The Death of Inflation

[jazz]

errol you need to be more clear about your inflation call. If you are talking a debt default jubilee type cycle somewhere in the future of course that is a deflationary event. But that could be 100 yrs away for all we know.

But also we have had one of those before in 1971 when the gold standard was abolished and the resulting new system was hugely inflationary for quite a while.

The fed is already moving to a digital currency that will allow real rates to go negative and to inject carrot and stick money right where they want it. Only consumers can affect money velocity. That gives them precision control over the economy. In additional they are printing up 10s of trillions to do a ESG push which will ultimately fail.

Its hard to see any near term deflation.

[biglentil]

Warning shot is recent collapse of crypto’s (IMO). Crypto washout shook equities and commodities due to excessive leverage in markets, all markets. And crypto’s have turned from trendy to thrashy rather quickly. Nothing like having to pay-the-piper to suddenly change the momentum of a market’s perceived value.

If the piper demands more payment soon (market correction), inflation will be checked rather quickly. Deflation could and will quickly erupt (which is not a trendy opinion these days). Cracks are now also appearing in commodities. The elephant chart above doesn’t explain this well (IMO).

My apologies for my edgy comments, but I’m amused how the market has become smug with inflation these days and it’s just clear sailing ahead. Nothing could be further from the real economic truth.

Lets look at Dr.Copper arguably the best bellwether of inflation expectations. Here is the 3 yr copper chart. Deflation no where in site. Biden just announced 6 to 7 trillion more stimulus, remember the inflation that resulted from the $800billion printed to bail out banks and business from the 2008 great financial crisis. Well this round of stimulus makes that look like childs play and unlike the MMT elephant in the room to get more commodities in the economy it ain't going to suck itself. You cant just hit CTRL-P to make commodities. Why not mention gold Errol or do you only mention it when there has been a slight pullback? While crypto and the dollar tanked gold's stealth rally has been stunning. When the everything bubble pops, only imaginary value will be destroyed that includes the $. Intrinsic value can not be created nor destroyed it is inherent.

[biglentil]

“When It Becomes Serious, You Have To Lie” is the most famous quotation from Jean-Claude Juncker, the former Prime Minister of Luxembourg

Hence the Fed calling inflation transitory.

[errolanderson]

2021 is a far cry from 1980 . . . . If rates are hiked just 1%, there would be mass personal and business defaults. In the Volker era, there was no debt. Big, big difference. Today, a rate hike would threaten the whole financial dynamic. Our banks could be threatened with mass defaults.

Hot U.S. inflation now reported today 5% in May . . . Big question; can it hold? In my view, unlikely. Are you buying any lumber these days? Are you wanting to go into deeper unwanted debt these days?

The consumer is king. If the consumer cuts back, some industries will turn deflationary in a bat-of-a-eye. This is already noticeable in some areas of tech, transportation. Heavy debt loads means the cashflow treadmill has to keep spinning. Any threat to the treadmill wind speed is a risk to servicing debt loads.

And price gouging (as in lumber) and wide-eyed speculation (as in real estate) are quite temporary (IMO). It this true long-term inflation? Or another flash in-the-pan? Bitcoin's crash may be a pre-cursor of other asset class reality check that in-reality don't have the valuation to justify the current spec demand. Simply, parking money is not a healthy sign of inflation (IMO).

Gold has also lost its git-up-and-go . . . why? The Fed is now doing what's called a reverse repo. In other words, they are starting to take the life jackets off-the-market and want their money back ie: stimulus. The Fed debt load is an albatross . . . . With the hot inflation data today, gold prices should be ripping, they aren't.

Is current inflation healthy and sustainable, (IMO) not in-the-least. And markets are just a hair trigger from sudden deflationary pressures should economic reality strike. My opinion . . . .

