Australian (ASX) Stock Market Forum

Inflation

Joined
8 June 2008
Posts
9,398
Reactions
11,637
Just my two cents but gut feel is we're a lot closer to the end of this rate raising cycle than the mainstream expectation.

I can't prove that with data (and I always prefer data....) but we've already had significant inflation and we've already had a rise in interest rates - that's got to be sapping consumers' spending power and the sustainable demand for physical volumes of goods and services surely?

Just my perception but I think ultimately the Fed's and other central banks with ongoing tightening will bring about a proper hard landing economically simply due to the pace at which rates have been tightened. As with anything, a rapid rate of change tends to bring about overshoot. Once that happens, once there's an undeniable recession, that's the end of pricing power for practically anything other than bona fide scarce things eg gas.

Associated with that I see unbridled blue sky optimism at the moment. News media and government are both proclaiming permanently low unemployment and so on - that will be wrong is my expectation. Very wrong. :2twocents

A bit of crystal ball gazing there, not backed with hard evidence, so take it for what it is. Time will tell.
Was actually thinking about getting bonds soon.. knowing that the fiat currency could go zero..but a limited amount just in case i am wrong on main play of PM
 

over9k

But first, let me consult my goldfish
Joined
12 June 2020
Posts
3,827
Reactions
4,278
Just my two cents but gut feel is we're a lot closer to the end of this rate raising cycle than the mainstream expectation.

I can't prove that with data (and I always prefer data....) but we've already had significant inflation and we've already had a rise in interest rates - that's got to be sapping consumers' spending power and the sustainable demand for physical volumes of goods and services surely?

Just my perception but I think ultimately the Fed's and other central banks with ongoing tightening will bring about a proper hard landing economically simply due to the pace at which rates have been tightened. As with anything, a rapid rate of change tends to bring about overshoot. Once that happens, once there's an undeniable recession, that's the end of pricing power for practically anything other than bona fide scarce things eg gas.

Associated with that I see unbridled blue sky optimism at the moment. News media and government are both proclaiming permanently low unemployment and so on - that will be wrong is my expectation. Very wrong. :2twocents

A bit of crystal ball gazing there, not backed with hard evidence, so take it for what it is. Time will tell.
We didn't get the oversize rate hike either so that's actually kind of encouraging.

As previously mentioned, the next two are scheduled to be 75 & 50 so that would suggest we're close to the peak. If the 50's actually a 75 and/or we get some more big moves after the 50 that's scheduled then that will be telling.
 
Joined
16 June 2011
Posts
1,124
Reactions
1,062
US market's finished over -1.7% lower across the board (future's indicate another -1.7% drop tonight).. I'm anticipating we'll have a santa rally at some stage leading up to xmas & consumer spending won't slow down anytime soon imo

Most people spend way beyond their means over the next few month's.. so can't see inflation abating anytime soon imo
 
Joined
20 July 2021
Posts
4,039
Reactions
5,409
And surprisingly the market went from green to red!
What where they thinking?
75bp is as low as it could be...
Weird
am guessing news elsewhere gazumped the Fed decision ( which was in line with consensus as far as i could tell )

maybe there is an extra devil in the detail
 
Joined
20 July 2021
Posts
4,039
Reactions
5,409
Was actually thinking about getting bonds soon.. knowing that the fiat currency could go zero..but a limited amount just in case i am wrong on main play of PM
better you than me

remember there is a possibility SOME bonds will converting to perpetual ( never get your capital back )

now back in 2011 to 2016 ( and maybe even until 2020 ) that wasn't a bad place to be , but NOW inflation has taken hold .. that capital is liable to shrink away

PS that is sovereign bonds .. carefully selected corporate bonds might still be unloved gems
 

over9k

But first, let me consult my goldfish
Joined
12 June 2020
Posts
3,827
Reactions
4,278
Musing:


We had a "shock" inflation number come in below estimates, so risk/growth plays all ran hard. Then the next one came in "shock" ABOVE estimates. So everything plummeted. We also had things run hard on the previous jumbo rate hike announcement as big increase = belief that fed is "on the ball" so to speak.

