'Big Short' investor Michael Burry says 'prepare for inflation'
markets.businessinsider.com
markets.businessinsider.com
I think we are experiencing extreme inflation, just not in CPI goods, but rather capital assets. Stocks, bonds, real-estate, all are completely disconnected from any reality right now... traditional valuation is irrelevant and we are now trading purely on sentiment, ala meme-stonks.
Just look at the IPO landscape, and the ridiculous market caps of companies who not only have never had positive net income, but in fact have an increasing loss every year! They can continue doing this because the capital markets basically throw free money at them, it's easy to raise debt at low rates and issue additional shares if needed.
As they say "don't fight the fed", and timing the market is impossible, but I can't even begin to fathom the blood-bath that will ensue if rates were increased to a reasonable level.
Any reason to think that'll happen?
Won't assets inflation just stay and maybe level off.. my point is: nobody is going to pull money out of stocks to buy bread and milk.
Isn't stonks the best thing to hold, if we have inflation.
For companies that have been riding the wave of free money in perpetuity, that's a bitter pill to swallow - when it's time to refinance they aren't prepared to pay the new bill. More dangerously, they simply may not be able to refinance at all if credit markets dry up (2008), and that is when it gets really ugly.
Stock prices are as high as they are right now because there are no reasonable alternatives. It's the "least bad" option.
Once the dance stops, which might be a while... Then you'll want to be holding assets of actual value.
What happens to inflation when money supply dries out?
After barber shops opened I was surprised my barber increased his prices from $25 -> $40. I poked my head in a few other barber shops and they've had similar price increases. I think restaurants also increased their prices. I remember restaurants where the prices were $14-17 for most dishes now charge ~$18-22
Of course this is purely anecdotal.
Inflation across different sectors varies a lot; the overall level is a aggregate but not one around which the sector-specific numbers cluster tightly.
Assets don't provide direct utility, asset price inflation isn't inflation as that term is understood without modification, the same reason that producer price inflation and other inflation outside of consumer goods and services is. It's definitely a thing that occurs, but it doesn't have the same effects and trying to conflate them is just equivocation.
> Just look at the IPO landscape,
The cycles in the IPO landscape and stock market trends for fairly early-stage but post-IPO firms probably relates more to waves of enthusiasm about promising new immature sectors (and the erosion of those enthusiasms) than monetary policy; the dotcom boom had all the same things you say about the current time, despite much tighter monetary policy with Fed funds rates in the 5% range rather than hovering around 0%.
I saw this too but ppl point me to govt figures for inflation and its never matches what i experience personally.
They are also expert at issuing provisional figures that are usually revised upwards retrospectively many years later.
Inflation has entered the public zeitgeist in a weird way: Too many people are convinced that inflation is a binary on/off switch, rather than a range of values. Too many people have also been led to believe that Bitcoin is the only way to escape inflation, when really any asset will rise with inflation (by definition).
Oh? How do you know? I think you are convinced that other people are convinced which is different.
It may sound like I'm being obnoxious but I only attempt to hint that it's hard to believe in a 100% natural 'public zeitgeist' anymore.
Why have train ticket prices gone up? Inflation. Why have the debt repayments gone up? Inflation.
Hold stocks/stonks? Gold?
There is a class of bubble and related collapse that are driven primarily by debt fueled purchases. When debt bubbles collapse, stimulus doesn't have the intended effect because consumers use the stimulus funds to deleverage. This is what happened in 2008, and recoveries from these types of collapses tend to be much more sluggish. When you have consumers paying their mortgages down instead of spending that money on goods/services, inflation is not a concern and the money leaves the system as debts are paid down. There's much less debt this time. I'm not saying there will be massive inflation, but I'm definitely more concerned than I was 13 years ago.
Debt deflation is a known phenomena since 1933 when Irving Fisher published: "The Debt-Deflation Theory of Great Depressions".
Not going to argue its price is based on sound fundamentals, but yes, I’m currently betting against him.
https://www.federalreserve.gov/faqs/money_12845.htm
Basically, in the beggining the Fed was charged with keeping the money supply from growing too quickly, but it found that
1) it was unable to control the size of the monetary aggregates because these are determined by the lending, repayment, and asset allocations of the private sector. All the central bank could do is encourage various allocations by adjusting the interest rate. For example when rates are low, there is not much point in keeping your money in bonds or savings accounts, so a greater proportion is kept in demand accounts as the extra flexibility outweighs the pittance in interest you'll earn.
2) the size of the money supply didn't have much to do with inflation anyway.
By the 90s, they stopped trying to do this and they even stopped tracking some of the aggregates, as they were just irrelevant to managing inflation.
Inflation is managed by interest rates and the money supply is endogenous, created or destroyed by the financial sector in response to consumer tastes so all the federal government can do is try to incentivize those tastes by adjusting interest rates.
If people want to keep their money in bonds, they shift their assets to reduce deposit claims and increase bond claims. The result of this asset re-allocation is that any excess is pushed back onto the financial system and sits idle as excess reserves in banks, not creating any inflation, not "chasing goods", or causing any trouble for anyone except a small number of people who read the statistics about excess reserves and start worrying that the excess reserves will make a run for it, break out of the banks, and start bidding up the prices of goods and services.
I can understand why a reporter would have this view, but really we should see things a bit more clearly. People spend more when their wages go up so they can afford to buy more, or when interest rates fall to encourage them to borrow to buy durable goods because the financing costs are cheaper. They don't spend more as a result of whether Citibank has 1 trillion or 4 trillion in excess reserves. That is completely irrelevant to anyone's spending decision, to any firm's investment or production plans, and thus to inflation.