The World Economy Is Suddenly Running Low on Everything(bloomberg.com)
bloomberg.com
The World Economy Is Suddenly Running Low on Everything
https://www.bloomberg.com/news/articles/2021-05-17/inflation-rate-2021-and-shortages-companies-panic-buying-as-supplies-run-short
74 comments
I'm curious to see how well the enormous mortgage and student loan debt owed by americans will curb inflation. Even if $300,000 dollars hypothetically couldn't buy a loaf of bread in ten years time, it could still pay off my house, and so would be pretty valuable to me.
Except for the "American Inflation Mortgage Adjustment Act" that will be passed to allow lenders to increase mortgages to adjust for inflation. Probably pushed by the same people that passed the Sonny Bono Copyright Term Extension Act.
> American Inflation Mortgage Adjustment Act
Do you have a source for this? I've never heard of it.
Do you have a source for this? I've never heard of it.
And yet they don’t want to raise minimum wage to track inflation...
Inflation will only help you pay off your house if you have assets that you can sell for inflated dollars or your salary increases with inflation. Otherwise, you are only going to become poor and probably default on your loan as more of you income is consumed to keep you alive.
I'm always surprised when people assume that inflation implies that wages will rise commensurately.
This is exactly the reason the fed is ok with current inflation readings. Huge debt bubble in the American middle and working class, along with a low growth economy. The only way to get rid of the debt currently is to inflate it away.
It won't happen because banks own that debt, and they don't want those assets to get inflated away.
I've heard that such debt contracts have been retroactively-changed to be paid in gold instead of the hyper-inflated currency.
I cannot find evidence to backup such claims, has anyone else heard of this or have an expample?
And like another user suggested, what's to prevent the government from passing a law that changes debt contracts?
I cannot find evidence to backup such claims, has anyone else heard of this or have an expample?
And like another user suggested, what's to prevent the government from passing a law that changes debt contracts?
>And like another user suggested, what's to prevent the government from passing a law that changes debt contracts?
In the USA it will be lobbyists.
In the USA it will be lobbyists.
So they will not "prevent" the government, they will cajole and corrupt people in the legislative and executive branches so it doesn't get changed.
Prevention doesn’t imply anything about its means.
We may be about to witness the mother of all supply chain bullwhip effects. If everyone overcompensates for the shortages by placing extra orders and building additional capacity now, they may find themselves caught with a massive oversupply when demand returns to normal.
Now I’m curious: Was the Great Depression a bullwhip from the Spanish Flu, or were these two events basically unrelated?
Every event is related to some degree, but that's a long timeframe (~11 years) to be a direct tail
It wasn't. The 1920 price swings (larger than the Great Depression) were also largely unrelated too.
the great depression was more like a pyramid scheme in free fall
I was talking to a car mechanic friend yesterday. He said his dealership is trying to buy any used cars of their brand right now since they have run out of new cars and want something/anything to sell. Likewise, they are having trouble repairing cars since they can't get the repair parts they need.
I'm surprised that this hasn't happened nearby.
Just buy older junker toyotas and chop-chop them at the dealer for parts :D
Just buy older junker toyotas and chop-chop them at the dealer for parts :D
No joke, plywood is $100 per sheet near me. I've seen NextDoor inquires for peoples' scraps in the $50 range.
How does an individual (retail) investor capitalize on this? Seems like an opportunity to take advantage of some of this turbulence.
There are a lot of ways, these are just a few:
https://www.investopedia.com/articles/investing/080813/how-p...
Eh, your odds of outperforming a total-market index fund by attempting to take advantage of this opportunity are around ~50% or so. I'd stick to index funds, maybe use a little leverage if they aren't enough for me on their own.
Too late now. You needed to buy manufacturing roughly 8 months ago to benefit.
Now that everyone's noticing that manufacturing facilities are in unprecedented levels of demand, the stock market is going through the roof. Its a good time to be a lumber mill right now...
By the time its "obvious" to know what move it is to do, you're too late. Everyone else already hopped on the hot investments. You need to think about where the economy will go next year (or later than that), and correctly predict it to make the correct move today.
Now that everyone's noticing that manufacturing facilities are in unprecedented levels of demand, the stock market is going through the roof. Its a good time to be a lumber mill right now...
