Just to be clear, I am not looking for investment advice as I have already made up my mind.

I am a big proponent of finding quality companies and buying and holding until the conviction on quality changes.

However, for the first time, I have significantly taken profit off equity. The most of the sales have been in Tesla, Moderna and Roku and will look to take some profit (much smaller than Tesla and Roku) off other technology companies like Apple and ServiceNow.

I will continue to be a significant investor for technology companies (more software than hardware) with plans to hold long for the companies, but I am concerned about the recent increase in interest rate and want to cash out some of the exuberant amount of profit from these companies.

If and when inflation gets accelerated from monetary policies and deficits. including bump from COVID-19 recovery and devaluation of the dollar, there seems to be limited options other than increasing interest rate further to moderate inflation. If interest rate is already going up now, I think many of the companies, especially Tesla and Roku, will face re-evaluation on the current multiples and projections when inflation hits, interest rates go up higher, and bonds become better investments.

I still love Tesla, including their innovation and the future or EV, and think their batteries will be a significant profit source, even more so than their cars (just like Apple). I also love how Moderna has incorporated AI into biotech. I am not as convinced that Roku hasn't come close to the peak on revenue growth rate from their content and advertisement revenue, but it is still a good company.

I just don't have the same conviction on value of certain equities like Tesla and Roku when I see interest rate rising, and inflation all but inevitable. I continue to hold certain cyclicals that I invested in during the summer and are taking off only a tiny bit of profit from tech companies.

Interest rate will impact M&A activity, and who knows what will happen with income tax. When bonds become more palatable, I just think equities will reprice. As for me, I handed over the the influx of cash to my money manager to invest as he see fits, most likely metals and commodities and HGM, but I leave that up to him and his team.

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

calbear93 said:

---

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

The rising interest rate concept is a result of recency bias. It is a small bump from a floor-breaking low. The 10 year Treasury rate is the same place as it was 1 year ago. At that time it was a record low.

I am not worried about inflation or interest rates. What could make me think in those terms?
- A big minimum wage increase
- Strong Covid recovery
- Strong jobs and wage growth likely coupled with a big infrastructure project from the government
- Big (BIG) tax increase on the wealthy. Bernie Sanders or Elizabeth Warren level big.

I'm always "concerned." I recently rebalanced from 55/45 to 50/50 stocks/bonds. Based on my and my wife's ages, I believe that's where we should be.

Rising interest rates are always a concern for equity investors. The first investment book I ever read was by Martin Zweig (remember him from Wall Street Week?), and in that book he advised: Don't fight the Fed. He'd be selling equities about now. But I'm much more concerned about the type of small time speculators that this strong market has recruited. When I walk through the production floor of my company, I always see some technicians looking at stock graphs on Yahoo finance. These guys are playing the horses and there's got to be a whole lot of them out there. This type of investor tends to come in at market highs. When the market turns, they will sour quickly and the market will take a hit.

I have upped my allocation in international equities. They have underperformed for a long time. Nobody's touting them.

LMK5 said:

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I'm always "concerned." I recently rebalanced from 55/45 to 50/50 stocks/bonds. Based on my and my wife's ages, I believe that's where we should be.

Rising interest rates are always a concern for equity investors. The first investment book I ever read was by Martin Zweig (remember him from Wall Street Week?), and in that book he advised: Don't fight the Fed. He'd be selling equities about now. But I'm much more concerned about the type of small time speculators that this strong market has recruited. When I walk through the production floor of my company, I always see some technicians looking at stock graphs on Yahoo finance. These guys are playing the horses and there's got to be a whole lot of them out there. This type of investor tends to come in at market highs. When the market turns, they will sour quickly and the market will take a hit.

I have upped my allocation in international equities. They have underperformed for a long time. Nobody's touting them.

---

I am worried about equities, mainly because of the historic bull market, my age, people keep talking as if inflation, corporate tax rate increase, and monetary policies have no consequences, and exuberance from the retail investors. Wasn't even as worried as I am now when Bear Sterns and Lehman Brothers went under. That is why I am selling a portion of my biggest gainers in 2020 now when I rarely ever have sold equity in over 20 years. I just cannot justify the multiple for Tesla and Roku right now. Made enough money from those and feel like I can escape without too much regret if they continue to go up. Over 500% in just over a year is fine, especially if it's all long term capital gains, when I don't believe the multiple is justified.

There will be too many retail investors who are chasing the unicorn story of a few people who adopted YOLO mentality and hit it big. Most will get hurt. They always do, whether it was internet stocks in 2000 or real estate in 2007.

Don't get me wrong. At least the portion that I allocate to myself to invest (especially since I started my wealth building through my own investments), which is becoming smaller portion relative to my trusts and my real estate holdings, are all equity, and I will continue to be long even knowing there will be a big correction sometime in the future (just don't know when), but I cannot hold onto the biggest gainers I have from 2020. I feel better having cash out Tesla, Moderna and Roku and giving to my advisor after taxes (hate paying taxes only to reinvest) since the inflation and interest rate risk seems a bit scary to me at these multiples.

By the way, I am not going into bonds now especially since I think interest rate will go up in the future. I liked cyclicals and industrial during the early summer since I think there will be a quick recovery in the economy once mass vaccination happens. My advisor has allocated more in metals and commodities and increased exposure to high growth markets. I also increased my cash position, even though inflation will make them worth less. Just don't buy that Feds will not increase interest no matter the inflationary pressures. They will, even though their bias will be to keep lower rates to stimulate the economy further.

hanky1 bot army said:

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dajo9 said:

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calbear93 said:

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Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

The rising interest rate concept is a result of recency bias. It is a small bump from a floor-breaking low. The 10 year Treasury rate is the same place as it was 1 year ago. At that time it was a record low.

I am not worried about inflation or interest rates. What could make me think in those terms?
- A big minimum wage increase
- Strong Covid recovery
- Strong jobs and wage growth likely coupled with a big infrastructure project from the government
- Big (BIG) tax increase on the wealthy. Bernie Sanders or Elizabeth Warren level big.

---

1. $15 minimum wage increase would result in good inflation and wage growth, rather than bad out of control inflation. Not all inflation is bad.

2. Covid recovery will not impact inflation and is highly unlikely to be sufficient anyway. We are looking at a sustained recession that will make 2008's recession look like child's play.

3. Big infrastructure project unlikely to happen IMO. Deficit hawks are in control of our economic policy right now.

4. Big tax on the wealthy would have a deflationary impact, rather than an inflationary impact (taxes take money out of the economy)

---

1. We agree. We'd be better of with inflation between 2% - 4% and the 10 year rate a little above that. All driven by wages and jobs.

