Investing

[Deleterious]

I guess a couple of Fed members said 100bps is basically off the table.  The market loves whatever is about to happen.  Green everywhere.  

[Screwball]

I think most expect 75 bps, and everything is green.  I'm watching this one (crude oil) as something has to break one way or another pretty soon.

[gehringer_2]

1 hour ago, Deleterious said:

I guess a couple of Fed members said 100bps is basically off the table.  The market loves whatever is about to happen.  Green everywhere.  

yup - everything is so well telegraphed in advance - really exactly so markets anticipate things and don't go crazy.

[Screwball]

75 bps

[Deleterious]

Not enough. But I gave up on the feds doing the right thing long ago 

[Screwball]

 

[gehringer_2]

this is an odd chart. From a Peter Coy column in the NYT. M4 went through a huge weird spike coming out of the pandemic. Supposedly M4 weights cash more heavily so possibly all the recovery money? Whatever. It was both huge and very short term. As Coy noted, if you agree with Milton Friedman than inflation is always and only about money supply, there's a lead.

https://www.nytimes.com/2022/07/27/opinion/gross-domestic-product-income.html

Edited July 28, 2022 by gehringer_2

[1984Echoes]

Yes.

And no.

It wasn't all recovery money. Anyone who was still working through that period had two years' of savings and very little ability to spend it. 

That spike is the pandemic ending (at least in the way that there were no more inhibitions about going outside again and doing things) and people spending their two years savings, recovery money, etc., etc...

And yes. That and the difficulties of the supply chain trying to gear back up to 100% after being at 20% for two years is exactly why... inflation. At least until Russia invaded Ukraine and then you could add that into energy/ gas/ food cost inflation as well...

[TigerfanDave84]

Should they have done a full point? Do rates have to go up to the rate of inflation?

[Tiger337]

17 minutes ago, TigerfanDave84 said:

Should they have done a full point? Do rates have to go up to the rate of inflation?

I don't think anybody knows how far they have to go up, but I don't think there is any reason why they would have to catch up to the inflation rate.    

[gehringer_2]

there is a paradox here, which is that the future economic activity rubber really hits the road with longer term rates. Most money committed to expansion of economy activity is longer term. But long term rates are not directly controlled by the Fed. They are based on market expectation for future inflation. So paradoxically, strong action by the Fed that is seen as counter inflationary can actually depress long term rates, and make those very moves less effective at slowing an overheated economy. Right now long term rates are staying stubbornly low. Let's see if they start floating up any starting tomorrow or not.

Of course there is also a direct effect on money supply when the Fed raises short term rates, and the Fed has other actions it can take in the bond market that can  increase or decrease money supply so they have some levers in spite of the possibility of paradoxical interest rate psychology. 

But in the short run it is the psychology that matters because money supply moves by the fed take many months to actually effect economic activity for their own sake.

Edited July 28, 2022 by gehringer_2

[gehringer_2]

19 minutes ago, Tiger337 said:

I don't think anybody knows how far they have to go up, but I don't think there is any reason why they would have to catch up to the inflation rate.    

But if the fed pushes to a yield curve inversion, the demand for short term loans falls, (who needs a short term loan if a long term one is cheaper?), so the effectiveness of the short term rate hikes is undercut. Conveniently enough, a little fiscal contraction could be just the thing, and Manchin's new deal is going to increase corporate and some financial operator's taxes (elimination of carried interest deductions). If that become effective Jan 1 that (and its anticipation) could be contractive faster than anything the Fed does with interest rates before then.

Edited July 28, 2022 by gehringer_2

[Deleterious]

Yes the fed rate should be much closer to the inflation rate.  For the most part, the fed rate has been higher than inflation.  At least up until we lost our minds in 2008.

Year	Inflation Rate YOY4	Fed Funds Rate*5
1954	-0.70%	1.25%
1955	0.40%	2.50%
1956	3.00%	3.00%
1957	2.90%	3.00%
1958	1.80%	2.50%
1959	1.70%	4.00%
1960	1.40%	2.00%
1961	0.70%	2.25%
1962	1.30%	3.00%
1963	1.60%	3.50%
1964	1.00%	3.75%
1965	1.90%	4.25%
1966	3.50%	5.50%
1967	3.00%	4.50%
1968	4.70%	6.00%
1969	6.20%	9.00%
1970	5.60%	5.00%
1971	3.30%	5.00%
1972	3.40%	5.75%
1973	8.70%	9.00%
1974	12.30%	8.00%
1975	6.90%	4.75%
1976	4.90%	4.75%
1977	6.70%	6.50%
1978	9.00%	10.00%
1979	13.30%	12.00%
1980	12.50%	18.00%
1981	8.90%	12.00%
1982	3.80%	8.50%
1983	3.80%	9.25%
1984	3.90%	8.25%
1985	3.80%	7.75%
1986	1.10%	6.00%
1987	4.40%	6.75%
1988	4.40%	9.75%
1989	4.60%	8.25%
1990	6.10%	7.00%
1991	3.10%	4.00%
1992	2.90%	3.00%
1993	2.70%	3.00%
1994	2.70%	5.50%
1995	2.50%	5.50%
1996	3.30%	5.25%
1997	1.70%	5.50%
1998	1.60%	4.75%
1999	2.70%	5.50%
2000	3.40%	6.50%
2001	1.60%	1.75%
2002	2.40%	1.25%
2003	1.90%	1.00%
2004	3.30%	2.25%
2005	3.40%	4.25%
2006	2.50%	5.25%
2007	4.10%	4.25%
2008	0.10%	0.25%
2009	2.70%	0.25%
2010	1.50%	0.25%
2011	3.00%	0.25%
2012	1.70%	0.25%
2013	1.50%	0.25%
2014	0.80%	0.25%
2015	0.70%	0.50%
2016	2.10%	0.75%
2017	2.10%	1.50%
2018	1.90%	2.50%
2019	2.30%	1.75%
2020	1.40%	0.25%
2021	7.00%	0.25%
2022	9.10%	2.50%
2023	2.7% (est.)	2.8% (est.)
2024	2.3% (est.)	2.8% (est.)

