Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
He would buy long-term Treasuries because the deflation risk is much higher today than it has been for the past two years He owns European stocks and would buy emerging markets once the US dollar breaks below its 200-DMA
If we have a hard landing, he'll be right. If not, he'll be wrong. The notion that inflation is untameable and that these rate hikes don't matter is misguided. They will have an impact. The question becomes whether the Fed overshoots the mark because it doesn't care at all about labor and cares only about inflation. If it does overshoot, hard landing.
@LewisBraham, on point comment and without getting into a political debate...would you agree that policy could also drive inflation regardless of interest rates...i.e, increasing SNAP food program by 25% last October, the inflationary, inflation reduction act etc. Not debating whether the policy was just or what your opinion on them is, just asking you if you would agree that policy decisions/proposals could noticeably increase inflation and negate/cancel out/override any rate hike?
From my perspective, to me it is almost laughable that many/some? think that inflation will be reduced quickly. So much debt out there. From a professional standpoint, I am seeing nothing but cost inputs continuing to increase.
@LewisBraham has it right. I’d add that for as long as I’ve been following markets (25+ years) there’s been a “push / pull” between the notion that the economy might teeter into either (1) a deflationary spiral or (2) runaway inflation. A debate old as time. And not an inconsequential one. We came damn near deflation during ‘07-‘08 if we are to believe top Bush Treasury officials at the time.
I’ll agree with @Baseball_Fan if he’s saying the Fed (mainly Powell) have oversimplified the situation. I myself hope they’re not really glued to the notion of 2% constant inflation because ISTM a good way to muck up the economy and possibly throw us into a deflationary spiral. (Sounds like something “central planners” inside the former Soviet Union might have concocted as their prescribed economic officialdom.)
Someone commented elsewhere there is “no deflation”. May I suggest that depends where you look? Stocks in companies are an “asset” valued in dollars as are milk and houses. When you saw off 15-25% of their value in short order, that’s a form of deflation. In fact, the resulting “lost wealth effect” typically causes consumers to pull back on spending which could lead to deflation in other areas.
I’ve said before that the worst conceivable scenario for retirees would be (1) to loose a substantial portion of their invested assets during a deflationary collapse and than (2) be hit with double-digit inflation shortly thereafter.
I'll also agree with Lewis and Baseball Fan- this situation isn't going to improve for quite a while.It's a little unfair to suggest that the Fed "doesn't care at all about labor and cares only about inflation". Those guys aren't fat capitalist ogres- they're highly intelligent well-educated people who are doing their best to navigate through the heavy antiaircraft fire with a minimum loss of lives.
without getting into a political debate...would you agree that policy could also drive inflation regardless of interest rates...i.e, increasing SNAP food program by 25% last October
As soon as you make that statement, you've entered a political debate. If it "could also drive inflation," I don't care because I think feeding hungry people who don't have enough to eat is more important that whether I pay a little more for something I--and I know you too because you're on this board--can afford. But the optimal word in your statement is "could." It could drive inflation, but there are a thousand other things that "could" drive inflation, such as the fact we have very low unemployment and labor finally has leverage to negotiate wages, such as the fact that corporations see this period as an opportunity to gouge customers and jack up prices while blaming the government for the problem, such as the fact that there are still all sorts of Covid supply chain logjams and a proxy war with Russia in Ukraine that is causing fuel prices to rise. Not to mention the fact that the Fed and Treasury bailed out the stock and bond markets in 2020 with massive stimulus to help rich folks recover from their losses, but also increased the money supply significantly. Not to mention the $953 billion Paycheck Protection Program passed in 2020 by the previous administration to bail businesses out. It's a complex topic and blaming the weakest and poorest members of society for needing food stamps as the primary driver of inflation is absolutely a political statement. As for the amount of debt out there, it is a risk, but the risk could just as easily be deflationary as inflationary. Namely, defaults occur. Prior to 2008 there was a tremendous amount of debt outstanding in multiple sectors of the economy. A few defaults changed the scenario pretty quickly. As rates rise, companies and businesses and individuals that are overextended start having problems. There is also the prospect that the government could raise taxes to pay down the debt on the federal level. That would be deflationary, too, and fine depending on how taxes are raised and on whom:
"I think feeding hungry people who don't have enough to eat is more important that whether I pay a little more for something"
Well, I'm sure that many on this board would agree with that thought, but certainly not all. And, without getting into a political debate, over the years it's always been pretty obvious who the non-believers have been.
