Inflation

[Dont_know_mind]

Looks like they are going to pull out the big guns and have a 100 basis point increase. And people are worried about it depressing the housing market.

My thoughts

1. The housing market requires some brakes. People were buying houses well above asking price, paying cash, foregoing inspections etc because rates were low. This should not have been allowed to occur at all.

2. The Fed got sucked politically, waiting and watching in the sidelines while money was pumped in like crazy, especially in the latter part of the pandemic, People were flush with cash and not working and chasing fewer and fewer goods due to supply chain crisis. That was the time a chimpanzee trained in basic economics would have gently started to raise interest rates. But we had idiotic ( or scared) people sitting and waiting too long. And now they want to raise those rates with a vengeance.

3. And yet it looks like we don't learn. We want to pump in more money into further stupid programs, most of it does nothing to improve the infrastructure of this country but goes into crazy social infrastructure projects ( I never knew there was such a term until recently). And it will raise inflation further, which will require more rise in interest rates. The downward spiral......


End of rant.

1. I don't know, the Fed seems to get too excited when housing takes off because of the effect on inflation (OER). I don't think high house prices are any worse than other egregrious things that occur in other sectors. Like tech or crypto. Arguably the insane wages in tech and crypto are more of a blight on society than 20% higher house prices and a few purchases sight unseen. Either way, the misallocation of resources, the time and labour spent on crypto and excessively pumped up housing, is in the past, gone, gone gone.
2. Yes, that's odd that they sat on their hands for ages and now are freaking out for some reason and say they are going to go crazy on interest rates.
I think they'll probably settle on a middle path and it's hard not to listen to what the Fed says, but yeah if you have the balls to go the opposite of what they say at extremes then that could be profitable. Hard to know when the extreme is. 2% on 30 year mortgages was, but so hard to go against the Fed and the crowd at that time. And now I wonder whether the pendulum has turned the other way and too many rate hikes are priced in. But maybe more can be priced in.
3. I actually think the social infrastructure stuff has value.
But as far as inflation goes, I think higher interest rates will not increase supply of commodities, probably the reverse.
Demand destruction via higher rates at this point is a de-facto tax on the middle class, so I wonder whether it really has legs.
I mean who does moderate general and wage inflation affect the most: Asset (equity and bond) owners.
Who does it affect the least (and probably benefit): the lower and middle class, those with few assets

[Dont_know_mind]

The fed is "independent" except when it isnt, and some admins do more or less pressuring, and certainly whether they want to or not that affects their judgement. Inflation and things looking better, etc...good unemployment, started in April 2021. A few months later there was absolutely no reason to have such extraordinary measure of QE, and housing was already looking like a bubble, they should have totally pulled out of MBS market. They didnt even need to raise rates, simply stop with the gasoline on the fire and that would have went a long way to normalizing things and likely decreased the spike.

Whole thing was dumb. Excellent retail sales out today, so if things are slowing they just that, not a hint of recession (not that it lets us know fast enough).

As for 3, Manchin is crushing anything likely to inflame things, some of that is good, like BBB I was very relieved that didnt pass, it was chock full of trash and would have been super inflationary, but he is helping to keep inflation down. Too often they get overly austere or where it makes no difference.

I would be shocked and amazed if the Fed doesn't pivot in the next 2 months.
I don't know about other assets, I mainly follow commodities. I have not been as bullish on commodities since ever. This is a way better setup than April 2020, when there was actually serious risk for the future.

If there is a recession soon, to me that would be awesome to pick up some more.
At the moment, I see people getting what appears to me to be irrationally scared of a strong dollar, higher rates and recession.
I think like low rates, higher rates, if not transient will work itself out after an over-reaction.

The Feds manipulation of interest rates just seem to distort investment and distract from the fundamental picture.
The only cure for systemic inflation is investment in production of things we actually need.

I love this tweet from Kevin Bambrough:
"Fed rate hikes are nothing more than an attempt at forcing austerity on the middle class and poor to kill demand and lower prices...
The problem is supply side....
Interest rate increases and recession will... lead to lower consumption but destroy the supply response."

I agree with him that commodity inflation cures the problem, by demand erosion and a supply response.

It's just crazy to me for the Fed to raise rates much now to kill demand, so I think they will pivot soon and hard.
If they don't I will be picking up more resources in a recession, which would also be excellent.

[Tim]

"3. I actually think the social infrastructure stuff has value."
Not to start a political pissing match. I plead ignorance. Have no clue what is actually in social infrastructure nor the costs or benefits. Probably like Congress.
I would be beneficial if the cost/value(benefit) were discussed. Won't be able to do that until the funds are actually spent. Unfortunately, this will never happen. It is a huge amount of money that will probably be wasted on political agendas rather than real benefits. I doubt I would take the time to actually understand, like 99% of the country.

[Dont_know_mind]

"3. I actually think the social infrastructure stuff has value."
Not to start a political pissing match. I plead ignorance. Have no clue what is actually in social infrastructure nor the costs or benefits. Probably like Congress.
I would be beneficial if the cost/value(benefit) were discussed. Won't be able to do that until the funds are actually spent. Unfortunately, this will never happen. It is a huge amount of money that will probably be wasted on political agendas rather than real benefits. I doubt I would take the time to actually understand, like 99% of the country.

I plead for ignorance too! The money must be wasted on something... War, handouts, lower taxation, social security, or whatever crisis comes along!
What constitutes value and grift, may depend on one's political views...Or whether one benefits from the policies of the day.