We then got another 75 point rise from the fed. Problem is, with the last estimate coming in unexpectedly above estimates, trust that the fed's got inflation back under control is, well, gone. Hence why the forecast 75 point increase from the fed didn't send things soaring again this time because, well, we're now in a situation where faith in the fed has vanished.

This means that with reference to the question of where the bottom is going to be/where the uncertainty will reduce/where faith that the steerers of the ship will have gotten it back under control, we have a bit of a dilemma. Because the last inflation numbers missed estimates, markets no longer believe that the fed's forecast increases/forward guidance are adequate and/or accurate.

In other words, they're not convinced that the forecast increases are going to get things under control - hence the lack of bounce in the markets when the latest increase was exactly as forecast.

So this means we're going to see one of two things:

One: The fed sticks to its guidance and markets continue their lack of faith in it being adequate.
Two: The guidance is revised and larger increases are forecast.

The problem we have is that even if the next numbers come in at forecast or even below them, markets aren't going to trust it. They're now going to want to see more than one inflation number come in where they want it to be before they start to believe that the fed's got the brakes pressed hard enough.

So either A: The fed sticks with its current guidance and things keep dropping because markets have lost faith or B: The fed increases its hikes in its forward guidance, effectively admitting that it's dropped the ball here but is at least letting us know that it KNOWS it's dropped the ball.

Both of these things are bad, but perception is reality here and we have to wonder which of these two options the market is going to PERCEIVE as worse - a fed that appears to be in denial, or a fed that admits it's cocked up and is going to jack rates up even higher. The only way I see the first one not being the worse of the two is if the next inflation numbers come in back under estimates again but just one instance of that is not going to be enough to reassure markets that another 75 & a 50 are going to be adequate.

If the fed sticks with its current forecast increases and another batch of data comes in above estimates it'll A: be a bloodbath and B: force the fed's hand to go even higher.

But if the next data comes in BELOW estimates, we can now no longer expect markets to run in response. With investor faith being rattled, the best case scenario there is, IMHO, equities stay flat.

This means that under the current expected rate hike path, our two outcomes are either flatline or another drop.

Under scenario two, if the fed revises its guidance and forecasts bigger and/or longer increases, that too will push equities lower from a confirmation of inflation being worse than expected and simple p/e perspective, meaning that either way, the only way we see some more green in markets is when we get at least two inflation datasets in below estimates - even if the next one's below estimates again, that's not going to cut it.

This means that the bottom now becomes the point just before we get a SECOND batch of inflation data where we want it to be.

As for where that point will be and what the fed does in response, that's much more difficult to say. This last inflation data that was above estimates didn't convince them to raise rates by more than forecast so I have to wonder if another one will too. What I suspect will happen is that we'll see an extension of the larger hikes rather than the forecast rollover, i.e the next three hikes will be 75's rather than one more 75 and then 50's from there.

To be honest, I also can't see the fed reducing its rate hike increases until it sees at least two datasets in below estimates either, so the bottom line here is that there's really no fed action/circumstance from now until we see a meaningful trend change to suggest any kind of bottom has been found yet.


Bottom line: With faith/confidence shaken, it doesn't actually matter what the fed does from here, we aren't going to see a rebound in anything except energy until we see a lot more proof of/lot more datasets coming in below estimates of, the inflation boogeyman being tamed.

So yeah, bear market until we start to see smaller rate hike increases and it would appear that those reductions are going to be farther in the future now.

End result for us is that the basic play hasn't changed, it's just been stretched out/delayed. But remember, everything I just spoke about is entirely demand side stuff. Almost nothing's changed (or at least, changed for the better) on the supply side.
 
