Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

[bpr]

Poom coming?

https://www.npr.org/2018/03/22/596058282/president-trump-orders-50-billion-tariffs-on-china

Just wondering what others' thoughts are on the recent news... Steel tariffs today, consumer electronics (or whatever from China) in 90 days.

Traditional B&M retail brands in the U.S. are shutting down while new ones are flourishing under what we would call Soviet conditions thirty years ago (my first time in an Aldi, I told my wife it felt like a Russian supermarket, which made her laugh... ten years ago, now it seems more like the norm in areas where there's no Whole Foods or Wegmans).

Toys R Us Closing:
https://www.gamespot.com/articles/to.../1100-6457617/

Fed on Inflation:
https://www.bloomberg.com/news/artic...t-s-a-big-deal

Ross Stores Conditions:
http://www.businessinsider.com/how-r...-retail-2017-8

Ross Stores Outlook:
https://retailleader.com/ross-stores...tores-10-years

[jk]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

it's not clear to me whether we need a little growth/inflation spurt first before it becomes clear that the economy in general, and the federal gov't in particular, can't sustain higher rates. ka makes that clear.

[Milton Kuo]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

I don't think tariffs against China are going to cause rampant inflation in the U.S. From a consumer's perspective, most of the things imported from China are shoddy garbage that are largely unnecessary. Electronics may cost more but that might even be a good thing for consumers. Rather than buying garbage from China that fails after a few months, consumers will either do without--and thus not go into further debt buying things they cannot afford--or they will buy products that are built to a higher standard of quality and will last longer. Same goes for clothing. The stuff from China is just abysmal.

The things that really feed into real inflation (not the CPI which we all know is rubbish) are things that are not affected by any sort of trade war with China: housing, health care, college tuitions, crude oil, and food.

China might be able to trigger high inflation in the U.S. by dumping all of their Treasuries. But would there be some sort of blowback with regard to China's trade with the rest of the developed economies? I doubt China would just accept the vastly reduced demand from losing the U.S. as a export destination; China would probably seek to dump that surplus elsewhere in the world which would likely trigger tariffs or other restrictions as those countries seek to protect their economies.

[touchring]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

"ka" for 10 years? Is "ka" deflation?

I don't know how economists measure inflation. It has always been a mystery to me. Does inflation actually measure the rise in the cost of living? As a layman, I think that the world has been in inflationary mode for the last 20 years. Prices of everything has risen substantially.

A trade war, if anything will reduce trade, reduce the consumption of oil and commodities - how will that be inflationary?

China might be able to trigger high inflation in the U.S. by dumping all of their Treasuries.

I think Trump wants this to happen even more so than China. He wants China to show hand while he is in control of the situation.

[jk]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

if china were to dump its treasury holdings:
1. the spike in rates would kill u.s. housing and capital goods, likely triggering a recession and disinflation or deflation
2. where would china's proceeds go? the money has to go somewhere. whatever asset they BOUGHT to replace the treasuries would rocket higher. gold? oil? other commodities?

a trade war raises prices but reduces consumption. if the economy is strong enough to continue even slow growth then you've got inflation. if the economy is weaker than that it will go into recession and produce either disinflation or deflation, or perhaps stagflation - higher prices with no growth.

[Mega]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

am selling out my stocks next week, going cash (£) & Gold/silver.....................i think a sh1t storm is coming

[dcarrigg]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

Poom coming?

https://www.npr.org/2018/03/22/596058282/president-trump-orders-50-billion-tariffs-on-china

Just wondering what others' thoughts are on the recent news... Steel tariffs today, consumer electronics (or whatever from China) in 90 days.

Traditional B&M retail brands in the U.S. are shutting down while new ones are flourishing under what we would call Soviet conditions thirty years ago (my first time in an Aldi, I told my wife it felt like a Russian supermarket, which made her laugh... ten years ago, now it seems more like the norm in areas where there's no Whole Foods or Wegmans).

Toys R Us Closing:
https://www.gamespot.com/articles/to.../1100-6457617/

Fed on Inflation:
https://www.bloomberg.com/news/artic...t-s-a-big-deal

Ross Stores Conditions:
http://www.businessinsider.com/how-r...-retail-2017-8

Ross Stores Outlook:
https://retailleader.com/ross-stores...tores-10-years

Tariffs are interesting to watch. In the end of the day, they're probably not such a big deal, though. The media and the whitehouse are making a big deal about it. But there already were/are thousands of tariffs in place on all kinds of items. Here's a link to the book: https://hts.usitc.gov/current. 20% on green tea. 3% on dolomite. 4.2% on colostomy bags. 2.4% on buffalo hides. 3.7% on 35mm film. 4.9% on wooden dowels. 6.5% on umbrellas... you get the idea.

