patrick.net

When I mean inflation needs to rise, not talking about 1923 Germany

You think it's ok to keep real interest rates negative seven years after the crisis?

tr6 says

You think it's ok to keep real interest rates negative seven years after the crisis?

I don't believe it's a real choice the Fed has as long as inflation is low.

I am not in the MMT or Larry Summers Camp that would probably only hike rates if Core CPI was 4%-5%

However, 2.25% -2.50% would have been my choice for the rate hike, 2% core was their starting point.

Velocity activity is limited due to demographics, I believe the counter would more painful

We don't have a break away economy and the over investment thesis was in oil which had started some time again.

For now, acceptable... But if core picks up with ECI wage inflation that's a different story

Let's say you are a pension fund (Calpers) with 7.5% assumed investment return. 30 year is at 2.6%, and that's half of your portfolio. Do you think equities can deliver 12.5% annualized return for the next 30 years in the economy that's growing less than 4% nominally? All I am saying is that negative real rates have consequences.

Logan Mohtashami says

Fed Rate Hikes Need More Inflation

Lower crude prices will make it hard to raise inflation.
Higher minimum wages will make it easy to raise inflation.

Logan Mohtashami says

We don't have a break away economy and the over investment thesis was in oil which had started some time again.

Economy is very regional. It's overheated in bay area. It's dying in oil states such as North Dakota and Wyoming (it's worse than 2008). Bay area needed positive real interest rates in 2013.

tr6 says

All I am saying is that negative real rates have consequences.

That is a valid concern for pensions funds. I am going to UCLA Anderson Conference at the end of this month and I remember speaking to the Calpers investor speaker back in 2013 and the hunt for yield was getting more and more difficult, that was before negative rates too.

However, the bigger variable factor is always the need of the many... Can't raise against inflation for better yield returns or for Banks to make better profits, however a valid thesis non the less

Strategist says

Lower crude prices will make it hard to raise inflation

Headline will look a lot different next year, but as always they only think about core, core had been picking up.

Speaking of Inflation old man, heading out to the new whole foods to pick up dinner, that's a legit inflation thesis

Logan Mohtashami says

Speaking of Inflation old man, heading out to the new whole foods to pick up dinner, that's a legit inflation thesis

Don't forget the salad.

Logan Mohtashami says

Speaking of Inflation old man, heading out to the new whole foods to pick up dinner, that's a legit inflation thesis

I feel like Whole Foods has had a lot of good deals lately. Just don't buy $30 a pound cheese.

tr6 says

I feel like Whole Foods has had a lot of good deals lately. Just don't buy $30 a pound cheese.

Spent over $40 bucks on Cheese items, didn't get it under the limit

tr6 says

Economy is very regional. It's overheated in bay area. It's dying in oil states such as North Dakota and Wyoming (it's worse than 2008). Bay area needed positive real interest rates in 2013.

Oil states are acting better

Inflation would kill our nation right now. Debt isn't fixed amount, it's designed to grow with inflation. We'll screw ourselves over with any inflation.

Keeping interest rates low until consumer inflation starts appearing is just another version of the right-wing concept of "trickle-down-economics". Basically, low interest rates is doing hardly anything for the working or jobless poor. The excuse for engaging in ZIRP is that supposedly, eventually (it has taken 8 years already) it will help with jobs and wages. But as soon as that happens, rates will be raised. No trickle down for you!

So basically, all ZIRP is doing is to generate asset inflation (assflation for short), which makes the rich richer and the poor poorer. Just like The Fed and Wall St likes it.

FortWayne says

Inflation would kill our nation right now. Debt isn't fixed amount, it's designed to grow with inflation. We'll screw ourselves over with any inflation.

Inflation is supposed to be good for debt holders. Unless you take on additional debt, the principal stays the same... but the ability to pay it off goes up as incomes rise. How is debt designed to grow with inflation?

