09-21-20 patient-trader
actually PTON is up on a deep red day
...
Pana, actually Peleton has now exactly the same market cap as Ford 🙄 |
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09-21-20 carib
The problem with UBI, IMHO, is determining its correct amount, and the beneficiaries.
If the lowest skilled job pays 1.000... and you set UBI @1.000,
but only for the unemployed, almost all low pay employees would resign and opt for UBI+ undeclared odd jobs.
If you set UBI @ 1.000, and give it to everyone, including Bill Gates, then you just increase very dramatically public spending not covered by revenue.
If you cover UBI buy eliminating existing benefits (free education, health care, subsidised transport, food stamps, kids bonuses, etc) then I am not sure the "poor" will benefit in net terms.
The human mind, as far as I understand, is more sensitive to relative (monetary) values than to absolute figures. If I work a lot, and get 1.000 after tax, and my immigrant neighbour gets 1.000 for doing nothing... I will find it unfair and vote for an extreme populist party.
If, on the other hand, UBI is set at a level well below low salaries, and offset by cuts in public services... then you will see higher sales of flat screen TVs and more illiteracy..
The theory can sound attractive, but in practice it is difficult to conceive a fair one.
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09-21-20 spal
but action seems arm twisting for more stimulus
ahead of elections...
===
Really good point - I think you are right and it has to happen. |
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09-21-20 spal
| yes it is a bit mixed panas ... I am very slowly rotating out of tech names although I will hold my position in APPS. |
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09-21-20 panasonic
First names to bounce are the ones who cater the "rich" :-(
actually PTON is up on a deep red day, markets continue to
reflect the wide gap, don't like at all what I see. |
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09-21-20 spal
just pay them UBI. (dont worry, them guys on UBI will pay your rent, UBI will make it possible).
===
The UBI is a recipe for disaster. Meaning does not come out of what you are given or what you want. It comes out of what you can understand and what you can create and contribute.
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Are you prepared to live along side spanish speakers?
Yes - I speak it badly - and have travelled in the Americas more than most. It is geographical destiny.
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09-21-20 spal
Germany did better on the manufacturing front
===
Actually that was all I meant. They have a great apprenticeship program and great appreciation for quality. I also admire their approach to and appreciation of the Mittlestand. |
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09-21-20 spal
09-21-20 bond
Spal, can you second what this story tells us? RE must be imploding....
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Bondy - I take all the info in that article very seriously. Obviously commercial RE has been turned upside down. On the residential side - which this article addresses - you have to be very sober and keep your eyes open. I did not buy any of the optimism there. There have been articles about rising prices in some metro areas - these are bubbles - the main driver lack of inventory (fallen off about 80%). I know this directly from the agents I deal with. Once things open more and the issue of dealing with the slower economy that has been reset at a lower level become more front and center I think you will see a depressing effect on most markets - certainly the headline major urban centers.
I have been dumping any RE I have in these areas - my last house in FL is now under contract and I have my fingers crossed.
And yes many landlords have issues. In my case I am very fortunate --- as RE still is and always is a local business you will have pockets of resilience even in a difficult market. Nonetheless I have slowed down my buying and am raising net cash.
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09-21-20 panasonic
Spal, you are doing ok imvho...people will realize very few
places left to go from here, so eventually jump back in the
wagon.
Maybe I'm wrong, but action seems arm twisting for more stimulus
ahead of elections... |
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09-21-20 spal
09-21-20 pillz
why is gold down 3.5% ??
===
Dollar Index is up and also speculators are overselling it ... because they can. |
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09-21-20 spal
money goes wherever it wants...
====
Yes - some save and some spend.
If you have a consumer economy you need spending.
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"you create winners and losers through almighty acts of the central banks... the more society rebels and riots."
Capitalism creates winners and losers ... socialists don't like this ... they prefer controlling peoples and smoothing things out because they are wiser and better.
Absent decent fiscal policy and control of people's feelings and desires of entitlement you have monetary policy ... since most people don't have the first clue about monetary policy conspiracy and magic thinking takes over ... AOC for example.