So far as brick and mortar retail go, it's not as dire as it seems. Online retail is still only 8% or so of market share. Toys R Us got raided by Private Equity, that's all. The seeds of retail destruction actually got sowed 5, 10, 15 years ago. A lot of debt is maturing and coming due and now they can't pay the piper even if revenues and profits rise. Good primer article on it is here.

I actually still don't see where the inflation's going to come from. Commodities remain reasonably cheap on the one hand, and wages are stuck near flat on the other. Something has to push the inflation train. Either materials or labor. Both are relatively cheap right now, even by standards from a few years ago. The economy in general is so oligopolized and non-compete agreements are so prevalent and unions are so weak (and dying) that there's really very little chance of significant wage increases. And China's slowdown and related overcapacity takes the gas off the commodity boom. Now that Xi is locked in, they'll almost certainly continue down the path of trying to spur domestic consumption and building out the silk road 2.0. I guess some sort of geopolitical crisis could spark some big swings there.

I've never been in an Aldi, and I've only been in a Trader Joes or a Whole Foods or a Wegmans a handful of times in my life total. So I'm not sure how to compare there. But you know what your story reminded me of? Tesla. People are throwing thousands of dollars at down-payments on cars they may not get for 3 or 4 years, if ever. That really reminds me of the old Soviet jokes.

To be honest, I still think there's a lot more Theranos and Pets.com in the tech industry these days than real innovation. And I also think what you've spotted as a retail apocalypse is really just the tip of a corporate bond debt iceberg that's deep and dangerous--private equity left a lot of zombie firms loaded with debt bombs for a quick one-time payout in the aughts. And China's got some massive corporate debt too. Lots of room for equity price correction/deflation there. And if that happens, and the jobs go with it, watch how quickly home values in the scolding hot markets in tech cities drop with them. Housing is still super expensive by historical inflation-adjusted standards, especially in places like San Francisco and Boston and New York, and it has already passed bubble peaks in many places.

These are the seeds of the next recession. Timing might be a fool's errand. But it's possible to see what will go wrong even if it's hard to say when.

[jk]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

the u.s. gov't's $100trillion or so of off-balance sheet liabilities might be the source of inflation over the next couple of decades. the only way to keep medicare and social security going, at least in appearance, is for the fed to buy the treasury's issuance. lots of dollars will be streaming into the economy without corresponding increases in production of goods and services.

[GRG55]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

if china were to dump its treasury holdings:
1. the spike in rates would kill u.s. housing and capital goods, likely triggering a recession and disinflation or deflation
2. where would china's proceeds go? the money has to go somewhere. whatever asset they BOUGHT to replace the treasuries would rocket higher. gold? oil? other commodities?

a trade war raises prices but reduces consumption. if the economy is strong enough to continue even slow growth then you've got inflation. if the economy is weaker than that it will go into recession and produce either disinflation or deflation, or perhaps stagflation - higher prices with no growth.

Who's the buyer that China finds to allow them to dump their Treasuries?
I've never been able to answer that questions satisfactorily, which is why I continue to think China has few options.

[dcarrigg]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

the u.s. gov't's $100trillion or so of off-balance sheet liabilities might be the source of inflation over the next couple of decades. the only way to keep medicare and social security going, at least in appearance, is for the fed to buy the treasury's issuance. lots of dollars will be streaming into the economy without corresponding increases in production of goods and services.

I still think that's 'pushing on a string.' Without a significant increase in the costs of the inputs of production, I just can't see runaway price increases. And boomers in the US aren't generally going to be increasing their consumption of much but medical care moving past 65, especially since at the median they have basically no retirement savings and are going to be broke trying to scrape by on social security and low-wage retiree jobs.

If commodities stay cheap, labor prices stay low, and consumption doesn't spike, I just can't see where it comes from under current rules.

In all honesty, I can imagine legalizing a whole host of unwise subprime odd/long term consumer debt products that could blow a new bubble into the system for a few years before it all went to hell. And now that we're deregulating again, maybe that will happen.