Last edited:

over9k

But first, let me consult my goldfish
Joined
12 June 2020
Posts
3,827
Reactions
4,278
Musing:


We had a "shock" inflation number come in below estimates, so risk/growth plays all ran hard. Then the next one came in "shock" ABOVE estimates. So everything plummeted. We also had things run hard on the previous jumbo rate hike announcement as big increase = belief that fed is "on the ball" so to speak.

We then got another 75 point rise from the fed. Problem is, with the last estimate coming in unexpectedly above estimates, trust that the fed's got inflation back under control is, well, gone. Hence why the forecast 75 point increase from the fed didn't send things soaring again this time because, well, we're now in a situation where faith in the fed has vanished.

This means that with reference to the question of where the bottom is going to be/where the uncertainty will reduce/where faith that the steerers of the ship will have gotten it back under control, we have a bit of a dilemma. Because the last inflation numbers missed estimates, markets no longer believe that the fed's forecast increases/forward guidance are adequate and/or accurate.

In other words, they're not convinced that the forecast increases are going to get things under control - hence the lack of bounce in the markets when the latest increase was exactly as forecast.

So this means we're going to see one of two things:

One: The fed sticks to its guidance and markets continue their lack of faith in it being adequate.
Two: The guidance is revised and larger increases are forecast.

The problem we have is that even if the next numbers come in at forecast or even below them, markets aren't going to trust it. They're now going to want to see more than one inflation number come in where they want it to be before they start to believe that the fed's got the brakes pressed hard enough.

So either A: The fed sticks with its current guidance and things keep dropping because markets have lost faith or B: The fed increases its hikes in its forward guidance, effectively admitting that it's dropped the ball here but is at least letting us know that it KNOWS it's dropped the ball.

Both of these things are bad, but perception is reality here and we have to wonder which of these two options the market is going to PERCEIVE as worse - a fed that appears to be in denial, or a fed that admits it's cocked up and is going to jack rates up even higher. The only way I see the first one not being the worse of the two is if the next inflation numbers come in back under estimates again but just one instance of that is not going to be enough to reassure markets that another 75 & a 50 are going to be adequate.

If the fed sticks with its current forecast increases and another batch of data comes in above estimates it'll A: be a bloodbath and B: force the fed's hand to go even higher.

But if the next data comes in BELOW estimates, we can now no longer expect markets to run in response. With investor faith being rattled, the best case scenario there is, IMHO, equities stay flat.

This means that under the current expected rate hike path, our two outcomes are either flatline or another drop.

Under scenario two, if the fed revises its guidance and forecasts bigger and/or longer increases, that too will push equities lower from a confirmation of inflation being worse than expected and simple p/e perspective, meaning that either way, the only way we see some more green in markets is when we get at least two inflation datasets in below estimates - even if the next one's below estimates again, that's not going to cut it.

This means that the bottom now becomes the point just before we get a SECOND batch of inflation data where we want it to be.

As for where that point will be and what the fed does in response, that's much more difficult to say. This last inflation data that was above estimates didn't convince them to raise rates by more than forecast so I have to wonder if another one will too. What I suspect will happen is that we'll see an extension of the larger hikes rather than the forecast rollover, i.e the next three hikes will be 75's rather than one more 75 and then 50's from there.

To be honest, I also can't see the fed reducing its rate hike increases until it sees at least two datasets in below estimates either, so the bottom line here is that there's really no fed action/circumstance from now until we see a meaningful trend change to suggest any kind of bottom has been found yet.


Bottom line: With faith/confidence shaken, it doesn't actually matter what the fed does from here, we aren't going to see a rebound in anything except energy until we see a lot more proof of/lot more datasets coming in below estimates of, the inflation boogeyman being tamed.

So yeah, bear market until we start to see smaller rate hike increases and it would appear that those reductions are going to be farther in the future now.

