EJ: The countdown to the next crisis of The System has started.

[touchring]

Re: EJ: The countdown to the next crisis of The System has started.

EJ has suppliers in China and probably contacts that can inform him of the covid 19 situation. The virus is 100% confirmed to spread and wreck havoc. So far, everyone is still preoccupied in the rocketing stock market, no one is writing about how the pandemic will affect the economy and stock market eventually.

[kbird]

Re: EJ: The countdown to the next crisis of The System has started.

i've been following luke gromen's commentary for a while. he has the same scenario, and expects it to benefit equities as well as gold. he's also a fan of btc, a belief i don't share. he points to the wwii period and thereafter as our closest analogue. huge gov't debt, the fed pinned interest rates including pinning the 10yr at 2.50. inflation rose markedly. equities almost kept up, bonds were killed in terms of real value.

I don't think the post WWII era is a great analog for U.S. stocks in the current era. Stocks started out the post WWII era with low profit margins and low valuation ratios. Earnings rose during that period and equity valuations rose too, so the U.S. stock market was a good place to invest. If inflation picks up going forward, I think it will be difficult for S&P earnings to rise because record profit margins should compress and valuation ratios should compress too. Luke is counting on a manufacturing resurgence, but if he's correct, profit margins and P/E ratios are far lower in manufacturing industries than in the tech companies that are such a large weight in the market today. I think Luke is right about a lot of things, but I doubt U.S. stocks will do a great job of preserving or growing anyone's capital in real terms in a high inflation environment.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

So, Southernguy -I think you are right that the Fed will print money. I think the reason they will print is to try to keep interest rates low. Rising interest rates would be too damaging to tolerate right now. And the Fed approach will work for quite a while, until it doesn't. Simple supply and demand for money, the Fed will make it abundant so it's price (the interest rate) stays low. ZIRP to the moon, baby.

And jk, what you say follows logically from this. The money the Fed prints has more than one consequent effect. It pushes down interest rates, but it also pushes inflation up ( i.e, pushes the value of the dollar down, we're drowning in them). So as nominal prices rise from printing, nominal interest rates can rise while REAL interest rates stay low or zero. The Fed succeeds. Of course gravity still works, and trees don't grow to the sky. That approach can't work forever, but it can work for a long time.

I think you two guys have it spot on.

It's interesting to think about the timing. Let's speculate that the Fed permits the official CPI to go up a half point a year. That gives us 3 years or so before they need to admit inflation is staying above the sacred 2% target. So maybe in late 2022 the Fed will change course and disrupt the system. Does this imply we can safely play in the bull market for stocks for a couple more years? EJ's insights would be very helpful...
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i've been following luke gromen's commentary for a while. he has the same scenario, and expects it to benefit equities as well as gold. he's also a fan of btc, a belief i don't share. he points to the wwii period and thereafter as our closest analogue. huge gov't debt, the fed pinned interest rates including pinning the 10yr at 2.50. inflation rose markedly. equities almost kept up, bonds were killed in terms of real value.

[thriftyandboringinohio]

Re: EJ: The countdown to the next crisis of The System has started.

So, Southernguy -I think you are right that the Fed will print money. I think the reason they will print is to try to keep interest rates low. Rising interest rates would be too damaging to tolerate right now. And the Fed approach will work for quite a while, until it doesn't. Simple supply and demand for money, the Fed will make it abundant so it's price (the interest rate) stays low. ZIRP to the moon, baby.

And jk, what you say follows logically from this. The money the Fed prints has more than one consequent effect. It pushes down interest rates, but it also pushes inflation up ( i.e, pushes the value of the dollar down, we're drowning in them). So as nominal prices rise from printing, nominal interest rates can rise while REAL interest rates stay low or zero. The Fed succeeds. Of course gravity still works, and trees don't grow to the sky. That approach can't work forever, but it can work for a long time.

I think you two guys have it spot on.