By the time its "obvious" to know what move it is to do, you're too late. Everyone else already hopped on the hot investments. You need to think about where the economy will go next year (or later than that), and correctly predict it to make the correct move today.
Supply cannot respond that quickly. This will take a couple of years to run through the economy properly. Stuff like industrial metals are clearly at a fairly early stage (the issue wasn't the recovery but that the chattering classes convinced everyone that the economy was going to shut down for years).
Speaking generally, you don't need to predict where the economy will go next year either. If the economy grows 10% but people decide they need to hold more cash, you are going to lose money. You need to move beyond the first-level (and sometimes it is perfectly legitimate to just observe...I remember people saying that shipping had run its course earlier this year...a lot of these stocks are up 100% YTD). You have to understand the fundamentals and how people interpret those fundamentals.
Speaking generally, you don't need to predict where the economy will go next year either. If the economy grows 10% but people decide they need to hold more cash, you are going to lose money. You need to move beyond the first-level (and sometimes it is perfectly legitimate to just observe...I remember people saying that shipping had run its course earlier this year...a lot of these stocks are up 100% YTD). You have to understand the fundamentals and how people interpret those fundamentals.
Yeah, but go to the commodities market and everything you said has already been priced in.
What you need to predict is "what opinions will change over the next year". Does lumber really deserve its ~300% increase? Or is that overestimating the shortage? Maybe Lumber's proper price is ~250% above the norm, so maybe shorting lumber futures is the best move.
Or maybe the lumber shortage will continue to get worse: maybe 400% above the norm is going to happen. I'm not a commodities trader, so I really can't speak the specifics (just talking general wishy-washing feelings here). But that's the rub: knowing whether to buy or sell before everyone else does it.
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If its "obvious" that lumber will remain highly priced over the next few years: does it make sense to buy up old lumber mills across the country and start spinning them up again? How many years will these old lumber mills have to run before they churn a profit? Or will higher labor costs cut back on said profits?
Its not easy to predict the future correctly.
What you need to predict is "what opinions will change over the next year". Does lumber really deserve its ~300% increase? Or is that overestimating the shortage? Maybe Lumber's proper price is ~250% above the norm, so maybe shorting lumber futures is the best move.
Or maybe the lumber shortage will continue to get worse: maybe 400% above the norm is going to happen. I'm not a commodities trader, so I really can't speak the specifics (just talking general wishy-washing feelings here). But that's the rub: knowing whether to buy or sell before everyone else does it.
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If its "obvious" that lumber will remain highly priced over the next few years: does it make sense to buy up old lumber mills across the country and start spinning them up again? How many years will these old lumber mills have to run before they churn a profit? Or will higher labor costs cut back on said profits?
Its not easy to predict the future correctly.
It isn't priced in. Not even close. In markets with non-financial traders, by definition, everything can't be priced in (you see this in commods, forex...it is why these markets trend). Again, in most of these markets supply cannot respond quickly so you get trending price action.
Predicting the future is relatively straightforward. You just look at fundamentals, and for most commodities it is fairly easy to predict how demand/supply is going to change. Predicting the future and how people will react is not.
Predicting the future is relatively straightforward. You just look at fundamentals, and for most commodities it is fairly easy to predict how demand/supply is going to change. Predicting the future and how people will react is not.
>In markets with non-financial traders, by definition, everything can't be priced in (you see this in commods, forex...it is why these markets trend).
What are you talking about? commodities and forex is crawling with HFTs and hedge funds.
Also, just because there's a trend dosen't mean you can profit from it. Let's say soybean futures are cheaper in the fall (harvest time) than in the spring. Easy opportunity to make some money right? Just buy in the fall and sell 6 months later. Not so fast, soybeans aren't like stocks where you can hold on to them for $0. You have to take delivery of the soybeans in fall and find a place to store it. That probably eats up a fair chunk of your potential profits. Factor in the risk and your profits will be marginal.
What are you talking about? commodities and forex is crawling with HFTs and hedge funds.