====
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09-21-20 pillz
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09-21-20 spal
NKLA wasn't a scam per se
===
It was an out and out scam - dead sure of that.
Starting from the rip-off name - also you have to be brain-dead to know we do not have the technology yet to properly electrify trucks. Sure solid state batteries are advancing, but sufficiently light ones are not yet on the horizon. You have to be able to read to know this ... not a high bar really. |
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09-21-20 spal
Spal, glad you had tight stop losses ... red all over the place,
summer is officially over.
===
Yep ... plenty of stops hit, but I held my nose and increased some positions. |
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09-21-20 spal
| Mniam - which part of farcical example did you miss ...this is not an essay competition. |
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09-21-20 mniam
spal
> The Germans did a better job for sure. I would reverse this - shut the borders - and build the western hemisphere alone.
you're dreaming 19th century imperial dreams crossbred with labor union politics. intellectual dishonesty is doomed to failure. do you realize you are at once anti- and pro-labor union? you are a smart fellow, you can do better than rest on the laurels of an easy explanation. look.
1) yes, Germany did better on the manufacturing front, but not by manipulating its trade treaties, as you recommend. under Schroeder it reformed its labor market allowing industry to be more competitive, yes. But Germany is a more open economy than the US -- it imports more as percent of GDP and exports more as GDP. importing into Germany is easier and faster than the US -- and i have done both, so i know what i am talking about. its government instead of throwing up stupid tariff barriers like your leader, works hard to promote its exports. i was once in Germany on a mission from a Taiwanese trader trying to source German products. I had THREE capable, multilingual college graduates at the Koeln trade mission working overtime (at tax payer's expense) trying to help me find the best German party to buy from. when I told them i had a better offer from Denmark, they slaved at midnight sending me improved offers. (one was cute, I was tempted).
2) this has had its costs. Germany has spent a fortune promoting its industrial prowess. it has not done this alone to support its Mittelstand (mid-sized firms) but also because it fits its political aims in Europe. because Germany is an exporting superpower, it has subcontracting largess to spread around. probably a third of exports from Poland, Slovaka and Romania go to the world as German OEMs (which is why Russia stands no chance in EE, ruspan, i hope someone in Russia reads this).
3) the costs are that Germany is holding up against China in manufacturing but has fallen behind in technology. which the US has not.
4) let's face it. the future is technology. the US rules the coop at the moment. this is in part an unintended consequence of the trade treaties it has entered into, but it is altogether a good thing for the US.
unfortunately, this leads to a future where 20% of Americans will have extremely high paying jobs and 50% of americans will be busing tables or spitting and catching. i submit to you that this is a good future. america should dominate technology. if putting 50% of its workforce on the dole is required to do it, do it. just pay them UBI. (dont worry, them guys on UBI will pay your rent, UBI will make it possible).
5) i find it curious that you should fall back on the Monroe doctrine. are you prepared to live along side spanish speakers?
6) please dont blame the rut in which the american middle class is stuck on feminists. women wanted to work always, more power to them, now they get to do it. i am liberal, i am happy to let anyone make money. i was pointing to something else: if it were not for women going to work, the US middle class would have fallen way behind economically. look, it takes TWO people slaving away now to make a semblance of what one man slaving away made in 1975. this is NOT good. look, spal. My wife was a top graduate from a top univerisity in her country (top world 10). she has not had to work a day since she married me. i have never complained about it. when she chose to run a vegetable garden in order to have time and improve our diet, I said, honey, yes, please. when she then decided to start a classical music artist agency, I said, baby, I am proud of you. the powers that be have not blessed us with progeny. my wife can do whatever she wants. but were it not for the fact that i am earning 15%+ on my capital, she would have to work and I would be asking her permission to run a veggie garden.
we live under an income distribution regime which makes it very hard except the very best of us (you, me, carib) to make a living. we need a regime in which everyone does semi-ok. |
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09-21-20 panasonic
| Bond, electoral october usually good for markets...not this time ;-) |
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09-21-20 bond
... red all over the place,summer is officially over.