2. My answers are all cumulative. I'm not saying any individual one of them would do the trick.

3. Yes, this will be a challenge for the the undemocratic Senate and conservative Democratic Senators in red states.

4. You are espousing mainstream economics, which I learned also but have decided it is incorrect based on 40 years of lived history. Your economic arguments are the same as those used to claim Bernie Sanders policies will fail. How did the Reagan, WBush, and Trump tax cuts do for inflation and interest rates? They drove interest rates down for sure. The component that mainstream economics has not adequately researched is the distributive and wealth impacts on fiscal policy. Tax cuts for the wealthy don't do anything in regards to consumer inflation except starve government of funding for programs that could help consumers, which is deflationary.

Lol, looks like the mods have erased Yogi again

Lol, at the image of Yogi giving himself credit for the knockout. Nice touch. Very funny.

Yogi, no economist who supports Bernie Sanders agrees with you. You are pushing economic arguments (Say's Law, Treasury View) that were dismantled 100 years ago, but that always rise, like zombies, because they are the preferred view of conservatives who are against government intervention in the economy. They even have the money to make nice looking websites, which useful idiots link to. I'm not going to reargue this with you. Read and learn from other economists.
https://economistsview.typepad.com/economistsview/2009/01/a-dark-age-of-macroeconomics.html

Quote:

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What's so mind-boggling about this is that it commits one of the most basic fallacies in economics interpreting an accounting identity as a behavioral relationship. Yes, savings have to equal investment, but that's not something that mystically takes place, it's because any discrepancy between desired savings and desired investment causes something to happen that brings the two in line. ... [A]fter a change in desired savings or investment..., if interest rates are fixed, what happens is that GDP changes to make S and I equal.

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calbear93 said:

---

Just to be clear, I am not looking for investment advice as I have already made up my mind.

I am a big proponent of finding quality companies and buying and holding until the conviction on quality changes.

However, for the first time, I have significantly taken profit off equity. The most of the sales have been in Tesla, Moderna and Roku and will look to take some profit (much smaller than Tesla and Roku) off other technology companies like Apple and ServiceNow.

I will continue to be a significant investor for technology companies (more software than hardware) with plans to hold long for the companies, but I am concerned about the recent increase in interest rate and want to cash out some of the exuberant amount of profit from these companies.

If and when inflation gets accelerated from monetary policies and deficits. including bump from COVID-19 recovery and devaluation of the dollar, there seems to be limited options other than increasing interest rate further to moderate inflation. If interest rate is already going up now, I think many of the companies, especially Tesla and Roku, will face re-evaluation on the current multiples and projections when inflation hits, interest rates go up higher, and bonds become better investments.

I still love Tesla, including their innovation and the future or EV, and think their batteries will be a significant profit source, even more so than their cars (just like Apple). I also love how Moderna has incorporated AI into biotech. I am not as convinced that Roku hasn't come close to the peak on revenue growth rate from their content and advertisement revenue, but it is still a good company.

I just don't have the same conviction on value of certain equities like Tesla and Roku when I see interest rate rising, and inflation all but inevitable. I continue to hold certain cyclicals that I invested in during the summer and are taking off only a tiny bit of profit from tech companies.

Interest rate will impact M&A activity, and who knows what will happen with income tax. When bonds become more palatable, I just think equities will reprice. As for me, I handed over the the influx of cash to my money manager to invest as he see fits, most likely metals and commodities and HGM, but I leave that up to him and his team.

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

I have no idea what interest rates will do. What I have always done is rebalance which right now could also be called "selling equities and moving the money to fixed income". My only difference right now is that my fixed income has 0 bond funds. Savings bonds, I bonds, money market funds and (shutter) stable value funds make up my all time high amount of fixed income. I have more "safe" money than ever and I have been retired since 2015. That scares me.

82gradDLSdad said:

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calbear93 said:

---

Just to be clear, I am not looking for investment advice as I have already made up my mind.

I am a big proponent of finding quality companies and buying and holding until the conviction on quality changes.

However, for the first time, I have significantly taken profit off equity. The most of the sales have been in Tesla, Moderna and Roku and will look to take some profit (much smaller than Tesla and Roku) off other technology companies like Apple and ServiceNow.

I will continue to be a significant investor for technology companies (more software than hardware) with plans to hold long for the companies, but I am concerned about the recent increase in interest rate and want to cash out some of the exuberant amount of profit from these companies.

If and when inflation gets accelerated from monetary policies and deficits. including bump from COVID-19 recovery and devaluation of the dollar, there seems to be limited options other than increasing interest rate further to moderate inflation. If interest rate is already going up now, I think many of the companies, especially Tesla and Roku, will face re-evaluation on the current multiples and projections when inflation hits, interest rates go up higher, and bonds become better investments.

I still love Tesla, including their innovation and the future or EV, and think their batteries will be a significant profit source, even more so than their cars (just like Apple). I also love how Moderna has incorporated AI into biotech. I am not as convinced that Roku hasn't come close to the peak on revenue growth rate from their content and advertisement revenue, but it is still a good company.

I just don't have the same conviction on value of certain equities like Tesla and Roku when I see interest rate rising, and inflation all but inevitable. I continue to hold certain cyclicals that I invested in during the summer and are taking off only a tiny bit of profit from tech companies.

Interest rate will impact M&A activity, and who knows what will happen with income tax. When bonds become more palatable, I just think equities will reprice. As for me, I handed over the the influx of cash to my money manager to invest as he see fits, most likely metals and commodities and HGM, but I leave that up to him and his team.

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

I have no idea what interest rates will do. What I have always done is rebalance which right now could also be called "selling equities and moving the money to fixed income". My only difference right now is that my fixed income has 0 bond funds. Savings bonds, I bonds, money market funds and (shutter) stable value funds make up my all time high amount of fixed income. I have more "safe" money than ever and I have been retired since 2015. That scares me.

---

There really needs to be more research from finance academia about how to invest in a ~0% rate environment. I don't think it is going away anytime soon because of fiscal policy decisions the country makes. The finance world would rather spend their energy blaming all their woes on the Federal Reserve - an institution that people think is the dog but is really the tail.

Like most, the finance world is always fighting the last war. By the time there is a mainstream recognized solution to your conundrum we will be fighting high inflation again. By then, the finance world will be spending all their time telling people how to invest in a ~0% rate environment. The inflation warriors who have dominated for the last 40 years, tilting at windmills, will all be dead by then.

