I only watched part of Buffett’s speech but he primarily focused on lumber steel and petroleum prices. They are going up a lot recently but they’ve been going up a lot for last 10years as well except petroleum which he mentioned the spike is primarily due to closure of plants in Texas due to the artic chill. If you looked at a graph of their prices besides petroleum and CPI for the last 10 years they’d be uncorrelated. Buffett also has a lot of cash and his insurance business especially has an added incentive to have fiscal policy keep inflation low so he has a bias in trying to force fiscal policy. Ray Dalio also has been pushing this narrative but he’s been doing it for 5 years now. It’s not that they’re wrong as there are going to be pressures that cause this it’s that they’re probably 2years early and need some more catalysts.

Onlyd2d:

With the latest GDP estimates predicting 2nd-half-to-year-end economic growth in the range of 6-12 percent, Yellin is clearly concerned about overheating. (There's been quite a bit of discussion today on CNBC about GDP growth estimates. The consensus seems to be that GDP growth is already strong, but once the economy begins coming out of the pandemic, pent up demand will be unleashed and GDP growth will accelerate.)

The real concern is that fire hydrant growth like that will almost certainly produce higher-than-desired inflation. By hinting about interest rates, Ms. Yellin is attempting to curb inflationary expectations.

I think a fairly likely scenario is the economy will overheat, they will raise rates (or at least try to) and it will then crash. After this they will lower interest rates back down and keep them low.

So how do we hedge as an asset holder? I've seen a video with Novogratz and he has shorted the 5year treasury bond to hedge for a rate hike. Is that the best play?

Am I the only one who cringes at the term "over-heating" economy. That term does not even make sense. If the economy is booming so hard and we're producing so much that would either lead to lower prices (same $$$ chasing more goods) or improved trade balance. And why would anyone want to slow down an awesome economy anyways.

Our current "over-heating" economy has nothing to do with a booming economy and everything with the piper coming to get paid for all that printed money.

Imho If they can make believe , this inflation is not mainly monetary but is justified by strong economy , bonds market won’t sell off .
Longer the bonds stay cool , more they can print freely.


Kinda makes me think , if someone knows in advance is insolvent and goes bankrupt, I figure some take advantage of it and go full beast mode on busting for real ..

Because booming overheating economies can be a result of consumer lead debt inflation consumption, which is more $$$$ chasing the same amount of goods.

You might also want to familiarise yourself with the business cycle, whereby in a booming overheating economy, banks become over liberal with their lending and extend finance to companies that in the long run wont add value but take custom from those that will. When these companies fail and default on loans, banks become overly pessimistic and wont extend finance to those companies that would add value. Which is simple cliffs on why we go from boom to bust. The same process can happen in mortgage markets etc.

Before each major crash, the economy is always booming.

People are selling used cars right now for more than they bought them for 3-4 years ago. ten years ago you used to be able to get a reliable mid-sized car for 11-12k, now you are paying 20-25k. i used to get a haircut for $11, now it costs $20 + tip even at the cheapest places. so in my view the real inflation rate is somewhere between 5-7%,

Playing With Fire?

Famed investor and currency trader Stanley Druckenmiller is out with an opinion piece in the Wall Street Journal claiming the Fed is "Playing With Fire" sharply disagreeing with [current] Fed policy. (One disagreement: Mr. Druckenmiller believes the Fed should be raising interest rates now rather than postponing them for another 32 months - which is current [stated] Fed policy.)

Mr. Druckenmiller will be the featured guest on CNBC's "Squawk Box" during the 8:00 o'clock (Eastern Time) hour. It will be interesting hearing what Mr. Druckenmiller has to say about the outlook for inflation.

the way you phrased it made me think of this

These guys crack me up. They make billions off the feds financial chicanery for the last 10-40 years and now they're worried what it is gonna do?

Easy for him to say raise rates now, he doesn't have to deal with the fallout from that. This market would crash.

We're just gonna push the inflation genie as far as we can.

What are the deflation scenarios?