Also, just because there's a trend dosen't mean you can profit from it. Let's say soybean futures are cheaper in the fall (harvest time) than in the spring. Easy opportunity to make some money right? Just buy in the fall and sell 6 months later. Not so fast, soybeans aren't like stocks where you can hold on to them for $0. You have to take delivery of the soybeans in fall and find a place to store it. That probably eats up a fair chunk of your potential profits. Factor in the risk and your profits will be marginal.
I don't know what you mean. HFTs (and some hedge funds) trade over time horizons with no information...therefore, it is unrelated to anything I am saying (they respond to liquidity, not fundamentals).
You don't understand. The reason why price trends is because there is a persistent imbalance between supply and demand because of the presence of non-financial buyers who take liquidity at bad prices.
Your point about soybeans make no sense, contango exists and is why commodity houses often have huge trading arms that generate lots of profit (they can put on contango trades like storing oil offshore in a tanker for six months). The reason why these trades generate profit, again, is because of a persistent imbalance between demand and supply (this is also why oil traded at negative prices...although this is slightly more complex because it involved financial buyers running ETFs who got stung by roll risk due to their own incompetence).
But, either way, the point is that you can observe that demand and supply is out of balance now and buy, and make money because prices will continue to rise because supply can't be brought on quickly (a good example of this is copper: exploration has been poor for a decade plus, head grades continue to fall...there is no way to bring on supply for years).
You don't understand. The reason why price trends is because there is a persistent imbalance between supply and demand because of the presence of non-financial buyers who take liquidity at bad prices.
Your point about soybeans make no sense, contango exists and is why commodity houses often have huge trading arms that generate lots of profit (they can put on contango trades like storing oil offshore in a tanker for six months). The reason why these trades generate profit, again, is because of a persistent imbalance between demand and supply (this is also why oil traded at negative prices...although this is slightly more complex because it involved financial buyers running ETFs who got stung by roll risk due to their own incompetence).
But, either way, the point is that you can observe that demand and supply is out of balance now and buy, and make money because prices will continue to rise because supply can't be brought on quickly (a good example of this is copper: exploration has been poor for a decade plus, head grades continue to fall...there is no way to bring on supply for years).
Inflation hedges, such as precious metals IMO
I tried to start some conversation on this earlier because I would love help grasping some of the effects and consequences: https://news.ycombinator.com/item?id=26999651
It seems like it’s been a hidden inflation, where up until now, prices haven’t changed to reflect scarcity. In turn, that increases demand, which creates a resale/arbitrage market which reduces supply. As more people recognize that we’re in this weird era of everything being cheap but scarce, they buy more, adding to the scarcity.
Is there a hard landing resolution to this that we should be worried about?
It seems like it’s been a hidden inflation, where up until now, prices haven’t changed to reflect scarcity. In turn, that increases demand, which creates a resale/arbitrage market which reduces supply. As more people recognize that we’re in this weird era of everything being cheap but scarce, they buy more, adding to the scarcity.
Is there a hard landing resolution to this that we should be worried about?
I just started listening to the audiobook of The Box[1] and can't help but be distracted wondering what updates a new revision would have a year in to this pandemic.
[1] https://www.goodreads.com/book/show/23126691-the-box
[1] https://www.goodreads.com/book/show/23126691-the-box
Combine:
- Governments that shut down significant parts of every major economy, for several months, to contain the virus (which imho was a good reason), with
- Trillions in stimulus
- And a record global middle class that's never been larger or wealthier than today and wants to consume more than ever
And this is the result.
The free market has its flaws, but this situation is perfectly suited for capitalism to work its magic.
- Governments that shut down significant parts of every major economy, for several months, to contain the virus (which imho was a good reason), with
- Trillions in stimulus
- And a record global middle class that's never been larger or wealthier than today and wants to consume more than ever
And this is the result.
The free market has its flaws, but this situation is perfectly suited for capitalism to work its magic.
>Governments that shut down significant parts of every major economy, for several months, to contain the virus (which imho was a good reason)
The covid distributions were well known a couple months in.
The vulnerable actually needed more protection. Isolation, cleanse everything delivered from the outside.
The healthy cohorts should have continued as normal.
The covid distributions were well known a couple months in.
The vulnerable actually needed more protection. Isolation, cleanse everything delivered from the outside.
The healthy cohorts should have continued as normal.
