January Inflation

[JAG]

Where do you see inflation, at this moment, is headed any way but UP? I expect 5% inflation rate by January of next year and unemployment to be up by then and residential real estate value to be less by then. Economic output will have constricted. That will mean stagflation is highly likely before yearend no matter if Trump wakes up tomorrow and tries to put Humpity Dumpity Tariff back together and into the 2024 Genie bottle.

Trump has no credibility to calm business owners, consumers, and other countries with any words as his recent whipsaw actions show he lacks a plan which can be nor will be explained by anyone with even modest certainly.

This muddled crystal ball means economic investment in new factory capacity, airplanes, warehouses, cargo ships, hotels, subdivisions, theme parks, restaurants, etc is the last thing anyone is willing to roll the dice on when you have no idea what the materials will cost and what will be the direction of the political winds months, years or decades from today. What you do know is rolling the dice on a big investment got riskier the last few months.

Rolling the dice on ordering replenishment of anything that triggers a tariff is pressuring distributors to cut back on order quantity. You can't sell what you don't have but you limit your exposure to what your all-in cost is for imported items and what impact raising your prices has on demand for the items you would stock in your warehouse or store. That leads to lower units sold. Likely you lay off some workers. Make less profits. Less profits can doom a smaller company or mom-and-pop retailer. Do you recall how many restaurants folded during Covid and never got replaced so that building sits empty? Well, buckle up. Decisions are being made today by small businesses and across the dinner table where families are trying to redo their budget to make room for the rising cost of necessities since their household income is not likely to keep up with rising costs. I have been there, done that.

Retired now and buffered from any stress related to falling home prices, investment values, etc. I no longer need to make multi-million dollar decisions on how much product to order in from overseas with 18-month long lead times. My biggest daily decision is whether to sleep in without setting an alarm clock or instead get up early to walk the dog for 3 miles. I do care that my family is being impacted by the new normal of tariff chaos.

That's exactly what this is: a muddy crystal ball. No one knows, and I'm not about to make predictions with the intent of acting precisely on them. What I can do is seek to understand the how and the why and make careful adjustments that cover for the unexpected possibilities as best as I can. By accepting the things I can not change and changing things I can, I can sleep at night.

By keeping my money in the markets, I can hedge against inflation increases that might happen. If my temper and panic got the best of me, I would have yanked all my money out and stuck it in a mattress. This seems logically protective, but it's irrational and foolish.

The fact that I am not privy to understanding what appears to be erratic behavior by the Commander in Chief does not keep me awake. I refuse to borrow tomorrow's problems, but do what I can for the day and put the rest out of my mind.

Yes, COVID was a disaster, and it impacted all of us in different ways. It's (COVID) worth bringing up since many similar changes may take place, but materially, the tariff war and pandemic are two crises that are fundamentally different in both origin (despite emerging conspiracy theories you want to adhere to) and intent.

I have no interest in beating myself up over worst-case scenarios or enunciating doomsday possibilities, especially since they are exponentially beyond my control. Since this thread involves inflation, the possibility that it might skyrocket is there, but with enough favorable market changes from a better trade balance that brings better jobs over here, higher inflation could make it an easier problem to deal with.

In another thread, I commented on the possible intent of pressing the EU to import more US Energy. A measure such as this could serve as a means to curb further Russian invasion into Ukraine. This could grant the US better leverage to bargain with Russia for peace. Additionally, the extra chips will strengthen the EU's inclination to be a divided ally with the US. Their reliance on the US and Russia for such a significant portion of energy sources is foolish. To the EU, you are either you are with us or against us; no use in looking like a fool for splitting your britches by choosing two paths and feigning diplomacy. As it pertains to war, this context is helpful and helps ease my mind.

 

[Cap’n Crunch]

That's the crazy thing about Trump. He's not accepting it, but telling the EU to increase energy imports to $350 billion.

(The reason I'm trying not to take a position is because I like some of the things he's doing, but I may hate them later. Also, as I've said elsewhere, spouting an opinion tends to silence reasonable explanations for how things will or won't work. My goal is to improve my understanding of this complicated mess we are in.)

I appreciate your stand in this last paragraph.

 

[Cap’n Crunch]

IMO give it 12-18 months. I too choose not to borrow tomorrow’s problems or worries.