Agreed, but the idea that helping the poor with food stamps is somehow the primary or even a major cause for the current inflation is completely false.
The other contention - that the "IRA" is significantly inflationary - is kind of interesting to consider, given that it's $350 billion over ten years, compared to say the defense budget, which extrapolates from the current appropriation to about $8 trillion over the same time span.
The trick is to cherrypick just the things you don't like in the budget and hang an "inflationary!" sign on them, and avoid mentioning the things you like, even if they cost more.
Ditto: The notion that the poor “rule the roost” in this country and drive inflation - or any other component of the economy - is nuts. IMHO the poor are largely deprived. Subpar schools, services, political influence. Table scraps by any name.
@Baseball_Fan - You want to push inflation higher? Drive a BMW. Take a 10K + vacation to a warm spot in winter. Compete against others for a prized “first class” seat on a fuel guzzling jet and for the highest floor at som ritz hotel. That’s inflation my man. It’s not some poor fella buying a pound of hamburger or sack of pasta to feed his hungry kids.
Unfortunately this is not the ugliest and most dangerous "completely false" tale being pushed out there, but it reinforces the others. ie the "Deep State" has control of the Government and is consciously trying to destroy traditional values of hard work, Christianity and "Capitalism".
The statistic that always impresses me is the % of the nation's wealth in the hands of the top 1% ( or 2% or 5%) vs bottom 20%, and the fact that for the lower 20 to 50% of the population inflation adjusted wages have not changed in 50 years
Back to Crash's original question in the thread title: I watched most of JG's webcast today, and he was asked in the question queue what he meant. The answer was kind of muddled, but he's basically in the D. Rosenberg camp that the Fed's liable to overshoot and disinflation is likely to come on relatively fast and strong ... but not necessarily right away.
I like the data he presents each time, but take his predictions with half a cup of NaCl. Sometimes he's right on, sometimes he's too bombastic about something and it leads him astray, and sometimes he's onto something sensible but just way early. Like when he predicted, a couple of years ago, a major bump up in T rates ... like we're into now.
The positioning of his flagship fund DBLTX appears to be another "way early" call. I'd stay away until longer duration T's start to show some moxie. It is worth remembering that after the GFC, his old TCW fund and the new DBL version were knocking it out of the park for quite a while.
Summary: he's well worth listening to if you don't take it all as gospel.
Geez man chill...I can see I need to more clearly articulate my viewpoint...
For the record, I have no issue with and 100% support Food Stamps or helping out the less fortunate or those who caught a bad break...all in on that. No where did I state that Food Stamps is the main reason for inflation, only that the Grifter's increasing the program by 25% did contribute to food inflation. It did.
What I am completely against are able bodied, of sound mind, lazy bums looking for a handout. I'm against folks driving their late model SUV to the food bank. Ya F that. Who knows maybe Biden can transfer some of those IRS agents to look into welfare fraud too...oh you say that it not reality? BS, I've heard folks talking about how to game the welfare system..."oh, go ahead, they dont check..."
The corporate gouging comment is right out of the Liz Warrent Kool Aid talking point manifest...someone who actually believes this either has never run any kind of business or doesn't understand basic economics.
The comments about how Orange Man bailed out the rich....you also mean to include bailed out the stonk market so the pension plans wouldn't go bankrupt too correct? (For the record, I wouldn't have bailed out the markets, let it do what it needs to do). You never mentioned how the Grifter in the White House has spent what 3X with his policies compared to Orange. And wanted to spend even more...oy vey!
Fact is The Grifter's energy policy/rhetoric was driving inflation higher BEFORE the Russian invasion...the increase in Food Stamps increased the price of food for everyone include the recipients of the aid.
