Inflation/stagflation Thread

Finance
1551

More Fed comments

  • BOWMAN: CONCEPT OF SOFT LANDING IS UNUSUAL TO ACCOMPLISH
  • BOWMAN: IT IS POSSIBLE WE WILL STILL BE ABLE TO ACHIEVE A SOFT LANDING
  • FED’S BOWMAN: WE STILL SEE A VERY STRONG LABOR MARKET, THERE IS NOT AS MUCH MODERATION IN INFLATION AS WE’'D LIKE.
  • BOWMAN: EXPECT WE WILL CONTINUE TO RAISE INTEREST RATES
  • FED’S BOWMAN: THERE WILL BE A LOT OF DATA BETWEEN NOW AND THE NEXT POLICY MEETING.
  • FED’S BOWMAN: I ANTICIPATE THAT INTEREST RATES WILL CONTINUE TO RISE.
  • FED’S BOWMAN: WE WILL MAINTAIN RAISING INTEREST RATES IN ORDER TO BRING INFLATION DOWN BELOW 2%
4 Likes
1552

It will be interesting to see how long the bond market crazies are able to keep long-term rates low.

As of today, the one year tbill is 4.96% while the five-year note is almost exactly 100 basis points less

Fidelity fixed income

1 Like
1553

Strategic Re-election reserve still getting dumped.

https://www.bloomberg.com/news/articles/2023-02-13/us-to-sell-26-million-more-barrels-from-strategic-crude-reserve

  • US TO SELL 26 MILLION MORE BARRELS FROM STRATEGIC CRUDE RESERVE
  • DELIVERY FOR NEW US SPR SALES EXPECTED BETWEEN APRIL AND JUNE
1 Like
1554

CPI update, slightly higher than expected. 0.5% for the month is 6% annual inflation, still more than those 5% cash accounts let alone before taxes.

  • US CORE CPI MOM ACTUAL 0.4% (FORECAST 0.4%, PREVIOUS 0.3%)
  • BREAKING: US CPI YOY ACTUAL 6.4% (FORECAST 6.2%, PREVIOUS 6.5%)
  • US CPI MOM ACTUAL 0.5% (FORECAST 0.5%, PREVIOUS -0.1%)
  • US CORE CPI YOY ACTUAL 5.6% (FORECAST 5.5%, PREVIOUS 5.7%)
  • US Jan Consumer Prices 0.5%; Consensus 0.4%
  • US Jan CPI Ex-Food & Energy 0.4%; Consensus 0.3%
  • US Jan Consumer Prices Increase 6.4% From Year Earlier; Core CPI Up 5.6% Over Year
  • US Jan CPI Energy Prices 2.0%; Food Prices 0.5%
5 Likes
1555

Retroactive increasing of past inflation by the Feds

On Friday, February 10, the BLS quietly revised the CPI higher for four of the past five months, with one month unchanged.

  • December as Reported -0.1, As Revised +0.1
  • November as Reported +0.1, As Revised +0.2
  • October as Reported +0.4, As Revised +0.5
  • September as Reported +0.4, As Revised +0.4
  • August as Reported +0.1, As Revised +0.2
4 Likes
1556

David Enna at tipswatch discusses:

In these changes, the BLS is basically re-allocating its seasonal adjustments, which have no effect on the annual numbers. In essence, annual inflation of 6.5% is being reallocated across the 12 months of 2022. However, you have to wonder how consumers and financial markets would have reacted to slightly higher monthly inflation numbers in the last quarter of 2022, when “disinflation” suddenly became a buzzword.

The Reuters report on this change noted that the revisions could indicate a slight uptick in inflation in coming months:

My comment:
I’m getting increasingly uncomfortable that an agency of the very federal government whose spending has a big part in causing inflation determines the inflation adjustment of tips and ibonds.

