Inflation/ Bonds

[macdon02]

Looking at T Bonds and thinking they can run to 184~ before they hit the wall. NFP and average earnings also strong. Crude could bottom temporarily at $37~. Asking those that have seen more then I, does inflation kill bonds? We have all seen the demand for goods due to flu, could this be the first signs of inflation, (there's many forms)? Not concerned with anyone disagreeing with me, looking for all view points.

Big Lentils post of crazy suited up ladies in costco got me thinking, we have never seen this since the oil embargo of the 70s and line ups for gasoline. Is this the same?

Edit above and here, I'll make the arguement land prices have topped as availability of credit, along with low rates, it took both, fueled the rally. If a shock comes to bonds, credit dries up in a "risk on" scenario, see repo. I don't know for sure but we could see a drastically different outcome in this environment, relative to previous rate cuts. I honestly don't know, but this is worth watching. The trend is for friend, until it isn't.

[AlbertaFarmer5]

Looking at T Bonds and thinking they can run to 184~ before they hit the wall. NFP and average earnings also strong. Crude could bottom temporarily at $37~. Asking those that have seen more then I, does inflation kill bonds? We have all seen the demand for goods due to flu, could this be the first signs of inflation, (there's many forms)? Not concerned with anyone disagreeing with me, looking for all view points.

Big Lentils post of crazy suited up ladies in costco got me thinking, we have never seen this since the oil embargo of the 70s and line ups for gasoline. Is this the same?

Edit above and here, I'll make the arguement land prices have topped as availability of credit, along with low rates, it took both, fueled the rally. If a shock comes to bonds, credit dries up in a "risk on" scenario, see repo. I don't know for sure but we could see a drastically different outcome in this environment, relative to previous rate cuts. I honestly don't know, but this is worth watching. The trend is for friend, until it isn't.

If you are suggesting demand pull inflation, I'm not so sure. We definitely are seeing increasing demand ( and even some shortages) of the necessities of life, due to people stockpiling, and some supply disruptions. But this can only be temporary, if anything, this is long term deflationary. Assume we reach a new plateau, where just in time delivery goes from 3 days inventory to 6 days( completely arbitrary numbers) to prepare for the next such event, demand will drop back to where it was before hoarding( or likely less due to decline in economic activity, and available capital, some of which is now tied up in stockpiled goods), but meanwhile, supply will have attempted to increase to meet the temporary increased demand, which is deflationary.

Either way, a shock to the system that prompts us at all levels to prepare for the unexpected can only be a good thing long term. Just in time delivery is an excellent way to starve the world or other calamities. Same with having all our eggs in one basket with so many industries. Live and learn... Maybe.

We just went through this with vitamins for livestock. What was almost literally the only plant in the world making the ingredients in Germany had a fire. Available stocks were immediately hoarded, prices went parabolic. Just in time delivery proved a disaster. We need to supplement selenium with our deficient soils. Had a lot of health troubles that we are thinking are partially explained by the shortage of selenium. Over 2 years later, the market is only now returning back to normal. How many other vital industries are equally vulnerable?

[macdon02]

Lol this is stupid, but we haven't seen this demand for goods, stockpiling and waiting in line since the oil crisis of the 70s. I was still shitting my cloth diaper then. It wasn't friendly to bonds, inflation...
Everyone wanted to buy bonds and we haven't seen it for 40 years. This is different

[15444]

We just went through this with vitamins for livestock. What was almost literally the only plant in the world making the ingredients in Germany had a fire. Available stocks were immediately hoarded, prices went parabolic. Just in time delivery proved a disaster. We need to supplement selenium with our deficient soils. Had a lot of health troubles that we are thinking are partially explained by the shortage of selenium. Over 2 years later, the market is only now returning back to normal. How many other vital industries are equally vulnerable?

A couple days after I heard about the fire, I went to local feed store and bought all the Vit ADE and E they had, so I am one of those hoarders. Can say I never went short. Ran out of ADE just after the plant reopened.

So if a run starts on ass wipe or bullets, I'll beat my way through the crowd. Neighbor laughed at me today for suggesting toilet paper as a precious commodity. Told him if a person runs out and none in the store, how much you think I could get per roll? I bet $10-20 easy, $50 on the high end. He said for that price he will become a Paki and use a rag that he washes each time. I said ok, Durka Burka, but is the prissy trophy housewife in town gonna do the same?

[biglentil]

A couple days after I heard about the fire, I went to local feed store and bought all the Vit ADE and E they had, so I am one of those hoarders. Can say I never went short. Ran out of ADE just after the plant reopened.