Let's get to the charts...Please riddle me this...while I believe those tax rates are accurate, I submit that NO ONE, or very few actually paid anywhere close to those rates as there were more loopholes back then is the way I understand it...what did folks actually pay, NOT what were the tax rates...
The second chart, I consider this a no duh...the USA had their factories virtually untouched after WW2...the rates should go down to stimulate the economy, compete on an ever increasing competitive global economy with many other countries companies being subsidized.
So again, the main point I was trying to make/ask was/is that policy can drive inflation and overcome rate hikes.
@Baseball_Fan Most of the evidence I've seen is that the increase in SNAP payments has been a response to not a cause of food inflation. People are having trouble making ends meet. Show me definitive evidence otherwise. There is corruption on every level of society, but trotting out the old welfare queen stereotype--"are able bodied, of sound mind, lazy bums looking for a handout"-- from Reagan's 1980s seems a little cliche, does it not? I would say the corruption at the highest levels of wealth and power exceeds the corruption on the lowest levels in an order of magnitude.
Meanwhile, the mythology revolving around tax rates--I've heard that old "more loopholes back then" argument before--also rings false. There have been plenty of loopholes since tax rates of all sorts on the wealthy started plummeting in the 1980s. The effective tax rate for many wealthy individuals and giant corporations with loopholes in the U.S. has been far lower than the top tax rate for a long time. As the tax code has grown increasingly complex with each year, why would there be more loopholes in the past than the present time? Show me evidence.
Stating the fact that price gouging exists in business is a sign that someone "doesn't understand basic economics" seems to emerge from someone who doesn't understand basic economics. In every industry there are price takers where markets are highly competitive and price makers where markets are more monopolistic and not as competitive. Price makers often gouge their customers. Witness the gouging on the life-saving allergy medicine EpiPen, which when Mylan acquired its production rights jacked up its price from $100 per dose to $600 a dose: https://beasleyallen.com/article/pfizer-to-pay-345-million-for-epipen-price-gouging-scandal/. Why? Because they could. As the exclusive maker of the drug, they were a price maker with a monopoly. Now witness what the U.S. oil industry is doing today. The breakeven cost of oil production in the U.S. today is $56 a barrel: https://rigzone.com/news/what_oil_price_do_cos_need_to_profitably_drill_in_usa-25-mar-2022-168396-article/ Yet they're currently charging $85 a barrel. Why? Because they can. With the supply from Russia cut off, U.S. oil companies can now be price makers instead of takers. So they are gouging. It's the reason why their stocks are so high.
Two of a kind. Very selective in picking and choosing their facts. Any that don't fit nicely into their belief system are "false facts", obviously generated by un-American left-wing commies. I wonder who they think won the last presidential election?
The tax rates as noted above, are meaningless for the affluent and corps ,as our government allows armies of lawyers and accountants to make a mockery of the rates ,with loopholes for every expense. As Buffet said, "Something is wrong when my secretary pays more taxes than I do". Eventually as result of the the true middle and lower classes getting squeezed out of living wages, ability to buy homes, invest for retirement, buy cars etc etc etc there will a revolution, as there has been multiple in the past ,when these folks have had enough. History has proven this true time and time again. The USA is unfortunately on a huge downward spiral and all government entities and parties are to blame. What we really need here is a new party, " The common sense party" to start reversing this trend before it is too late. With input from middle of the road " experts, common sense referendums and investigations" and other "common sense modalities perhaps we could look at a brighter future. Doubtful this will ever happen though!
"The USA is unfortunately on a huge downward spiral and all government entities and parties are to blame."
Yes, that pretty well sums up the situation. The US is on track to becoming a third-world entity. Decaying infrastructure that requires non-existent trillions to maintain and replace, systemic and ever increasing climate change damage while the powers that really run "the establishment" keep on with "business as usual", a weakened and gradually disappearing middle class. A huge downward spiral, indeed.
