Ukraine War... How much will S&P drop this week?

[AR]

Tariffs never work.

Maybe I'm confusing you with someone else, but I thought you supported Trump's tariffs on Chinese imports.

If that wasn't you, sorry for the mix up.

[Kamban]

Maybe I'm confusing you with someone else, but I thought you supported Trump's tariffs on Chinese imports.

If that wasn't you, sorry for the mix up.

I supported equal trading where both sides trade fairly. I do not support one side buying from the other and the other side refusing to buy from us. One exapmple was Japan not buying our rice in order to protect its farmers but dumping its cars on us.

This situation for tariff has nothing to do with bilateral business.

[AR]

I supported equal trading where both sides trade fairly. I do not support one side buying from the other and the other side refusing to buy from us. One exapmple was Japan not buying our rice in order to protect its farmers but dumping its cars on us.

This situation for tariff has nothing to do with bilateral business.

So, those tariffs were a bad thing?

[Kamban]

So, those tariffs were a bad thing?

I generally do not support tariffs. The only time I support is is in unfair bilateral trade practices like I quoted above. And that too used sparingly if appeal to WTO does not work.

In this case the trade between China and India vs US is fine. We are bullying them because they are trading with Russia that we don't like and have imposed sanctions. USA wants to impose sanctions on Russia, go ahead. But don't bully other nations on something that has no bearing with bilateral relations between that country and USA. Till now USA has not bullied or imposed sanctions on Germany for buying gas and petroleum from Russia. Germany is musing cutting off the gas but is not being threatened by USA. This smacks of the nonsense spouted by an idiot in the not too distant past - you are with us or against us.

I don't want to drag this on and on and get into a political quagmire and so am bowing out of this topic of sanctions.

[Dont_know_mind]

Tariffs never work. Once you do it the other side has to reciprocate. The common man suffers. Did we not learn that with the Airbus / Boeing tariffs and the China /USA tariffs that happened recently.

We have plenty of issues in this country with rising inflation, unaffordable housing, COVID, inability of workplace to find workers, energy crisis and so on. Why don't we address those and bring it under control instead of bullying and threatening tariffs with other countries, which is far down the list of importance to us.

I guess it becomes a political question.
If NATO does go down the path of economic warfare, it would be suboptimal to allow other countries to derail that.
If the incentives are to derail the sanction effects, this would need to be changed otherwise it would encourage freeloading and failure in the endeavor.

[nephron]

The problem with economic sanctions is their efficacy. If you want to practice "evidence based policies", they have been woefully ineffective at inducing regime change anywhere- if anything, economists note that they oftentimes harm opposition groups by allowing regimes to crack down on resistance and via making everyone more poor/dependent on the state for their livelihoods. Look at N. Korea, Iran, Iraq, Afghanistan, Venezuela, etc. I can't even think of a country which we sanctioned and had a desired outcome. I'm not saying that we should have done "business as usual" for Russia, but I think that we are fooling ourselves if we think all of these sanctions which are imposing economic pain on us and the rest of Europe are going to fix everything. I don't know if anyone has come up with any reasonable solution for how to deal with these dictators/autocrats that run rogue states. I think that if I were in charge, I would just protest when I realize things were wrong while realizing that there are things/people in the world we cannot change. I agree that it would have been great if Russia were not a nuclear power, I can only imagine the ease our military would have had in annihilating those long convoys of military vehicles we saw early in the conflict.

[Dont_know_mind]

I don't think there will be a permanent ban any time soon. They just can't. Maybe they'll do a temporary 'ban' when the weather gets warmer and their gas need goes down but they're years away from having the infrastructure in place to bring gas in from other areas (or use other forms of energy production) to meet their current needs. I believe I read where Shell's work around was to basically use products that contained 49.99% Russian oil or less so they can say it isn't a Russian product. They'll use similar kind of work arounds or get Russian oil/products indirectly but they'll still get them. It took years for them to get this reliant on Russian products and it'll take years to get less reliant.

I guess it would be in the German's interests to be working on this. They probably are. By the time they get to a viable alternative, the Russians may cut the gas themselves if it increases leverage. The German economic effect of cutting off Russian gas models have base case assumption gas prices increasing 300% for a period. I think the effect would be to reduce world output of oil by roughly the Russian output (10mpd from what I recall). The main viable solution would be rapid production and deployment of shale rigs but this would require Europe forgetting about the environmental qualms. Poland has significant shale gas reserves and would be incentivized to accelerate this.

There is pressure to do 2 things in terms of economic warfare with Russia: 1. limit export of components that could be used to manufacture weapons by Russia to continue the war, 2. Cutting off Russian revenue by limiting purchase of Russian oil/gas.

A negative is that Russian oil is not like shale, it cannot be turned on/off readily. Curtailment may have a long term effect on their production capacity, but they may also have limits on how much can be stored.

[Dont_know_mind]

The problem with economic sanctions is their efficacy. If you want to practice "evidence based policies", they have been woefully ineffective at inducing regime change anywhere- if anything, economists note that they oftentimes harm opposition groups by allowing regimes to crack down on resistance and via making everyone more poor/dependent on the state for their livelihoods. Look at N. Korea, Iran, Iraq, Afghanistan, Venezuela, etc. I can't even think of a country which we sanctioned and had a desired outcome. I'm not saying that we should have done "business as usual" for Russia, but I think that we are fooling ourselves if we think all of these sanctions which are imposing economic pain on us and the rest of Europe are going to fix everything. I don't know if anyone has come up with any reasonable solution for how to deal with these dictators/autocrats that run rogue states. I think that if I were in charge, I would just protest when I realize things were wrong while realizing that there are things/people in the world we cannot change. I agree that it would have been great if Russia were not a nuclear power, I can only imagine the ease our military would have had in annihilating those long convoys of military vehicles we saw early in the conflict.