It is the standard MO of the Fed to inflate away debt. Of which they have created more in the past 8 years than the US since it's inception. IOW keeping the interest rates low is literally a matter of survival.

There surely is over-investment in the Stock Market and some Real Estate. That will surely be corrected through inflation as well and a recession on the prior.

This middle class has been largely shrinking because they are moving up into the next quin-tile. Home ownership is down because of demographics nothing more.

For sure wage earners have taken it in the shorts because of off shoring which keeps wages low. And also the incessant march of inflation. The Fed cares about self preservation through the charade they espouse and nothing else.

My theory is that inflation will come alive with an increase in demand which will be coincident with the Millennials making the biggest purchases of their life.

I don't know how many of you guys use twitter.

This was a heated debate last year and I'll admit there was only 10 of us in the #JustGoForIT crowd that believed that the Fed was warranted to raise rates.

Now, personally, I wanted to go after the

Fed will never raise rates ever, America is doom, the Dollar would sky rocket and the end of the world would come .... my gold piece will then be worth billions crowd.

Which lead to this video

https://www.facebook.com/Logan.Mohtashami/videos/vb.783163249/10153440747423250/?type=3&theater

However, due to demographics I didn't believe we had the consumption based capacity to run through the numbers to have a break away economy, hence why even myself had a 1.9%-2.3% GDP range because CAP X was going to get hit and we simply don't have enough demand on housing starts to push the cycle to super growth mode.

Hence why I am in we need higher inflation on both ECI and CPI core to make warranted and we can still see a hike this year.

One thing I have noticed from others is that the other #JustGoForIt crowd is really banking on Housing Starts to step in because they need the economic output factor from new homes to kick in because Auto's might be peaking in terms of rate of growth

While I agree that Starts, Permits and Sales have legs, I don't believe that we have the escape velocity factor in new homes for this to make it up this year

I mean new homes sales so far are showing negative growth in the first 2 months, (High) comps of 550k from 2015... which I find amusing that 550K is now a high comp.

However, still the sales levels are so low that we should get at least 4%-8% growth with some upside if median sale price cool , which they have allowing smaller homes to be part of the sales mix.

Like all this in cycle, slow and steady, wait for the demographic push come into play.

Don't follow the Dots

Logan Mohtashami says

However, due to demographics I didn't believe we had the consumption based capacity to run through the numbers to have a break away economy

It's not all demographics. Cheap rates have allowed companies to merge that should not. Then they look for synergies and ways to cap costs in order to pay back already ultra low rate bonds. Companies that could be investing in new products are buying back shares instead. You say there is not demand. That's chicken and the egg problem. If all companies were not buying back shares they would be demand from higher wages they are paying employees.

One hope at this point is that minimum wage laws will spread and put upward pressure on wages for everybody.

tr6 says

It's not all demographics.

You're correct, it's not all demographics

Globalization and Technology have killed inflation in the sense of it spiraling out of control and rates can stay low for a long time as the History of the U.S. has been low rates

We can have pocket inflation where we see it in some sectors

The one thing to note... PCE inflation vs CPI have been deviating from each other for some time now and PCE inflation has been below 2% 50% of the time over the last 20 years and in time where the Fed Funds rate has been over 4%

bgamall4 says

(it has taken 8 years already)

What is that definition of insanity, something like doing the same thing over and over again and expecting different results? Maybe Janet Yellen needs counseling.

bgamall4 says

The last time people trusted the Fed to keep their real estate values stable, look what happened, Logan.

Poor underwriting leading to mass speculation and a cash out craze from 2004-2006.

In this cycle we have none of that.

Rates went up once in this cycle on the long end and what happened

18 months of negative purchase application numbers leading to an adjusted to population the lowest level on Mortgage Demand ever recorded U.S. history in 2014 and
Prices still went up because inventory is too low and their are no distress homes coming onto the market

Low rates haven't spurred any speculation

It was the over inverted thesis on non capacity owning debt that lead to the massive spike in housing inventory

Professor Sufi from Chicago Booth and I have talked about this over the years, there is a great You Tube Clip at the Conference in San Francisco in 2013 talking about this very subject

bgamall4 says

And Logan, home builders don't build too quickly when there are low interest rates and banks are not lending.

