on reality rather than theory. A lot of the deflationists have lots of charts and explanations and theories as to why we're in deflation despite everyone seeing commodities and living costs skyrocket and the quality of products gone to shit.

In my view re-flationists, many of whom like to scream about hyper-inflation, only have theory and cherry-picked charts going back all of 6 months. When you look at prices... you see a re-opening economy after a huge deflationary event. We haven't even filled in that hole yet. Food prices? Not soaring, comparatively. Home prices? Up modestly because you can't evict all the dead-beats who just AREN'T PAYING. Oil prices? Low. Stable but futures are flashing more deflation to come. Rates in the bond "sell-off"? Can't even manage to get above the lows of 2019.

I'll say it again: there is no indication we're experiencing inflation nor that we will. People should be preparing for this fact.
 

Blade Runner

Pelican
I've said it before and will say it again: deflation transitioning to inflation once they overcorrect since they are so cared about deflationary spirals, or the deflation caused by bankruptcies and insolvencies that is a chain reaction.
As I've said elsewhere, you also have to realize that hiring managers posting jobs isn't them actually trying to fill jobs, necessarily. While so many people are talking about "help wanted" signs, my conversations with corporate hiring managers is they're posting but without intent to hire. There will be pay cuts, not wage increases going forward.
I have noticed this in professional circles and for years and you have noticed it too, now it has crept down to the lowest wage jobs:

Almost everywhere you look you'll see these claims, and they are disingenuous because they exist to manipulate public sentiment and thus, support the economic interests of the power brokers. Just posting a job means nothing, and sadly most people don't critically think, they like to revert to the propaganda that "no one will do this" [laziness implication] or "no one has the skill to do this". Both are untrue, and the real issue is that it is a pricing problem. No one will take the jobs because they will not pay people enough to do them. The lowball economic scumbag chamber of commerce types, who are used to the slave type wages of globalism, don't believe they should pay somebody well for a hard job done well. Either they don't really need the job filled, or they aren't willing to pay. I always have sniffed that rat out.
 

NoMoreTO

Ostrich
Over the last year I have favoured the "inflationary bubble" narrative. Recently though, I find myself wondering to what extent the "Inflation Expectations" being pumped into the Financial Press are programming this into us all. As a result, people continue to buy Stocks, homes, and other assets at inflated prices.

Consumer price increases so far, seem to be in large part due to supply chain shocks, which would make these "price increases" rather than inflation per se.

We know they've printed alot of money,
We know the economy is in the tank,
But nobody knows how the "re-opening" will go,
Will the economy run hot or be a social distanced dud?
 

Arado

Pelican
Gold Member
Do you think that's really a possibility? i.e. money printing is reduced / interest rates go up - what about all the debt the government has racked up?


Also, if this happens - do you think this would make crypto values decline significantly?

I think at least temporarily the Fed can raise rates or cut the balance sheet. That will crash everything due to the debt in the system. Crypto will get hit as well - while I don't understand how the Defi ecosystem is affected by a risk off environment and higher interest rates, Bitcoin will go down and this may even be the catalyst that ends the current bull run.

However, the Fed will eventually backtrack, as a full on debt reckoning will bankrupt the government and most corporations. The Fed will resume the printing and bailout and the currency will go to crap.

What we don't know is how much inflation can the Fed stomach now before they try to stop printing, and after they stop how much of a crash in asset prices can they tolerate before they are forced to resume printing? The devil is in the timing.

Good questions.

1. The "workers aren't taking jobs because of unemployment" meme is disingenuous. Only the restaurants and bars are really adding jobs. Not only should most people not look to that industry as some new career choice, people who DID work in that industry are probably reluctant to return for the simple fact our society has decided to make those jobs highly volatile and unpleasant. As I've said elsewhere, you also have to realize that hiring managers posting jobs isn't them actually trying to fill jobs, necessarily. While so many people are talking about "help wanted" signs, my conversations with corporate hiring managers is they're posting but without intent to hire. There will be pay cuts, not wage increases going forward.

2. Follow the money. You'll find that price increases are a result of supply shocks and not "printing." Reflation isn't inflation, imho, and probaby doesn't actually amount to anything. This is why everyone talking like it is or worse like it's hyperinflation sounds foolish as they point to $60 oil. $60 OIL!!! This is also important in acknowledging which direction we're headed. If after all this printing, all we can get to is $60 (after oil went negative)... you should not bet on inflation over the next year let alone 10 years.

3. Supply chain shocks won't ever truly be addressed. The Fed will never stop buying the new debt, not until the very end anyway.



In my view re-flationists, many of whom like to scream about hyper-inflation, only have theory and cherry-picked charts going back all of 6 months. When you look at prices... you see a re-opening economy after a huge deflationary event. We haven't even filled in that hole yet. Food prices? Not soaring, comparatively. Home prices? Up modestly because you can't evict all the dead-beats who just AREN'T PAYING. Oil prices? Low. Stable but futures are flashing more deflation to come. Rates in the bond "sell-off"? Can't even manage to get above the lows of 2019.