........................
Panas, October is not ober....has not even started yet ;-) |
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09-21-20 panasonic
Spal, glad you had tight stop losses ... red all over the place,
summer is officially over. |
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09-21-20 panasonic
Mniam, thanks...from investor point of view a scam, for GM
it's about reputation, caught on greed to have a piece of
"tech" action without enough due diligence.
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09-21-20 mniam
savo
> pax.. if Biden wins... one of his first tasks should be to get Powell´s resignation from the Fed... recover it from the financial elites and appoint somebody with monetary experience
you're dreaming |
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09-21-20 mniam
spal
NKLA wasn't a scam per se, Tervor had scammers' instincts, unfortunately; NKLA isnt dead, its worth whatever any other "aspirational company" is worth; may be room for a new promoter to take over and drive it; but current mechanics dont look good. my guess is the stock will bottom around $2 and knock about there for a long time. |
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09-21-20 mniam
panas
> GM dummies
you did not read the terms of the GM/NKLA agreement... basically, NKLA gave GM $2bn worth of its stock (arguably worthless) for the right to buy at cost+ (the plus covering R+D and sunk costs investments) GM manufactured trucks using GM technology, including GM battery technology, with a NKLA badge. basically, GM agreed to be paid to advance the technology it has been developing inhouse. if they had the brains to buy puts/sell calls on their NKLA position, they will be laughing all the way to the bank, and, who knows, NKLA might live to pay them |
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09-21-20 bond
Spal, can you second what this story tells us? RE must be imploding....
https://www.marketwatch.com/story/the-covid-19-lockdown-is-squeezing-real-estate-from-all-sides-and-threatens-to-burst-the-housing-and-mortgage-bubble-2020-09-21?siteid=yhoof2&yptr=yahoo |
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09-21-20 panasonic
everything down, market now has only respect for one thing
...cash... |
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09-21-20 savo
he following letter has made an impact on public health authorities not only in Belgium but around the world. The text could pertain to any case in which states locked down their citizens rather than allow people freedom and permit medical professionals to bear the primary job of disease mitigation.
So far it has been signed by 394 medical doctors, 1,340 medically trained health professionals, and 8,897 citizens.
https://www.aier.org/article/open-letter-from-medical-doctors-and-health-professionals-to-all-belgian-authorities-and-all-belgian-media/ |
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09-21-20 panasonic
| Spal, and GM dummies went for it! |
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09-21-20 spal
| Nikola ... co was a scam ... no surprise |
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09-21-20 savo
pax.. if Biden wins... one of his first tasks should be to get Powell´s resignation from the Fed... recover it from the financial elites and appoint somebody with monetary experience (not an M&A lawyer) who can run it for the benefit of the real economy.
Now.. running it for the benefit of the american people and of the real economy instead the new york financial elites... will require certain very tough decisions that can only be taken by somebody with a lot of credibility.
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09-21-20 carib
Bond: my point was about Biden's age.
If elected, my guess is for one term, or part of one.
In that case, I wonder what would happen to the republicans, would they stay Trumpian...without Trump? |
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09-21-20 panasonic
Nikola CEO resigns...shares melting down, this market is a joke,
crazy days :-)) |
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09-21-20 panasonic
So ultra short term is political induced, after that Covid
effects takes the podium.
The long term outcome seems inevitable, ideally in peace but
inequality is not a good friend. |
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09-21-20 Alex
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09-21-20 bond
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09-21-20 bond
I would say the only thing that looks quite sure to me.. is that if Biden is elected, his main objective is unlikely to be re-elected, but leaving a positive trace in american history.
Now, Trump's only objective appears to be his re-election.
Yeah, Biden is a career politician. The American people are sick and tired of this kind. Thus they try different approaches, Trump is the latest one. What probably kills his re-election is the occurrance of two asteroids hitting earth, Cocid and "Black lives matter". Tax cuts and unemployment at 3.5% were even welcome by some Democrats. |
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09-21-20 carib
unlikely to be re-election.
my typo |
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09-21-20 carib
I would say the only thing that looks quite sure to me.. is that if Biden is elected, his main objective is unlikely to be re-elected, but leaving a positive trace in american history.
