Prices, Inflation/Deflation, Interest Rates & The Fed

[Sam Malone]

I think you'll be fine. My guess is they won't hike in 2021, and this is the guidance they have provided.

After posting that, I went and threw another coat of paint on the baseboards before I put them in.

I think you're right.

Homes in my area are going for on average 10% more than asking price, and they're mostly 3BR/1BA (or 1.5BA) and 1300 Sq Ft. I'm sitting on 4BR/2BA with 1700 Sq Ft.

After thinking about it while, even if the rates start ticking up, I'm still in a good position. House wise, I'm a big fish in a little pond versus the opposite.

But better to sell now while it's still hot.

 

[Pendleton]

Is it an oligarch rally (similar to their brief sell off after the election 2016)? USD up, interest rates up, stocks near all time highs while gold and BTC are well off their highs.

Russia continues its move away from the USD

Russia's gold reserves surpass its U.S. dollar holdings for first time, says country's central bank | Kitco News

 

[NoMoreTO]

Another Counterpoint to Inflation from Uneducated Economist.

The fed signals inflation, which causes buyers of 10 year T Bills to not buy without an adjusted yield (increased interest rate/coupon rate).

Is there any way to have inflation without interest rates going up in the Long Run? If you think about it for a moment, the answer is No.

The only other option is that they blow up the entire monetary system somehow. Which does also seem to be on the table.

I trust this guy because he is mostly just a guy who studies this stuff pretty hard, does all his own research, and offers a 100% independent opinon.

 

[Arado]

Another Counterpoint to Inflation from Uneducated Economist.

The fed signals inflation, which causes buyers of 10 year T Bills to not buy without an adjusted yield (increased interest rate/coupon rate).

Is there any way to have inflation without interest rates going up in the Long Run? If you think about it for a moment, the answer is No.

The only other option is that they blow up the entire monetary system somehow. Which does also seem to be on the table.

I trust this guy because he is mostly just a guy who studies this stuff pretty hard, does all his own research, and offers a 100% independent opinon.

I'm not sure if I follow the logic here - his point is that the Fed wants to pretend that there's inflation even though there isn't? Even he admits that if people see inflation coming then the 10yr treasury will sell off and rates will rise, putting pressure on asset prices.

The Fed does not want an inflation narrative to take hold because that will be dynamite for gold and bitcoin and will force the Fed to monetize all of the debt (as no one will want to hold treasuries with negative real yields). Bonds are in a hyperbubble with interest rates lower than they've been in hundreds of years and commodities are still at a historical low relative to real estate and stocks. If an inflation narrative were to take hold that would cause a stampede out of bonds. The powers at be continue to manipulate the CPI lower to make us ignore skyrocketing prices everywhere. There are still some folks in the deflation camp but none of them can point to cases of prices going down in areas that are actually relevant to cost of living - they point to commercial real estate and clothing as evidence even though these are stranded assets whose demand will likely never recover. Food, energy, healthcare, commodities, residential real estate are all essential and going way up.

If Fed wants to convince people of inflation, all they have to do is stop adjusting the CPI downward and they'll easily have 5+% inflation.

 

[EndlessGravity]

There are still some folks in the deflation camp but none of them can point to cases of prices going down in areas that are actually relevant to cost of living - they point to commercial real estate and clothing as evidence even though these are stranded assets whose demand will likely never recover.

Would you accept oil?

The news loves to talk about food prices surging but just look at the FAO Index by class, and you'll see that's not actually the case, and it's far from the 2011 highs.

The food increases also did not, if I recall, come AFTER the Fed's "biblical flood of money" but BEFORE. So something else is going on.

It's like if you pointed at college tuition or healthcare and concluded those out of control prices were from inflation rather than corruption.

On the Fed not hyping inflation, I'll skip talking about the lie of "digital dollars" and go right to a quote from Powell...

“In order to move rates up, I would want to see inflation that’s persistent and that’s significant,” Powell said at a news conference in Washington. “A significant move up in inflation that’s also persistent before raising rates to address inflation concerns: That’s my view.”

The Fed and the financial media is very invested in the inflation narrative.

However, in your view, what do you think would cause a reversal in the bond market?

 

[Arado]

Would you accept oil?

The news loves to talk about food prices surging but just look at the FAO Index by class, and you'll see that's not actually the case, and it's far from the 2011 highs.

The food increases also did not, if I recall, come AFTER the Fed's "biblical flood of money" but BEFORE. So something else is going on.

It's like if you pointed at college tuition or healthcare and concluded those out of control prices were from inflation rather than corruption.

On the Fed not hyping inflation, I'll skip talking about the lie of "digital dollars" and go right to a quote from Powell...

“In order to move rates up, I would want to see inflation that’s persistent and that’s significant,” Powell said at a news conference in Washington. “A significant move up in inflation that’s also persistent before raising rates to address inflation concerns: That’s my view.”