I'll say it again: there is no indication we're experiencing inflation nor that we will. People should be preparing for this fact.
Good points on your end. I think there could be pay cuts, but only if unemployment benefits expire and the government doesn't restart them. But how long will the government be able to tolerate the resultant civil unrest until they start handing out free money again?

I get that most of the cost increases going on are supply chain related, but let's say, theoretically, we lived in a Bitcoin standard world with a fixed money supply. What would the price increase of commodities be in that case if there was still the shutdown in April and gradual reopening? There would be a temporary spike and other businesses would rush in to fill the gap. In the modern money printing environment though such price increases are likely to be permanent.

We had a debate before about reflation vs. inflation and I'm in the latter camp, I think stagflation is coming, definitely not reflation.

I'm not sure who you are referring to when saying that people should prepare for no inflation coming. Boomers have a good chunk of the nation's wealth and most of them are heavily allocated into bonds and S&P index funds, the former of which will get hammered in inflation, and the latter (as long as big tech remains a big chunk of the market) will likely have flat returns.

No one is investing in oil and energy - they are considered taboo with the modern ESG movement and Exxon was recently dropped from the Dow. Other than Bill Gates(!) average people aren't investing in agricultural companies and farmland. Precious metals are derided. There is some crypto mania, but the market cap of the entire sector is still less than 1% of global assets. Compare those assets with the market for nominal negative yielding bonds, of which there are trillions outstanding. Even better, what about the 100 trillion in low yielding bonds globally? Everyone owning them is NOT positioned for inflation.

The average Joe is dangerously unprepared for serious inflation. They are positioned for return to modest growth and low inflation.

I know we've gone back and forth on the same points several times but hopefully this is useful to readers of this thread who need to get both sides of the story to determine how they want to allocate their assets.
 

C-Note

Ostrich
Gold Member
I've been buying the dips to dollar-cost average my individual penny stocks over the past couple of months, but in the back of my mind is the thought that the stock market might crash by 30-50% sometime in the next year or so and make the whole exercise moot. However, there are good arguments against the bearish opinions, as EndlessGravity posted above.

It makes me wish that Lyndon Larouche was still alive. Although I thought his political movement was kooky and silly, he was one of the best out there at predicting recessions. He called the 2001 and 2007 recessions a couple of years in advance and was very accurate in his descriptions of what would take place, if I remember correctly.
 

Blade Runner

Pelican
Yes, within 3 years I foresee a 40+% drop. I think the attempts at buoying it will be the major inflation/confidence loss phase after, and the mid to end of this decade is war time. I hope I'm wrong, but in a certain sense, something's gotta give in clown world. I wonder what that covid playbook has to say, that spars thing, what a bizarro-world we are living in.
 

Max Roscoe

Kingfisher
I don't know many good places to invest money. But one thing I know for sure. The value of the dollar is dropping like a rock. I have been looking at stocks, and almost every stock I examine has DOUBLED in price since a year ago. The economy has been locked down for a year. Thousands of businesses permanently shuttered. Economic activity is down by a THIRD. And yet... these companies doubled in value?

If you examine their sales, you will find that they did not double. In fact, their sales are a fraction of what they were before. The increase in price is merely the massive inflationary effect of all the printing and bailouts and shenanigans. It costs you twice as much money to buy the same Coca Cola* (example only) stock as it did last year. The stock is not more valuable. It is the same stock. But it now takes twice as many dollars to buy this same income stream. (The exception is a few things like Amazon that are now dominating retail since many retail stores have no inventory or workers and so many people are buying online. Amazon actually is more valuable today but almost all other companies are not).

Screenshot_2021-05-07_20-18-43.png

The inflation, for now, is concentrated in the financial economy. But it will soon spread to the cost of everything we buy. It has already spread to houses. This phenomenon is known as asset inflation vs price inflation. Large assets such as stocks, homes, etc. that are bought with bank funds are the first to experience inflation. It later spreads to the cost of everything else.

The one thing everyone should be doing is stocking up on whatever you can of value, as these items will soon cost twice what they do now. Razor blades, toilet paper, equipment like lawn mowers and blowers, just buy whatever you can, if you know you will eventually need / use it. If you have excess funds, you can try investing in real estate or stocks or crypto or precious metals but that is far more dangerous and I don't know which of those will be a good move, if any.
 
What do you guys think of buying currencies such as Yen / Swiss Franc as a hedge against inflation? Any merit to this as these G7 nations are 'supposed' to be a little more sensible/tame with the money printing/economic decisions ?
 
I like the idea^ of stock piling storable goods. Currently looking at physical silver and possibly gold for its efficient size--and yes Bitcoin since the institutions are buying in. Would love to hear other options. Maybe collectibles or how about GPUs?? I don't know. I'm scared real estate is too pumped ATM.
 

NoMoreTO

Ostrich
I like silver. It holds its value, if you are just dipping into it go with 1oz rounds or perhaps some 10oz bars. It might be something that is on a practical level exchangable. It is fully outside the system.

The case for food inflation alone makes "stocking up" a good plan. Also, don't forget to buy good food that you actually like. It also limits the regular trips to the grocery store which aren't really that enjoyable anymore. A good method is to just buy a few extras for the basement food storage or pantry every time you go.
 
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