 

[Screwball]

I'll use this Tweet as a visual.

That is a chart of the S&P from 1992 thru today.  The two bumps you notice going left to right is the dot-com bust of 2000ish, and the next is when the swine fucking banksters blew up the world in 2008/09.

Then look what happens.  Does that look normal? We are in the everything bubble, which has been brewing since March 9th, 2009 (I think), at least as the stock market goes.  The financial hucksters in can spin it any way they want, that's easy.

Interest rate hikes are not going to fix anything, especially in the short term, and they can shoot the blame cannons anywhere they want for how we got here, but  the problems are many, and have been festering for a long long time.  We have a perfect storm of circumstances while sitting on a 8.5 trillion dollar Fed balance sheet they are trying to unwind.

These rate hikes will kill housing/real estate, which is already showing up in the numbers.  Same with cars, or any kind of loan .  The price of borrowed money - imagine that.

If shit gets bad, they will quit hiking, and then lower them again to spur growth and spending - same as it's always been.  But the bubble is bigger this time.  If you read to any extent the monetary wizards talk about a "soft landing" or whatever the fuck.  Fedspeak BS - because you can't fix inflationary pressures without pain (for somebody).  But if they decide to lower rates again, all they can do is print more money to monetize more debt - which pushes the rates back down.  Groundhog day.

This time it's different.  The world is moving in a different direction.  Trade, alliances, forms of barter, and monetarily.  Trade is the most important.  We have spent the last 25 plus years transitioning to global manufacturing, and it's about to bite us in the ass.  The Fed can't control that, and they probably won't control the part they can very well either, because they are inept, and should be given no credibility by anyone.

There is no reset button and Mario gets to start at the beginning and everything is rainbows and ribbons.

We will see pain.  The question is where and by whom?

 

[Screwball]

11 minutes ago, Deleterious said:

Yes the fed rate should be much closer to the inflation rate.  For the most part, the fed rate has been higher than inflation.  At least up until we lost our minds in 2008.

<snip>

2008 - Imagine that!!!!!!

When ZIRP (zero interest rate policy) or what one might call cheap money became a fad, and somehow sound monetary policy.

[gehringer_2]

5 minutes ago, Screwball said:

We have a perfect storm of circumstances while sitting on a 8.5 trillion dollar Fed balance sheet they are trying to unwind.

yeah - saw another quote that they are supposed to be doing $95B/month by Sept. I'll believe it when I see it. It wouldn't be so bad if it was a mixed portfolio, but since it's mostly/all(?) MBS, you can't just dump all those without driving mortgage rates  higher, and there is political pain in that, which means they will want to put it off.

[gehringer_2]

and the funny part is, conventional wisdom is that it's whoever is in the White House that constantly jawbones the Fed to keep the pedal to the metal all the time for the sake of the next election. But the party in power has lost the White House in 2 out of 3 elections since ZIRP anyway. 

Edited July 28, 2022 by gehringer_2

[Screwball]

I can't wait until they bail out the bankers again.

[1776]

By one measure, the economy is in recession. That measure being consecutive quarters of GDP decline. 

[Deleterious]

The most amazing thing about the gdp news was analysts predicted +0.3%. 

Maybe they are the same idiots that thought +0.1% rise in consumer spending was good in a time of 9% inflation.

[Deleterious]

Just took a look at apartment prices. A very basic one bedroom in Battle Creek is now $1000 a month. Before COVID it was about $700.

[1776]

Barrons and Morningstar are predicting rate cuts in 2023. The 10 yr benchmark is 2.7% currently. 

[Screwball]

Today's data;

Jobless Claims

GDP

Some interesting numbers in the charts from the GDP print.

[gehringer_2]

22 minutes ago, Screwball said:

Today's data;

Jobless Claims

GDP

Some interesting numbers in the charts from the GDP print.

LOL page 7: GDP -0.9, GDI +1.9. 

Edited July 28, 2022 by gehringer_2

[Tigeraholic1]

2 hours ago, Deleterious said:

Just took a look at apartment prices. A very basic one bedroom in Battle Creek is now $1000 a month. Before COVID it was about $700.

I have read on this board a number of times how people are so stuffed with stimmy money that they couldn't spend it all. However Middle/Lwr Middle class are now struggling to make ends meet, again.