But in some other ways, having a glut of retirees could even be deflationary if lots of people make themselves useful in the aggregate and in ways that are largely off the books. Might make a big dent in demand for things like housekeepers and daycare and lawn/landscaping services and appliance repair/maintenance and all other manner of odd jobs that busy people pay service workers to do, but that one might like doing oneself given the free time. Same with cord wood and garden produce and knitted clothes and all manner of other things that won't get counted in GDP. Mother in law retired last year, and we already got 3 homemade blankets, more veggies and herbs and spices than we know what to do with, some babysitting, some free wood, and probably a lot more stuff. And so did the brothers in law and other people. Not sure what the goods/services value of it all are, but it has to be in the thousands easily if not tens of thousands. Lots of it is stuff we otherwise would have paid for. Now we don't have to. So all that doesn't hit the books as goods/services production. But it's real, right? Incidentally, when employment to population ratios climb significantly, I think you probably get some opposite inflationary headwinds.

So demand-pull inflation occurs when aggregate demand for goods and services in an economy rises more rapidly than an economy's productive capacity. That seems to be the postulate in this scenario. But you need demand to increase. And that's the part I'm not certain of, even if the fed buys a bajillion dollars in treasuries. It'd be one thing if interest rates were at 10 or 20% or something and buying it all up would plunge them down to 0-3% or whatever. But when you're starting at basically ZIRP, how do you get demand-stimulative effects out of monetary policy?

Cost-push inflation occurs when prices of production process inputs increase. Rapid wage increases or rising raw material prices are common causes. And, as I was saying, commodities and labor are cheap and I don't see them spiking again any time soon barring some big outside shock or rule change.

I could be wrong. I'm no nostradamus. But it just seems to me that regardless of what the fed does, we need very significant movement in at least one of the following three areas: 1) Increasing Demand, 2) Increasing Wages, or 3) Increasing Commodity Prices. And I'm trying to imagine short-medium term scenarios where any of those occur. And most of what I can imagine doesn't seem very likely.

[thriftyandboringinohio]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

The United States plans to sell about $294 billion of debt, according to the Treasury Department. That's the highest for a week since the record set during the 2008 financial crisis. Federal revenue is declining because of President Trump's tax cuts, so the government needs to borrow more to make ends meet. At the same time, Washington's borrowing costs have climbed rapidly in recent months...

More here http://money.cnn.com/2018/03/27/inve...ury/index.html

[dcarrigg]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

The United States plans to sell about $294 billion of debt, according to the Treasury Department. That's the highest for a week since the record set during the 2008 financial crisis. Federal revenue is declining because of President Trump's tax cuts, so the government needs to borrow more to make ends meet. At the same time, Washington's borrowing costs have climbed rapidly in recent months...

More here http://money.cnn.com/2018/03/27/inve...ury/index.html

Yeah, the Republicans really are engaging in some massive fiscal & monetary stimulus. The corporate tax cut alone is about twice the size of the Obama Stimulus. And the spending bill they just put forward, combined with Trump's infrastructure plan--

--well, let's just say they're printing money like it's going out of style. This is certainly the largest economic stimulus outside of wartime or a recession in American history.

They're pretty much showing up at the party at 2am just as its raging--with a whole new crate of vodka and an ice luge.

Should be one hell of a ride. We'll see who gets stuck mopping up hungover the next day...

Don't think you'll see inflation as the result. But other consequences? Sure.

[dcarrigg]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

BTW, it seems to me that poom is an event that could-have-been.

If the Obama Stimulus were three times its size and really focused on modernizing infrastructure and clearing out state and muni debt to free up room for them to hire and do projects, and we got serious private capital into really making a transformative move on the energy grid and housing stock back in 2010, and really pushed for full employment fast, it's possible that you might have seen a brief period of rising wages with 2012's affordable housing prices.

Then, instead of a huge output gap and a lost generation of declining incomes and home ownership, you might have gotten millennials into good jobs and mortgages and single family houses where they might have been thriving by now in their 30s.

Instead, we got hedge funds owning 10,000 single family homes a piece spiking the rental markets, and the temporary movement of people out of rural and suburban areas into large metros (which has slowed/reversed in the last year or two) and equity bubbles building useless websites and hype companies that don't do anything in Silicon Valley.

I mean, with a real thrust to transform infrastructure in all 50 states and opportunities for private capital, we might have built something useful instead of 500 different companies making blockchain enabled dog-walking drones and Theranos black box poni schemes and silicon valley workers hand-buliding Tesla Model 3s for minimum wage, and all the other useless flim-flam that's really not worth anything sucking up all the capital now before people wake up and realize the emperor is naked.

