Financial topics

[vincecate]

Vince
Your article mentions owners equivalent rent but not substitution, hedonics and the other tricks Uncle Sam uses to underestimate inflation. It is actually more like 15 or 16 percent I hear.

Good point. Thanks.

[John]

** 12-Dec-2021 World View: CPI downward pressures

> John, or anyone else, there seems to be some belief that
> "inflation is peaking about now". If you think that, how many
> more months of CPI going up 0.5% or more per month would shake
> your belief?

I was surprised that it increased by 0.7% in November, and I would be
even more surprised if it continues to increase at that rate in
December.

As I've written in the past, I expect the cpi to hold steady or start
falling in the new year, as supply chain problems clear up,
holiday-based demand decreases, and post-holiday sales bring retail
prices down. That would mean that the answer to your question would
be the January cpi to be announced in February.

A related story is that there seems to be a change in mood in the
financial community that it's now finally time to start "tapering" and
increase interest rates. This seems to apply to the Fed and to
central banks in other countries as well. This would directly affect
the stock market, where P/E ratios are currently around 30, and could
bring about a sharp fall in stock prices. This could trigger an even
greater level of caution in the general public about debt and
spending, pushing the velocity of money down even further, resulting
in downward pressure on the cpi.

In short, there have been a lot of upward pressures on the cpi this
year, and those are going to be replaced by downward pressures in the
new year.

-- Fed is expected to speed up end of bond buying and signal interest rate hikes are coming
https://www.cnbc.com/2021/12/10/fed-is- ... oming.html
(CNBC, 10-Dec-2021)

[richard5za]

I took a stab at explaining the fine mess the Fed has gotten us into:

https://howfiatdies.blogspot.com/2021/1 ... -into.html

You done a good job, Vince, in outlining the problem. But what does one buy as a store of value?

[richard5za]

** 12-Dec-2021 World View: CPI downward pressures

> John, or anyone else, there seems to be some belief that
> "inflation is peaking about now". If you think that, how many
> more months of CPI going up 0.5% or more per month would shake
> your belief?

I was surprised that it increased by 0.7% in November, and I would be
even more surprised if it continues to increase at that rate in
December.

As I've written in the past, I expect the cpi to hold steady or start
falling in the new year, as supply chain problems clear up,
holiday-based demand decreases, and post-holiday sales bring retail
prices down. That would mean that the answer to your question would
be the January cpi to be announced in February.

A related story is that there seems to be a change in mood in the
financial community that it's now finally time to start "tapering" and
increase interest rates. This seems to apply to the Fed and to
central banks in other countries as well. This would directly affect
the stock market, where P/E ratios are currently around 30, and could
bring about a sharp fall in stock prices. This could trigger an even
greater level of caution in the general public about debt and
spending, pushing the velocity of money down even further, resulting
in downward pressure on the cpi.

In short, there have been a lot of upward pressures on the cpi this
year, and those are going to be replaced by downward pressures in the
new year.

-- Fed is expected to speed up end of bond buying and signal interest rate hikes are coming
https://www.cnbc.com/2021/12/10/fed-is- ... oming.html
(CNBC, 10-Dec-2021)

In the short term there remains a bullish bias. The S&P 500 surprised me by putting its nose through 4700; there's no sign of the 5 day ema breaking down through the 15 day ema. This will include anticipation of the accelerated taper at this week's FOMC meeting plus the normal conservatism around a stock options closure which is this Friday. So my bet is that the bullish market remains strong through to year end unless something unexpected happens.
As regards inflation in first 6 months of 2022, I realise that energy will come down rapidly, but without any corrective action we will just watch inflation come down? Never seen that before, albeit that it may happen that the current drivers self correct due to energy? I shall be watching
And yes, we know that when inflation is high or negative P/E ratios are low, and this based upon more than 120 years market history

[John]

** 13-Dec-2021 World View: Watch inflation

> without any corrective action we will just watch inflation come
> down? Never seen that before

Here is my table of historical CPI data from 1914 to the present:

http://www.generationaldynamics.com/pg/ww2010.i.cpi.htm

Check out 2009 and 2015.