That's more an economic issue and working from an over investment thesis from the last cycle. Demographic economics were good from 1996-2007, that was a real warranted economic fact but still the cycle lead to speculation and all over heated speculation economic sectors end badly

New homes are just simply expensive too and factor why we have had the worst recovery ever on new home sales even with the lowest rates ever post WWII

bgamall4 says

Had the Fed kept the money supply stable,

If the lending standards of today were allowed to take hold back in 1996 ... the housing market would have looked a lot different from 1996-2007

bgamall4 says

That is where I see the Fed as being part of the conspiracy

:-) you're certainly an interesting man Gary, I remember our chats going back to the BusinessInsider days, now Joey is at Bloomberg

bgamall4 says

I am trying to get to the bottom of it,

tenacity is always an admirable trait

If you learn;
Teach.
When you yearn;
Reach.
If you're last;
Run.
Catch up fast
Son!
If you're stopped;
Go.
Make your fast
Slow.
Let your last breath
Be your last blow.

bgamall4 says

mispricing risk?

I believed that the Fed and a lot people didn't understand what the concept of non capacity debt is and how that multiplier impact can be damaging to the economy as it gives a false reality.

Hence why many of my articles have been consistent with the theme that lending standards are not tight today and nor we should ever ease them for the sake of financially engineering growth.

House Of Debt is a good book you might want to read.

However, in bigger context it takes more variables than just one to create a bubble, speculation is a dance that needs many partners

The Fed does create inflation, it is just not clandestine it is obvious.

indigenous says

The Fed does create inflation, it is just not clandestine it is obvious.

indigenous says

indigenous  

Mr. Glibert

You can take this chart, it's very popular among a set of economic friends I have

BTW that peak at 1980 in your graph was caused by Chairman Martin forced to print money by LBJ who held his job over his head.

Since the US has seen globalization which has mitigated the effects of money printing.

Yes that is a very good graph, you should consider the effects it has had

"Many women, especially those in the booming textile industry, earned between $5 and $7 a week for working more than 50 hours"

http://www.historynet.com/the-first-minimum-wage.htm

Call it $7 for 50hrs, that's 14c/hr. in 1912

So by the resident kook's numbers, mill workers in Boston were making $2.80/hr. (2015 dollars) back then

But at least it was 'honest money', LOL.

The bottom line is that money -- spending power -- creates demand.

In economies with excess, idle capacity to create wealth to satisfy this demand, fiat money distributed to the masses just results in a rising standard of living and increased employment. In economies like Zimbabwe and Weimar Germany, it results in hyper-inflation (though the Wiemar inflation was such a brief event something else was going on).

As for the 1800s, so much opportunity was going idle due to an artificial scarcity of capital. People, towns, and governments had to beg the Captains of Industry to build rails, bribing them with immense gifts of the unclaimed commons to get them to invest in capital improvements that would make them billions anyway.

The 2000s is a different dynamic than then, or the 1900s for that matter. Fiat is also allowing us to float on a colossal negative investment position:

http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm

This is ~$25,000 per capita right now. I don't feel good about this, not at all.

US corporate loan growth on banks' balance sheets at 11% YoY

I guess buybacks are up 11%?

I read where small business lending is trending lower. Because of Dudd Frany

Commercial and industrial loans at banks rise by $11.9 billion in a week to $2.043 trillion

How much of that is small business?

bgamall4 says

chart even way into 2008,

That was the Housing Bubble, the mother of all over investment thesis on the most toxic debt build up and packaging economic cycle we have ever seen. :-)

It takes a village to raise a child, it takes a entire country to work together to mess things up that bad