The Fed and the financial media is very invested in the inflation narrative.

However, in your view, what do you think would cause a reversal in the bond market?

Oil prices are already way up from a few months ago. Food prices have been going up for a decade, I don't attribute the increases solely to what's going on over the last year but just overall inflation that's been masked. Of course the lockdowns and supply chain disruptions haven't helped. True - healthcare and college prices are due to corruption and government interference (automation and distance learning/medicine could create massive efficiencies but have been held back by sentiment and subsidies) but in a sound money system those industries would have been drastically reformed long ago.

The media is interested in the REFLATION narrative while I'm pushing a STAGFLATION narrative. The former is good for assets in general, the latter is devastating to bonds.

This is somewhat a rehash of debates we've had earlier in the thread but is the media really talking about rising prices? I don't see anyone talking about it, all I see the media talking about is how the government needs to give away more money and spend more because inflation isn't a serious threat.

I think acknowledged inflation can kill the bond market as investors look elsewhere for real returns. Or if the Fed stops buying treasuries and junk bonds while the government keeps spending like crazy - that will crash the bond market, but it will lead to a liquidity crisis like in March so there's zero chance of that happening for more than a short period of time.

 

[EndlessGravity]

The media is interested in the REFLATION narrative while I'm pushing a STAGFLATION narrative.

I think I just realized we really do agree on nearly all this. Your comment here is right. Reflation. I'd say there's more corruption going on in all this but who really knows?

Semi-related: an article over at the Saker convinced me this week that we probably are seeing the end of oil and commodities are about to boom beyond what anyone can imagine.

 

[Arado]

I think I just realized we really do agree on nearly all this. Your comment here is right. Reflation. I'd say there's more corruption going on in all this but who really knows?

Semi-related: an article over at the Saker convinced me this week that we probably are seeing the end of oil and commodities are about to boom beyond what anyone can imagine.

Yeah, unfortunately there are a lot of terms being conflated and thrown around in the press so people are arguing over different terms. I agree with the Raoul Pal and Jeff Snyders that persistent unemployment and high debt is deflationary in theory, but the government printing money to pay people to lay on the couch and keep consuming food, energy, real estate, healthcare, and other materials has to lead to a long term rise in prices for those goods at least. Ultimately this is hard to predict since there are many historical precedence for government excess spending and high inflation, but not simultaneously with tech booms, demographic shifts, and lockdowns.

Long term like 20+ years out I think oil will probably be used less as battery and nuclear technology will be much more advanced. Plus any human settlements that we have off-planet will likely be nuclear or solar powered. Short term though oil is too crucial to go away, and the lockdown related supply destruction and shale bust has created enough supply destruction for oil prices to go way up once transportation demand returns. Plus most oil demand growth will come from emerging markets which won't be willing to sacrifice their standard of living for Greta Thunberg. Probably need separate thread on energy.

 

[aynrus]

I'm not sure if I follow the logic here - his point is that the Fed wants to pretend that there's inflation even though there isn't? Even he admits that if people see inflation coming then the 10yr treasury will sell off and rates will rise, putting pressure on asset prices.

The Fed does not want an inflation narrative to take hold because that will be dynamite for gold and bitcoin and will force the Fed to monetize all of the debt (as no one will want to hold treasuries with negative real yields). Bonds are in a hyperbubble with interest rates lower than they've been in hundreds of years and commodities are still at a historical low relative to real estate and stocks. If an inflation narrative were to take hold that would cause a stampede out of bonds. The powers at be continue to manipulate the CPI lower to make us ignore skyrocketing prices everywhere. There are still some folks in the deflation camp but none of them can point to cases of prices going down in areas that are actually relevant to cost of living - they point to commercial real estate and clothing as evidence even though these are stranded assets whose demand will likely never recover. Food, energy, healthcare, commodities, residential real estate are all essential and going way up.

If Fed wants to convince people of inflation, all they have to do is stop adjusting the CPI downward and they'll easily have 5+% inflation.

Every time media mentions fake/detached from reality metric of CPI (created solely for manipulation), I have a good laugh.
CPI has nothing to do with real inflation (I'd lived long enough to actually remember prices from many years ago and applying CPI rates in reverse will not lead to these actual real-life prices that existed).
"No inflation"... deadly plague-ebola scamdemic...all are the tales from the same repertoire.

Last year's inflation of prices relevant for the cost of living was enormous and lot bigger than 5%.
Buy hey, someone tries to convince the public they don't need things like housing, food, healthcare to live and only the abstract fake numbers like CPI matter.
I'm very familiar with this old government playbook; that's how they were railroading economy in the collapsing Russia years go - there were all kinds of fake metrics published and used on purspose, denial of inflation of cost of living (among actual hyperinflation) to justify absolutely barbaric measures towards robbing of the population.
As to persistent unemployment being deflationary in theory (what you mentioned in another post)...in theory, exactly. In practice, not only inflation but hyperinflation happily happen during periods of persistent severe unemployment, as soon as the government is printing (and they're printing and will be printing a lot more considering who just came to power).