It's interesting to think about the timing. Let's speculate that the Fed permits the official CPI to go up a half point a year. That gives us 3 years or so before they need to admit inflation is staying above the sacred 2% target. So maybe in late 2022 the Fed will change course and disrupt the system. Does this imply we can safely play in the bull market for stocks for a couple more years? EJ's insights would be very helpful...
.
.
.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

If and when inflation soars, if it happens in the US, the dollar shall weaken. In that context higher FED induced interest rates shall happen. It's not the situation now. If inflation keeps low they shall continue to issue fiat as they have done so far.

eventually rising NOMINAL interest rates, a long period with negative REAL rates

[Southernguy]

Re: EJ: The countdown to the next crisis of The System has started.

If and when inflation soars, if it happens in the US, the dollar shall weaken. In that context higher FED induced interest rates shall happen. It's not the situation now. If inflation keeps low they shall continue to issue fiat as they have done so far.

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

My simple (simplistic?) take: The FED, PBOC, ECB, etc. can issue fiat until there is significant inflation. Not financial assets inflation, but food and the rest of common staples price inflation.
That kind of inflation is disruptive and as Volcker era history proves, CB's are reeady to do "whatever it takes" to stop it. Including tanking the world economy. They did it in the early 80's and are ready to do it again. By the way, be it due to african pig fever, due to anything else, inflation is picking up in China.

This isn't the early 1980s. Quite the opposite.
The ROW needs a lower US$. It's going the wrong way.

[Southernguy]

Re: EJ: The countdown to the next crisis of The System has started.

My simple (simplistic?) take: The FED, PBOC, ECB, etc. can issue fiat until there is significant inflation. Not financial assets inflation, but food and the rest of common staples price inflation.
That kind of inflation is disruptive and as Volcker era history proves, CB's are reeady to do "whatever it takes" to stop it. Including tanking the world economy. They did it in the early 80's and are ready to do it again. By the way, be it due to african pig fever, due to anything else, inflation is picking up in China.

[Down Under]

Re: EJ: The countdown to the next crisis of The System has started.

He stated in one of his replies that he's preparing an iTulip update...

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

in 2014 foreign cb's stopped buying treasuries, and began accumulating gold instead. last year the cost of hedging currency exposure meant that foreign private buyers could no longer capture the higher interest rates in the u.s. unless they were willing to be unhedged. this might be acceptable for small private buyers, but wouldn't be to insurance companies, pension funds, sovereign wealth funds.

thus the u.s.deficit, at a high in the time of a so-called booming economy, has to be funded domestically. the "non-qe" supplied by the fed since sept just happens to equal the u.s. monthly deficit.

meanwhile the boomer entitlement tsunami is in full and rising flow, raising deficits further.
the u.s. has a choice: stop spending on defense; default on its already issued paper; cut medicare and social security; keep printing. want to guess which is most likely?
the printed money has to date flowed into financial assets. at some point it will start to flow increasingly into the real economy. i think it will be some time, probably years, for that to manifest.

[kbird]

Re: EJ: The countdown to the next crisis of The System has started.

Let’s review this question I asked of Janet Yellen in 2012. What’s happened since? Has the public debt/GDP ratio declined as the economy recovered? No. Has federal government borrowing crowded out private borrowers to drive up interest rates? No. Hmmm. https://t.co/aHc7BLWwff

— Eric Janszen (@ejanszen) February 20, 2020

Janet Yellen mentioned that U.S. government was on an unsustainable fiscal path. We are seeing the result of it now. Private borrowers aren't being crowded out, but only because of the Fed stepping in during the Fall of 2019 to buy U.S. Treasuries. Reading between the lines of EJ's tweets, I think he is expecting this next crisis to result in a depreciated dollar.

[kriden]

Re: EJ: The countdown to the next crisis of The System has started.

This is a year old but seems to be coming true.

[Mega]

Re: EJ: The countdown to the next crisis of The System has started.

Well EJ used to post but when "They" decied to total KILL the free market he didn't see much point post.

May be he seen something.............

Mike

[shiny!]

Re: EJ: The countdown to the next crisis of The System has started.

I second this emotion. We miss you, EJ.

[rjwjr]

Re: EJ: The countdown to the next crisis of The System has started.

Yes, please. Desperate for insight that I can understand, but can't originate. I think I speak for fellow iTulipers when I exclaim that we just don't have your insight or ability to see the whole board. Anything actionable, EJ?

Without your guidance I'm likely to make a fear-based reaction to 90% cash/10% gold.