3 Likes
1557

More Fed commentary

  • HARKER: AT SOME POINT THIS YEAR, I EXPECT POLICY RATE WILL BE RESTRICTIVE ENOUGH TO HOLD RATES IN PLACE
  • FED’S HARKER: FED NOT DONE YET BUT WE ARE LIKELY CLOSE
  • HARKER: I SEE REAL GDP GROWTH ABOUT 1% THIS YEAR, BEFORE CLIMBING BACK TO 2% TREND GROWTH IN 2024 AND 2025
  • FED’S HARKER: I EXPECT POLICY RATES TO BE RESTRICTIVE ENOUGH THIS YEAR TO KEEP RATES STABLE.
  • FED’S HARKER: THIS YEAR, I BELIEVE UNEMPLOYMENT WILL RISE TO SLIGHTLY MORE THAN 4%.
  • FED’S HARKER: I FORECAST CORE INFLATION AROUND 3.5% THIS YEAR, 2.5% IN 2024, & BACK AT 2% GOAL IN 2025.
  • FED’S HARKER: GDP GROWTH WILL BE MODEST, BUT I DO NOT EXPECT A RECESSION.
  • FED’S HARKER: I AM NOT FORECASTING A RECESSION.
4 Likes
1558

Budget office telling us we’re in trouble on our debt.

  • U.S. Could Become Unable to Pay Bills as Soon as July, CBO Says --WSJ
  • CBO: BASED ON CURRENT TAX AND SPENDING LAWS, THE US DEFICIT WILL AVERAGE $2.0 TRILLION PER YEAR FROM 2024 TO 2033.
  • THE CONGRESSIONAL BUDGET OFFICE PREDICTS THAT THE US BUDGET DEFICIT WILL BE $1.41 TRILLION IN FISCAL YEAR 2023, UP FROM $1.375 TRILLION IN FISCAL YEAR 2022.
  • CBO Estimates U.S. Could Exhaust Extraordinary Measures Between July and September
  • CBO Says Forecast for When U.S. Could Default Is Uncertain
  • Treasury Has Said Measures Could Be Exhausted as Soon as June
  • CBO FORECASTS US AVERAGE UNEMPLOYMENT RATE AT 4.7% IN 2023, 4.9% IN 2024, 4.7% IN 2025.
  • CBO: WE FORECAST THE FY 2024 DEFICIT AT $1.576 TLN OR 5.8% OF GDP, 2033 DEFICIT AT $2.851 TLN OR 7.3% OF GDP.
  • CBO FORECASTS: REAL GDP GROWTH IN THE UNITED STATES IS EXPECTED TO BE 0.3% IN CALENDAR 2023, 1.8% IN 2024, AND 2.7% IN 2025.
  • CBO: WE FORECAST PUBLIC DEBT AT 98% OF GDP IN FY 2023, 118.2% OF GDP IN FY 2033.
  • CBO: WE FORECAST 10 YEAR TREASURY YIELDS AT 3.9% FOR 2023, 3.8% FOR 2024 AND 2025.
  • CBO FORECASTS: THE FORECAST DEFICIT FOR 2023-2032 IS $3 TRILLION HIGHER THAN IT WAS A YEAR AGO.
  • CBO FORECASTS: APRIL INCOME TAX RECEIPTS WOULD HAVE A SIGNIFICANT IMPACT ON THE TIMING OF POTENTIAL DEBT SERVICING ISSUES.
  • CBO: IF RECEIPTS FALL SHORT OF EXPECTATIONS, THE TREASURY’S EXTRAORDINARY MEASURES MAY BE EXHAUSTED BEFORE JULY.
  • CBO FORECASTS: THE US TREASURY WILL EXHAUST ITS BORROWING CAPACITY SOMETIME BETWEEN JULY AND SEPTEMBER IF NO ACTION IS TAKEN TO RAISE THE DEBT CEILING.
  • CBO: WITHOUT INCREASING OR SUSPENDING THE DEBT LIMIT, THE US GOVERNMENT WOULD HAVE TO DELAY MAKING PAYMENTS FOR SOME ACTIVITIES, DEFAULT ON ITS DEBT OBLIGATIONS, OR BOTH
2 Likes
1559

Mostly debt limit extension theater. They are honest enough to say that not all debts are equal and payments can be prioritized for important debt.

The deficit projections are bad news. A trillion here, a trillion there and pretty soon you’re talking real money.

