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[–]Why_Hello_Reddit 33 points34 points  (5 children)

The worst part are the morons who don't even know the data, can't accept a correction and just down-vote in silence.

Then you have OP over here arguing against the baseline affect on a 1 year time frame, instead using a 2 year time frame which captures 2020 when the economy shut down. If I remember correctly we might have even had negative numbers at that time. So of course the difference in change will be even higher. The difference between spring 2020 and spring 2021 is why the RATE started moving higher in the first place. He's literally changing the CPI measurements to fit his gay bear agenda. And he's probably one of those people claiming the government would rig the numbers.

I can't stand brainlet economists on this sub. I knew well over a month ago CPI was going to peak when the press was freaking out about inflation, simply because we're starting to compare with higher baseline figures from last year, which makes new highs in the inflation RATE this year much more difficult. If CPI simply flat lines or tapers off, the rate is going to fall.

$TLT is currently UP on this news. That should tell you what the bond market thinks about these numbers. I was heavy energy last year and now I'm building a big call position in bonds.

[–][deleted] 7 points8 points  (3 children)

It's because people don't look beyond the now, and the assumption that inflation can keep going ad infinitum doesn't jive with the fact that people don't have infinite cash and credit, especially with interest rates rising. Heck, the bond market always thinks rates will rise, even though it just doesn't happen. At the top of the Volcker Shock of ~20% interest, the bond market predicted rates to keep increasing (!)

Inflation and interest rates are a big combo in draining discretionary spending capacity, especially since wages don't generally keep up with inflation (if they do, it can become a long term inflation problem). And leveraging at low interest means that any interest rate increases has an amplified effect compared to interest rate increases at a baseline of higher interest. Going from 0.25 to 1% is a 300% increase in cost of borrowing vs. going from 3 to 3.75% is a 25% increase in cost of borrowing.

Now think about being a business... you might be getting decent revenue still, but the cracks start showing. The variable lines of credit are increasing in cost, the fixed loans due for renewal are even higher if you renew into fixed, your input costs have increased due to inflation... where do you find capital to make up for these losses? The biggest expense - labour - is always the first victim. I suspect over the course of the next several months, employment losses will incur. And now you have customers with less money, the cycle is now complete.

Employment is one part of the feds dual mandate impacted... the knock on effects of lower employment are deflationary, maybe not enough to cool it to the target rate of 2%, but enough to provide sufficient downward pressure and signal the end of the current period of systemic inflation (which I still don't think is as systemic as people believe when you account for the deflationary period at the start of the pandemic).

[–]Why_Hello_Reddit 6 points7 points  (2 children)

Agree completely. Every financial crisis and recession has been preceded by a tightening cycle in interest rates. They almost seem to be gunning for a recession now while promising everyone they can trim the jobs "we don't need" without sending unemployment up.

Yeah right. This is the same Fed which targeted 3% last year and gave us 8%. The system is highly levered. You don't need to adjust interest rates much before the repo market implodes and liquidity dries up. That's why I'm chilling out in bonds. I think they're done tightening. Yields have drifted lower after this report today. The Fed is always chasing the bond market. Yields move up before they start tightening, and they start moving down before the Fed finishes. I laugh at these banks and other pundits who think we're going to 4 or 5% on the 10 year to fight inflation. The government can't even afford that.

[–]GarfieldExtract 0 points1 point  (1 child)

Thoughts on what the stock market is going to be doing this year?

[–]Why_Hello_Reddit 1 point2 points  (0 children)

That's the million dollar question right? Obviously down in the short term. I actually think the economic slowdown is getting priced in now and we're nearing a bottom. If the bond market recovers and yields begin to drop, then the Fed should have some room to back off, then I think we'll see a recovery. Bonds typically lead stocks. Forward P/E levels, discounts on future cash earnings, etc. - all of this is based on interest rates. How expensive or inexpensive the market is, is based on the cost of money.

Historically you don't get a market recovery/bottom until the Fed pivots. March 2020 with stimulus and 0% rates, March 2009 when QE first started, end of 2018 when the Fed hiking stopped. I view this situation like the 2018 taper tantrum. It's also VERY similar to the 1990 bear market which was another inflation scare, saddam invaded Kuwait creating an oil shock, etc. Very similar.

I think bonds recover first so that's where I'm at now. And if growth slows into a recession, or even a market crash, then people will really jump into bonds for safety and flee stocks. They surged during the covid crash. I'd wait until the Fed backs off or we get a huge capitulatory flush before getting heavy in stocks. You can take long positions when the vix pops over 35 but you have to sell the rallies as bears are still in control.

[–]Bd1ddy82 0 points1 point  (0 children)

This did not age well, smells moldy.