 

[brymoore]

IMO give it 12-18 months. I too choose not to borrow tomorrow’s problems or worries.

Give tariffs 12–8 months?

 

[Cap’n Crunch]

Give tariffs 12–8 months?

On everything new that this administration is trying to do since January.

 

[SAJ-99]

On everything new that this administration is trying to do since January.

The question isn't how it will turn out. The question is who will take the blame. The Fed is the obvious and easy target here.

https://www.wsj.com/economy/central-banking/trump-takes-aim-at-fed-chair-powell-7a013ba8?mod=hp_lead_pos1

 

[brymoore]

The question isn't how it will turn out. The question is who will take the blame. The Fed is the obvious and easy target here.

https://www.wsj.com/economy/central-banking/trump-takes-aim-at-fed-chair-powell-7a013ba8?mod=hp_lead_pos1

I’m working out in my head the results of Powell’s firing and T’s desire for low Fed interest rates combined with tariffs.

Inflation will rise along with treasury rates.

 

[noharleyyet]

The question isn't how it will turn out. The question is who will take the blame. The Fed is the obvious and easy target here.

https://www.wsj.com/economy/central-banking/trump-takes-aim-at-fed-chair-powell-7a013ba8?mod=hp_lead_pos1

Trump and Powell's enmity for each other on full display...

 

[Treeshark]

If Powell is indeed a disaster as he is saying, it begins to call into question the qualifications of the guy who hired him.

 

[mevertsen]

If Powell is indeed a disaster as he is saying, it begins to call into question the qualifications of the guy who hired him.

Best way to put it.

I wouldn't want to be in Powell's shoes.

I like the rates being up a bit, but I'm a saver, not a spender.

 

[SAJ-99]

I’m working out in my head the results of Powell’s firing and T’s desire for low Fed interest rates combined with tariffs.

Inflation will rise along with treasury rates.

I think this is all about getting the tax extension through. Every 25bps is about $10B cut on interest paid. Last I heard, Tariffs are bringing in about $250m each day (not Trumps claim of $2B, which is insane). That all helps the math when projected out 10yrs.

The $ has dropped 10% since the beginning of February. Even before the tariffs, that makes foreign goods more expensive. I think, and the market thinks, this is a performative game. There will be negotiations with pseudo concessions so Trump gets to be on camera and declare victory. All while the rest of the World slowly changes their supply chains (again!) and find new sources of demand.

I wouldn't want to be in Powell's shoes.

He is gone in 9 months anyway. Trump wants to be in charge of interest rates and money supply and he will find someone to be in charge that will do what he says. I can easily see him doing these things that cause financial harm (inflation, demand destruction, layoffs, whatever) and cutting rates and mailing checks to everyone to mitigate the pain. That worked out great for Germany in the 1920's.

 

[TOGIE]

well, it seems the law says he can't fire Powell, and after Powell's term ends the successor would have to be chosen from the existing Board of Governors, none of whom currently own a pair of knee pads I don't think. Then that nomination needs to be confirmed by the senate. Plenty of guard rails in place here but unfortunately those really don't seem to matter anymore. We'll see.

I think T is mostly just setting up another fall guy to take the blame for the monumental amount of shit soon to be in the fan.

 

[SAJ-99]

well, it seems the law says he can't fire Powell, and after Powell's term ends the successor would have to be chosen from the existing Board of Governors, none of whom currently own a pair of knee pads I don't think. Then that nomination needs to be confirmed by the senate. Plenty of guard rails in place here but unfortunately those really don't seem to matter anymore. We'll see.

I think T is mostly just setting up another fall guy to take the blame for the monumental amount of shit soon to be in the fan.

The guard rails are there, but we will soon see what the SCOTUS says on that idea. Even if a normal person says would say it doesn't apply to the Fed Chair, I can see them taking a swing at it. I can guarantee that the next nominee isn't on the BOG right now. He was going to try it in 2018. If they can disregard Constitutional amendments for stuff, I doubt the Banking Act of 1935 will be a constraint.

If it happened, the main guard rail would be the voting process itself. The Chairman doesn't set policy alone. Will we see a vote that is 6-1 where the Chair is the dissenting vote? I can't image the market is going to like that kind of outcome.

 

[noharleyyet]

Fire/Cancel...strangely similar yet to many, seemingly distinguishable.