 

[Coja Petrus Uscan]

I converted most of my fiat to EUR in September or October, riding a nice way up on US turbulence. Everything is up good against the dollar. GBP is close to being back where it was before Brexit - $1.40.

But the EUR is now tanking due to issues in Italy, The Netherlands and no doubt other places soon.

Also just got hit with negative interest rates on my EUR account. But it would be about the same to transfer them to USD as to hold them for a year. And I will need to again transfer them to another currency in the future.

Does anyone have any tips for currencies to hold for this year? Maybe CHF?

 

[Arado]

I converted most of my fiat to EUR in September or October, riding a nice way up on US turbulence. Everything is up good against the dollar. GBP is close to being back where it was before Brexit - $1.40.

But the EUR is now tanking due to issues in Italy, The Netherlands and no doubt other places soon.

Also just got hit with negative interest rates on my EUR account. But it would be about the same to transfer them to USD as to hold them for a year. And I will need to again transfer them to another currency in the future.

Does anyone have any tips for currencies to hold for this year? Maybe CHF?

Agreed that the Euro may do ok against the dollar but long term it's a mess as a store of wealth. I would suggest you follow Lyn Alden, she researches the different macroeconomic risks that indicate a country is likely to face currency devaluation, among them foreign reserves, GDP growth rate, trade balance, and debt. If we are facing a high inflation environment, then countries that are heavy commodity exporters like Russia are likely to do ok. I also like Singapore and South Korea as they are pretty stable with tolerable debt levels and can piggyback off the global shift in wealth to Asia. Curious why you want to hold foreign currencies as opposed to gold, bitcoin, or an ETF of stocks from a stable currency country.

 

[Coja Petrus Uscan]

Agreed that the Euro may do ok against the dollar but long term it's a mess as a store of wealth. I would suggest you follow Lyn Alden, she researches the different macroeconomic risks that indicate a country is likely to face currency devaluation, among them foreign reserves, GDP growth rate, trade balance, and debt. If we are facing a high inflation environment, then countries that are heavy commodity exporters like Russia are likely to do ok. I also like Singapore and South Korea as they are pretty stable with tolerable debt levels and can piggyback off the global shift in wealth to Asia. Curious why you want to hold foreign currencies as opposed to gold, bitcoin, or an ETF of stocks from a stable currency country.

It's difficult for me to move around money at the moment. I think it will take at least a year to fix that. But I am about 40% crypto anyway. SGD is one I was looking at.

 

[Pendleton]

Any thoughts about current levels for gold and gold stocks? The miner and junior miner indices are both down nearly 25% from their August highs. It would seem to be a good entry point if the Dems' spending and money printing plans outweigh their COVID and other planned restrictions on business. And the big banks were already free to manipulate at will so I don't expect a Biden administration to make any difference in that regard.

 

[Sitting Bull]

I'm very familiar with this old government playbook; that's how they were railroading economy in the collapsing Russia years go - there were all kinds of fake metrics published and used on purspose, denial of inflation of cost of living (among actual hyperinflation) to justify absolutely barbaric measures towards robbing of the population.

I'd be curious to know your take on the economics of the USSR Communist system.
Most people I know assume that in a totalitarian system such as the USSR the economic aspect of life disappears (at least in so far as the totalitarian laws are enforced). But that's not really true, is it ?

Ezra Pound has written the following :

The Bolshevik Revolution was partly faked and partly betrayed.
Bolshevism initially claimed as its objective to destroy Capital, but instead it made war on property, especially farmers' property. What Stalin writes against Capitalism in his Basics of Leninism is quite worthy of our attention. Stalin was fully aware of the evil injustice practiced by Roosevelt, Churchill, Blum and all the others.

But when Bolshevism flooded foreign markets with low-price food and products, it descended into economic warfare. When it bought Suez stock, it fell even lower, into financial warfare. At the end of the day, Bolshevism and economic Liberalism are only superficially different - liberalism always ends in labor exportation, i.e. trading human beings for food, while Stalin orders "fourty wagons of human matter" to work on a canal.

 

[aynrus]

I'd be curious to know your take on the economics of the USSR Communist system.
Most people I know assume that in a totalitarian system such as the USSR the economic aspect of life disappears (at least in so far as the totalitarian laws are enforced). But that's not really true, is it ?

