Interest rates, inflation, stock market, oil, etc etc

[flatsixer aka rstarga Find all posts View Profile Close flatsixer]

Random thoughts:
Everybody seems to remember the amount given to the middle class during the pandemic,(2-3 Trillion), but forget that the fed threw TRILLIONS ( I heard 17) at keeping the stock market afloat in March of 2020 when it tanked in the face of Covid. The market had been illiquid just like in 2008.
Not to mention that money has basically been free since 2008, for banks investment houses big business etc. All that money flowed into the stock market and IPO's and other speculation. Now the fed has to neutralize that huge injection. Getting off this sugar high is not going to be pleasant. I saw that the median NASDAQ stock was off 70%
I was with a group last weekend, they were complaining that contractors in Jackson Hole were asking $1,000 a sq ft to build, but there was a 2 year waiting list, some were willing to pay $1,500 sq. ft to go to the head of the line. So the very top is not hurting for sure.
All the blame can't be put on the current administration although they have been slow to react.
One thing I don't understand is why they are blamed for high fuel cost, the US is currently oil self sufficient, the price of oil is set internationally. Years ago the US did not allow oil and gas to be exported, it is now a net exporter so maybe a ban on exports? Although I doubt that would be palatable. Maybe dropping the sanctions on Venezuela, (largest reserves) and Iran, that would bring a large amount of oil into the world markets to make up for some of the Russian supply.

[Aussie24]

Finish Keystone, 840,000 gal of relatively clean ( compared with Russian or Venezuelan crude ), would flow daily into our refineries, sign an Executive Order that the products produced could not leave our shores.... Take the 'handcuffs of the Fossil Fuel Industry and let the market correct...

[Aussie24 300357 Find all posts View Profile Close Aussie24]

Since 1970 I have been through 8 recessions and remember paying 21% interest on my bank loans ( new car floor plan), in the early 80's. This time it will be much different...When Volcker screw down the economy in the 80's our national debt was 26% of GDP, today its hovering around 132% of GDP. To crush inflation the Fed will need to tighten considerably more then a few percent, and have limited ability to increase the money supply. My advise is perserve cash, pay off credit card debt and sell off unnecessary 'toys'. It's going to be a very bumpy ride!

[Tom F2 2.4 Find all posts View Profile Close Tom F2]

Good thread. Thanks for starting it, Eric.

[68S_SK2 2.0S Sportkit II Find all posts View Profile Close 68S_SK2]

The inflation we have now in the western countries is not only caused by the increased amount of money flushed into the market during the last 10 to 15 years but also caused by the Ukraine war, worldwide disturbed flow of goods and Corona. These 3 factors won't be influenced by the lately increased interest rates by the FED or European Central Bank (EZB). There will be no significant reduction of the inflation in the near future, but economics will slow down rapidly following increased interest rates. The economic growth in Europe now is mainly carried by the private consumers which are cutting down their buying behaviour. In consequence the economic growth will slow down dramatically, unemployment rate will rise up, even a recession is possible. In Europe, the willingness to raise interest rates is very moderate, as this would mean rising interest rates on government bonds, which poses a problem for economically weaker and highly indebted countries such as Italy. But if the interest rates haven't been priced up in the meantime, the Central Banks like the FED or EZB won't be able to induct economic growth by reducing the interest rates. As already mentioned in this thread the risk of stagflation (inflation plus economic recession/stagnation) is very high. And than there is no easy and fast way out of it!
Over all I would recommend to keep the interest rates closely to zero as the negative effects of increased interest rates on the economy are higher then it's questionable benefits. Economic positive growth with high inflation is better than stagflation. The population will loose some prosperity anyway in the near future.

[bob joyce 2.4L Find all posts View Profile Close bob joyce]

i think you are 100 % correct.
the media and critics like to run with the old Cleeshays.
they think it makes them look educated because people have heard the terms before
The reality is that this point in time has influences as you have stated that make this time unique.
raising interest rates cause all kinds of unintended repercussions because the institutions have continued to play with leveraged derivatives
they would be better of nurturing the economy out of the pandemic and shipping/supply problem.
The resolution of those issues would with time bring supply and demand into sync.
Remember Japan and the US both were sweating it out with worry over what was a long deflationary period. ( i actually thought that was a somewhat nice problem to have. people with money sitting in the bank did not agree ....but so what.)

[Aussie24 300357 Find all posts View Profile Close Aussie24]

Bob, Interesting view on deflation/ inflation... " The resolution of those issues would be with time bring supply and demand into sync"

That is precisely what interest rate management does.. Higher interest rates results in lower demand for capital, thus rebalancing the overall value of exchange... When money supply and velocity rebalance, inflation will recede! As for those who have cash sitting on the side line... They will have the ability to purchase deprecated assets at a bargain, say, long nose Porsches! ?

[bob joyce 2.4L Find all posts View Profile Close bob joyce]

yes, but you have to be very very careful and unfortunately just Rasing interest rates to correct the supply/demand balance can be like placing poison in the house to kill off ants ... but it also kills of your pets

[bob joyce 2.4L Find all posts View Profile Close bob joyce]

i actually think the fed understands this and is acting in a more vigorous way for the optics .
they have been brow beat as the ones responsible and don't want to be given that label even knowing that the situation at hand was catalyzed by the pandemic and russia.

