Inflation Rearing its Ugly Head

[highroller]

Conservatives have to harp on inflation constantly because it's the only way they can argue against expanding deficit spending. The level of delusion / dishonesty one must have to argue that inflation is a problem (much less hyperinflation like many here would try to use as an argument as well) is pretty insane, considering that inflation hasn't been a problem for the majority of most Americans' lives that are alive today.

Yeah my parents were saying that this is just like Jimmy Carter’s inflation. I told them that they were obviously weak people. This is nothing.

 

[ttwtt78640]

Yes, it did. It required the end-user to buy more expensive fuel. Nobody notices because it hasn’t affected our lives.

Nobody will be required to buy electric cars; it’s just a price of fossil fuels would go up, and electricity would become a reasonable alternative (which it already has).

What a load of newspeak. How is electricity an alternative without buying an EV?

 

[Chomsky]

Yes, so long as energy costs continue to increase. There seems to be significant ‘environmentalist’ pressure to make that happen. Energy is not only required to make X, it is also required to get X from wherever it is made to the customer.

I don't see it lasting to this effect.

 

[grip]

Higher Inflation Is Here to Stay for Years, Economists Forecast

Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while.

www.wsj.com

 

[highroller]

Higher Inflation Is Here to Stay for Years, Economists Forecast

Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while.

www.wsj.com

That has a paywall. Can you give us the gist of the article?

 

[ttwtt78640]

I don't see it lasting to this effect.

I do because GDP is growing faster than the population. In order to maintain (or increase to keep shareholders happy) profit levels, with fewer people being added, the price of a widget must rise.

 

[grip]

That has a paywall. Can you give us the gist of the article?

I just hit the paywall also, but it predicts 2% annual inflation for 2022-23. If the Fed refuses to hike interest rates, it could be even worse.

"Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while."

 

[Aletheia]

If you think my example of the coin is simplistic then you didn't get it. Minting such a coin would cause the money supply to increase by $100tn which wouldn't have any impact on the economy. The entire point of the example is to show that money has no impact unless it is being put into the economy, and thus looking at the money supply is meaningless.

If you think the velocity of money "stagnating" is an issue then you don't understand how it's calculated (I'll give you a hint: the amount of money supply formulaicly impacts the velocity calculated).

Fed purchases reduce interest rates which increases investment asset prices given the risk free rate goes down - has nothing to do with the supply of money. Real estate is incredibly sensitive to shifts in the risk free rate given they're extremely low rates due to the fact that they're heavily collateralized so it's blatantly obvious that real estate prices would increase dramatically with a commensurate lowering of rates. And to claim that the rise in housing prices is due to inflation, goes to show that you're not really clear on the fundamentals of what you're discussing or what inflation actually is.

Stock buybacks have no meaningful impact on stock prices so again it seems like you may not have an understanding of what you're discussing here.

Yes, there are a lot of issues in contention here. Let's take one.

"Stock buybacks have no meaningful impact on stock prices so again it seems like you may not have an understanding of what you're discussing here."

I disagree with this absolute statement, and so does this study.

"We examine long-run firm performance following open market share repurchase announcements, 1980–1990. We find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1%. For ‘value’ stocks, companies more likely to be repurchasing shares because of undervaluation, the average abnormal return is 45.3%."

And this was before buybacks exploded.

 

[Khayembii Communique]

Yes, there are a lot of issues in contention here. Let's take one.

"Stock buybacks have no meaningful impact on stock prices so again it seems like you may not have an understanding of what you're discussing here."

I disagree with this absolute statement, and so does this study.

"We examine long-run firm performance following open market share repurchase announcements, 1980–1990. We find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1%. For ‘value’ stocks, companies more likely to be repurchasing shares because of undervaluation, the average abnormal return is 45.3%."

And this was before buybacks exploded.

The study has nothing to do with whether buybacks impact stock prices. It doesn't even address the question of causation or impact. It just looks at the share performance following repurchase announcements and makes no connection between the two.