It makes me wonder that when the next pandemic comes, will we do all of this again? 15 days to flatten the curve, but most restrictions and precautions put in place are still in effect over a year later. How willing will we be to change course when better data comes to light?
I'm assuming next time there's so much as a hint of the next pandemic every country will immediately close it's borders to try and get into a New Zealand situation.
Of course, that's assuming the next pandemic isn't in 100 years when we forget everything we learned this time around.
Of course, that's assuming the next pandemic isn't in 100 years when we forget everything we learned this time around.
The real lesson, I think, is to not over-prepare.
Paradoxically, most of the big governments had plans in place for years, even decades, but they were not targeting the correct virus, and they had a hard time adapting to something unknown.
Next time, it will be different, and we should only be prepared to that.
Paradoxically, most of the big governments had plans in place for years, even decades, but they were not targeting the correct virus, and they had a hard time adapting to something unknown.
Next time, it will be different, and we should only be prepared to that.
What we really need is more basic research into vaccines. We need a solid theory of vaccine safety, so that we can inject people on the first day of the pandemic.
How can we ethically get such a theory? Cancer. Tailor make a vaccine targetting the particular cancer cell a given patient has. If you give this as a hail-mary to those with a bad prognosis it becomes a win-win.
How can we ethically get such a theory? Cancer. Tailor make a vaccine targetting the particular cancer cell a given patient has. If you give this as a hail-mary to those with a bad prognosis it becomes a win-win.
Sounds easy but in practice how do you deal with the many multigenerational households?
> - And a record global middle class that's never been larger or wealthier than today and wants to consume more than ever
Larger population? Sure. Wealthier? Uh, no. By like no meaningful metric that I can think of.
Larger population? Sure. Wealthier? Uh, no. By like no meaningful metric that I can think of.
US Personal Savings Rate is through the roof. I'm talking unprecedented levels compared to the last 50 years.
https://fred.stlouisfed.org/series/PSAVERT
US middle class reacted to the pandemic by saving tons of money. At least, the ones who still kept their jobs (which was most people in fact. Yeah, Hotels / Hospitality / Restaurants / Airlines / Cruises did poorly, but that's still only one subset of the middle class).
Now that the US is leading the vaccinations in the world (at least, in the top 10 countries), and with more and more optimism coming about, people are looking to spend that money they saved.
https://fred.stlouisfed.org/series/PSAVERT
US middle class reacted to the pandemic by saving tons of money. At least, the ones who still kept their jobs (which was most people in fact. Yeah, Hotels / Hospitality / Restaurants / Airlines / Cruises did poorly, but that's still only one subset of the middle class).
Now that the US is leading the vaccinations in the world (at least, in the top 10 countries), and with more and more optimism coming about, people are looking to spend that money they saved.
The problem that I see is that the cost to buy a house is also through the roof.
I suspect urban property is not so bad, given everyone fled those areas.
Calories, computing, long distance communication, long distance travel, breath and depth of entertainment choices, and the total elimination of multiple diseases from many countries?
Plus, on average, more literal money to spend, thanks to having nothing much to spend it on for the last year.
Plus, on average, more literal money to spend, thanks to having nothing much to spend it on for the last year.
> Calories
Yup.
> Computing, long distance travel, breadth and depth of entertainment choices, and disease
These have nothing to do with class, and I'm not even sure entertainment choices have gotten any better.
Yup.
> Computing, long distance travel, breadth and depth of entertainment choices, and disease
These have nothing to do with class, and I'm not even sure entertainment choices have gotten any better.
The US usage of middle class pretty much refers to access to goods and services, it isn't about class in a social sense.
You ought to read more Fussell: https://astralcodexten.substack.com/p/book-review-fussell-on...
I don't follow. I didn't say anything about whether the US has social classes, I stated that US usage of the phrase "middle class" tends to be about access to goods and services.
Can you point to something that shows the world is poorer ??
Another thing I think is just spending being redirected from industries like travel and restaurants towards everything else.
This isn't capitalism.
The middle class has been made wealthy by the government/Fed. The government is doling out cash at a furious pace.
Honestly, I have never seen the price mechanism function this badly in my investing career (10 years). And I studied economic history, and there are relatively few parallels to what the govt is doing now.