End result for us is that the basic play hasn't changed, it's just been stretched out/delayed. But remember, everything I just spoke about is entirely demand side stuff. Almost nothing's changed (or at least, changed for the better) on the supply side.
As a second order (more important) question stemming from this is that if I'm right, have markets figured this out yet and/or when will they figure it out...
 
Joined
20 July 2021
Posts
4,039
Reactions
5,409

Hmmmmm
maybe they are heading for a trip to Syria , Ukraine is not devoid of resources but 'ALL ' ( within certain guidelines ) sounds like some overkill ... now Venezuela might be grateful for some help as well
 
Joined
20 July 2021
Posts
4,039
Reactions
5,409
one bit of gossip from the recent SCO was the willingness for Pakistan to have some Russian pipelines come to ( and maybe through ) their country won't happen next week but maybe Putin is going to really have an oil( and gas ) war ( and make it about distribution )
 
Joined
14 February 2005
Posts
13,101
Reactions
11,131
one bit of gossip from the recent SCO was the willingness for Pakistan to have some Russian pipelines come to ( and maybe through ) their country won't happen next week but maybe Putin is going to really have an oil( and gas ) war ( and make it about distribution )
The decision to specifically target energy sector employees for military service is the biggest story of the lot in my view.

If you're going to take effectively your entire energy sector workforce and send them off to war well it's a given that your energy production's going to fall in a heap rather spectacularly.
 
Joined
8 June 2008
Posts
9,398
Reactions
11,637
The decision to specifically target energy sector employees for military service is the biggest story of the lot in my view.

If you're going to take effectively your entire energy sector workforce and send them off to war well it's a given that your energy production's going to fall in a heap rather spectacularly.
The employees of the ministry do not pump oil or gas out,but what it gives is an excuse to slow and limit permits exports etc etc... that's what it is in my view.
More sorry EU but that gas you need ,well it could take a while... unless...
 
Joined
14 February 2005
Posts
13,101
Reactions
11,131
The employees of the ministry do not pump oil or gas out
This raises some questions. From the reports I've seen it's:

"The Russian Energy Ministry has asked nearly 100% of Russia’s male energy sector employees to present themselves at recruitment offices, according to a Ministry letter shared by Gaz Bayushka."
Emphasis mine. From: https://oilprice.com/Latest-Energy-...y-Workers-To-Register-For-Military-Draft.html

I take that to mean anyone and everyone who works in any kind of fossil fuel extraction, electricity generation plus associated pipelines and networks. At least that's what the "energy sector" is in Western terminology. Plus in some cases directly related things such as trains hauling coal are included.

Does Russia have some far narrower definition?
 
Joined
20 July 2021
Posts
4,039
Reactions
5,409
The decision to specifically target energy sector employees for military service is the biggest story of the lot in my view.

If you're going to take effectively your entire energy sector workforce and send them off to war well it's a given that your energy production's going to fall in a heap rather spectacularly.
i would imagine they would trim the currently employed and hover up all the healthy unemployed energy workers

for example in the west a large amount of excess gas is being flared ( that would have normally been sold to Europe )

would they start capping those wells ( or maybe start making extra storage tanks but bomb-proof ones )

of course if I was running things i would have quietly scooped them up and trained them for sabotage missions ..

but they MIGHT be moved into the liberated areas and start repairing all the damaged infrastructure
 
Joined
8 June 2008
Posts
9,398
Reactions
11,637
This raises some questions. From the reports I've seen it's:


Emphasis mine. From: https://oilprice.com/Latest-Energy-...y-Workers-To-Register-For-Military-Draft.html

I take that to mean anyone and everyone who works in any kind of fossil fuel extraction, electricity generation plus associated pipelines and networks. At least that's what the "energy sector" is in Western terminology. Plus in some cases directly related things such as trains hauling coal are included.

Does Russia have some far narrower definition?
yes that is different, I read somewhere else 100% from his ministry..very different,
The above would put indicate a will (not being forced) to close the sector.So higher price and shortages ahead
 
Top