Inflation : 40 Year High

[Warhippy]

US just hit an 8.6% inflation rate.  real rate probably higher but...

 

https://www.cbc.ca/news/business/us-inflation-1.6484205

 

he cost of gas, food and other necessities jumped in May, raising U.S. inflation to a new four-decade high and giving American households no respite from rising costs.

Consumer prices surged 8.6 per cent last month from 12 months earlier, faster than April's year-over-year surge of 8.3 per cent, the Department of Labour said Friday.

On a month-to-month basis, prices jumped one per cent in the month of May alone, a steep rise from the 0.3 per cent increase from March to April. Much higher gas prices were to blame for most of that increase.

America's rampant inflation is imposing severe pressure on families, forcing them to pay much more for food, gas and rent and reducing their ability to afford discretionary items, from haircuts to electronics. Lower-income and Black and Hispanic Americans, in particular, are struggling because, on average, a larger proportion of their income is consumed by necessities.

Economists expect inflation to ease this year, though not by very much. Some analysts have forecast that the inflation gauge the government reported Friday — the consumer price index — may drop below seven per cent by year's end. In March, the year-over-year CPI reached 8.5 per cent, the highest such rate since 1982.

[Chris12345]

23 hours ago, Warhippy said:

I have been saying it for a long time.

 

Something bad is coming and it's going to make 2008 look like a joke

2008 will look like a mosquito bite when this ends.

 

This will be long and painful. People have a lot of debt.

[nuckin_futz]

20 hours ago, bishopshodan said:

Also, right now I know 3 people buying here on the Island. My sis ( very wealthy, owns multiple homes) just bought a 2 bedroom in DT Vic for rental purposes. Her friend is bidding on a house with acreage at 1.5 mil this week and my best buddy is looking at a property for 1mil. He's putting in a n offer tmr.

 

So, in my world people are still leaning into property. Crazy mofo's/ 

 

 

This is not important but always a pet peeve of mine. Why do people say they put in an offer? You don't put in an offer. You put in a bid. The seller puts in an offer.

 

/endrant.

[Warhippy]

22 minutes ago, Chris12345 said:

2008 will look like a mosquito bite when this ends.

 

This will be long and painful. People have a lot of debt.

Hey mate, I am obviously a doom n gloomer.  but it could be much easier, could be much harder.  I plan to prepare for the worst and hope for the best

[Warhippy]

16 minutes ago, nuckin_futz said:

This is not important but always a pet peeve of mine. Why do people say they put in an offer? You don't put in an offer. You put in a bid. The seller puts in an offer.

 

/endrant.

[Chris12345]

3 minutes ago, Warhippy said:

Hey mate, I am obviously a doom n gloomer.  but it could be much easier, could be much harder.  I plan to prepare for the worst and hope for the best

Yea you never know!!!! 

 

Fingers crossed. I love being wrong. Like this one time I thought the Canucks should draft Cody Glass.....

[RUPERTKBD]

2 hours ago, Chris12345 said:

Yea you never know!!!! 

 

Fingers crossed. I love being wrong. Like this one time I thought the Canucks should draft Cody Glass.....

I hear you....I remember being absolutely stoked when we drafted Jordan Schroeder.....all based on what I had seen of him in the World Juniors.....

 

I should have seen it as an omen when Luongo mispronounced his name....

[bishopshodan]

3 hours ago, nuckin_futz said:

This is not important but always a pet peeve of mine. Why do people say they put in an offer? You don't put in an offer. You put in a bid. The seller puts in an offer.

 

/endrant.

The place my buddy put a bid in today has had 5 come in , this the first day the sellers were to accept bids. Thought this market was cooling!

 

I understand your pet peeve but you should get over that.

 

The world has changed...

https://bridgewellgroup.ca/how-to-write-an-offer-on-house/

https://www.nbc.ca/personal/advice/home/understand-offer-to-purchase.html

https://www.royallepagebinder.com/buyer-article-23/elements-of-an-offer-to-purchase

 

Kinda, everyone calls it that these days. 

[nuckin_futz]

13 minutes ago, bishopshodan said:

The place my buddy put a bid in today has had 5 come in , this the first day the sellers were to accept bids. Thought this market was cooling!