Loyal hanky1 Followers said:

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dajo9 said:

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Lol, looks like the mods have erased Yogi again

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Think of me as a pass rusher. Just because I didn't get a sack on one play doesn't mean anything if I have the most sacks. Which I do. Especially when I go up against your team.

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YogiHydra is a winner. He even has the trophy.

82gradDLSdad said:

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calbear93 said:

---

Just to be clear, I am not looking for investment advice as I have already made up my mind.

I am a big proponent of finding quality companies and buying and holding until the conviction on quality changes.

However, for the first time, I have significantly taken profit off equity. The most of the sales have been in Tesla, Moderna and Roku and will look to take some profit (much smaller than Tesla and Roku) off other technology companies like Apple and ServiceNow.

I will continue to be a significant investor for technology companies (more software than hardware) with plans to hold long for the companies, but I am concerned about the recent increase in interest rate and want to cash out some of the exuberant amount of profit from these companies.

If and when inflation gets accelerated from monetary policies and deficits. including bump from COVID-19 recovery and devaluation of the dollar, there seems to be limited options other than increasing interest rate further to moderate inflation. If interest rate is already going up now, I think many of the companies, especially Tesla and Roku, will face re-evaluation on the current multiples and projections when inflation hits, interest rates go up higher, and bonds become better investments.

I still love Tesla, including their innovation and the future or EV, and think their batteries will be a significant profit source, even more so than their cars (just like Apple). I also love how Moderna has incorporated AI into biotech. I am not as convinced that Roku hasn't come close to the peak on revenue growth rate from their content and advertisement revenue, but it is still a good company.

I just don't have the same conviction on value of certain equities like Tesla and Roku when I see interest rate rising, and inflation all but inevitable. I continue to hold certain cyclicals that I invested in during the summer and are taking off only a tiny bit of profit from tech companies.

Interest rate will impact M&A activity, and who knows what will happen with income tax. When bonds become more palatable, I just think equities will reprice. As for me, I handed over the the influx of cash to my money manager to invest as he see fits, most likely metals and commodities and HGM, but I leave that up to him and his team.

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

I have no idea what interest rates will do. What I have always done is rebalance which right now could also be called "selling equities and moving the money to fixed income". My only difference right now is that my fixed income has 0 bond funds. Savings bonds, I bonds, money market funds and (shutter) stable value funds make up my all time high amount of fixed income. I have more "safe" money than ever and I have been retired since 2015. That scares me.

---

I have even greater conviction that the rising interest rate will rerate the stock that I recently sold, and inflation will impact tech stocks a bit more than cyclicals. If I lose out in the future gains in Tesla, Roku and Moderna, then I can still comfort myself in 5x return in just over a year. Sometimes stepping away from the table is the right move instead of chasing the last dollar.

This is what I am seeing (I am not interested economic debate that has no reflection in what I am seeing):

People who have invested in stock because there has been no bond market will jump as long-term interest rates continue to rise. Current bond holders will get hurt (as yields go up, price goes down), but more money is going to new bonds at the now higher rates.

I always expect retail to chase the latest fad, but I am seeing even some of the institutions adopting FOMO and abandoning some fundamentals. This is the time for nerds like me to get some bargains on high quality companies in industrial tech and cyclicals.

Since I posted this, each of Tesla, Moderna and Roku have gone down about 20%.

This is the problem with selling, though, even when you get it right. I am tempted to go back in but I don't know when. Still glad I sold in early February due to interest rate, but it is so tough to know when to get back in.

Ultimately decided against pairing back on Apple, Amazon or Google. I am just going to close my eyes on the blue chip technology stocks, knowing they will go down when we open up again and economy goes back up, with interest rate and inflation rising. Rather not have to deal with trying to time re-entry like I am with Tesla and Moderna after selling in February.

Interesting development in the stock market based on comments from Powell and the market's concerns I foreshadowed in early February about interest rate and inflation. (Not interested in economic theory pissing contest (i.e., purely economic theory that there will be no inflation or increase in interest rate or that monetary policies don't matter) divorced from actual results or reality. Bond yields continue to go up, with fears of inflation continuing. The Fed will continue to be biased for lower interest rate, but not sure what they can do when the market is driving up the interest rate when the economy continues on its recovery, with pretty much indications of inflation above the 2% threshold. With the new stimulus, increasing interest rate, and inflation we are all seeing, not sure how dovish the Feds can be.

https://www.wsj.com/articles/global-stock-markets-dow-update-03-04-2021-11614847492

Tesla, Roku and Moderna are now down 25% since I have sold in mid Feb, all driven by inflation and interest rate rising and risk of pre-pricing when the interest rate plus less risk will make bonds competitive to equity. I still don't invest directly in bonds, but I anticipate equity (especially high multiples) will take further hit if the interest rate continue to go up. The next one I am tracking for potential pruning from my portfolio is Nvidia although I love that company and their role in computer power needed for AI and cryptocurrency.

calbear93 said:

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Interesting development in the stock market based on comments from Powell and the market's concerns I foreshadowed in early February about interest rate and inflation. (Not interested in economic theory pissing contest (i.e., purely economic theory that there will be no inflation or increase in interest rate or that monetary policies don't matter) divorced from actual results or reality. Bond yields continue to go up, with fears of inflation continuing. The Fed will continue to be biased for lower interest rate, but not sure what they can do when the market is driving up the interest rate when the economy continues on its recovery, with pretty much indications of inflation above the 2% threshold. With the new stimulus, increasing interest rate, and inflation we are all seeing, not sure how dovish the Feds can be.

https://www.wsj.com/articles/global-stock-markets-dow-update-03-04-2021-11614847492

Tesla, Roku and Moderna are now down 25% since I have sold in mid Feb, all driven by inflation and interest rate rising and risk of pre-pricing when the interest rate plus less risk will make bonds competitive to equity. I still don't invest directly in bonds, but I anticipate equity (especially high multiples) will take further hit if the interest rate continue to go up. The next one I am tracking for potential pruning from my portfolio is Nvidia although I love that company and their role in computer power needed for AI and cryptocurrency.