[68S_SK2 2.0S Sportkit II Find all posts View Profile Close 68S_SK2]

I hope so, Bob, that the FED and the EZB is suffizient aware of that complex problem. At least the EZB staff is primarily selected according to political orientations, not according to knowledge. The EZB should be independent, but the EZB consists of the six members of the Executive Board, plus the governors of the national central banks of the 19 EURO area countries. Far too many (knowledgeable?) decision makers! And even worse the only executive goal of the EZB is the control of inflation, not the economic situation!
Keep the economy running prosper even with a certain amount of inflation 5-8% (because of the special situation we all know) should be the first goal right now. Otherwise economy will get in trouble, people will get problems (jobs will be gone, purchase power will drop down, social problems will rise and so on) and a couple of staates will have problems paying their interest charges and won't get money on the market, and even a bank system crash would be very near. It's a circulus vitiosus!
We in Europe know the situation very well years ago when Greece couldn't get any government bonds or pay the old debts....

[Aussie24 300357 Find all posts View Profile Close Aussie24]

Not sure you were of working age in 1980, but Fed Chairman Volcker screw the Fed Funds to approach 20% and I was paying considerably more for my new car inventory *, that decisive action not only killed Inflation but ushered in almost 40 years of low manageable inflation, until our government decided to shut down the economy... Volcker was appointed in '79 and by Oct '82 the inflation had dropped to 5% and the long bond rates dropped by half.. We can deal with the pain quickly or the slow pain that stagflation will deliver... either way, I'll continue to shift at 5000...

* got that data wrong in an early post...

[flatsixer aka rstarga Find all posts View Profile Close flatsixer]

I don't know what the correct solution is, but there is a saying in most third world countries, "when the US gets a cold we get pneumonia". In this case we have the EU too.
The effects of sanctions, lack of production, high food prices and high interest rates are having a devastating effect on the less developed nations.
By the way the whole Greek economic debacle was only equivalent to 2% of the euro GDP. Turned out to be another year 2000 hoax.

[bob joyce 2.4L Find all posts View Profile Close bob joyce]

the good thing about the current fed is his flexibility.
Greenspan was rigid and acted deliberately in a way that did not work out that well for the working man
there are so many variables that trying to run with a historic system or playbook would likely fail.

[68S_SK2 2.0S Sportkit II Find all posts View Profile Close 68S_SK2]

Today's news: The "GfK private consumer index" in Germany is at its lowest level for 20 years.
Still, Lagarde, EZB president, suggests raising interest rates by 0.25-0.5 points in July and again in the fall.
Economic output will drop down as private consumption is the main pillar of economic growth in Europe right now.

[bob joyce 2.4L Find all posts View Profile Close bob joyce]

one of the "tools" for controlling an economy is rhetoric.
a lot of talk has scared the population, along with the higher prices. the people are going to put the wallet back on their hip. they kind of sorta want this type of reaction.

[Chris Pomares 2.4L Find all posts View Profile Close Chris Pomares]

Not sure you were of working age in 1980, but Fed Chairman Volcker screw the Fed Funds to approach 20% and I was paying considerably more for my new car inventory *, that decisive action not only killed Inflation but ushered in almost 40 years of low manageable inflation, until our government decided to shut down the economy... Volcker was appointed in '79 and by Oct '82 the inflation had dropped to 5% and the long bond rates dropped by half.. We can deal with the pain quickly or the slow pain that stagflation will deliver... either way, I'll continue to shift at 5000...

* got that data wrong in an early post...

My Mom bought about $400,000 worth of Bonds at 15 to 20% at that time. At first that just kept her up with inflation. But as interest rates came back down she was a happy camper cutting those coupons. I just bought 10K from our gov't at 9 something. So I'm going backwards a little slower with those few bucks.
I prefer the Volcker way, as I have zero debt and would like a better return on my savings.
The way the current FED is going, this is going to be long and very painful for the poor and middle classes. Another 5 to10 years of $5 to $6.00 plus a gallon gas for middle class commuters while waiting for the alternate green grid to be built will be very tough. Have we started that new grid yet? The current grid is overwhelmed on hot and cold days let alone adding a bizzilion new electric cars.


People think electric cars are green just because there's no tailpipe. Look at what needs to be done to the environment to get the raw materials for the batteries alone. And what are we going to do with the used up batteries. If you think their going to be recycled, study up on what percent of phone, tablet, laptop, and PC's batteries are properly recycled. Do a search. Answer,15%. Make two piles. One stack of electric car batteries after about 10 years of use and need replacing. Pile two. 10 years of your phone, tablet, laptop, and PC batteries. Which is about 50 times bigger. Have you ever opened an old flashlight and saw the crud coming out of the dead battery. We dump 150 million phones in this country alone and over 1 billion world wide every year. That's just the phones. The world doesn't currently have near the recycle capacity currently to handle what is produced already let alone the auto industry. All this info is easy to find. Most is researched by the online greenies. Oh, and lithium sources are supposed to start not meeting world wide demand in about 3 years. More greenie info.
Sorry, I kinda got off track here. At 70, my mind wanders.

[Aussie24]

Chris, Congrats to your Mom ..Smart lady!

Sadly, there is no stomach at the Fed to cause a recession, Volcker was a 'hard ass' and Powell is not! Extremely hard to fins a solid investment that will return enough to cash flow and interest to out run current inflation...