But since we didn't do it, and asset prices reflated without labor prices, and we ended up with that huge output gap, I think the opportunity sailed.

Tech bubble 1.0 at least left us with some useful infrastructure.
Tech bubble 2.0 I'm afraid will pop and leave almost nothing useful behind it.

[touchring]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

Tech bubble 2.0 I'm afraid will pop and leave almost nothing useful behind it.

FB not useful?

https://www.cnbc.com/2018/03/20/zuck...aboolainternal

EDIT

The FB fallout don't look good.

After dumping BABA late last year, the only tech 2.0 I now own is YNDX. Valuation is ridiculous. Not exactly dot com 2.0, but I'm thinking of dumping it when the market opens. What do you guys think?

[dcarrigg]

Re: Fed Raises and Now Tariffs? Have we been in ka--- for ten years?

FB not useful?

https://www.cnbc.com/2018/03/20/zuck...aboolainternal

EDIT

The FB fallout don't look good.

After dumping BABA late last year, the only tech 2.0 I now own is YNDX. Valuation is ridiculous. Not exactly dot com 2.0, but I'm thinking of dumping it when the market opens. What do you guys think?

I'm not sure about timing. And I have even less of a good bead on tech outside the US, particularly a dutch-traded russian company like YNDX. Hard for me to gage.

But I know the American side of things is a bunch of hot air.

Remember when snapchat and yik yak were supposedly worth 2 / 100 times what they are now? Snapchat IPO'd over $25 billion. It's an app that lets you send a picture message that then gets deleted. Not hard to replicate. Not hard to move away from. Not going to be a lot of user loyalty. But more than that, not a lot of utility--not to society, not to the economy, not to anyone but the handful of people who cashed in on it.

And of course, now you're probably going, "what the hell is yik yak?"

Or theranos--a machine that ran blood tests with too little blood because it never existed. Every actual scientist in academia was saying it couldn't be done. But people believed the silicon valley flim flam. Turns out it was a multi-billion-dollar valued black box with nothing inside of it. Or how about Juciero? I mean, we have limited capital in America. Our bridges and roads are literally falling down. We are letting whole chunks of the country sink into the ocean. Our child poverty rate is at a new high for the last 50 years. Rickets and scurvy are making a comeback. Life expectancy is dropping. Homeownership rates are dropping. But we're throwing hundreds of millions of dollars at Juciero? Nero fiddled...

How about Soylent? It's literally just f---ing SlimFast. It's the same thing. Almost exactly. But it labels itself "tech," markets itself to men, particularly scifi geeks, instead of to women and mothers (commercials during Star Trek instead of Oprah), and all of the sudden it's "Food 2.0!" a revolutionary new technology that needs a billion dollars venture capital. Are we really this stupid?

Meanwhile, everyone from Uber to Tesla to Apple to Google are all desperately in a race to develop what amounts to "advanced cruise control." Great. They're not making better braking systems. No better CV boots or struts. No improvements in engine design. Just a wheel that can turn itself...for the low-low option price of $10,000-$40,000. And of course the cheaper version kills people. So you might want to stick with the $40k sensor package. But even if they got it safe and down to $4k, so what? A $4k option is a pricy option. Most Americans buying a base model Camry or Civic or F-150 aren't going to want to pay an extra $4k for the luxury. And only the yuppies who rely on Zip Car and Uber now will want to give up car ownership for a monthly subscription service. I can't remember any technology that had so much private capital thrown at it with so little market potential as this. They are literally going to have to pass laws to force people to give up their cars before they'll agree to the crazy schemes they're cooking up. But look at any Silicon Valley white paper and they all agree that 95% of cars will be self driving in a decade. Totally ludicrous. And don't get me started on Tesla or the fact that there has not yet been a Model 3 that sold for less than $50,000, never mind a $35,000 model (which will never exist), or the fact Moody's just downgraded them to caa1 junk status with a negative outlook, but people keep pumping the stock up to over GM or Ford's valuation.

I mean, the valley is bunk. It's all vaporware. Nobody I know under 25 uses facebook anymore. I asked a class of college kids about it and they laughed at me and told me that's where old people go to argue about Donald Trump. Now that the base smartphone stores contact lists and photosets remotely in accounts attached to e-mail and allows group MMS messaging, there's no need for facebook. It literally only lets you do those same things, but with extra advertisements and spying. It was useful in 2008. Not so much in 2018.