So if a run starts on ass wipe or bullets, I'll beat my way through the crowd. Neighbor laughed at me today for suggesting toilet paper as a precious commodity. Told him if a person runs out and none in the store, how much you think I could get per roll? I bet $10-20 easy, $50 on the high end. He said for that price he will become a Paki and use a rag that he washes each time. I said ok, Durka Burka, but is the prissy trophy housewife in town gonna do the same?

Get yourself a bidet before they sell out. You can thank me later.

[helmsdale]

Get yourself a bidet before they sell out. You can thank me later.

Nobody likes mud-butt...

[helmsdale]

Macdon.

There are a few things that we haven't seen since the oil shock. I've been mulling this one around in my head here the last few days...

One of the things we have not seen since those days is a true supply shock that cannot be substituted away.

Ive wondered for a long time why inflation didn't seem to be showing up with the rampant government, corporate, and personal debt growth. I mean we've had inflation in assets, inflation in equities, and so many thought that is where it was materializing, but it still didn't seem to add up to me. Yes, it's been significant, but it surely hasn't been catastrophic.

My idea is rather simple, and perhaps that's its flaw, but central bank manipulation has been centered around the idea of pushing the demand curve outward. Constantly "stimulating" it. And in a sense it's much like doing drugs. At first it's reasonably easy to push. You can coerce government, industry, and private citizens to bring a small amount of future spending into the current time frame. Voila, just like a drug's your able to give your body, or for that matter your economy, a high. Trouble is, just as a drug wears off, so does the bump to GDP that fiscal or monetary measures can stimulate. Much as drug use leaves you worse off than before you started, so do the monetary and fiscal measures. The new equilibrium, when the small amount of future consumption is brought forward, is reduced over the long term by interest payments which actually leave you able to consume less currently, than you otherwise would have been able to, until such time as the debt is paid off.

Now, the thing that made the post .com manipulation unique was the realization that there really wasn't a pile of inflation in the world of personal consumption.

This is what we seen in the 70s with the supply shock. The problem with Keynesian tinkering of the aggregate demand (AD) curve back then was the corresponding aggregate supply (AS) curve goes nearly parabolic as you approach a certain level of consumption. It's all based on the marginal cost. So if the OPEC nations of the world simply put a hard limit on a critical component of global consumption, it doesn't matter how much you F*** with the AD curve you cannot increase output because there simply isn't another barrel of oil up for offer! The marginal cost approaches infinity. Hence Inflation. The AD curve crosses the AS curve at nearly the same output #, just a higher price to make the market clear.

The DIFFERENCE post .com was a SERIOUSLY flattened AS curve(Enter China to the global market)! There was a pile of cheap raw materials, and impoverished workers that needed only capital, and the means with which to transport the output cheaply and you have a recipe for near limitless supply... So long as we could keep up with the insatiable Chinese demand for raw products, they would be capable of keeping up with our near insatiable demand for consumable goods. In this case, you can flood your consumers, governments, and industries with debt and bring forth months, years, perhaps even decades of global consumption with little fear of serious inflation! With a nearly flat AS curve, you can continue to push the AD curve out without having it ever meet a parabolic AS.

Enter the new world of monetary and fiscally fueled economic growth! Central banks, and deficit financing, could just keep hitting the button for more and more drugs. Over and over again. Business loves it. Equities love it. Consumers love it. And governments are loath to provide that which will get them re-elected!

And then China literally catches the flu. For the first time in 40+ years we are seeing a true supply shock! It doesn't matter how much money you dump into the system anymore... There is no more growth to be had!
-Chinese factories are idled.
-Ports are running seriously under capacity.
-Boats are idling in the ocean.
-Supply chains are getting ravaged.

It doesn't matter how many millions of dollars you pump into bank accounts in the form of helicopter money. It doesn't matter how low interest rates are. If production lines can't produce goods, because that one widget factory in China is no longer producing widget components, the whole damned thing comes to a screeching halt! The AS curve has literally just gone parabolic! We've hit the wall!

And worse yet, we've all got interest payments to make on all that future consumption we brought into the present tense!

If China doesn't get it's factories back online yesterday, this whole damned thing is going to implode. Just like we couldn't produce another marginal barrel of oil above and beyond what OPEC was willing to supply in short order in the 70s, there is no way we can substitute away from China in any sort of meaningful manner in the short term! And in the 70's they were still producing oil, but they just decided to willingly turn down the tap. We're just getting into our first true supply shock, and China didn't just turn down the tap, they literally slammed it shut. And not on just oil, on damned near everything! Once the cascade of debt failures starts, there'll be no financial institution left solvent! If this doesn't get sorted ASAP, it's going to be a cataclysmic nightmare!