[richard5za]

** 13-Dec-2021 World View: Watch inflation

> without any corrective action we will just watch inflation come
> down? Never seen that before

Here is my table of historical CPI data from 1914 to the present:

http://www.generationaldynamics.com/pg/ww2010.i.cpi.htm

Check out 2009 and 2015.

Yes, but just looking at an historical inflation table doesn't tell you very much. The interest rates in these years were "up a bit" versus the previous year, but other factors would include currency exchange rate, trading partner inflation figures, oil price, gdp growth, political objectives, etc, etc. Complicated stuff where mechanical projections don't work at all well.

[richard5za]

Having said that there is a bullish bias on New York stock markets to year end, I am reminded that markets can and do exhibit insane behaviour for much longer than we expect and sometimes correct much quicker than we expect.
There's a lovely traders expression "The bulls walk up the stairs but the bears jump out of the window"
I remain out of this market until I see the trend change

[Tom Mazanec]

https://www.oftwominds.com/blogdec21/cr ... 12-21.html

Get in Crash Positions
December 13, 2021

When the market goes bidless, it's too late to preserve capital, never mind all those life-changing gains.

Everyone with some gray in their ponytails knows the stock market has ticked every box for a bubble top, so everybody get in crash positions:



Let's run through the requirements for a bubble top:

[John]

** 13-Dec-2021 World View: Interest rates and the Law of Reversion of the Mean

> without any corrective action we will just watch inflation come
> down? Never seen that before

> ** 13-Dec-2021 World View: Watch inflation
>
> Here is my table of historical CPI data from 1914 to the present:
>
> http://www.generationaldynamics.com/pg/ww2010.i.cpi.htm

> Check out 2009 and 2015.

> Yes, but just looking at an historical inflation table doesn't
> tell you very much. The interest rates in these years were "up a
> bit" versus the previous year, but other factors would include
> currency exchange rate, trading partner inflation figures, oil
> price, gdp growth, political objectives, etc, etc. Complicated
> stuff where mechanical projections don't work at all well.

If I understand you, you're saying that some or all of these factors
that you've listed were the "corrective action" that brought about the
cpi decreases in 2009 and 2015. I'd be curious to know which of them,
specifically, provided the "corrective action" that you're saying was
necessary. And don't some of these factors also apply today?

There are probably hundreds of such factors. If you watch CNBC and
Bloomberg TV and Fox Business Network, as I do, then each analyst
guest seems to have a different factor or list of factors. "Yes, my
friends, more people are getting pizza for lunch, which is increasing
demand for Wesson oil which is being hit by supply chain issues, and
that alone is the greatest factor increasing the cpi."

Let's look at it a different way. Let's ignore the myriad factors,
and just look at the cpi as a variable by itself:

- In Jan 1921, the cpi was 19.0
- In Jan 2021, the cpi was 261.582

So that's a 100 year period. Let's compute the average annual change
in the cpi during this 100 year period.

So if x is the annual change in the cpi, then we have this equation:

19.0*(1+x)**100 = 261.582

Solving gives you x=0.02622 or 2.26%.

We now apply the Law of Reversion of the Mean. If the inflation rate
is below 2.26% for a while, then the Law of Reversion of the Mean says
that it will have to be above 2.26% for by an equivalent amount by a
roughly equivalent period of time. And vice-versa.

So the annual inflation rate has been well above 2.26% since March
2021. But it was well below 2.26% since Sept 2018 before that. This
suggests that the current high rates are a reversion from the earlier
low rates. But this can't go on forever, and I think that most people
believe that the current interest rate surge will end in the new year.

So I'm suggesting that the end may come as early as February, thanks
to the "corrective action" provided by such factors as supply chain
problems clearing up, holiday-based demand decreasing, and
post-holiday sales bringing retail prices down. It may start coming
down a bit later than that, but the Law of Reversion of the Mean says
that it won't be much later. And that doesn't mean that the cpi will
fall below 2.26% in February. It means that the cpi will have peaked
in February, and will start falling month after month, until it's
below 2.26% and, indeed, until it's below 0.

[aeden]

HOW LIBERALS ARE IN DENIAL ABOUT WHAT'S GOING ON (8:15)

https://youtu.be/si97as8Y25s