 

I understand your pet peeve but you should get over that.

 

The world has changed...

https://bridgewellgroup.ca/how-to-write-an-offer-on-house/

https://www.nbc.ca/personal/advice/home/understand-offer-to-purchase.html

https://www.royallepagebinder.com/buyer-article-23/elements-of-an-offer-to-purchase

 

Kinda, everyone calls it that these days. 

I really doubt the Lower Mainland and South Island real estate will cool much. There's way too much demand. As evidenced by your friend's experience.

[bishopshodan]

44 minutes ago, nuckin_futz said:

I really doubt the Lower Mainland and South Island real estate will cool much. There's way too much demand. As evidenced by your friend's experience.

I'm central Island but I think your point still stands.

 

[Gurn]

[Boudrias]

22 hours ago, Warhippy said:

You are a financially intelligent person.  Yourself and Futz far more so than me as I still see the markets as a foreign language.  but I AM a scholar of history and I remember what happened in the mid 70s that created the issues of the early through mid 80s.  I remember the lead up to the 30s.  I also remember further back to the days of the robber barons.

 

For those unfamiliar.  In the 1800's.  Much of the industrialized industry was eventually amalgamated in to monopolies held by the wealthiest small group of individuals.  They basically dictated prices, controlled the markets and in essence small groups controlled everything from transport to food crops to heating and energy.  Fisk, astor, rockefeller, JP Morgan and Carnegie.  They controlled literally EVERYTHING.  

 

Laws and revolts eventually occurred which curtailed their power.  But then in the late 20's politicians rescinded a large number of laws and increasing technology and globalism had allowed those wealthiest to accrue yet more wealth and create more rampant crony capitalism and...voila.  Their actions had a direct hand in and result in making the great depression as bad as it was outside of of course, natural disasters etc.  Their power again broken to an extent they again spent decades campaigning against laws which were eventually again repealed in the 1970s and early 80s which resulted in part to you guessed it.  yet another down turn.

 

The 1980s resulted in what happened in the 70s.  Laws were passed that allowed more wealth to flow upwards.  the creation of reaganomics and the trickle down belief.  Super pacs now controlled much of the US political environment almost openly.  In the 70s we saw housing being purchased by those making so much that homes became investment items as opposed to living spaces.  This resulted in spiking housing costs.  We saw a major energy shock and the Iran/Contra affair which saw energy prices sky rocket.  Credit became the currency du'jour and so very many people had over leveraged themselves as to be skirting insolvency on a month to month basis which came due in the 80s once interest rates skyrocketed.

 

I know you are a smart person and I have admitted my ignorance towards this a few times.  But historically, we see what happened in the 1800s, happened in the 30s, the 70s/80s and now is happening almost in an identical fashion now

 

• Skyrocketing housing prices
• Skyrocketing energy prices
• Wage stagnation
• Credit being overused
• Most canadians a few hundred dollars from insolvency
• Corporate monopolies now openly purchasing everything
• government refusal to intervene and laws being created to the betterment of corps not people

 

I stand by my statements that something is coming, because it has to.  it is cyclical.  we have a man made construct we call an "economy" which is in reality just a make believe system of numbers and charts that exist solely to enrich people wealthy enough to manipulate the world around them to make sure the numbers by and large go their way.  This endless upflow of wealth from the masses to the few leaves such a massive and obvious vacuum that eventually; the pull back has to happen.  it appears to be about 45 ish years on average and look at the time since the last one in the early 80s.

 

We run on a system of patchwork laws and regulations that are endlessly abused by people with the money to exploit it.  What NEEDS to happen is the entire monetary and financial system of regulations laws and taxation needs to be scrapped and started over.  With plain simple terminology and zero loopholes for those with money to exploit.  Basic and complete percentages.  Standard measures.  Zero ability to buy or pay their way out.

 

People and corporations making billions a year or less getting fined millions or less for crimes against the economy or government that the average day to day person would be jailed for or see their family forced to pay.  Hell, that is another thing that has made a reappearance.  Debtors jails.  If you can't pay it's "fraud" so do not pass go etc.