---

It's not Powell's fault that the market is full of dumb investors who don't understand what drives inflation. This information is all a quick Google search away for those self-proclaimed super savvy investors.

https://www.usinflationcalculator.com/inflation/current-inflation-rates/

SFBear92 said:

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calbear93 said:

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Interesting development in the stock market based on comments from Powell and the market's concerns I foreshadowed in early February about interest rate and inflation. (Not interested in economic theory pissing contest (i.e., purely economic theory that there will be no inflation or increase in interest rate or that monetary policies don't matter) divorced from actual results or reality. Bond yields continue to go up, with fears of inflation continuing. The Fed will continue to be biased for lower interest rate, but not sure what they can do when the market is driving up the interest rate when the economy continues on its recovery, with pretty much indications of inflation above the 2% threshold. With the new stimulus, increasing interest rate, and inflation we are all seeing, not sure how dovish the Feds can be.

https://www.wsj.com/articles/global-stock-markets-dow-update-03-04-2021-11614847492

Tesla, Roku and Moderna are now down 25% since I have sold in mid Feb, all driven by inflation and interest rate rising and risk of pre-pricing when the interest rate plus less risk will make bonds competitive to equity. I still don't invest directly in bonds, but I anticipate equity (especially high multiples) will take further hit if the interest rate continue to go up. The next one I am tracking for potential pruning from my portfolio is Nvidia although I love that company and their role in computer power needed for AI and cryptocurrency.

---

It's not Powell's fault that the market is full of dumb investors who don't understand what drives inflation. This information is all a quick Google search away for those self-proclaimed super savvy investors.

https://www.usinflationcalculator.com/inflation/current-inflation-rates/

---

Sorry, Yogi - Interested in discussing about inflation impact on real life applications on investment (no matter what you want to argue on inflation or how much smarter you are than billionaires - inflation is already here - not sure if you get reports from your advisors, but my advisors are already giving notices on supply chain shortages from increase demand, especially on chips and the corresponding increase in cost of goods). If you want to bet big on there being no inflation and no increase in interest rate, you should invest big on existing bonds. The price has gone down in anticipation of higher yield. Doubt you would actually put money where you theory lies. I myself have put significant money on cyclicals last summer as I noted last year as well as, as noted in February, sold all my Tesla, Roku, Moderna and ServiceNow in mid-February and looking at reducing my long-term Nvidia holding despite my deep belief that IA, EV etc. are the future).

Maybe there is more theory than application among the great economists here, and most here have not actually invested well on their theory. This will be my last post on my investment theories or investment actions. Carry on.

calbear93 said:

---

Just to be clear, I am not looking for investment advice as I have already made up my mind.

I am a big proponent of finding quality companies and buying and holding until the conviction on quality changes.

However, for the first time, I have significantly taken profit off equity. The most of the sales have been in Tesla, Moderna and Roku and will look to take some profit (much smaller than Tesla and Roku) off other technology companies like Apple and ServiceNow.

I will continue to be a significant investor for technology companies (more software than hardware) with plans to hold long for the companies, but I am concerned about the recent increase in interest rate and want to cash out some of the exuberant amount of profit from these companies.

If and when inflation gets accelerated from monetary policies and deficits. including bump from COVID-19 recovery and devaluation of the dollar, there seems to be limited options other than increasing interest rate further to moderate inflation. If interest rate is already going up now, I think many of the companies, especially Tesla and Roku, will face re-evaluation on the current multiples and projections when inflation hits, interest rates go up higher, and bonds become better investments.

I still love Tesla, including their innovation and the future or EV, and think their batteries will be a significant profit source, even more so than their cars (just like Apple). I also love how Moderna has incorporated AI into biotech. I am not as convinced that Roku hasn't come close to the peak on revenue growth rate from their content and advertisement revenue, but it is still a good company.

I just don't have the same conviction on value of certain equities like Tesla and Roku when I see interest rate rising, and inflation all but inevitable. I continue to hold certain cyclicals that I invested in during the summer and are taking off only a tiny bit of profit from tech companies.

Interest rate will impact M&A activity, and who knows what will happen with income tax. When bonds become more palatable, I just think equities will reprice. As for me, I handed over the the influx of cash to my money manager to invest as he see fits, most likely metals and commodities and HGM, but I leave that up to him and his team.

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

Congratulations on your sells. You certainly timed them well. Now, as you said, when to buy back.

dajo9 said:

---

calbear93 said:

---

Just to be clear, I am not looking for investment advice as I have already made up my mind.

I am a big proponent of finding quality companies and buying and holding until the conviction on quality changes.

However, for the first time, I have significantly taken profit off equity. The most of the sales have been in Tesla, Moderna and Roku and will look to take some profit (much smaller than Tesla and Roku) off other technology companies like Apple and ServiceNow.

I will continue to be a significant investor for technology companies (more software than hardware) with plans to hold long for the companies, but I am concerned about the recent increase in interest rate and want to cash out some of the exuberant amount of profit from these companies.

If and when inflation gets accelerated from monetary policies and deficits. including bump from COVID-19 recovery and devaluation of the dollar, there seems to be limited options other than increasing interest rate further to moderate inflation. If interest rate is already going up now, I think many of the companies, especially Tesla and Roku, will face re-evaluation on the current multiples and projections when inflation hits, interest rates go up higher, and bonds become better investments.

I still love Tesla, including their innovation and the future or EV, and think their batteries will be a significant profit source, even more so than their cars (just like Apple). I also love how Moderna has incorporated AI into biotech. I am not as convinced that Roku hasn't come close to the peak on revenue growth rate from their content and advertisement revenue, but it is still a good company.

I just don't have the same conviction on value of certain equities like Tesla and Roku when I see interest rate rising, and inflation all but inevitable. I continue to hold certain cyclicals that I invested in during the summer and are taking off only a tiny bit of profit from tech companies.

Interest rate will impact M&A activity, and who knows what will happen with income tax. When bonds become more palatable, I just think equities will reprice. As for me, I handed over the the influx of cash to my money manager to invest as he see fits, most likely metals and commodities and HGM, but I leave that up to him and his team.

Would like thoughts on the rising interest rate, especially when we have not seen the worst of inflation yet, and what that will do to the economy. Anyone else concerned? I will only add that when inflation hits, it will mess up people who have been most impacted by all this....the underprivileged and retirees. Obviously concerned more for them than for people like me, but just interested on people's take / nervousness about interest rate and inflation.

---

Congratulations on your sells. You certainly timed them well. Now, as you said, when to buy back.

---

Oof. I may have inadvertently marked the bottom with this post. Nasdaq up almost 4% today.

Core CPI (inflation) came in for February below expectations at 0.1% vs. estimated 0.2%. Year-over-year increase is at 1.3%.

When the Covid relief money comes out I'd expect a lift in inflation but that is temporary money. After the noise, a stable, mildly growing economy will probably get us back to around 2%, absent additional fiscal policy legislation.