[Rando]

My understanding is that social infrastructure refers to supporting the economic/social system through elements like subsidies, loans,incentives,childcare, paid leave,benefits, etc as opposed to traditional infrastructure which are hard elements like roads,etc. Does it have value, sure almost everything has value..Whether cost justifies benefit is a different question.

[Tim]

My understanding is that social infrastructure refers to supporting the economic/social system through elements like subsidies, loans,incentives,childcare, paid leave,benefits, etc as opposed to traditional infrastructure which are hard elements like roads,etc. Does it have value, sure almost everything has value..Whether cost justifies benefit is a different question.

Actually, some feel some goals are destructive and damaging. Absolute value would be needed. Negative and positive. Let's not debate.

[CordMcNally]

"3. I actually think the social infrastructure stuff has value."
Not to start a political pissing match. I plead ignorance. Have no clue what is actually in social infrastructure nor the costs or benefits. Probably like Congress.
I would be beneficial if the cost/value(benefit) were discussed. Won't be able to do that until the funds are actually spent. Unfortunately, this will never happen. It is a huge amount of money that will probably be wasted on political agendas rather than real benefits. I doubt I would take the time to actually understand, like 99% of the country.

Social infrastructure is anything they deem it to be. There is no definition which is part of the problem.

[Lordosis]

Anyone else hoping they crank it up a few more points? Am I thinking about this wrong? Raising rates seems good for the young investor pending not needing credit anytime soon.

[xraygoggles]

Anyone else hoping they crank it up a few more points? Am I thinking about this wrong? Raising rates seems good for the young investor pending not needing credit anytime soon.

Raising rates also good for new homebuyers, especially docs. Sure, having a 4-6% mortgage rate is no fun in the short term, but docs can afford the extra interest for a few years, if that means home purchase prices drop by 100k-500k+, depending on location.

Then you can refi in the future when rates go down (and they will at some point).

[uksho]

I don’t think they have the courage to raise it by 100 bps .
I also don’t think that inflation is coming down soon.

The homeowners still listing at very high prices , inventory is still low, although in my area bidding wars have stopped and there have been some price drops . But even after these drops prices are unreasonable.

I wish they do increase interest rates faster .

Again, I don’t understand economics , but I feel neither do these so called economists.

No one saw this inflation coming ! Oh , it’s just transitory.

[Tim]

Anyone else hoping they crank it up a few more points? Am I thinking about this wrong? Raising rates seems good for the young investor pending not needing credit anytime soon.

As long as one maintains their income, prices come down, and your investments eventually recover.
Hard landings don’t actually much history and do damage.
Yeah, except you are seeing some signs:
if a farmer doesn’t plant seeds, nothing grows.
The old multiplier effect. You are seeing hiring freezes all over and some cut back plans, particularly in the growth industries and anything real estate. It’s really good as long as you keep your income. Inflation stayed.

What will happen if your local daycare can’t get financing? Just an example, of how interest rates can actually destroy businesses, that multiplies and generates more and populations end up migrating. No more hospitals needed! Poof! You need a new job. Obviously an extreme, but recessions / depressions are more than high interest rates. Our economy runs on credit. Dangerous territory just jacking it up.

[Tangler]

I don’t think they have the courage to raise it by 100 bps .
I also don’t think that inflation is coming down soon.

The homeowners still listing at very high prices , inventory is still low, although in my area bidding wars have stopped and there have been some price drops . But even after these drops prices are unreasonable.

I wish they do increase interest rates faster .

Again, I don’t understand economics , but I feel neither do these so called economists.

No one saw this inflation coming ! Oh , it’s just transitory.

I heard a RE expert on Bloomberg’s Masters in Business podcast say that the rate hikes will take a while to bring down home prices. Makes sense to me. People selling are stubborn and reluctant to lower price and supply is slowly increasing. I am hoping to pay cash for a home in 1-5 years and I hope I can do it when rates are >6%.

I also would be ok with the market dropping more and staying down for a while. I put 15k in last week and I will continue throwing all I can into stock index funds.

Now seems like a good time to work extra and invest in stock index funds for the long run.

Good time to plant. Just keep buying!

[Otolith]

Just wait until August when student loans resume. 20% of americans are going to get $100-$4,000 stripped from them monthly. That will absolutely help...

[Tangler]

Just wait until August when student loans resume. 20% of americans are going to get $100-$4,000 stripped from them monthly. That will absolutely help...

I wonder if they will extend that. It will worsen inflation but it is a method for politicians to buy votes from debt slaves. Politicians are happy to act virtuous when giving away tax payer money.

“I helped you because I forgave your loans” will be said when it should be “I wasted money and worsened inflation by increasing the money supply”

I hope someone (any party) has the stones to stop student loan zero rate nonsense.

[Tim]

Inflation is ONE measure. Most of our discussions focus on how it impacts our individual boat. Extremely important.
The boat is in an ocean and there is more than one ocean and they interact.
The US is the largest economic ocean.
US economy only:
From an economic viewpoint, the pandemic was a global economic catastrophe. The recovery was TOO fast. Should have been gut feeling about 3 years. There will be a price to pay. Stagnant for 6 years (churning to absorb the impacts) or downs and ups to smooth things out.
Retail sales recovery was not matched by personal income. Can’t be sustained. Government assistance. Avoided personal pain, but the US economy needs time to catch up.

• Nonfarm Employment
• Industrial Production
• Real Retail Sales
• Real Personal Income (excluding Transfer Receipts)

https://www.advisorperspectives.com/...une-employment

A good plain worded discussion of the economic measures and discussions of benchmarks is attached. Not forecast related, just analysis of each. Basically all four indicators need to align, one way or another.