Whatever happens though, this isn't capitalism. Failure is the most important part of capitalism. The politics of today mean failure cannot occur.
Btw, to be specific, the stuff you are seeing in private equity (not just in the US but Europe) is just totally insane. Gambles that should have failed are returning 10x, money is being raised for non-productive purposes at 2% whilst you have consumers struggling for finance. The homeless situation in the US is intolerable. Some US cities are third-world, every bridge has people in tents underneath.
I can see why people think the system is working, it has made the already rich unimaginably richer...it isn't capitalism, it is an aristocracy. It is appalling that some people justify their theft by saying they deserve it (an unfortunate consequence of capitalism is that the winners feel justified).
The middle class has been made wealthy by the government/Fed. The government is doling out cash at a furious pace.
Honestly, I have never seen the price mechanism function this badly in my investing career (10 years). And I studied economic history, and there are relatively few parallels to what the govt is doing now.
Whatever happens though, this isn't capitalism. Failure is the most important part of capitalism. The politics of today mean failure cannot occur.
Btw, to be specific, the stuff you are seeing in private equity (not just in the US but Europe) is just totally insane. Gambles that should have failed are returning 10x, money is being raised for non-productive purposes at 2% whilst you have consumers struggling for finance. The homeless situation in the US is intolerable. Some US cities are third-world, every bridge has people in tents underneath.
I can see why people think the system is working, it has made the already rich unimaginably richer...it isn't capitalism, it is an aristocracy. It is appalling that some people justify their theft by saying they deserve it (an unfortunate consequence of capitalism is that the winners feel justified).
It's amazing how this happens when you shut down the economy because of fear of a virus with a 1% mortality rate, isn't it? Regardless of how many actual "covid deaths" (from COVID or with COVID), the destructive impacts of lockdowns far, far exceed any lives supposedly "saved" by shutting down the economy, whether you measure it in terms of economic losses, mental health, and especially educational destruction.
https://www.nber.org/system/files/working_papers/w28304/w283...
https://www.nber.org/system/files/working_papers/w28304/w283...
1% mortality isn't a low number, and left to run rampant, you end up with a much higher mortality rate because the hospitals fill up, and you end up with a higher mortality rate for everything else as well because there's no room in hospitals.
It was never about the mortality rate, it as always about protecting our hospital capacity from being overwhelmed, which would have caused significant loss of life and health above and beyond COVID's own death toll (which itself was very significant - even with the insane restrictions it was the 3rd leading cause of death in 2020). It's hard to imagine how anyone at this juncture could not know all of this.
I strongly disagree. Lockdowns are not cost free, but they do save lives. Infection raging out of control also changes behavior and also has economic downsides.
I really would like to see a good numerical analysis of the costs and benefits of lockdown policies - I have yet to see one that's not seriously flawed.
I really would like to see a good numerical analysis of the costs and benefits of lockdown policies - I have yet to see one that's not seriously flawed.
The places which tried to keep things open ended up having to lock down harder and longer, and managed to suffer both worse fatality rates and worse economic impacts.
This is demonstrably false. I'm not saying any state did particularly well, but there is no clear line between "states that tried to stay open" and "suffering both worse fatality rates and worse economic impacts".
https://wallethub.com/edu/states-coronavirus-restrictions/73...
https://www.statista.com/statistics/1109011/coronavirus-covi...
https://www.usnews.com/news/best-states/articles/unemploymen...
https://carsey.unh.edu/COVID-19-Economic-Impact-By-State#:~:...).
https://wallethub.com/edu/states-coronavirus-restrictions/73...
https://www.statista.com/statistics/1109011/coronavirus-covi...
https://www.usnews.com/news/best-states/articles/unemploymen...
https://carsey.unh.edu/COVID-19-Economic-Impact-By-State#:~:...).
This is a global pandemic, and like 95% of humans, I’m not American.
Personally, I’m mainly thinking of Sweden and pre-post-Brexit-transition UK (because post-post-Brexit-transition is a confounding variable), vs New Zealand, the other (non-Swedish) Nordic counties, and China.
America — despite the economic and cultural hegemony and media coverage — is not actually that significant one way or the other in this particular event.
