Prices, Inflation/Deflation, Interest Rates & The Fed

NoMoreTO

Hummingbird
It's an aggressive prediction from an oligarch. They have to start to signal ahead of time. While I've held hyperinflation as a possibility, and have taken some steps in this direction which haven't paid off (physical silver), it still unsettles me as the signal is appearing, it seems more likely to come soon.

I was planning to build a house next year, hoping to build at high prices before prices go wild and the inflation/supply chain crisis drives prices through the roof.

 

cosine

Robin
Cathie Wood made some incredibly unwise investments in Tesla, and to top that all off she predicted a meteoric rise for the company that did not manifest. I take everything she says with a grain of salt.

Michael Burry, on the other hand, seems to have his mind in the right place.

I'll just leave this here...
Tesla (TSLA) shares jumped for a fourth straight session on Monday, bringing the market capitalization for the electric-vehicle maker above $1 trillion for the first-time ever.
https://finance.yahoo.com/news/tesl...as-shares-rally-to-record-high-171840451.html
 

Max Roscoe

Pelican
Orthodox Inquirer
S&P has dramatically high valuations, home prices have surged. Goods at Target, Walmart(now Amazon) are comparatively cheap. Gasoline is cheap. But, young people(the ones who are actually working) struggle to afford housing in coastal cities in particular.
Gasoline prices are up $1.22 from a year ago:

Likewise, retail prices are up strongly as well, though I can only cite my personal experience (the CPI is supposed to reflect this, but nobody believes it) and shadowstats, which reports the CPI the way the US government previously calculated it prior to 1980, when they began cheating, and that figure is currently 14%.

Generally I'm seeing about a 25% to 30% increase in the nominal price of everything. Sure, some things are affected more than others (ie stocks and homes, since these are two things millionaires buy, and they are the first receipients of inflationary dollar creation).
 
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Max Roscoe

Pelican
Orthodox Inquirer
Cathie Wood also made the argument that PE valuations of 20 made sense with economic growth at 5%. She argued that 1 divided by 5% = 20, whereas if our economy is growing more slowly, like 2-3% per year, then 1 divided by 3% = 33, or 1 over 2% = 50. So, her argument was that slower growth made sense with PE valuations of 30-50. Seemed like an uncommon argument but not crazy.
So a company that is growing slowly or not at all should be valued at a *higher* multiple than a rapidly growing firm?
Either I'm misunderstanding her position or that is completely backwards and totally nuts!!!!

And the faux math calculation of the earnings multiple totally misunderstands how the price of a company relates to its profits. That calculation of 1 divided by the growth rate is absolute fairy tale. The price is simply a ratio of the profit a company generates, to the expected return ON and return OF the investment. Growth is a tiny component of this, not the source of it.

I have a friend who buys bars. He pays 3x their sales. So if the bar sells $100,000 of food and alcohol, he will pay $300,000 for it (He uses SALES and not PROFITS because with small businesses you can't analyze *profits* in a standardized way, instead, the metric analyzed is *sales* but with large corporations their profits are reported in a standardized way so they analyze *profits*. But it turns out that this bar purchasing rule is effectively a "P/E ratio" near 10 to 15 which is historically typical).

Would he pay slightly more than 3x for the bar if it was growing its sales larger each year? Yeah, maybe. Maybe he would pay 3.1 times (which is the opposite of what Wood is saying above, if I understood her correctly). But the purchase price is NOT derived from the growth rate, like 1 / 5% or anything wacky like that. It's based on the SALES themselves, with possibly a very small adjustment made if sales are growing or not.

The 3x sales (or 15 times profits) rule is a pretty standard rule of thumb in investing.
It is not any calculation of any growth rate.
 

cosine

Robin
Gasoline prices are up $1.22 from a year ago:
This would be noteworthy if it didn't crash a year ago.

It didn't just crash "a bit," it was the fastest crash in history. Then it goes back up and people claim gas prices are skyrocketing, without mentioning that it was from an extraordinarily low price.

In the scheme of things, when you consider how oil is located, drilled, stored, transported, refined, stored again, distributed, and then sold at the pump, gasoline is cheap.

So a company that is growing slowly or not at all should be valued at a *higher* multiple than a rapidly growing firm?
Either I'm misunderstanding her position or that is completely backwards and totally nuts!!!!
Think of it from a broader market perspective. When you have high general economic growth, there are lots of opportunities for people to chase.

When you have low growth, money is chasing fewer big assets, aka tech giants, with something like 9 companies producing 80% of the S&P500 growth.
 
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Samseau

Owl
Orthodox
Gold Member
Much of current inflation has to due with supply chain breakdowns, hyperinflation will only hit select goods in such circumstances.

Conversely, hyperinflation will happen this decade, but, you will see it happen in other countries first (Turkey's currency is blowing up, China's renembi is pegged at 6:1 dollars). So I'd say we're well along the way to disaster but not very soon. Other countries will be the canary in the coal mine, if you see them blow up then stock on food and essentials immediately.
 

Eusebius Erasmus

Pelican
Orthodox
Much of current inflation has to due with supply chain breakdowns, hyperinflation will only hit select goods in such circumstances.

Conversely, hyperinflation will happen this decade, but, you will see it happen in other countries first (Turkey's currency is blowing up, China's renembi is pegged at 6:1 dollars). So I'd say we're well along the way to disaster but not very soon. Other countries will be the canary in the coal mine, if you see them blow up then stock on food and essentials immediately.
The current inflation is mostly due to supply chain problems, but demand-pull inflation will also contribute, due to foolish Federal Reserve and government policy.
 

Eusebius Erasmus

Pelican
Orthodox
I would say that both Cathie Wood and Michael Burry have been right on Tesla so far as they both made money on the stock.