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

I am not an economist, but I will say this. I don't believe we will see an immediate inflationary impact from the cash payment from the latest planned stimulus since a report I read recently showed that even with the lowest income level, a majority of the people receiving a check will save, reduce debt or invest instead of putting it back into the economy. Not exactly a stimulus but it will not create an overheated economy. Besides, no matter what impact it has on the economy, I am always in favor of people exercising fiscal discipline, and, especially for the middle class and poor, reducing debt (which is always a killer - one of the best things I did going from new attorney with no money who wanted to support his parents to someone who by any measure will be comfortable without ever thinking about money for myself or my kids and future grandkids was adopt a fear of debt and always live significantly below my means and keep investing and saving automatically). As both the Republican and Democrats have shown, the free wheeling monetary and spending policies will create asset bubbles, devaluation of the dollar and inflation. I am more worried about supply pressures (especially with limited suppliers of tech components (especially chips) outside the US, many suppliers having reduced capacity due to COVID-19 who have had a more difficult time ramping up supply, and rush of demand once we open up fully) and the sudden shock from opening up the economy. That is why, as I noted last year, I went heavy in cyclicals and energy in the summer after having gone in really big in tech, EV and biotechnology when the market crashed in early part of 2020 when fear was causing people to take down quality along with the crap. I have always been an investor in tech and quality companies (with investment in Apple, Danaher, Roper for almost 15 years and Amazon, GS, and J&J for almost 10 years without any pruning on those stocks - only sold Tesla, Roku and Moderna in early February because I made too much too quickly and there was just way too much froth for these types of high growth companies that will be most impacted by inflation).

calbear93 said:

---

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

I am not an economist, but I will say this. I don't believe we will see an immediate inflationary impact from the cash payment from the latest planned stimulus since a report I read recently showed that even with the lowest income level, a majority of the people receiving a check will save, reduce debt or invest instead of putting it back into the economy. Not exactly a stimulus but it will not create an overheated economy. Besides, no matter what impact it has on the economy, I am always in favor of people exercising fiscal discipline, and, especially for the middle class and poor, reducing debt (which is always a killer - one of the best things I did going from new attorney with no money who wanted to support his parents to someone who by any measure will be comfortable without ever thinking about money for myself or my kids and future grandkids was adopt a fear of debt and always live significantly below my means and keep investing and saving automatically). As both the Republican and Democrats have shown, the free wheeling monetary and spending policies will create asset bubbles, devaluation of the dollar and inflation. I am more worried about supply pressures (especially with limited suppliers of tech components (especially chips) outside the US, many suppliers having reduced capacity due to COVID-19 who have had a more difficult time ramping up supply, and rush of demand once we open up fully) and the sudden shock from opening up the economy. That is why, as I noted last year, I went heavy in cyclicals and energy in the summer after having gone in really big in tech, EV and biotechnology when the market crashed in early part of 2020 when fear was causing people to take down quality along with the crap. I have always been an investor in tech and quality companies (with investment in Apple, Danaher, Roper for almost 15 years and Amazon, GS, and J&J for almost 10 years without any pruning on those stocks - only sold Tesla, Roku and Moderna in early February because I made too much too quickly and there was just way too much froth for these types of high growth companies that will be most impacted by inflation).

---

What has the government dumped into the economy to date, $4T? If it has only a slight impact, what's to stop them from doing it regularly, Covid or no Covid? What has stopped the government from handing out this kind of money in the past? What were they afraid of then that they don't seem to be concerned with today?

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government

---

Obviously? Why obviously?

Quote:

---

but what are the potential steps to ruin?

---

If there's too much money out there, the value of each dollar becomes less, but since the people who buy most of the goods have so little of it, there hasn't been a particularly big inflationary effect yet. However, the investment accounts of the rich have inflated substantially.

calbear93 said:

---

I am more worried about supply pressures (especially with limited suppliers of tech components (especially chips) outside the US

---

This is something that has not gotten nearly enough attention.

LMK5 said:

---

What has stopped the government from handing out this kind of money in the past? What were they afraid of then that they don't seem to be concerned with today?

---

Preconceived notions about how money works and thinking that federal debt is like personal or private debt.

My advice to you if you want to learn more about this is to read this. It's free and not long.
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

This is more interesting than work, so here goes. I'm not an economist, just a UC Berkeley Econ major and somebody who has spent decades reading economists and economic history.

What you learn in Economics is that high government outlays and deficits lead to higher consumption. If the economy is at full employment this will result in inflation as more dollars chase the same amount of goods. Classical economics says inflation is always the result. Keynesian economics says if the economy is below full employment, this will result in higher GDP instead of higher inflation,up until the point that the economy reaches full employment. That is the current state of the economics debate, unchanged for 100 years (Milton Friedman aside, but his monetarist theories have been completely debunked in the last few decades, in my opinion. Also the more recent MMT aside, which I'm skeptical of, but still reading about).

Two times before, the U.S. has had huge debt similar to today. First, after the Civil War the government response was to revert back to the gold standard, deflate the dollar back to its pre Civil War values and pay off the debt in real terms. This was the Gilded Age of the late 19th century and whole books have been written debating it and data is hard to come by. The economy was very turbulent in the late 19th century with a deflating currency causing hardship for farmers and debtors in general, but a hugely growing economy fueled by immigration and westward expansion. As late as 1896 the consequences of these decisions were still key as William Jennings Bryan ran for President saying "you shall not crucify mankind upon a cross of gold". He was talking about farmers going bankrupt because the gold standard was growing the money supply slower than the economy was growing causing deflation (think lower wheat prices). This was done at the insistence of Eastern bankers who wanted debts paid in real terms.

Second, after World War II we had huge debt. FDR had gotten off the gold standard in the Great Depression. Post World War II we allowed modest inflation and economic growth to make the old debts become smaller. Gradually, over time, the amount of debt was less relevant because the economy had grown and the currency had inflated. This is the dreaded, inflating our way out of debt. It actually works really well unless you get to the point of the 1970's where inflation gets out of control.

So, to answer your question, in my opinion there are two paths to ruin. First, trying to pay off the debt in real terms. We have no westward expansion to rely on for economic growth. Trying a post-Civil War approach would lead to much more economic harm than good due to spending so much of GDP to pay down debt. The second path to ruin would be allowing inflation to occur too quickly wreaking havoc on economic stability (i.e. something like the 1970's). There is a huge, stable path between those two outcomes. However, all that assumes we want to stop accumulating debt. So, what if we continue to add on debt? I'll get back to that.

In regards to your question, "what leads to what" inflation is caused by too many dollars chasing too few goods. The economics profession has been completely stymied for years over why inflation continues to go down as deficits continue to increase, as has been the pattern for 40 years now. So, why aren't too many dollars chasing too many goods and causing inflation? Economics does not have a coherent argument for that other than "it will come eventually".