 

[Aletheia]

The study has nothing to do with whether buybacks impact stock prices. It doesn't even address the question of causation or impact. It just looks at the share performance following repurchase announcements and makes no connection between the two.

what? did you not read the highlighted.
We find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1%
further
For ‘value’ stocks, companies more likely to be repurchasing shares because of undervaluation, the average abnormal return is 45.3%.

cause : buybacks and announcements of buybacks
effect: abnormal positive returns

You don't need to couch that result in terms of causation or impact. It's very clear that it falsifies your earlier absolute statement.
Wait a minute, so your interpretation is buyback announcements and buybacks have nothing to do with each other, even though one clearly impacts the markets abnormaly.
You made a statement that buybacks have absolutely zero impact on stock returns. Well, without buybacks, you surely wouldn't have buyback announcements.
What can I say, I disagree and I've provided evidence to back that up. The fact you can't see any connection is telling.

 

[Khayembii Communique]

what? did you not read the highlighted.
We find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1%
further
For ‘value’ stocks, companies more likely to be repurchasing shares because of undervaluation, the average abnormal return is 45.3%.

cause : buybacks and announcements of buybacks
effect: abnormal positive returns

You don't need to couch that result in terms of causation or impact. It's very clear that it falsifies your earlier absolute statement.
Wait a minute, so your interpretation is buyback announcements and buybacks have nothing to do with each other, even though one clearly impacts the markets abnormaly.
You made a statement that buybacks have absolutely zero impact on stock returns. Well, without buybacks, you surely wouldn't have buyback announcements.
What can I say, I disagree. The fact you can't see any connection is telling.

They make no comment stating that the repurchase announcement caused the share price increases. Not sure how much more simple I can lay it out for you. They even state in the rest of the abstract that you selectively omitted that for others there was no abnormal return (not that that addresses my fundamental point).

Buybacks are just another way for companies to return capital to shareholders, like dividends. So yeah, they would definitely still exist because they're a tax-efficient way to allow investors to electively participate in a dividend.

Buybacks have effectively no impact on valuations because the decrease in share count is offset by a proportional decrease in equity value from cash leaving the company. This is finance 101 valuation math.

 

[Kushinator]

I do because GDP is growing faster than the population. In order to maintain (or increase to keep shareholders happy) profit levels, with fewer people being added, the price of a widget must rise.

That's a pretty stupid thing to claim.

First and foremost, GDP has grown faster than the population for some time:

Inflation is the result of output growth exceeding productivity growth.

 

[Kushinator]

Buybacks have effectively no impact on valuations because the decrease in share count is offset by a proportional decrease in equity value from cash leaving the company. This is finance 101 valuation math.

Bingo! Cash is converted to equity, while the number of total shares is reduced thereby increasing the return on equity.

 

[bave]

Bingo! Cash is converted to equity, while the number of total shares is reduced thereby increasing the return on equity.

Eh.

They have no immediate impact on market capitalization sure, but they can have a huge impact on future valuations. Ask Apple. Effectively what Apple has done over the last decade is invest in their own stock compared to their carry cost. A lot of the tech companies have done this. Microsoft borrowed tens of billions of dollars to buy back their stock. Why? Their interest cost on the debt is lower than their dividend cost on the shares.

 

[Kushinator]

Eh.

They have no immediate impact on market capitalization sure, but they can have a huge impact on future valuations. Ask Apple. Effectively what Apple has done over the last decade is invest in their own stock compared to their carry cost. A lot of the tech companies have done this. Microsoft borrowed tens of billions of dollars to buy back their stock. Why? Their interest cost on the debt is lower than their dividend cost on the shares.

That's the basis of such financial engineering. ROE will exceed the costs associated with debt issuance while simultaneously providing tax benefits. For companies without stockpiles of cash and equivalents it's not really worth it.

 

[bave]

That's the basis of such financial engineering. ROE will exceed the costs associated with debt issuance while simultaneously providing tax benefits. For companies without stockpiles of cash and equivalents it's not really worth it.

Of course, it is dependent on cash flow to justify low cost borrowing. So long as you can borrow below your alternative carry cost, it is a win.

 

[Logophile]

I just hit the paywall also, but it predicts 2% annual inflation for 2022-23. If the Fed refuses to hike interest rates, it could be even worse.

"Americans should brace themselves for several years of higher inflation than they’ve seen in decades, according to economists who expect the robust post-pandemic economic recovery to fuel brisk price increases for a while."

