Coming Inflation, Stagflation and the Housing Market

The biggest risk for the stock market in 2021 is inflation, according to Morgan Stanley. Unprecedented radical spending by the federal government and the Federal Reserve, to stave off a panic-induced market crash, helped artificially drive stocks to temporary new highs last year. Morgan Stanley analysts worry that the unintended consequences of money printing and Fed spending sprees could abruptly change markets for the worse.

The biggest surprise of 2021 could be higher inflation than many, including the Fed, expect. The Fed’s massive spending during the virus hysteria has moved beyond simply filling holes left by exaggerated crises. While some mistakenly believe that we’ve seen a recovery....

https://www.laloftblog.com/2021/01/15/coming-inflation-stagflation-and-the-housing-market/

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How many remember Jimmy Carter's term??

How many think this term will be a repeat?

Ominous signs from the headline (thread title).

 

The great money give away of 2020. Not sure how stimulus checks were suppose to stop a virus

 

Well it's pitched as the article being from Morgan Stanley, but it's not.

We could see higher inflation, but we still have a huge demographic headwind in the form of retiring baby boomers who don't spend as much.

The economic shutdowns have clearly impacted the laborers and service people the most, while white collar professionals were barely impacted.

Lower rates, quantitative easing by the Fed and stimulus money injected into the economy have clearly chased up asset values and fueled speculation. Many of theses speculative bets will not end in a good way.

 

August 15, 1971 is the date that stagflation began. Richard M Nixon announced that he was freezing all wages and prices. A "Pay Board" and "Price Commission" were formed to re-evaluate wages and prices every 90 days. Nixon's goal was to remove all constraints by election day.

As Milton Friedman predicted, Nixon's version of a command economy ended in utter failure. Pent up demand caused runaway inflation when the controls were lifted and the term stagflation was born.

Technically, stagflation occurs when prices increase while output declines. But, most economists tie it to the Phillips curve and define stagflation relative to unemployment instead of output. Thus, you could argue that in 2020, the US entered into a period of stagflation with inflation hitting 3%, while output and employment fell. Thus, the first question should be "Is the inflation transitory or structural?

Inflation is structural when demand "Demand-pull" is increasing faster than output or costs "cost-push" are pushing prices up faster than investment can offset. It should be apparent to all that the likelihood of demand-pull inflation existing in the short-term is remote. The unemployment rate will temper demand for all of 2021 and probably much longer. On the other side, cost-push inflation can be offset by the US removing tariffs and stopping the devaluation of the US dollar.

I suspect that Republicans in the Senate will preach for the US to moderate tariffs that negatively impact the supply chain and for the administration to invoke policies to strengthen the US dollar. But, based on Biden's economic plan, he intends to leave tariffs in place and will devalue the US dollar index into the 70s (currently at 89).

Trump's nonsensical campaign against trade deficits places Biden in an interesting conundrum. People believe that trade deficits can be controlled via tariffs and support the US position. While this particular lie is nonsensical, it does give the US bargaining power against China and other countries that use dumping as a common practice. Plus, Democrats have always supported tariffs to protect unions, so it will be very unpopular for Biden to dismantle the tariffs quickly.

The US dollar is a more interesting discussion. Energy (commodity) prices are inversely related to the value of the US dollar. If anyone wonders why oil prices are going up, while cities are locked-down, Trump has worked very hard to devalue the dollar in support of multi-nationals and the oil industry.

Biden has promised stimulus relative to the virus and an infrastructure bill that is going to be funded using additional debt. Biden's promises creates two problems. First, the US government will be competing with the private sector to purchase commodities needed to re-build our infrastructure ("Demand-pull inflation"). Second, the Biden administration will have to use debt (increase the money supply) to fund the stimulus and infrastructure, which will drive commodity prices up ("cost-push inflation").

In 2021, we are unlikely to see anymore inflation than Trump's policies have already baked into the economy. In 2022, we are likely to see pent up demand (think Nixon's command economy) resulting in higher prices, unless Biden and the Fed takes steps to offset. The most obvious steps will be for the Fed reducing dollar liquidity, which will manifest itself in the Fed's REPO policies.