Here's one attempt at calculating the effective tax rate of the wealthiest Americans over time: https://taxpolicycenter.org/taxvox/effective-income-tax-rates-have-fallen-top-one-percent-world-war-ii-0 Because of all the loopholes, it's a difficult endeavor, but one thing hard to ignore is that the effective rate has gone down significantly, from as much as 50% in 1945 to 25% more recently for the richest in this particular study.
What is the point in knowing the effective tax rates anyhow, as they are meaningless for the vast majority of the ultra rich folks and corps that pay little if any taxes. I cannot remember which ones. but in the past year or so, I recall some S&P 500 companies paid no taxes and were actually refunded money by the IRS due to write offs ,probably from stock buybacks and other costs. Maybe you know who they were Lewis.
Thanks Lewis. Article is a real eye opener. So , no common sense. It is a pity that this democracy will fail due to incompetent and greedy government practices. Our march to 3rd world status will be complete when the middle class is obliterated. It is well on its way. Thanks again.
Comments
From my perspective, to me it is almost laughable that many/some? think that inflation will be reduced quickly. So much debt out there. From a professional standpoint, I am seeing nothing but cost inputs continuing to increase.
Best Regards,
Baseball Fan
I’ll agree with @Baseball_Fan if he’s saying the Fed (mainly Powell) have oversimplified the situation. I myself hope they’re not really glued to the notion of 2% constant inflation because ISTM a good way to muck up the economy and possibly throw us into a deflationary spiral. (Sounds like something “central planners” inside the former Soviet Union might have concocted as their prescribed economic officialdom.)
Someone commented elsewhere there is “no deflation”. May I suggest that depends where you look? Stocks in companies are an “asset” valued in dollars as are milk and houses. When you saw off 15-25% of their value in short order, that’s a form of deflation. In fact, the resulting “lost wealth effect” typically causes consumers to pull back on spending which could lead to deflation in other areas.
I’ve said before that the worst conceivable scenario for retirees would be (1) to loose a substantial portion of their invested assets during a deflationary collapse and than (2) be hit with double-digit inflation shortly thereafter.
As for the amount of debt out there, it is a risk, but the risk could just as easily be deflationary as inflationary. Namely, defaults occur. Prior to 2008 there was a tremendous amount of debt outstanding in multiple sectors of the economy. A few defaults changed the scenario pretty quickly. As rates rise, companies and businesses and individuals that are overextended start having problems. There is also the prospect that the government could raise taxes to pay down the debt on the federal level. That would be deflationary, too, and fine depending on how taxes are raised and on whom:
Well, I'm sure that many on this board would agree with that thought, but certainly not all. And, without getting into a political debate, over the years it's always been pretty obvious who the non-believers have been.
The trick is to cherrypick just the things you don't like in the budget and hang an "inflationary!" sign on them, and avoid mentioning the things you like, even if they cost more.
@Baseball_Fan - You want to push inflation higher? Drive a BMW. Take a 10K + vacation to a warm spot in winter. Compete against others for a prized “first class” seat on a fuel guzzling jet and for the highest floor at som ritz hotel. That’s inflation my man. It’s not some poor fella buying a pound of hamburger or sack of pasta to feed his hungry kids.
Unfortunately this is not the ugliest and most dangerous "completely false" tale being pushed out there, but it reinforces the others. ie the "Deep State" has control of the Government and is consciously trying to destroy traditional values of hard work, Christianity and "Capitalism".
The statistic that always impresses me is the % of the nation's wealth in the hands of the top 1% ( or 2% or 5%) vs bottom 20%, and the fact that for the lower 20 to 50% of the population inflation adjusted wages have not changed in 50 years
I like the data he presents each time, but take his predictions with half a cup of NaCl. Sometimes he's right on, sometimes he's too bombastic about something and it leads him astray, and sometimes he's onto something sensible but just way early. Like when he predicted, a couple of years ago, a major bump up in T rates ... like we're into now.
The positioning of his flagship fund DBLTX appears to be another "way early" call. I'd stay away until longer duration T's start to show some moxie. It is worth remembering that after the GFC, his old TCW fund and the new DBL version were knocking it out of the park for quite a while.