My answer is that economics has not adequately studied the distribution of money between the rich and the poor. We have asset inflation (too many dollars chasing too few assets) because our economy has been geared towards getting money to the rich, not the middle class or the poor, for 40 years now. We do not have inflation because consumers are not getting all that money (I'm talking about the last 40 years, not specific recent legislation). With deficit spending and an economy driving money towards the wealthy, we have high asset prices and a low demand, low GDP, low inflation economy. Therefore, with the current fiscal policy we can continue to pile on debt because it isn't going to consumers anyway. It's just funny money trading hands between the Treasury, the banks, the wealthy, and the Federal Reserve. We just have to be willing to accept a low growth economy as a tradeoff for lifting up the rich.

What if we just start deficit spending $2 trillion / year on checks for the middle class and the poor? Then we could have a problem with inflation and economic instability (after a few really good years). We are far from that point, in my opinion.

The solution, is to tax the rich and spend it on the middle class / poor until you actually start to see inflation around 4%. Then it would be time to back off.

dajo9 said:

---

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

This is more interesting than work, so here goes. I'm not an economist, just a UC Berkeley Econ major and somebody who has spent decades reading economists and economic history.

What you learn in Economics is that high government outlays and deficits lead to higher consumption. If the economy is at full employment this will result in inflation as more dollars chase the same amount of goods. Classical economics says inflation is always the result. Keynesian economics says if the economy is below full employment, this will result in higher GDP instead of higher inflation,up until the point that the economy reaches full employment. That is the current state of the economics debate, unchanged for 100 years (Milton Friedman aside, but his monetarist theories have been completely debunked in the last few decades, in my opinion. Also the more recent MMT aside, which I'm skeptical of, but still reading about).

Two times before, the U.S. has had huge debt similar to today. First, after the Civil War the government response was to revert back to the gold standard, deflate the dollar back to its pre Civil War values and pay off the debt in real terms. This was the Gilded Age of the late 19th century and whole books have been written debating it and data is hard to come by. The economy was very turbulent in the late 19th century with a deflating currency causing hardship for farmers and debtors in general, but a hugely growing economy fueled by immigration and westward expansion. As late as 1896 the consequences of these decisions were still key as William Jennings Bryan ran for President saying "you shall not crucify mankind upon a cross of gold". He was talking about farmers going bankrupt because the gold standard was growing the money supply slower than the economy was growing causing deflation (think lower wheat prices). This was done at the insistence of Eastern bankers who wanted debts paid in real terms.

Second, after World War II we had huge debt. FDR had gotten off the gold standard in the Great Depression. Post World War II we allowed modest inflation and economic growth to make the old debts become smaller. Gradually, over time, the amount of debt was less relevant because the economy had grown and the currency had inflated. This is the dreaded, inflating our way out of debt. It actually works really well unless you get to the point of the 1970's where inflation gets out of control.

So, to answer your question, in my opinion there are two paths to ruin. First, trying to pay off the debt in real terms. We have no westward expansion to rely on for economic growth. Trying a post-Civil War approach would lead to much more economic harm than good due to spending so much of GDP to pay down debt. The second path to ruin would be allowing inflation to occur too quickly wreaking havoc on economic stability (i.e. something like the 1970's). There is a huge, stable path between those two outcomes. However, all that assumes we want to stop accumulating debt. So, what if we continue to add on debt? I'll get back to that.

In regards to your question, "what leads to what" inflation is caused by too many dollars chasing too few goods. The economics profession has been completely stymied for years over why inflation continues to go down as deficits continue to increase, as has been the pattern for 40 years now. So, why aren't too many dollars chasing too many goods and causing inflation? Economics does not have a coherent argument for that other than "it will come eventually".

My answer is that economics has not adequately studied the distribution of money between the rich and the poor. We have asset inflation (too many dollars chasing too few assets) because our economy has been geared towards getting money to the rich, not the middle class or the poor, for 40 years now. We do not have inflation because consumers are not getting all that money (I'm talking about the last 40 years, not specific recent legislation). With deficit spending and an economy driving money towards the wealthy, we have high asset prices and a low demand, low GDP, low inflation economy. Therefore, with the current fiscal policy we can continue to pile on debt because it isn't going to consumers anyway. It's just funny money trading hands between the Treasury, the banks, the wealthy, and the Federal Reserve. We just have to be willing to accept a low growth economy as a tradeoff for lifting up the rich.

What if we just start deficit spending $2 trillion / year on checks for the middle class and the poor? Then we could have a problem with inflation and economic instability (after a few really good years). We are far from that point, in my opinion.

The solution, is to tax the rich and spend it on the middle class / poor until you actually start to see inflation around 4%. Then it would be time to back off.

---

Great explanation. Thanks for taking a shot. Right now there is a lot of money going from the government to the poor and middle class. It will be interesting to see if that spurs inflation. The bond market sure seems to be predicting that.

LMK5 said:

---

calbear93 said:

---

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

I am not an economist, but I will say this. I don't believe we will see an immediate inflationary impact from the cash payment from the latest planned stimulus since a report I read recently showed that even with the lowest income level, a majority of the people receiving a check will save, reduce debt or invest instead of putting it back into the economy. Not exactly a stimulus but it will not create an overheated economy. Besides, no matter what impact it has on the economy, I am always in favor of people exercising fiscal discipline, and, especially for the middle class and poor, reducing debt (which is always a killer - one of the best things I did going from new attorney with no money who wanted to support his parents to someone who by any measure will be comfortable without ever thinking about money for myself or my kids and future grandkids was adopt a fear of debt and always live significantly below my means and keep investing and saving automatically). As both the Republican and Democrats have shown, the free wheeling monetary and spending policies will create asset bubbles, devaluation of the dollar and inflation. I am more worried about supply pressures (especially with limited suppliers of tech components (especially chips) outside the US, many suppliers having reduced capacity due to COVID-19 who have had a more difficult time ramping up supply, and rush of demand once we open up fully) and the sudden shock from opening up the economy. That is why, as I noted last year, I went heavy in cyclicals and energy in the summer after having gone in really big in tech, EV and biotechnology when the market crashed in early part of 2020 when fear was causing people to take down quality along with the crap. I have always been an investor in tech and quality companies (with investment in Apple, Danaher, Roper for almost 15 years and Amazon, GS, and J&J for almost 10 years without any pruning on those stocks - only sold Tesla, Roku and Moderna in early February because I made too much too quickly and there was just way too much froth for these types of high growth companies that will be most impacted by inflation).