There were 2 economies there: main/official/state-controlled and shadow private economy.
In the official economy everything was owned by the state (the people, collectively) and it was a centrally-planned system.
In the shadow economy there were various actors including corrupt officials, directors of government organizations (such as stores, factories, warehouses), cartel people and regular people.
Regular people were able to do small-scale commercial activity within the official state-controlled economy, such as sell small amount of produce at the farmer's market. Regular people also participated in the shadow economy by selling their services under-the-table, such as haircuts, sewing, medical services, renting a room out, etc, most of which was illegal but not or hardly enforced. Similar thing to giant CA marijuana economy that went on for decades before legalization (still illegal on a federal level) or people renting a place out on airbnb, against local regulations, or not paying taxes, etc.

One thing, though...during late decades of soviet socialism, a real property (such as a flat or a village house with agricultural plot) was much more of a true private property in USSR than in the Western system. There, one's real property (even though one was "renting" it from the government on paper, for free) - de facto could not be taken away under realistic scenarios and was inheritable, while in the Western system one easily loses real property if they don't pay property tax (which is very high). So in both systems, real property is a rental from the government, really.
Pay no tax....lose your property. In most cases they can arbitrarily jack up this tax. Most property is just a rental.

Under English Common law (which is used in the US), land/homes are owned under fee simple (fee came from fief, the feudal tenant paid dues to the overlord for enjoying the land/fief - well, now it's called "property tax")... It's still a tenancy, not ownership. Fee "simple" is a lie - it's not "simple" now, there's still feudal duty to pay. The main title for all real property is really held by the government (used to be the Crown), all is really owned under "allodial title" by the overlord aka government. Overlord is the only one who really owns it. One can try to avoid paying property tax...and see what happens. Or, in most places now one can try to let the house fall into disrepair or even paint it the wrong color...and watch feudal fines pile up, until the house is sold off at auction or one is hauled off to jail for non-payment.

 

[Sitting Bull]

Thanks for your reply.

One thing, though...during late decades of soviet socialism, a real property (such as a flat or a village house with agricultural plot) was much more of a true private property in USSR than in the Western system. There, one's real property (even though one was "renting" it from the government on paper, for free) - de facto could not be taken away under realistic scenarios and was inheritable, while in the Western system one easily loses real property if they don't pay property tax (which is very high). So in both systems, real property is a rental from the government, really.
Pay no tax....lose your property. In most cases they can arbitrarily jack up this tax. Most property is just a rental.

Under English Common law (which is used in the US), land/homes are owned under fee simple (fee came from fief, the feudal tenant paid dues to the overlord for enjoying the land/fief - well, now it's called "property tax")... It's still a tenancy, not ownership. Fee "simple" is a lie - it's not "simple" now, there's still feudal duty to pay. The main title for all real property is really held by the government (used to be the Crown), all is really owned under "allodial title" by the overlord aka government. Overlord is the only one who really owns it. One can try to avoid paying property tax...and see what happens. Or, in most places now one can try to let the house fall into disrepair or even paint it the wrong color...and watch feudal fines pile up, until the house is sold off at auction or one is hauled off to jail for non-payment.

Indeed. By the way, what you wrote above is yet another nice refutation of the libertarian, Austrian-school economics fantasies about the "sacred character of private property".

 

[AntoniusofEfa]

Is the high property tax a reason why so many houses in broke Detroit went up in flames?

I know of no country that has no tax. The best example I can think of, is Switzerland, where much of the tax is locally decided, and referendums are often used.

 

[DenizenJane]

Is the high property tax a reason why so many houses in broke Detroit went up in flames?

Not exactly.

Devil's Night - Wikipedia

en.wikipedia.org

 

[aynrus]

I know of no country that has no tax. The best example I can think of, is Switzerland, where much of the tax is locally decided, and referendums are often used.

There're countries with no property tax...but most of them have nominal, negligible tax rate that isn't going to tax anyone out of their home, which is a very real possibility in the States and some other places. I'm talking about the world, not "first world developed countries" only.

 

[aynrus]

Thanks for your reply.



Indeed. By the way, what you wrote above is yet another nice refutation of the libertarian, Austrian-school economics fantasies about the "sacred character of private property".

Nothing fundamentally sacred, definitely.... For example, in the US, real estate is not only alienable for non-payment of property tax (aka implied government lien on all real estate), but also can have "mechanics lien" (which means any drunk who worked on your house can claim you owe them unpaid money and put a lien on it, even his suppliers can put this lien on your house - even though you never saw the materials they sent, because someone else took them). Mechanics liens are foreclosable, so they can force the house to be auctioned off and eviction.
Then, there's civil and criminal forfeiture.
Civil forfeiture (without any criminal conviction) is prescribed in the law, based on mere empty accusations.
And the government can seize property for non-payment of taxes other than property taxes.
Plus, eminent domain (including de-facto ed for private corporations) and adverse possession, prescriptive easements. Escheat laws.
There's no pure sacred property ownership.