The main area economic sanctions were a success in the past was with the former USSR and China. It took decades, but arguably did result in change.
Economic sanctions are seen as an easier option than sending troops or direct military conflict.

I would guess that mainstream economic thinking is that: sanctions and tariffs have an efficiency cost and are generally to be avoided (globalization and comparative efficiency).
I would guess though that war is seen as a legitimate reason for tarriff's and sanctions by the majority of mainstream economists (my guess only).

[AR]

I generally do not support tariffs. The only time I support is is in unfair bilateral trade practices like I quoted above. And that too used sparingly if appeal to WTO does nto work.

Well, hopefully you understand why I was confused. "Tariffs never work" and "I support tariffs on occasion" seems like an unusual combination of positions to hold. I think I understand what you mean to say, but I still think that "Tariffs never work" is a weird way to describe your position, such that it is.

[Dont_know_mind]

Also agree absurd to try to cram current sitch into some historical analog when its different or say its not like the 70s when that was a full decade that didnt start like the 70s either

I was just thinking today that the current period might be most simillar to the 1914-1920 period.
Except COVID came before the current war. In 1919 swine flu came after WW1.

I found an article on this period that interest rates on commercial paper went from 3.5% to 6.2% from 1915-1918 in WW2.
But swine flu and the end of WW2 were quite deflationary (LT rates reduced by 1%, 1918-19).

What I find amazing is long bond yields where they are with unemployment at historic lows.
Will wage inflation turn up, has it gone missing or is it just lagging ?
I think that is the million dollar question.

I would tend to think labour has the upper hand here. There has been less immigration due to COVID, people have retired from the workforce earlier in the last 2 years. And with CPI up 7% last year, real wages down 2%, why wouldn't people be able to ask for it back and why wouldn't they get it? Particularly with unemployment rate low and possibly getting lower.
It's crazy. The bond market seems to think that people will just not spend if gas keeps going up, I mean maybe, or maybe they'll demand a pay rise.
It will be interesting to see how it pans out.

[Random1]

Only a amateur economist here, but I think the lone bond market is completely distorted , for many reasons. No logical person would think that a 2% return on a 30 year bond is a wise choice. But there is so much money circulating in the economy , as most can see there is no where else to park it safely. MM, bank or other short term options have dismal returns. RE is overheated along with the stock market.

I dont know where you practice but wage inflation locally is significant. Even McDonalds is offering $1000 sign on bonus to flip burgers. They still only keep their drive through open because they cant hire enough staff to the inside of the store.

[Zaphod]

Agree ofc Dont_know_mind Random1 , the bond market doesnt quite believe these rates are for real and are fading them quite a bit. Maybe theyre right, but you'd still think unless something changes soon in their favor, longer tenors get higher yields soon.

Which has actually happened this week, last week and crazily for months prior you had the 2y with a higher yield than the 10, 20, and 30! Now thats fixed itself some, though 5y>30y but not 20y now.

So some logic and gravity taking hold, the short durations are amazing though.

Real rates were still negative across the board to start this month, 30 and 20y went positive end of this week, 5, 7, and 10 are still slight negative. So improvement, which to me seems quite inevitable, but people keep being in disbelief and bond market has been fighting it. No other way to put it.

[Dont_know_mind]

Agree ofc Dont_know_mind Random1 , the bond market doesnt quite believe these rates are for real and are fading them quite a bit. Maybe theyre right, but you'd still think unless something changes soon in their favor, longer tenors get higher yields soon.

Which has actually happened this week, last week and crazily for months prior you had the 2y with a higher yield than the 10, 20, and 30! Now thats fixed itself some, though 5y>30y but not 20y now.

So some logic and gravity taking hold, the short durations are amazing though.

Real rates were still negative across the board to start this month, 30 and 20y went positive end of this week, 5, 7, and 10 are still slight negative. So improvement, which to me seems quite inevitable, but people keep being in disbelief and bond market has been fighting it. No other way to put it.

I was looking at the 1915-1924 period today.

Yields on commercial paper (proxy for high grade bonds, I don't think there was a FFR then) jumped from 3.45 per cent in November 1915 to 6.22 per cent in August 1918 (WW1).
The inflation rate in 1916 was 7.92%. The current inflation rate compared to last year is now 7.87%
The inflation rate in 1914 was 1.01%.
The main difference with this period is that Spanish flu started at the end of WW1, whereas COVID started before the current conflict.

The US inflation rate was:
1917 : 17.43%
1918: 17.97%
1919 : 14.57%
1920: 16.30%
1921 : -10.50%
1922 : -6.15%
1923 : 1.79%
1924 : 0.00%
1925 : 2.34%

Hopefully this war will not nearly as bad, but imagine 4 years of 14%+ inflation. That would be a shocker.
I guess the volatility and cone of possible outcomes for inflation and interest rates has widened considerably and maybe the market is adjusting to that.

[Zaphod]

I guess the volatility and cone of possible outcomes for inflation and interest rates has widened considerably and maybe the market is adjusting to that.

This is a very weird and specific way to say something, and nearly word for word (but different topic) to how I have said something before.

[Dont_know_mind]

This is a very weird and specific way to say something, and nearly word for word (but different topic) to how I have said something before.

Maybe it was from you Zaphod.
I think it was maybe from a newsletter I read from a while ago where someone mentioned probability cones.
Maybe we think alike, but at least we have different inputs, so there is some divergent opinion and our conversations probably add value.

What's your forecast for inflation for the next 5 years ?