This is a self contradictory writeup but it is a self-contradiction I hear from a lot of investors. It goes something like this (1) the low interest rate environment of 2009-2021 was great for humanity, and (2) I really hope it does not repeat.
Well I for one agree with (1) but I do hope it repeats. And it is very possible that it does.
Actually, if you look at leading indicators, i.e., upstream prices, it looks like inflation will be receding. Oil and natural gas prices are way down year on year. Steel, aluminum and lithium prices are significantly lower year over year. Copper and iron ore are about flat. Coal is significantly lower.
If you look at food staples - wheat, corn and soybeans are all down year over year.
Furthermore transportation costs have fallen significantly across the board.
Furthermore, if you look a little bit downstream, China factory gate prices are in serious deflation, falling 4.6% yoy in May. Considering what a big exporter China is, these lower prices will wash over the entire world in the months to come as cheap Chinese goods are shipped around the world (utilizing lower shipping rates).
So the situation currently is that deflation is happening upstream but downstream, when the finished product gets to the consumer, inflation happens. This is not unusual as everyone tries to keep prices up to pad their margins. How quickly this trend is reversed depends on how competitive the economy is. Unfortunately we have been discovering that after a lot of mergers, the US economy is not as competitive as we previously believed.
But hopefully it will happen soon and downstream prices will fall to reflect lower upstream prices. It has always happened historically. We, as consumers, can help this process along by searching out good deals and rewarding companies that are willing to lower their prices with our business.
So I do not see this necessarily as a continuing period of high inflation. Of course things can change, but it is very annoying how everyone in the business press writes under the assumption that inflation and interest rates will be high for a long period of time. (Interestingly enough, when you look at the bond markets, where people bet with their money instead of their mouths, the bets are for inflation and interest rates to recede).
When you think about it, the low interest rate environment for 2009-2021 was caused by a large underlying factor. Humanity has gotten much better at making larger and larger amounts of stuff. Maybe because of technology, globalization or the free exchange of information of the internet, but it is happening. And guess what, it is continuing to happen.
I don't think you are right about why chinese factory gate prices are in serious deflation while ROW is in inflation. I think there's much more decoupling going on in the background and we are in inflation largely because we don't have the factory capacity to supply our demand and we are currently building out said factory capacity (and running into supply constraints causing specific inflation). China is oversupplied with factories given their diminished reach in the world so they are having their margins seriously compressed while there's a good chance that deflation doesn't reach us in the west because of said decoupling.
I also don't think low interest rates and low inflation are a good thing. They indicate one or more structural problems that are at best no fun to live through but good overall (i.e. integration of cheap third world labor and decades of wage normalization between first and third world) or no fun to live through and a serious long term problem for society (i.e. extremely low birthrates destroying demand growth allowing output to outpace demand consistently). I don't think there's ever been an example of something good and fun to live through causing low inflation (it would be cool if labor productivity increased dramatically while labor demand found a natural satiation point leading to low inflation and low interest rates but I don't think it's ever happened).
Less risky to invest in ostensibly interest-rate backed investments (think he characterises it as fomo -> fear of loss).
Time running out to realise the prior 2-5 year investments in the VC funded space - all the other biggies are busted flushes ( NFTs, self-driving cars, crypto), AI last one remaining.
Future investment is heading towards safer seas (which proxy rates), rather than riskier, 9 in 10 will fail startups.
Well I for one agree with (1) but I do hope it repeats. And it is very possible that it does.
Actually, if you look at leading indicators, i.e., upstream prices, it looks like inflation will be receding. Oil and natural gas prices are way down year on year. Steel, aluminum and lithium prices are significantly lower year over year. Copper and iron ore are about flat. Coal is significantly lower.
If you look at food staples - wheat, corn and soybeans are all down year over year.
Furthermore transportation costs have fallen significantly across the board.
Furthermore, if you look a little bit downstream, China factory gate prices are in serious deflation, falling 4.6% yoy in May. Considering what a big exporter China is, these lower prices will wash over the entire world in the months to come as cheap Chinese goods are shipped around the world (utilizing lower shipping rates).
So the situation currently is that deflation is happening upstream but downstream, when the finished product gets to the consumer, inflation happens. This is not unusual as everyone tries to keep prices up to pad their margins. How quickly this trend is reversed depends on how competitive the economy is. Unfortunately we have been discovering that after a lot of mergers, the US economy is not as competitive as we previously believed.
But hopefully it will happen soon and downstream prices will fall to reflect lower upstream prices. It has always happened historically. We, as consumers, can help this process along by searching out good deals and rewarding companies that are willing to lower their prices with our business.
So I do not see this necessarily as a continuing period of high inflation. Of course things can change, but it is very annoying how everyone in the business press writes under the assumption that inflation and interest rates will be high for a long period of time. (Interestingly enough, when you look at the bond markets, where people bet with their money instead of their mouths, the bets are for inflation and interest rates to recede).
When you think about it, the low interest rate environment for 2009-2021 was caused by a large underlying factor. Humanity has gotten much better at making larger and larger amounts of stuff. Maybe because of technology, globalization or the free exchange of information of the internet, but it is happening. And guess what, it is continuing to happen.