---

What has the government dumped into the economy to date, $4T? If it has only a slight impact, what's to stop them from doing it regularly, Covid or no Covid? What has stopped the government from handing out this kind of money in the past? What were they afraid of then that they don't seem to be concerned with today?

---

I wrote "immediate" as a qualifier.

What you are talking about is budget deficit. That will take a bit longer to create inflation and only through devaluation of the dollar if it happens (which I think it will).

The other risk was all of that money hitting the economy in the form of consumption increasing demand and prices. That does not seem like a risk since most of it, if BofA's survey is accurate, will be used to save, pay down debt and invest, which is not a stimulus but will also not overheat the market. The inflationary pressures and asset bubble are a definite risk from monetary policies.

I will say this. I don't care what you say unless your action reflects your belief (do you put money where your theory lies) and your results reflect the accuracy of your belief. I am not here to win an argument with people who don't have conviction to bet their beliefs. And I won't provide any more of my investment theories since no one seems interested in application but more on posting age old articles and sniping. But if you check what I wrote in 2017 reflecting what I did when others were saying to liquidate equity (you can check but I believe I disclosed in early 2017 that I was going in further in Apple, Amazon, Danaher, Roper, Goldman Sachs, Johnson & Johnson in 2017 after having been an investor in Apple, Danaher, J&J and GS for decades), as well as what I wrote in early spring of 2020 after the market crash (big investment in cyclicals, airlines, hospitality and energy in anticipation of economic recovery, EV like Tesla, IA driven biotech like Moderna) and first time sell of equity on the second week of February on concerns of asset bubble and excess froth in high growth companies that shot up like Tesla, Roku and Moderna that will be impacted by inflation and interest rate the most. I actually put my money behind my rationale that I describe. So, at the end of the day, this interest me only to the extent that it has real life impact, and I am not tracking every day movement of the stock market since I go with long-term view on fundamentals on industry, financial results, disruptive technology, regulation and macroeconomic conditions that investors and not academics care about.

Yogi wants to argue with me but we really don't have any areas of disagreement here, much to his disappointment. I wrote a lot by my standards, but there was definitely room for more detail. I want to thank Yogi for adding the additional detail to many of my points (how deficit spending translates through the economy, The Cross of Gold era dispute, etc.).

As Yogi notes, there are multiple causes of inflation. I was speaking mostly to deficit spending since that was the question. Even on the issues of 1970's inflation, where Yogi seems to think he has some kind of gotcha moment - if you read what I said (instead of Yogi's out of context quote), you'll note I never spoke about the causes of 1970's inflation.

dajonomics said:

---

dajo9 said:

---

Yogi wants to argue with me but we really don't have any areas of disagreement here, much to his disappointment. I wrote a lot by my standards, but there was definitely room for more detail. I want to thank Yogi for adding the additional detail to many of my points (how deficit spending translates through the economy, The Cross of Gold era dispute, etc.).

As Yogi notes, there are multiple causes of inflation. I was speaking mostly to deficit spending since that was the question. Even on the issues of 1970's inflation, where Yogi seems to think he has some kind of gotcha moment - if you read what I said (instead of Yogi's out of context quote), you'll note I never spoke about the causes of 1970's inflation.

---

It's not a case of having a gotcha moment. I just prefer that any discussion of economics be based in facts, not in someone's opinion of what the facts are, which is why I provide source links for anything provided. I just don't want people thinking that full employment is a bad thing. The closest we've ever come to having full employment cause inflation is at the end of World War II and the mid-1960's and neither lasted for very long. The one serious inflation we've ever had had nothing to do with the unemployment rate at all.

A lot of preconceived notions govern what people think about deficits and public debt. I highly recommend anybody who is curious on the topic to read the link above in response to LMK's question where Warren Mosler explains the seven deadly innocent frauds. It'll clear up any confusion about what public debt is and how it gets paid.

---

Yes, but time we have spent with fiat currency and money channels towards the middle class (i.e. between 1933 - 1980) is a pretty small sample size for this full employment / inflation test.

LMK5 said:

---

dajo9 said:

---

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

This is more interesting than work, so here goes. I'm not an economist, just a UC Berkeley Econ major and somebody who has spent decades reading economists and economic history.

What you learn in Economics is that high government outlays and deficits lead to higher consumption. If the economy is at full employment this will result in inflation as more dollars chase the same amount of goods. Classical economics says inflation is always the result. Keynesian economics says if the economy is below full employment, this will result in higher GDP instead of higher inflation,up until the point that the economy reaches full employment. That is the current state of the economics debate, unchanged for 100 years (Milton Friedman aside, but his monetarist theories have been completely debunked in the last few decades, in my opinion. Also the more recent MMT aside, which I'm skeptical of, but still reading about).

Two times before, the U.S. has had huge debt similar to today. First, after the Civil War the government response was to revert back to the gold standard, deflate the dollar back to its pre Civil War values and pay off the debt in real terms. This was the Gilded Age of the late 19th century and whole books have been written debating it and data is hard to come by. The economy was very turbulent in the late 19th century with a deflating currency causing hardship for farmers and debtors in general, but a hugely growing economy fueled by immigration and westward expansion. As late as 1896 the consequences of these decisions were still key as William Jennings Bryan ran for President saying "you shall not crucify mankind upon a cross of gold". He was talking about farmers going bankrupt because the gold standard was growing the money supply slower than the economy was growing causing deflation (think lower wheat prices). This was done at the insistence of Eastern bankers who wanted debts paid in real terms.

Second, after World War II we had huge debt. FDR had gotten off the gold standard in the Great Depression. Post World War II we allowed modest inflation and economic growth to make the old debts become smaller. Gradually, over time, the amount of debt was less relevant because the economy had grown and the currency had inflated. This is the dreaded, inflating our way out of debt. It actually works really well unless you get to the point of the 1970's where inflation gets out of control.

So, to answer your question, in my opinion there are two paths to ruin. First, trying to pay off the debt in real terms. We have no westward expansion to rely on for economic growth. Trying a post-Civil War approach would lead to much more economic harm than good due to spending so much of GDP to pay down debt. The second path to ruin would be allowing inflation to occur too quickly wreaking havoc on economic stability (i.e. something like the 1970's). There is a huge, stable path between those two outcomes. However, all that assumes we want to stop accumulating debt. So, what if we continue to add on debt? I'll get back to that.