Mild inflation continues for 6mo-1yr longer
Asset prices fall hard
Economy still produces
Money is just sat on

>> Deflation hits

Eh, somewhat disagree. Housing is a good example of what can happen in the wider economy. The long run housing rate is say 1.5 million new houses per year. That's what the population needs for replacement of old houses and newcomers to keep itself in comfortable housing. An entire ecosystem of skills, suppliers, shopfronts, primary production, transport networks etc etc develops and settles over time into a fairly efficient way of getting housing.

Suddenly covid comes and the loony left are shouting "defund the police" causing rising crime and lawlessness, so millions of people flee the cities. Housing booms; instead of 1.5 million, 2 million houses are built. That extra 500K comes from somewhere: overheating. Extra energy and human effort is spent capturing all of this extra demand; entire ecosystems are built up to profit from it. At some point the demand dies, and all of that extra ecosystem has to be completely dismantled and repurposed; risk taking declines with an uncertain future, and the economy gets artificially depressed. None of it has anything to do with printing money, it's the natural wasteful friction of an overheating system.

This scenario happened in the 70s and did a lot of economic damage



Will it happen now? I dunno. It's hard to get an overheating economy when labor participation is as poor as it is now. If anything that's an economy in structural trouble from perverse incentives (too many unemployment benefits and eviction moratoriums for example).

Od2d:

I recall from my college economics class that economists consider a "small amount" of inflation to be a good thing. (I suppose the thinking is that too much inflation is bad while no inflation - or negative inflation defined as deflation - is terrible.) So the Fed aims for an optimal middle ground which is inflation running at around 2 percent.

The current disagreement between Fed Chairman Jerome Powell, Treasury Secretary Janet Yellen and skeptics like Stanley Druckenmiller is that the Fed's "target" inflation rate of 2 percent is unrealistic. If I read him correctly, Mr. Druckenmiller appears to believe that, barring a sudden reversal in current Fed policy, the inflation rate is poised to explode.

During his appearance on CNBC Tuesday morning, Mr. Druckenmiller acknowledged that he has been wrong in the past. (A refreshing bit of honesty.) Considering the Fed's track record leading up to the 2008 financial crisis, (i.e. Chairman Bernanke's assertion: "We do not expect the 'problem' in the subprime housing market to spread to the broader [housing] market"), there's good reason to take assurances from the Fed with a grain of salt.

Who's right - Druckenmiller or Chairman Powell? I suppose we'll have the answer about a year from now - if not sooner. I'm sticking with my guess that inflation is going to be in the 4-6 percent range this time next year.

ts, most people are leaving because they always wanted to leave the cities but that's where the jobs were

now that so many companies are making work from home permanent, they are able to not only leave the city but save a fortune doing so

my brother bought property and left manhattan, it's not just that he's now paying into equity instead of renting but he also lives in a much nicer housing for a fraction of manhattan rent and also no longer needs to pay through the nose for a monthly storage unit and parking space - moving outside the city while maintaining his job that was previously only available in manhattan has been a financial windfall for him

that leaving due to crime is nonsense, yes, that may be a factor in people wanting to leave, but it's not a new factor, the new factor is they can now keep their big city job and salary but live wherever they damn please

April CPI Inflation Number

The Government has just reported the April CPI number. The "consensus" estimate among economists and market mavens was for the April number to be 2/10ths of one percent or an annualized rate of 2.4 percent which would be right in line with the Fed's target rate. The actual number came in at four times that number - 8/10ths of one percent. If that rate persists over the next 11 months, inflation will be running at close to 10 percent by this time next year. If this rate persists, we're looking at (close to) 1970's double-digit inflation.

Joe Kernan and Becky Quick are singing 1970's era Bee Gees "Stayin Alive" disco songs.

The average price of a used car is now over $25,000. Insanity.

That statistic (if true) is meaningless without context.

https://www.caranddriver.com/news/a3...hoppers-deals/

The price movement is significant, glad I'm not in the market for a used car.

But I don't understand why things opening up after the pandemic would affect demand like this. If anything it seems like demand should have plummeted over the past year, leaving a glut of supply, and maybe more people getting out and about bleeds some of it off. I don't see why prices would spike.

There's a semiconductor shortage globally which is affecting car manufacturing and shutting down car production lines.