Today, the Fed is the largest buyer in the REPO market and has been since 2/2019. The Fed's current REPO policy is necessary to keep the funds rate at ZIRP. If structural inflation begins ticking up, the Fed's mandate is to reverse positions in the REPO market (tighten money supply), making that trading platform the canary in the coal mine.

 

FIFY

 

Oil prices have nothing to do with the value of the U.S. dollar and everything to do with expected supply vs demand balance or imbalance.

 

Too bad that you wrote this post. I actually thought that your earlier post regarding buying the refiners was brilliant. Now, you have proven that it was dumb luck. There are tons of tutorials explaining how the unholy alliance between the US and the Saudis affect oil prices, perhaps you can read one?

In a nutshell, oil prices are denominated in the USD globally. When the USD devalues global demand for oil increases, resulting in higher oil prices.

Jesus, how does anyone invest their hard earned money in stuff that they don't have a clue about?

 

My concern in housing is the 2% interest rates. Prices for entry level homes are crazy now. They will be left holding their dicks if rates go back over 4%. We never learn

 

Four new cars to two used cars
A smart tv in every room to one tv in the family room...from China
Two club memberships to one or none
private school to public school...
Designer brand clothing to homemade or everything from China
Xbox to crayons and an etch-a-sketch...from China
$200 dollar air jordans to $35 skechers knockoffs...from China
25 premium kitchen gadgets to 5...from China
Big weddings to...City Hall justice of the peace ceremonies
Whole milk to powdered milk...from China
New golf clubs to one putter made from wood with a jig saw...from China
Christmas...oh wait...no more of that nonsense...CCP China killed Santa Claus from Covid
Church offerings...grab and dash the loot and escape out through the side rectory past the Virgin Mary candles...go in peace
Vacations...at the local park...if it's opened
Disneyland...Ha a ha ha ha ha ha ha ha...but China Disneyland open for business
Favorite restaurant...oops, sorry about that but it's out of business. Thanks democrats...assholes
Fourth of July...cancelled. Patriotism is racist...again, thanks democrats...assholes
Thanksgiving...cancelled due to racist Pilgrims with muskets and bibles....Now changed to Thankstaking...

January 20th, 2021 Happy First Marxists Day Everyone!

 

All thanks to Trump's botched handling of the pandemic. Other countries such as South Korea have handled this intelligently and will suffer far less than America. Yes, it does matter who is president, and we will be paying the price of Trump's colossal blunders for many years.

 

Not to worry. Gary assures us that real estate is an inflation hedge, no matter how many retail centers or office buildings default. Inflation should mean boom times for real estate, shouldn't it? Per Gary, interest rates have nothing to do with values.

 

That's what you think the checks were for?
You cannot possibly be serious

 

Dummies like you keep.saying shit like this.
Give some concrete examples.
I will wait patiently.

 

I have done quite well with my investment portfolio.

That oil is denominated in USD has nothing to do with the balance between supply and demand.

Demand for oil is currently down because of COVID lockdowns which have nothing to do with the value of the dollar. People are no longer commuting to work = lower oil demand. People no longer flying for business = lower oil demand. But yeah, the impacted demand is because of the devalued dollar. What a stooge. Keep posting; you're proving to be far dumber than I thought.

 

CFB - You just wrote a paragraph explaining why the demand for oil is down. Now, write another paragraph and explain why the price of WTI has increased from $29.21 on 3/1/20 to $52.15 today. When demand declines shouldn't the price drop?

I worked in the pits trading contracts and packaging CDOs for a long time. It wouldn't hurt you to understand what you are doing.

 

Commie liar.

 

Denial: Don't make stuff up. You got your ass kicked discussing hedging. Now, you are making up stuff about interest rates?

I see by your comment regarding retail centers and office building defaults that you still don't understand the concept of hedging versus value. Sorry, I'm not going to waste my time explaining it again.

Good to see that you are sticking to the role of the village idiot.

 

Lol, says the asshat who claims to have done more things, thinks he knows more than any person here, and must be at least 150 years old.

Good to see you’re still the village commie liar.

 

Maybe instead of spending your life cutting and pasting conspiracy theories, you might try reading a book.

 

Because it worked so good for you?

You’re a fucking moron, commie liar.