Now, Trump's only objective appears to be his re-election. |
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09-21-20 bond
Savo, you cannot compare our current situation with patterns from history. We just had an Asteroids hit earth in form of Corona. Before US unemployment was at 3.5%. Trump and ECBs are trying to navigate us through the aftermath of this catastrophic pandemie. Don´t give me any Volkers and other blabla in the meantime......there are other tasks to perform.
;-)) |
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09-21-20 paxwax
Savo "Once Clinton/Summers left... and Greenspan was back in control he reduced it from 6% to 1% in 2 years to please his Rep masters"
Do you anticipate that when Biden comes in, as he certainly will, he will tend to favor higher interests than at present? |
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09-21-20 savo
spal...
Do we have anyone who has a clue?
Not really. That is the problem.
Central banks have two tools...
1) manage expectations by saying they are targeting this or that, inflation, nominal gdp..etc.. and
2) intervention..from the traditional one to QE, Yield Curve Control, ... etc
Problem is that after a while targeting and not achieving the target...central banks lose credibility... which is what happens now to BOJ... nobody care anymore what they target hence the expectations effect does not work.
They are left then with QE....problem... once the CB prints the money... creates the reserves... or throws it from helicopters... money goes wherever it wants... and history shows it does not go to the real economy... it does not create real jobs... it does not produce wage inflation...it just goes to the pockets of politicians, bondholders and stockholders through buy backs
and asset prices bubbles.. in essence it creates winners and losers ... the more you create winners and losers through almighty acts of the central banks... the more society rebels and riots.
As Volcker said... better target zero inflation... no winners and losers... no asset prices bubbles...
Of course those that are assets rich.. like a bit of inflation...but most people do not benefit from inflation... their wages lose value... they have to battle wage increases... housing becomes less affordable...pensions lose value.. etc...
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09-21-20 mniam
> game plan?
my thinking, too. the only things i am long is gold and euro -- the former is a rising asset + rising uncertainty + falling dollar play , the latter falling dollar play |
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09-21-20 spal
El-Erian provides a much needed breath of fresh air.
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Not really - he was just moaning and posturing about some of the associated consequences and coloring them with his political views. I don't see anything much of real penetrating insight from what you quoted. His comments on inflation are are joke. Do we have anyone who has a clue? |
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09-21-20 spal
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09-21-20 spal
The Fed's focus on "Consumer Inflation" rather than "Inflation" is the problem.
....
In general terms it is the difference between the M1 and "goods" ... I'd like "goods" better defined.
They focus on this as the US economy is at core consumer driven. If consumers see deflation they slow down and deferred purchases - which cuts velocity (the old money go round) and the walls fall off ...
But shit the guy could do a lot better - most of what I read on this is worthless. |
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09-21-20 spal
The threat of a surge in inflation in one to two years cannot be ignored as easily as in the recent past. The data are picking up increased evidence of uneven higher price formation.
====
Meaningless statement - he needs to do a lot better than this. |
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09-21-20 panasonic
"This could easily amplify the view that the Fed is aggravating
inequality", being highly incendiary ... not sure on short term
outcomes and immediate impact on inflation.
Social unrest would accelerate the migration from big cities to
suburban areas and deepen "solutions" like remote working,
staying home and further divorce between street economy and
wall-street performance, consumption patterns would also
accelerate to a less materialistic society = deflation. |
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09-21-20 savo
The Fed is run by a lawyer that worked...a) as a lawyer in a law firm..b) as an M&A lawyer for Dillon Read...c) As an undersecretary of Brady in Bush Sr days and d) as a private equity lawyer for the Carlyle Group.
How Can Jerome Powell be running the Fed?
Answer...he isn´t. Somebody else is...originally in the background ... now in the open...
****
Group Credibility? What Credibility?
The Fed has missed targets on inflation, growth, and issues related to unemployment for many decades.
It has relied on models proven not to work such as the Phillips Curve and inflation expectations.