Not all of this is too few dollars chasing too few goods. There are a lot of supply chain kinks still being worked out along with shipping bottlenecks.

And much of it IS temporary. Yes, I paid a ton to fly to Vegas in a couple months. I don’t gaf what the price is. I’m not going to be so price inelastic next time I travel, I assure you.

My SIL is a normie. She just bought a used car. Why? Because she finally has the money to replace her beater and isn’t waiting just because the market is hot. She doesn’t even know the used car market is topping.

I already knew you were full of **** but this confirms it.

Working at home seem nice.
Until you realize you will end up in worst situation , now being able to compete against anyone in the world for your job at like 10$ an hour less .
It’s coming .... good luck !


Inflation won’t be sustainable without higher wages.
Unless major printing still coming in of course .

I'm full of **** because I think a poll should have a comprehensive list of options? You're reaching, Jerry.

What exactly do you think the odds are deflation this year? Absolute zero? Japan wants to have a chat with you.

For what it's worth I voted for 2-4% official government, which I guess is about 8% unofficial as tracked by private groups. Seems the most reasonable/likely.

Tooth:

I suppose it was an oversight (an omission) for me not to have included a deflation option when I was constructing the poll. To be honest, the thought that we could be in a deflationary spiral a year from now just never occurred to me. Deflation, (i.e. falling wages and prices), is a possibility, but the last time this country experienced deflation was in the 1930's during the Great Depression. Government and Federal Reserve policy ever since has been to avoid a repeat of the 1930's. The evidence to this point would seem to suggest that our political leaders would much rather have inflation and the risk of currency debasement than a return to the gold standard and fiscal and monetary discipline. (I think the "throwing in the towel" moment occurred in 1971 when Nixon - in what economists termed "The Nixon Shock" https://en.wikipedia.org/wiki/Nixon_shock -
withdrew the United States from the 1944 Bretton-Woods agreement. That effectively took the United States off the gold standard. It was the start of all the inflation and currency debasement that has followed.)

I was listening to Rick Santelli and Steve Liesman having a discussion this morning as to whether these latest inflation numbers are "transitory" or a portent of what's to come. Echoing a bit of Stanley Druckenmiller, Mr. Santelli asserted that the trillions of dollars of debt being created to finance all this spending will never be repaid. He believes the Fed's plan is to "monetize" all this debt. I'm not enough of an economist or fiscal expert to understand how "monetizing the debt" works, but I believe we've been down this road before. If monetizing the debt is indeed how the Fed intends to deal with current political and economic circumstances, I see no other alternative than increasing inflation and a replay of the 1970's.

This is one of those things that is rarely spoken by Fed officials but viscerally understood. I recall listening to former Fed Chairman Ben Bernanke testifying before a congressional committee. He was defending Fed policy on interest rates and the decisions of his board of Governors. The "discussion" between Chairman Bernanke and one of the congressmen got a bit testy. It is very rare to see Mr. Bernanke getting annoyed, but he finally did respond to the congressman's vitriol. Mr. Bernanke, in a rare moment of candor, stated that Congress could be more helpful [with the economy] if they showed a bit of "fiscal responsibility" and restraint when it comes to spending. I sensed that what Mr. Bernanke was hinting at was that we [at the Fed] have no choice but to keep monetizing the debt if you [members of Congress] keep spending like drunken sailors - and paying for the spending with more and more (ever increasing) debt.

That seems to be the real crux of the problem. Collectively, we Americans want more spending (on just about everything) but we don't want the high taxes required to pay for it all. Of course, if this is the reality, the balloon will pop at some point. The big risk - the huge risk - is that Mr. Druckenmiller may turn out to be right. At some [future] point the rest of the world may decide that the United States is no longer good for its debts. When (if) we reach that point, we will lose our reserve currency status. That will be when the chickens come home to roost.

Santelli lets his partisanship affect him too much imo.

I don’t think anyone is saying deflation is likely next year. But there are long term deflationary trends at play, have been for years. Wouldn’t be surprised if the stimulus and those long term forces create the godilocks scenario some speculate about. No one actually knows for sure of course.