In regards to your question, "what leads to what" inflation is caused by too many dollars chasing too few goods. The economics profession has been completely stymied for years over why inflation continues to go down as deficits continue to increase, as has been the pattern for 40 years now. So, why aren't too many dollars chasing too many goods and causing inflation? Economics does not have a coherent argument for that other than "it will come eventually".

My answer is that economics has not adequately studied the distribution of money between the rich and the poor. We have asset inflation (too many dollars chasing too few assets) because our economy has been geared towards getting money to the rich, not the middle class or the poor, for 40 years now. We do not have inflation because consumers are not getting all that money (I'm talking about the last 40 years, not specific recent legislation). With deficit spending and an economy driving money towards the wealthy, we have high asset prices and a low demand, low GDP, low inflation economy. Therefore, with the current fiscal policy we can continue to pile on debt because it isn't going to consumers anyway. It's just funny money trading hands between the Treasury, the banks, the wealthy, and the Federal Reserve. We just have to be willing to accept a low growth economy as a tradeoff for lifting up the rich.

What if we just start deficit spending $2 trillion / year on checks for the middle class and the poor? Then we could have a problem with inflation and economic instability (after a few really good years). We are far from that point, in my opinion.

The solution, is to tax the rich and spend it on the middle class / poor until you actually start to see inflation around 4%. Then it would be time to back off.

---

Great explanation. Thanks for taking a shot. Right now there is a lot of money going from the government to the poor and middle class. It will be interesting to see if that spurs inflation. The bond market sure seems to be predicting that.

---

I encourage you to look at a 3 year chart of the 10 year Treasury rate and ask yourself if the bond market is really predicting inflation.

Or, is the bond market just having a normal bounceback after an extreme run.

https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx

dajo9 said:

---

LMK5 said:

---

dajo9 said:

---

LMK5 said:

---

Question for you economists out there. Obviously there has to be an end to incredible outlays by the federal government, but what are the potential steps to ruin? I guess that putting too many dollars into the economy eventually depresses the value of those dollars, but I'd enjoy someone laying out the potential pitfalls of these outlays and what the sequence to possibly higher inflation would be. What leads to what?

---

This is more interesting than work, so here goes. I'm not an economist, just a UC Berkeley Econ major and somebody who has spent decades reading economists and economic history.

What you learn in Economics is that high government outlays and deficits lead to higher consumption. If the economy is at full employment this will result in inflation as more dollars chase the same amount of goods. Classical economics says inflation is always the result. Keynesian economics says if the economy is below full employment, this will result in higher GDP instead of higher inflation,up until the point that the economy reaches full employment. That is the current state of the economics debate, unchanged for 100 years (Milton Friedman aside, but his monetarist theories have been completely debunked in the last few decades, in my opinion. Also the more recent MMT aside, which I'm skeptical of, but still reading about).

Two times before, the U.S. has had huge debt similar to today. First, after the Civil War the government response was to revert back to the gold standard, deflate the dollar back to its pre Civil War values and pay off the debt in real terms. This was the Gilded Age of the late 19th century and whole books have been written debating it and data is hard to come by. The economy was very turbulent in the late 19th century with a deflating currency causing hardship for farmers and debtors in general, but a hugely growing economy fueled by immigration and westward expansion. As late as 1896 the consequences of these decisions were still key as William Jennings Bryan ran for President saying "you shall not crucify mankind upon a cross of gold". He was talking about farmers going bankrupt because the gold standard was growing the money supply slower than the economy was growing causing deflation (think lower wheat prices). This was done at the insistence of Eastern bankers who wanted debts paid in real terms.

Second, after World War II we had huge debt. FDR had gotten off the gold standard in the Great Depression. Post World War II we allowed modest inflation and economic growth to make the old debts become smaller. Gradually, over time, the amount of debt was less relevant because the economy had grown and the currency had inflated. This is the dreaded, inflating our way out of debt. It actually works really well unless you get to the point of the 1970's where inflation gets out of control.

So, to answer your question, in my opinion there are two paths to ruin. First, trying to pay off the debt in real terms. We have no westward expansion to rely on for economic growth. Trying a post-Civil War approach would lead to much more economic harm than good due to spending so much of GDP to pay down debt. The second path to ruin would be allowing inflation to occur too quickly wreaking havoc on economic stability (i.e. something like the 1970's). There is a huge, stable path between those two outcomes. However, all that assumes we want to stop accumulating debt. So, what if we continue to add on debt? I'll get back to that.

In regards to your question, "what leads to what" inflation is caused by too many dollars chasing too few goods. The economics profession has been completely stymied for years over why inflation continues to go down as deficits continue to increase, as has been the pattern for 40 years now. So, why aren't too many dollars chasing too many goods and causing inflation? Economics does not have a coherent argument for that other than "it will come eventually".

My answer is that economics has not adequately studied the distribution of money between the rich and the poor. We have asset inflation (too many dollars chasing too few assets) because our economy has been geared towards getting money to the rich, not the middle class or the poor, for 40 years now. We do not have inflation because consumers are not getting all that money (I'm talking about the last 40 years, not specific recent legislation). With deficit spending and an economy driving money towards the wealthy, we have high asset prices and a low demand, low GDP, low inflation economy. Therefore, with the current fiscal policy we can continue to pile on debt because it isn't going to consumers anyway. It's just funny money trading hands between the Treasury, the banks, the wealthy, and the Federal Reserve. We just have to be willing to accept a low growth economy as a tradeoff for lifting up the rich.

What if we just start deficit spending $2 trillion / year on checks for the middle class and the poor? Then we could have a problem with inflation and economic instability (after a few really good years). We are far from that point, in my opinion.

The solution, is to tax the rich and spend it on the middle class / poor until you actually start to see inflation around 4%. Then it would be time to back off.

---

Great explanation. Thanks for taking a shot. Right now there is a lot of money going from the government to the poor and middle class. It will be interesting to see if that spurs inflation. The bond market sure seems to be predicting that.

---

I encourage you to look at a 3 year chart of the 10 year Treasury rate and ask yourself if the bond market is really predicting inflation.

Or, is the bond market just having a normal bounceback after an extreme run.

https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx

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For sure there is going to be regression to the mean for the bond market. Recent movements indicate the bond market predicting higher interest rates/inflation, at least in the near term.

U.S. Treasuries rallying this week sending the 10 year interest rate back down well below 1.60%. This happens as everybody realizes a temporary signal of high inflation will be coming with the March / April reads because CPI was negative a year ago. The hedge funds with Treasury shorts have given up the game of expecting a further decline in Treasuries and with them unwinding their shorts (i.e. buying Treasuries) prices are now up and interest rates going down.