[sumdumguy]

Vibrating Bidets For Sale-llll limited supplies availllllble

[macdon02]

That's a hell of post helms... kudos. Original thought is always nice to see rather then c&p. However the point of disaster is usually further away then we believe. If ammo gets to the point of tp present day, yeah id panic. Today not so much. Drug use and the law of diminishing effects, QE, rate cuts, the record is getting old and something new will be needed.

"We" are just figuring out every rate cut is a fresh hit of heroin, and the pain isn't diminishing. It's going straight to assets which is increasing the spread between rich and poor. If we figure it out, the poor have as well, they are not the idiots the govt and CB's perceive. Inflation comes in many forms, we all thought money supply would do it, umm didn't happen. Now we have demand, as commodity producers we know that effect, we also have supply kicking in, rampant demand and lack of supply. Is this what starts the turn? If the combination of both kick starts inflation, has the media just unleashed the beast CB's couldn't? They love selling fear in equities as the apocalypse. Imo the rate cut didn't provide the desired effect, so they might try more like chuck and Alberta tax, however people will only borrow if they believe the return is greater then the interest rate.... there's negative 12% growth #'s floating around, China won't borrow a penny. If more isn't working, maybe less will. Errol mentioned default, i whole heartedly agree. It stinks. Look at Europe. DB, COMMERZ, GOODYEAR, are all dead. We will wake up one morning and the world will be different. That time is very close. Credit will vanish and debt will be a burden, moreso. I just haven't figured out if like FCC in the 80's the "disciplined" wil be punished more then "gluttons". The oligopoly is always protected.

[macdon02]

Today, in Canada, the police won't enforce the law, are they shifting their duties to the public over govt? Have they gone rogue? Is the Supreme Court recognized by the population if the police won't? Something says to me that people will test the limit and it won't be the group we expect. This is a giant fireball

[AlbertaFarmer5]

Excellent thought provoking posts, Macdon and Helmsdale.

As to the idea that commerce will come to a halt because one piece of the supply chain from China is unavailable just goes against historical precedent.

Consider WWII, in any of the allied or axis countries, but the US specifically. Consider how fast they ramped up manufacturing and resource extraction, raised funds, invented entire industries and technologies, all the while the most capable and youthful weren't even available to contribute, being in the military. The obstacles that were overcome are just mind boggling. Germany producing more planes and nearly everything else in the last years of the war with constant bombing of the factories, and the worker's neighborhoods, lack of energy and fuel, a gutted population, and a complete lack of imported materials. USSR moving entire factories 1000's of miles east and starting over production in a barren field without even a building over top.

Yet in 2020, with all of our collective knowledge and technology, we are to believe that we can't make something as simple as face masks because some of the material can only come from China?

All we need is either for the government to get out of the way and allow businesses to do what they do best, fill demand without untold regulations and restrictions, or else treat this as the crisis that many think it is, and actively manage as they did during the war, but this again will require overlooking/overthrowing the myriad costs, regulations and red tape that caused the production to go off shore in the first place.

Never bet against the USA. I still maintain that this will lead to a boom unprecedented in post war history, as industry is repatriated to the US.

[15444]

Get yourself a bidet before they sell out. You can thank me later.

Do they run on solar power when the Indians cut the power poles to bring down Canada again?

[Ache4Acres]

Helms. Nice post. Isn’t part of the reason we have not seen inflation is in fact because of simultaneous deflation happening simultaneously. The economy started to die in 2008 and only worsens. I have been watching this closely for the past 25 years or more. The deflationary pressure of an aging baby boom segment is very real. They all are getting less interested in spending money and more interested in staying alive.

What the the catastrophic collapse scenario look like to you? Debt jubilee is my guess

[jazz]

Guys, none of your basics are made in china. Your food is all made in the country, paper products, consumer staples all made on the continent. And thank goodness for that.

Unless you need some part or kids toys or iphone or furniture that falls apart, the world isnt going to end for us here. The major equipment makers all still on NA soil so they will be finding another source for any jobber parts pretty fast.

As far as inflation is concerned, this is really a zero sum game when you think about it. Fed and govts need to create it to create the illusion of wealth but they often cant control it, so you will see massive run ups in areas where people cant avoid it like food and massive deflation in discretionary items like electronics. That is creating a big squeeze.

[jazz]

Do they run on solar power when the Indians cut the power poles to bring down Canada again?

Someone on twitter was posting a way to connect up a mini butt pressure washer to the back of your toilet. I think I might move to that permanently. Cleans the toilet too.