Burry was early but his trade was profitable - he was buying put options on the way up and sold out as TSLA crashed from 900 to 550. They don't really have the same time horizon. Michael Burry is not a long term investor. He does find good trades.

The one who was dead wrong about Tesla is Steve Eisman, another guy from the movie "the big short".
Burry is a value investor, and in the lead up to 2007, he was losing money. But his gamble paid off.

Cathie Wood makes short-term gains, but I suspect that in the long-term she will lose heavily.
 

Max Roscoe

Pelican
Orthodox Inquirer
One cannot argue that gasoline prices are doing anything but increasing. You simply will not be taken seriously making that claim.

I agree that gas is relatively cheap insofar as digging up compressed fossil fuels created thousands of years ago and distributing them all across the country where it is readily available with a single gallon of gasoline able to power a large heavy automobile for many miles, makes it a fascinating discovery, and it may be inexpensive compared to using horses or hiring human labor, but that's not what we are discussing.

Gas cost under a dollar when I was learning to drive. It is now more than triple that price. The price has been increasing my entire life and it increased by over a dollar in the past year. The price of gasoline, like all other goods, has increased substantially (again, around 25% to 30%, which was the amount of new dollars that were distributed in the wake of covid).

This is not difficult to understand: When (Y x 1.3) amount of dollars are introduced to purchase a fixed (Z) amount of goods, the price of said goods increases by 1.3. The elites get their hands on this new money first, so yes, it actually does benefit them. Ron Paul was always talking about this. The powerful get the money before the effects of inflation are realized, and they spend it. By the time its inflationary effects are realized, prices increase and then the new money buys you no more than the old money did. If you recall, big business got over 97% of the covid bailouts while you and I got the remaining 3% in stimulus checks. This is why they call inflation the hidden tax, as it gradually steals wealth from everyone in the economy without them really realizing it .

We have a market economy, which allows people to speculate on prices, which is why nothing moves straight up, but will stair-step and have up and down erratic movements, while the trend is in a clear direction - higher. The price of gold has gone from $35 an ounce to $1800 in 2021. Yes, there have been moments where the price "declined" but no one would argue gold is doing anything but getting more expensive. I'll make a completely unrisky prediction: The price of gold (and gasoline and everything else) is going to continue to increase in the coming years. This is not based on any financial wisdom or prognostication, but pure mathematics.
 
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If you do not have a homestead or animals to help provide for your family the best thing I have found is to get close to the small businesses that haven't been wiped out.

Going to a local butcher to get local meat and going to local farmers for vegetables and raw milk. Our grocery stores are raising the prices on eggs and milk. Food is disappearing off of the shelves and people are starting to panic.

I never really wanted to go to these small businesses because I thought it would be more expensive, but now my family and I are friends with the owners. We are able to have a personal relationship with the people that provide our food and most of the time they give us discounts or free products. Good news is they won't be running out of anything since it is all very local. Just in case we have been canning things ourselves, but from what I have seen these businesses are unaffected for the time being.

The end goal is to be self sufficient, but for now this has been the best option.
 

NoMoreTO

Hummingbird
The current inflation is mostly due to supply chain problems, but demand-pull inflation will also contribute, due to foolish Federal Reserve and government policy.

I think on goods and services this is largely true, it is the supply chain. But It is hard to seperate out the two so easily, and hard to know as a hard and fast rule.

When we see the asset inflation on housing, in a time where Canada for example let in no immigrants, well it's hard to say that's the supply chain. Yes builds are slow, but we've seen a 30% +/- increase in home prices since March 2020, and a 0% increase in the population.

The equity markets are a similar case, why when the market was crashing and the fed started pumping money into the system did stock prices go up? More money in the system, and because it is being distributed largely to the wealthy who are finding a place for their bucks, we see an inflation of prices here also.

Even "part" of the rise in bitcoin is surely due to kids getting their free money and investing it like gorillas right?

Chynese products are going up, and this is due to supply chain I would guess, along with many other manufactured goods which are simply harder to find.

We also have the changes in consumer preferences in this time, more people are buying cottages, ATVs, home improvements...certain things are just favoured in the "new normal".

My point is, each case of price is a combination of the changing consumer landscape, increased money supply, and supply chain issues. You almost have to drill down on each, and even then it is hard to KNOW.
 

Max Roscoe

Pelican
Orthodox Inquirer
The quality of going local vs factory farming cannot be overstated.
I know a rancher in Montana who refuses to eat any beef that doesn't come from her farm (a couple of the restaurants sell steaks from her cattle). Because she knows how it is traditionally handled. (Her farmer husband died from Monsanto poisoning, by the way)

I know several chicken farmers who refuse to eat chicken (because they are raising them to full size from tiny chick to bird with an abnormally large breast so big it cannot walk in a matter of 6 WEEKS and they know it is not healthy and they dont know what is in the food that Tyson tells them they must feed the chicks if they want to sell them).

There have been several studies that show eating healthy food is actually cheaper than junk food, provided you cook it yourself, and you factor in the long term effects. You are probably saving money, along with forging friendships and strengthening your local neighborhood.
 

zoom

Kingfisher
Gold Member
It seems like word inflation now has two different meanings:

1. Increase in the money supply

2. Rising prices

Definition #1 is the traditional definition of inflation. It's a fact that the m2 money supply has increased greatly over the last few years.
 

Blade Runner

Ostrich
Orthodox
George Gammon just thrashes the idiotic comments of Cathie Wood recently (about 2 days ago) in the lamestream media. The framework of thought makes me think that any time she is correct about anything in the financial world, it's pure bandwagon-ing/trend playing and/or luck. It's embarrassing and devoid of all understanding, and wisdom.
 
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