The Fed calls forward guidance a primary tool.
But forward guidance is little more than a proven opportunity for hedge funds and market makers to front run Fed operations with leverage.
The result of this incredible mess has been three economic bubbles in succession, with increasing amplitude each time.
Credibility aside, El-Erian comes up with five issues with the path the Fed is taking.
El-Erian's Five Issues
Monetary policy has repeatedly shown limited effectiveness in countering the negative impact of the economic pressures emanating from the Covid-19 shock. This is especially true given that what policy can achieve – ensure smooth market functioning – is not an issue.
Even looser monetary policy is likely to result in further disconnecting financial markets from the real economy (the issue of prosperous Wall Street versus struggling Main Street). This could easily amplify the view that the Fed is aggravating inequality. Indeed, many signs of excessive financial risk-taking are already flashing yellow or red on the back of the continuously reinforced market notion of a deep, always in-the-money “Fed Put.”
The threat of a surge in inflation in one to two years cannot be ignored as easily as in the recent past. The data are picking up increased evidence of uneven higher price formation.
Greater Fed activism could well contribute to delays in Congressional actions on economic policy initiatives. Specifically, Republican lawmakers and the White House are less likely to seek a compromise with Democrats if the stock market continues to do well. And the closer we get to the November election, the louder the political blame game gets, and the smaller the window for compromise.
Loose Fed policy is pushing yet another round of flighty foreign portfolio capital to them in search of higher returns (or, more accurately, escaping very low returns in the U.S. and other advanced countries). This additional turn in the “feast-famine-feast” foreign capital phenomenon for emerging markets comes at a time of higher debt, reduced policy flexibility and increasing probability of a “paradigm of non payment.”
What About Inflation?
I agree with El-Erian on points 1, 2, 4, and 5.
The problem with 3 is how to define it. Inflation is running rampant already if one considers asset prices and junk bond bubbles as key components.
Moreover, the mere substitution of actual home prices in the CPI instead of owners equivalent rent would show inflation is already hot.
The Fed's focus on "Consumer Inflation" rather than "Inflation" is the problem.
When asset bubbles burst, they bring about debt deflation which is what the Fed should be worried about but isn't.
BIS Deflation Study
The BIS did a historical study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
Deflationary Outcome
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.
The inflation that El-Erian see's in the future is now, and the future will be another bout of deflation.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Breath of Fresh Air
Overall, however, El-Erian provides a much needed breath of fresh air.
He has a far better grasp of things than Jerome Powell or any of the Fed presidents all clamoring to let inflation run hot to make up for inflation allegedly running too low.
Tweet Exchange
El-Erian made a Tweet the other day in which he said "The Fed should do nothing."
https://www.thestreet.com/mishtalk/economics/is-it-time-for-el-erian-to-be-a-fed-president
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09-21-20 savo
amigo...Trump´s legacy is for all to be seen
The US as the laughing stock of the dictators constellation
The biggest fiscal deficit in history
A fed at the service of the financial elites..
As Woody Allen said... he should have stayed in beauty pageants..
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09-20-20 amigo-latino
_POTUS has repeatedly hinted that “sleepy” Democratic presidential hopeful Joe Biden is mentally unfit to be at the helm of the US, while the former vice president’s medical assessment described him as a “healthy” and “vigorous” individual.
Speaking at a campaign rally in Fayetteville, North Carolina, on Saturday night, President Donald Trump told voters that he may ink an executive order to prevent Democratic presidential hopeful Joe Biden from running as POTUS’ opponent in the upcoming 3 November election.
“We can joke, we can play games, we can have fun. You can’t have this guy as your president. […] Maybe I’ll sign an executive order [that] you cannot have him as your president”, Trump said, in an apparent reference to Biden.
During the rally, POTUS also described the ex-US vice president as “the dumbest of all candidates” and “the worst candidate in the history of presidential politics”._
Trump should put sanctions on any one supporting Biden. |
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09-20-20 Alex
https://nypost.com/2020/09/16/riots-following-george-floyds-death-could-cost-up-to-2b/
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09-20-20 spal
Thanks for the input guys - I am trying to avoid as far as I can the a self justifying argument as I am shifting more personal risk into rising commodities (apart from what I do in country town real estate).