 

Things HAVE to change or else they will collapse

You put a lot of time and thought into this post Hip. I can respect many of your opinions even if I don't agree with all of them. Knowing history and drawing parallels into today's world has value and requires an inquiring mind. You have outlined some of the abuses within our economic system some of which I can agree with and others I don't. The bottom line is that the USA economic system is the most successful in history. 

 

Yes, capitalism lends itself to monopoly. Maximizing return on invested capital is non discriminatory and is not subject to subjective thought. The proof is in the pudding so to speak. The job a of capitalist is to find good investments, play by the rules and exact a return on that capital. If monopolies evolve it is the responsibility of government to deal with it. If elected representatives do not react then they have to account at the ballot box. Yes, your history tells us that politicians can be bought off. This is a governance issue. Another issue worth discussing is ESG weaponization by special interests who have social imperatives and not capital interests. This movement has disrupted the capitalist process which has in turn reduced investment in key energy infrastructure. Is this an example of society struggling for balance?

 

IMHO one of the biggest challenges faced by society today is not necessarily the wealth gap, as I consider that a symptom not a cause, it is middle class incomes. When a middle class family cannot afford to provide food, clothing and shelter it destroys much of the civilizing influences we all seem to take for granted. Dare to dream is being destroyed. Inflation in Canada 6.8% and in the USA 8.6%. These are massaged numbers and the real inflation rate is likely +10%. This is different than the '70's. We had far less per capita debt back then. Today our flexibility is far more restricted. We are both very concerned about what could/will happen in a true financial crisis. You don't like Poulievre but he is an example of what can/will happen when politicians step forward with oversimplified explanations/solutions to a problem. I use PP as an example but I consider the vast majority of politicians on both sides of the spectrum in the same light. They are the leadership that are supposed to guide the country and yet they are one of the main reasons why we are failing. Does the CEO of a company get away with a BS presentation of his/her company's direction? Numbers usually don't lie and that CEO won't last. Politicians BS all the time. Detailed plans are usually not given. 

 

Hip you seem to have a fundamental distrust of capitalism. If you have the time tune in to Wallstreet Week on BNN on Friday/Saturday. Good programing. I have learned to pay attention to Larry Summers, a Keynesian at Harvard, who was Obama's Treasury Chief. He says inflation is not transitory and that special interest groups are distorting markets. 

 

As a fiscal conservative I still believe in capitalism. Enlightened self interest has to be a worthwhile endeavor. It isn't easy. Sorry but I don't see where socialism works. Deferred consumption, investing for future gain and caring about your fellow man have to be fundamental building blocs for a functioning society. I talk about financial literacy and yet read comments that denigrate dividends. As if dividend income was usury and represented the height of ill gotten gains. Yet how many people cash their CPP and other pension checks without a thought that these checks were funded by dividends? 

 

I say this from a history in my early 20's of sitting across a table from 3 executives who were telling me I wasn't worth what I thought I was. It led me to a life of regular self assessment. In my career I have come into contact with many hustlers. People in business, politicians and agents for social change. Most of the time these hustlers were there for the money. I think ESG, Crypto, politics and SPACS are heavily influenced by hustlers. Isn't it amazing Hip that we don't see the SPACs being yipped about in the Investment forum anymore? Sadly, I think too many people are quite happy to have someone else do their thinking for them.   

 

 

[Gurn]

More news/spec. about the rate:

https://www.msn.com/en-ca/money/topstories/posthaste-chances-of-75-basis-point-rate-hike-from-the-bank-of-canada-just-went-up/ar-AAYoZkA?ocid=msedgdhp&pc=U531&cvid=70edce12c5db48eba30bf47a35e2e869

Posthaste: Chances of 75 basis-point rate hike from the Bank of Canada just went up

Good Morning!

The stakes just went up in the battle against inflation.

Data out Friday turned up the heat on central banks not only here, but also south of the border.

In Canada, the numbers showed the unemployment rate at a new low and revealed that the tight labour market was putting pressure on wages.

“With wage growth accelerating, the chance of the Bank of Canada following through with its hint of a larger 75 bp [basis point] interest rate hike in July have risen,” wrote Capital economist Stephen Brown.

Brown is not alone. Other economists now see the Bank having to move faster and stronger to quell inflationary pressures.