Personally, I’m mainly thinking of Sweden and pre-post-Brexit-transition UK (because post-post-Brexit-transition is a confounding variable), vs New Zealand, the other (non-Swedish) Nordic counties, and China.
America — despite the economic and cultural hegemony and media coverage — is not actually that significant one way or the other in this particular event.
American states are still "places" and each had a different response and thus we can use it to measure effectiveness. Doesn't much matter if you are talking about Illinois or Sweden in this case.
Since you were thinking of Sweden as you specified in another comment... Sweden isn't locked down and has never been locked down during the pandemic. The covid patients in Sweden don't have a higher death rate than other countries [0], its health care system never failed so that would be surprising. Economic impact no idea, the stock market in Sweden is doing great but that doesn't tell us much.
https://ourworldindata.org/explorers/coronavirus-data-explor...
https://ourworldindata.org/explorers/coronavirus-data-explor...
? In what way Florida and Texas barely did anything and have better or comparable numbers to the rest of the country.
Florida and Texas are #1 and #2 in number of cases over the past 7 days.
https://usafacts.org/visualizations/coronavirus-covid-19-spr...
https://usafacts.org/visualizations/coronavirus-covid-19-spr...
Number of cases is irrelevant to lockdowns, though - what's relevant is whether the hospitals are filling up and having to turn away patients, which we don't see happening.
This is more of an "in spite of" rather than "because of". The openness may be causing more infections, but the medical system can handle the load due to the rate of vaccinations present now that weren't present when Texas disastrously tried to open up last summer.
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"These figures translate in more than 0.8 million additional deaths over the next 15 years."
Given the birth rate and the current population, that's roughly 0.2% of the population.
Given the birth rate and the current population, that's roughly 0.2% of the population.
The problem was always what do you do when the hospitals reach capacity? I have still not seen any solution to this? Because if nothing is done to mitigate that eventually hospital staff themselves will quit/burn out and that's assuming they're not down with covid themselves.
> fear of a virus with a 1% mortality rate
You are aware that a 1% mortality rate is very very very high, right? It's like having a fear of a laser-canon-toting space alien ship hovering above your house. Pretty rational.
You are aware that a 1% mortality rate is very very very high, right? It's like having a fear of a laser-canon-toting space alien ship hovering above your house. Pretty rational.
For an event that can only happen to you once (to a first approximation), the risk is almost negligible. Moreover that or any other IFR number does not reflect an actual risk to any actual person — risk to young healthy individuals is negligible, even though risk to vulnerable persons is decidedly not.
> risk to young healthy individuals is negligible,
No.
https://twitter.com/Samanticka/status/1393188103586816001?s=...
>> Think of a virus where 70% of kids are totally asymptomatic, less than 1% have severe symptoms, and less than 0.05% die. Phew that's no big deal for kids then! Don't worry about them!
>> Oops actually it's polio in the 1950s
No.
https://twitter.com/Samanticka/status/1393188103586816001?s=...
>> Think of a virus where 70% of kids are totally asymptomatic, less than 1% have severe symptoms, and less than 0.05% die. Phew that's no big deal for kids then! Don't worry about them!
>> Oops actually it's polio in the 1950s
This appears to be an appeal to emotion. The risk from polio was also almost negligible, if these numbers are accurate.
Also, if as suggested by the wording these numbers are looking at the risk to kids then it's not a fair comparison anyways, as the 1% number (already hyperbolic) quoted for COVID is across both vulnerable and not-vulnerable populations.
I for one do not find myself needing to display compassion for numbers as I reserve my compassion for actual human beings. To mangle Douglas Adams, being overly concerned about IFRs is to me extremely odd as on the whole, it isn't the ~~small green pieces of paper~~ statistics that are getting sick.
Also, if as suggested by the wording these numbers are looking at the risk to kids then it's not a fair comparison anyways, as the 1% number (already hyperbolic) quoted for COVID is across both vulnerable and not-vulnerable populations.
I for one do not find myself needing to display compassion for numbers as I reserve my compassion for actual human beings. To mangle Douglas Adams, being overly concerned about IFRs is to me extremely odd as on the whole, it isn't the ~~small green pieces of paper~~ statistics that are getting sick.
EDIT more here : https://www.youtube.com/watch?v=cWQeSU6eYy4