4 Likes
1560

Someone at the Fed isn’t drinking the Koolaid

  • MESTER: SAW A ‘COMPELLING’ CASE FOR 50 BPS HIKE AT LAST FOMC MEETING
  • MESTER: FED HAS MORE WORK TO DO TO CONTROL INFLATION
  • MESTER: FED WILL NEED TO GO ABOVE 5% AND STAY THERE FOR A WHILE
  • FED’S MESTER: I EXPECT TO MAKE SIGNIFICANT PROGRESS IN LOWERING INFLATION
  • MESTER: HOW FAR FED GOES ABOVE 5% DEPENDS ON DATA
  • MESTER: UPSIDE RISKS TO INFLATION REMAIN IN PLACE
  • FED’S MESTER: THE EXTENT TO WHICH THE FED RAISES RATES IN THE FUTURE IS DETERMINED BY INFLATION.
  • FED’S MESTER: A BIGGER RISK IS TO UNDERSHOOT IN THE EFFORT TO CONTROL INFLATION.
  • FED’S MESTER: INFLATION LEVELS REMAIN TOO HIGH
  • FED’S MESTER: JANUARY’S CPI DATA SHOWED THAT THERE’S STILL MORE TO DO ON COOLING INFLATION.
  • FED’S MESTER: FED ACTIONS WILL SLOW GROWTH AND INCREASE UNEMPLOYMENT.
  • FED’S MESTER: THE RETURN TO PRICE STABILITY WILL BE PAINFUL.
  • FED’S MESTER: FED RATES MUST RISE ABOVE 5% AND REMAIN THERE FOR AN EXTENDED PERIOD OF TIME.
3 Likes
1561

The fake inflation cooling narrative that was cooked up for the midterm is falling apart now

https://www.thestreet.com/markets/how-januarys-producer-price-index-is-impacting-markets

Markets Fall As Investors Digest A Hotter-Than-Expected Producer Price Index Report

PPI rose 0.7% in January, higher than the expected 0.4%.

4 Likes
1562

Following up on Pakistan’s subsequent bankruptcy, accelerated by high energy costs.

He said that the rulers of the country were begging the International Monetary Fund (IMF) for the 23rd time in 75 years, adding that Pakistan’s debt had increased by 23 per cent in just one year.

Unrelated

2 Likes
1563

Just like in Sri Lanka, Pakistan is broke in great part because of corruption. The same families have been in power for generations; the same domestic conglomerates control the economy, and graft is a god-given right. Those problems are common in the developing world.

3 Likes
1564

Some would argue it’s rather common in the first world as well. We’re just better at disguising it.

2 Likes
1565

Corruption in those countries permeates even the judiciary in blatant ways. The developed world has corruption but it isn’t at the same scale, or with the impunity seen in some of those other countries.

1566

I suspect you’ve never lived in the (insert your favorite political party here) strongholds of Chicago or New Orleans. That’s the way it was 40 years ago. I suspect other cities have gone that route as well.

1 Like
1567

https://www.msn.com/en-us/money/markets/key-us-inflation-measure-surges-at-fastest-rate-since-june/ar-AA17SYg1

Excluding volatile food and energy prices, so-called core inflation rose 0.6% from December, up from a 0.4% rise the previous month. And compared with a year earlier, core inflation was up 4.7% in January, versus a 4.6% year-over-year uptick in December.

Added. Interest rates are up with the 10 year treasury rate 3.97%

4 Likes
1568

Some parts o this long investing letter may be relevant, in not just the opening song rewrite.

CRAZY TRAIN
PROFITLESS PROSPERITY; INVESTING IN FLATION; AND – BERKSHIRE: GETTING BETTER ALL THE TIME

1569

Core inflation measures nowhere close to 2%.

image

1 Like
1570

I actually read a good part of it. The guy certainly does not believe in brevity. Liked this comment about my favorite sector

Energy sector earnings surged from contributing negative 8% in 2020 to a positive 4.5% contribution in 2021 to a whopping 12.5% contribution in 2022. Had energy profits not grown to records last year, the index would have seen EPS drop from $208.21 in 2021 to ~$183 instead of an estimated $200.12 including energy. With the sector contributing 12.5% to profit in 2022 but only comprising 5.2% of market cap and trading for only 8x earnings, stripping energy makes the index still that much more expensive. The energy sector comprised as much as 12.3% of index market cap as recently as 2011.

1 Like