The Bank faces a hard choice in light of this new data, wrote Carlos Capistran of BofA Global Research, who expects a 50 basis point hike in July, but says the risk of a 75 point hike has increased.

CIBC changed its rate forecast Friday, saying solid momentum in the economy and signs that inflation is getting worse, not better, means the Bank may have to raise rates higher than they expected. They raised their call from a rate peak of 2.5% to 2.75%.

Meanwhile in the U.S., data Friday showed that inflation is running hotter than expected, not something any central banker wants to hear these days.

Soaring gas and food prices pushed the U.S. consumer price index up to 8.6%, higher than the 8.3% forecasted.

A half-point hike is widely expected when the Fed meets this week and another in July, following the 50-basis point hike in May. In just three months that is more policy tightening than the U.S. Federal Reserve did in all of 2018, says Reuters.

After Friday’s data traders were pricing in an even bolder path. There is now better than even odds of a 75-basis-point hike by July and a policy rate of 3 to 3.35% by year end.

“We believe that today’s inflation data — both the CPI and UMich inflation expectations — are game changers that will force the Fed to switch to a higher gear and front-load policy tightening,” wrote Jefferies’ Aneta Markowska, who joined Barclays on Friday in forecasting that a 75-basis-point rate hike will be announced Wednesday.

But as central banks scramble to make up for keeping policy too loose for too long, some worry they will swing too far in the other direction, risking even more damage.

The Bank of Canada’s Financial System Review last week offered little justification for hawkishness, says Capital’s Brown.

The number of heavily indebted households has risen and a greater share of variable-rate debt means they will be especially vulnerable to rate hikes.  As borrowing rates rise, housing investment will fall along with home prices.

What this adds up to, the Bank’s risk assessment concludes, is that the probability of the economy contracting in the first quarter of 2024 is nearly two times greater than before the pandemic.

Recent comments by the Bank’s deputy governor Paul Beaudry also suggest that though the housing market is viewed as an important part of the economy, the Bank’s focus right now is on getting inflation back on target.

This is important, says Brown, because it suggests that the Bank may not blink until it sees meaningful home price declines.

“The big picture is that the market is now pricing in a policy rate that is twice as high as it was before the pandemic, which could cause a large part of the 50% rise in house prices since then to be reversed,” said Brown.

While Capital believes the economy could take a 10% fall in home prices, a bigger decline is a much riskier prospect. “… a larger decline could trigger a vicious downward spiral of forced selling and further price declines, risking a major recession,” he said.

[Boudrias]

The CBO (Congressional Budget Office) just released updated national debt estimates:

2030 = $41.699 trillion

2032 = $45.855   "

2035 = $50.0       "

2037 = $56.0       "

 

We see such numbers, our eyes glaze over in incomprehension, and we think that some how whoever is in power will think something out. "It won't really matter as we are all in the same boat'. "We'll simply all start over on an equal footing". IMO history doesn't bear this out. Inevitably it is the working public that pay taxes who will carry this burden. What is different now versus yesteryear is that those tax payers are tapped out. Most of their net worth is tied up in their homes. Those valuations are under serious threat of retrenchment. Each year governments around the world take a ever bigger share of their economies. Decision making has devolved around the latest social imperative. Much of this might have laudable ambitions but have little basis in economic reality. ESG is blowing up in everyone's faces each time they gas up their vehicle. Simplification, yes, but appropriate. 

 

Back to the numbers above. What can Americans expect to pay on interest on their debt in 2030? At 5% rates the cost will be $2.08 trillion. When USA governments first hit $1 trillion deficits it was considered outrageous and unsustainable. In 2030 the cost of debt could be over $2 trillion per year alone. What social programs will be lost because of this? What areas of the economy will lose investment dollars because of this? Where will the revenue come from to provide a budget that carries this debt and fund a functioning government? 

 

I bring this forward because Canada is no better than the Americans and many will argue our debt per capita is far worse. The G&M this morning released a poll that suggested 20% of Canadians cannot meet their mortgage commitments. Canadians escaped the full impact of the 2008 financial crisis, the Americans did not. Their housing market utterly collapse with houses selling at 20 cents on the dollar. As some one who lived through 20% interest rates in the '70's I wish that experience on no one. I fear that every social program will be impacted negatively. Food, clothing and shelter will become the imperative.  