However I look at it Biden or Trump because of the Coronavirus response fiscal hands are tied and the foot stays on the monetary gas pedal for now. I think re-energizing employment one way or another is on the agenda - deflation is the worst fear as it would slow the consumer and consumption down and then the wheels of the existing system fall off.
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09-20-20 bond
"If not my outlook is a weaker dollar and higher commodities for the medium term."
Spal, good analysis. I see it same way. This matches also expectations in the market....unless we get risk-on again.
Goldman Sachs research I posted the other day does not expect dramatic changes from Biden win as that is priced in to a certain degree. If Trump wins markets may see another spike same as last time during dramatic surprise win, as this time Trump again is the outsider. If Americans want to protect their portfolios they may vote for Trump in the end.....
With Covid and the from it resulting recession and long term effects like higher unemployment I cannot see inflation coming soon, but accomodative FED. If Biden were to change that he would crash markets. He is old and a Democrat, but not a fool (I hope).... |
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09-20-20 Alex
igniting the real estate bubble... of which Greenspan never took any responsibility...although he was the main architect.
by making money worthless |
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09-20-20 savo
...igniting the real estate bubble... of which Greenspan never took any responsibility...although he was the main architect.
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09-20-20 savo
spal... your argumentation relays on things staying the same course ...i do not disagree that could be a future path...
But a new administration ... run by different people with a different halo may change things considerably...and have a profound effect on expectations. Currencies, commodities.. etc... will react.
Clinton was an overhaul of Bush Sr and Reagan... and Bush Jr of Clinton... Obama himself changed Bush´s course, reduced the deficit... stopped QE...etc..
As you can imagine I hope Trump will be out asap... but I have no clue what is coming...
The first thing I would expect from a new dem administration... is to retake control of the Fed.
Remember Clinton had Greenspan in a tight leash. Larry Summers sat at every Fed meeting. If you look at fedfunds... it was pretty stable in Clinton´s years...Once Clinton/Summers left... and Greenspan was back in control he reduced it from 6% to 1% in 2 years to please his Rep masters. |
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09-20-20 patient-trader
To break the Hindu-Jew axis.
...
Amigo, The Arab Sunnites are reconciling with Israel to counter the Iranian influence in the ME. (Iran now controls Iraq and Syria) The Arabs NEED to do that because GNoE is withdrawing from the ME, so they need new mighty friends.
Pakistan is not in the picture at all with this Israel story. |
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09-20-20 amigo-latino
US has turned itself into UN
_(CNN)Secretary of State Mike Pompeo said Saturday evening that the US has reimposed UN sanctions against Iran, a move expected to be effectively ignored by global allies and adversaries alike.
The latest move is the latest in the "maximum pressure" campaign against Tehran -- one that has left the US largely isolated. It comes after the administration failed to extend the conventional weapons embargo set to expire next month under the Iran nuclear deal.
"The United States expects all UN Member States to fully comply with their obligations to implement these measures. In addition to the arms embargo, this includes restrictions such as the ban on Iran engaging in enrichment and reprocessing-related activities, the prohibition on ballistic missile testing and development by Iran, and sanctions on the transfer of nuclear- and missile-related technologies to Iran, among others. If UN Member States fail to fulfill their obligations to implement these sanctions, the United States is prepared to use our domestic authorities to impose consequences for those failures and ensure that Iran does not reap the benefits of UN-prohibited activity," Pompeo said in a statement.