[wheatking16]

if the trendline in the Weekly Copper Futures breaks then the stock market could follow with the inflation narrative changing.

https://klarenbach.substack.com/ https://klarenbach.substack.com/

[AlbertaFarmer5]

Is current inflation healthy and sustainable, (IMO) not in-the-least. And markets are just a hair trigger from sudden deflationary pressures should economic reality strike. My opinion . . . .

The other side of that coin, is that the central banks are just as close to injecting more liquidity whenever deflationary pressures peak through. The only thing slowing them down is the threat of inflation, remove that, and they can continue to print with impunity for another round.

We really haven't seen Bernanke's helicopter money put into full effect yet. No doubt we will before this really collapses.

No doubt it ends badly, but timing the end of this endless cycle is not going to be easy. Especially when everyone is doing it, and anyone resisting will be committing economic suicide.

[jazz]

2021 is a far cry from 1980 . . . . If rates are hiked just 1%, there would be mass personal and business defaults..
.

Some talking head on cnbc was saying that people can still lock in long term rates if they are worried about rate hikes. 30 yr lock ins are allowed in the US.

The other talking head says thats fine, but it doesnt stop the value of your home falling in the meantime. Touché. Many ways to lose wealth but for common folk, their house is their wealth and if that falls so will their appetite for consumer spending.

[GDR]

2021 is a far cry from 1980 . . . . If rates are hiked just 1%, there would be mass personal and business defaults. In the Volker era, there was no debt. Big, big difference. Today, a rate hike would threaten the whole financial dynamic.

Then why wouldnt central banks just let inflation run rampant? Hard on fixed income people and pension plans etc but if you cant raise rates the only way out of debt is inflation. Not sure I want to pay $20 for a chocolate bar but if my income is inflated just as much it doesn't really change things, yet my debt to asset ratio has gotten a whole lot better.

[errolanderson]

Commodity prices have been under pressure over the past few trading sessions. From lumber to copper to gold to grains. This is debt-driven deflationary pressure (IMO). Crude oil the exception, breaking $70 per barrel on increased travel demand. Loonie cooling as a result of general commodity weakness.

U.S. Fed now walking a tight rope as stimulus impact fades. Repo market a watch.

The piper needs to be paid, no matter the manipulation . . . .

[ajl]

Looks like the inflation tsunami is headed back out to sea. Commodity prices dropping again while fundamentals have not changed. Oats are cheaper than last year at this time as are cattle and hogs. Canola has made the highs and dropped significantly with wheat and barley starting to tail off as well. Land prices will soon resume their fall once again. Clhbid has some land in the area but opening bids will not be met. When their opening bid is not met, record of the auction just disappears off the site. Numerous parcels have had that happen.

[burnt]

Have soys ever before dropped ~ a buck a bushel in one trading session?

[errolanderson]

Broad-based hammer job in markets . . . .

Did Canada's real estate market peak in May? Signs of cracks . . . .

Crude oil holding the fort up as long as OPEC can control. WTI 6 year high today, then sudden mid-day reversal.

Loonie plunge

Grains under heavy pressure

Feeder cattle glowing over corn losses (contract highs)

Gold struggling, but trying to prove there are inflationary risks . . . .

Incoming market shocks possible. Investors, be aware (IMO) . . . .

[wheatking16]

20+ Year Treasury Bonds are strengthening against the S&P 500 reminds me of February 2020.

https://klarenbach.substack.com/ https://klarenbach.substack.com/

[sumdumguy]

Quite a chart! CNN Breaking News : Inflation at 13 Year high. 5.4%

[errolanderson]

This is stagflation . . . . This is recession inflation. Inflation rising, but the economy struggling.

My opinion for what it is worth . . . stagflation will hold as long as the stock market holds. If equities can continue to defy economic reality, inflation gains will hold.

If economic reality overwhelms the stock market, asset deflation quickly takes hold (IMO). Late summer may be a serious test.

I'm still in-the-camp that higher inflation right now does not have a long shelf-life . . . . Financial fallout ahead.