Two percent?? Even at best it will be higher than that. I really hope the feds hike the interest rates. Then again, we have Bungling Biden at the helm. And apparently we have profiteering Powell handling the money.

Fed chairman sold up to $5 million in shares ahead of 2020 Dow dive​

Barnini Chakraborty
Mon, October 18, 2021, 5:35 PM·5 min read

Federal Reserve Chairman Jerome Powell sold as much as $5 million worth of stock just before the Dow Jones Industrial Average tanked a year ago, according to newly reviewed disclosures.

Fed chairman sold up to $5 million in shares ahead of 2020 Dow dive

Federal Reserve Chairman Jerome Powell sold as much as $5 million worth of stock just before the Dow Jones Industrial Average tanked a year ago, according to newly reviewed disclosures.

news.yahoo.com

Thanks!!

 

[bave]

Two percent?? Even at best it will be higher than that. I really hope the feds hike the interest rates. Then again, we have Bungling Biden at the helm. And apparently we have profiteering Powell handling the money.

Poor context. He rebalanced a ~$50MM portfolio of index funds and you think that is profiteering?

 

[Lord Tammerlain]

That's a pretty stupid thing to claim.

First and foremost, GDP has grown faster than the population for some time:

Inflation is the result of output growth exceeding productivity growth.

One would expect GDP to grow faster than the population in order to grow the wealth of the nation

 

[Logophile]

Poor context. He rebalanced a ~$50MM portfolio of index funds and you think that is profiteering?

So you were told. Thanks!!

 

[ALiberalModerate]

Well, it's not too late to start protesting - writing your congressman or calling Senators - to stop the excessive borrowing. That's for openers. Thanks!!

It's worldwide inflation, what does U.S. fiscal spending have to do with worldwide inflation?

 

[Lord Tammerlain]

It's worldwide inflation, what does U.S. fiscal spending have to do with worldwide inflation?

Canada has a labor shortage and a lack of Truckers, and high gas prices

Thanks Biden

 

[Kushinator]

Canada has a labor shortage and a lack of Truckers, and high gas prices

Thanks Biden

Same with the U.K..

Biden really ****ed up with his disastrous Brexit policy.

 

[Logophile]

It's worldwide inflation, what does U.S. fiscal spending have to do with worldwide inflation?

World wide inflation is contributing to US inflation and vice versa. US fiscal spending - government spending - is contributing to economic vulnerability primarily because the money is borrowed. We don't have it. Right now for every dollar, we're spending 1.20. That's BEFORE these huge federally borrowed sums on the supposed infrastructure which include a lot of pork. Because we are in an inflationary trend, US consumer spending will or should decrease by virtue of expense, but a lot that money is borrowed, too, in the form of loans. And people will continue to borrow recklessly unless the feds up the interest rate, as we have learned from experience. So far the feds haven't. Biden's monetary policy is to spend like no tomorrow on borrowed money for projects that shouldn't be on the table until we have the pandemic on the run.. At least a third of our national debt is foreign. We are the barometer of the world when it comes to economic meltdowns, so a president like Biden, who advocates reckless spending and fuels labor shortages by virtue of mandates - plus an assortment of other policies that are ill-advised at the moment - is very much a factor in the global economic picture. Thanks!!

 

[ALiberalModerate]

World wide inflation is contributing to US inflation and vice versa. US fiscal spending - government spending - is contributing to economic vulnerability primarily because the money is borrowed. We don't have it. Right now for every dollar, we're spending 1.20. That's BEFORE these huge federally borrowed sums on the supposed infrastructure which include a lot of pork. Because we are in an inflationary trend, US consumer spending will or should decrease by virtue of expense, but a lot that money is borrowed, too, in the form of loans. And people will continue to borrow recklessly unless the feds up the interest rate, as we have learned from experience. So far the feds haven't. Biden's monetary policy is to spend like no tomorrow on borrowed money for projects that shouldn't be on the table until we have the pandemic on the run.. At least a third of our national debt is foreign. We are the barometer of the world when it comes to economic meltdowns, so a president like Biden, who advocates reckless spending and fuels labor shortages by virtue of mandates - plus an assortment of other policies that are ill-advised at the moment - is very much a factor in the global economic picture. Thanks!!

So other than your pure conjecture, you have zero evidence that US fiscal borrowing is creating worldwide inflation.