Other countries have rejected the US' argument that it could reimpose the UN sanctions that had been lifted under the Iran nuclear deal as the Trump administration withdrew from the deal in 2018. They are not expected to recognize the snapback sanctions. _ |
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09-20-20 amigo-latino
_They apparently believe that the future purchasing power of the Dollar will be lower in the future than it has been in the past_
There could also be an additional reason:
Preparing for the day when US would freeze Chinese assets in the US. |
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09-20-20 spal
Something is happening in China, that may reverberate worldwide soon. They have been purchasing commodities and hard assets in massive quantities, in anticipation of devalued Dollars. Trade flows indicate they are spending their reserve Dollar assets to make these purchases, rather than their own currency. They apparently believe that the future purchasing power of the Dollar will be lower in the future than it has been in the past. If history is any guide to the future, they are probably correct. Some analysts believe the Chinese government (via various agencies) has around 20,000 tons of Gold, far more than they officially acknowledge. Individuals are believed to own an additional 15,000 - 17,000 tons of Gold privately as well. So they don’t really need more Gold, but they do need other commodities. With Dollar-based treasury reserves of $1.2 Trillion, they have plenty to spend.
https://www.usgoldbureau.com/news/china-commodities-cash
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09-20-20 amigo-latino
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09-20-20 amigo-latino
My guess is that DR Hacianda paid 1% underwiting fees.
On a $3.8 bn bond sales, the fees could 38 mln(or even more).
The kick back to the Hacienda minister could be at least $10 mln, if he takes.
The minister's family(father) owns a busy dept store in downtown SD, with reported yearly sales of
$ 50-60 mln. He was involved in running the store.
Q: Why did he take govt job?
When I said sense of social responsibility, my DR friends replied that Dominicans don't believe in Social responsibility. |
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09-20-20 spal
China is only the first nation using dollars for its external purchases to take the view it should get out of dollars as money and into something tangible. Others, initially perhaps other members of the Shanghai Cooperation Organisation, seem bound to follow.
....
In terms of capital flows, China is disposing of dollars and buying commodities just at the moment the US’s budget and trade deficits are spiralling out of control. At the same time, she is adjusting her economic policies away from reliance on export surpluses to enhancing living standards for its population by promoting infrastructure spending and domestic consumption. By encouraging consumers to spend rather than save, the accounting identity discussed above tells us that China’s trade surpluses will tend to diminish, and consequently exchange rate policies will move from suppressing the renminbi exchange rate to make exports artificially profitable.
....
The certain victim will be the dollar. And as the dollar sinks, China will be blamed and tensions are bound to escalate between China and her Asian partners on one side, and America and her security partners on the other. The start of this additional crisis was the turning point last March, when the Fed publicly stated its inflation credentials. With nearly $3 trillion in its reserves, it is not surprising that China is acting to protect herself.
https://www.goldmoney.com/research/goldmoney-insights/china-is-killing-the-dollar?gmrefcode=gata |
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09-20-20 spal
So where will we see inflation in the US?
My assumptions - feel free to correct:
1. Not from wages - given the unemployment levels and slack in the economy.
2. Tech progress will continue and that feeds into process, technique, organisation and materials which will continue as a deflationary force.
3. I think we have it already in assets (RE and equities) - I think that continues as a force given the monetary posture (QE + federal stimulus).
4. The stock of US government in private hands (20 trillion) is large, but probably still in scope to increase and there are no immediate easy fixes for the gap in entitlement funding (medicare and social security - 6 trillion) and gap in funding for pensions of the public sector (teachers, government workers).
5. So from 4 I see more deficit spending and debt funding.
6. From 5. we get the continued need for foreign participation as buyers of US debt and without an ability to raise interest rates you get pressure on the dollar.
Am I correct so far?
If so then we enter a phase of protracted decline in the USD (outside of panic risk and flight to the dollar due to generalized instability).
Now to defend the dollar you need to spend down reserves - I see limited flex here given that these reserves are there in the US to support its large money supply and monetary policy stance.
A weaker dollar is inflationary correct? I am looking at this from the perspective of commodity prices, but I also think it gets more generalized into the domestic price level. Given the FED's new posture of "an average of 2%" (and not 2% p.a.) are they trying to inflate the GDP versus the stock of obligations and give future fiscal policy a better chance of getting slightly more even with a debt stock that is decreased by inflation.
Does this sound like the game plan to anyone? Modify where I went wrong.
If not my outlook is a weaker dollar and higher commodities for the medium term.
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