Summary: he's well worth listening to if you don't take it all as gospel.
Geez man chill...I can see I need to more clearly articulate my viewpoint...
For the record, I have no issue with and 100% support Food Stamps or helping out the less fortunate or those who caught a bad break...all in on that. No where did I state that Food Stamps is the main reason for inflation, only that the Grifter's increasing the program by 25% did contribute to food inflation. It did.
What I am completely against are able bodied, of sound mind, lazy bums looking for a handout. I'm against folks driving their late model SUV to the food bank. Ya F that. Who knows maybe Biden can transfer some of those IRS agents to look into welfare fraud too...oh you say that it not reality? BS, I've heard folks talking about how to game the welfare system..."oh, go ahead, they dont check..."
The corporate gouging comment is right out of the Liz Warrent Kool Aid talking point manifest...someone who actually believes this either has never run any kind of business or doesn't understand basic economics.
The comments about how Orange Man bailed out the rich....you also mean to include bailed out the stonk market so the pension plans wouldn't go bankrupt too correct? (For the record, I wouldn't have bailed out the markets, let it do what it needs to do). You never mentioned how the Grifter in the White House has spent what 3X with his policies compared to Orange. And wanted to spend even more...oy vey!
Fact is The Grifter's energy policy/rhetoric was driving inflation higher BEFORE the Russian invasion...the increase in Food Stamps increased the price of food for everyone include the recipients of the aid.
Let's get to the charts...Please riddle me this...while I believe those tax rates are accurate, I submit that NO ONE, or very few actually paid anywhere close to those rates as there were more loopholes back then is the way I understand it...what did folks actually pay, NOT what were the tax rates...
The second chart, I consider this a no duh...the USA had their factories virtually untouched after WW2...the rates should go down to stimulate the economy, compete on an ever increasing competitive global economy with many other countries companies being subsidized.
So again, the main point I was trying to make/ask was/is that policy can drive inflation and overcome rate hikes.
Take care,
Baseball Fan
Meanwhile, the mythology revolving around tax rates--I've heard that old "more loopholes back then" argument before--also rings false. There have been plenty of loopholes since tax rates of all sorts on the wealthy started plummeting in the 1980s. The effective tax rate for many wealthy individuals and giant corporations with loopholes in the U.S. has been far lower than the top tax rate for a long time. As the tax code has grown increasingly complex with each year, why would there be more loopholes in the past than the present time? Show me evidence.
Stating the fact that price gouging exists in business is a sign that someone "doesn't understand basic economics" seems to emerge from someone who doesn't understand basic economics. In every industry there are price takers where markets are highly competitive and price makers where markets are more monopolistic and not as competitive. Price makers often gouge their customers. Witness the gouging on the life-saving allergy medicine EpiPen, which when Mylan acquired its production rights jacked up its price from $100 per dose to $600 a dose: https://beasleyallen.com/article/pfizer-to-pay-345-million-for-epipen-price-gouging-scandal/. Why? Because they could. As the exclusive maker of the drug, they were a price maker with a monopoly. Now witness what the U.S. oil industry is doing today. The breakeven cost of oil production in the U.S. today is $56 a barrel: https://rigzone.com/news/what_oil_price_do_cos_need_to_profitably_drill_in_usa-25-mar-2022-168396-article/ Yet they're currently charging $85 a barrel. Why? Because they can. With the supply from Russia cut off, U.S. oil companies can now be price makers instead of takers. So they are gouging. It's the reason why their stocks are so high.
Don't try to reason with those out in left field
Yes, that pretty well sums up the situation. The US is on track to becoming a third-world entity. Decaying infrastructure that requires non-existent trillions to maintain and replace, systemic and ever increasing climate change damage while the powers that really run "the establishment" keep on with "business as usual", a weakened and gradually disappearing middle class. A huge downward spiral, indeed.
Because of all the loopholes, it's a difficult endeavor, but one thing hard to ignore is that the effective rate has gone down significantly, from as much as 50% in 1945 to 25% more recently for the richest in this particular study.