[Warhippy]

16 minutes ago, gurn said:

More news/spec. about the rate:

https://www.msn.com/en-ca/money/topstories/posthaste-chances-of-75-basis-point-rate-hike-from-the-bank-of-canada-just-went-up/ar-AAYoZkA?ocid=msedgdhp&pc=U531&cvid=70edce12c5db48eba30bf47a35e2e869

Posthaste: Chances of 75 basis-point rate hike from the Bank of Canada just went up

Good Morning!

The stakes just went up in the battle against inflation.

Data out Friday turned up the heat on central banks not only here, but also south of the border.

In Canada, the numbers showed the unemployment rate at a new low and revealed that the tight labour market was putting pressure on wages.

“With wage growth accelerating, the chance of the Bank of Canada following through with its hint of a larger 75 bp [basis point] interest rate hike in July have risen,” wrote Capital economist Stephen Brown.

Brown is not alone. Other economists now see the Bank having to move faster and stronger to quell inflationary pressures.

The Bank faces a hard choice in light of this new data, wrote Carlos Capistran of BofA Global Research, who expects a 50 basis point hike in July, but says the risk of a 75 point hike has increased.

CIBC changed its rate forecast Friday, saying solid momentum in the economy and signs that inflation is getting worse, not better, means the Bank may have to raise rates higher than they expected. They raised their call from a rate peak of 2.5% to 2.75%.

Meanwhile in the U.S., data Friday showed that inflation is running hotter than expected, not something any central banker wants to hear these days.

Soaring gas and food prices pushed the U.S. consumer price index up to 8.6%, higher than the 8.3% forecasted.

A half-point hike is widely expected when the Fed meets this week and another in July, following the 50-basis point hike in May. In just three months that is more policy tightening than the U.S. Federal Reserve did in all of 2018, says Reuters.

After Friday’s data traders were pricing in an even bolder path. There is now better than even odds of a 75-basis-point hike by July and a policy rate of 3 to 3.35% by year end.

“We believe that today’s inflation data — both the CPI and UMich inflation expectations — are game changers that will force the Fed to switch to a higher gear and front-load policy tightening,” wrote Jefferies’ Aneta Markowska, who joined Barclays on Friday in forecasting that a 75-basis-point rate hike will be announced Wednesday.

But as central banks scramble to make up for keeping policy too loose for too long, some worry they will swing too far in the other direction, risking even more damage.

The Bank of Canada’s Financial System Review last week offered little justification for hawkishness, says Capital’s Brown.

The number of heavily indebted households has risen and a greater share of variable-rate debt means they will be especially vulnerable to rate hikes.  As borrowing rates rise, housing investment will fall along with home prices.

What this adds up to, the Bank’s risk assessment concludes, is that the probability of the economy contracting in the first quarter of 2024 is nearly two times greater than before the pandemic.

Recent comments by the Bank’s deputy governor Paul Beaudry also suggest that though the housing market is viewed as an important part of the economy, the Bank’s focus right now is on getting inflation back on target.

This is important, says Brown, because it suggests that the Bank may not blink until it sees meaningful home price declines.

“The big picture is that the market is now pricing in a policy rate that is twice as high as it was before the pandemic, which could cause a large part of the 50% rise in house prices since then to be reversed,” said Brown.

While Capital believes the economy could take a 10% fall in home prices, a bigger decline is a much riskier prospect. “… a larger decline could trigger a vicious downward spiral of forced selling and further price declines, risking a major recession,” he said.

It's about as bad as it is and it's only gonna get worse.  An economy snap shot April of 2021 said over 100k Canadians were barely $200-$300 a month in increased payments away from insolvency.  That was pre hike race.

 

Now,

 

1 in 4 polled Canadians say that with current rates and no more hikes they can't afford their mortgage payments.

 

Been on this train for a dozen pages or more

 

https://www.ctvnews.ca/business/real-estate/nearly-1-in-4-homeowners-would-have-to-sell-if-interest-rates-rise-more-survey-finds-1.5944137

[nuckin_futz]

The market now expects the Fed to hike by 75 bps Thursday

• Fed fund futures show ~95% odds of a 75 bps rate hike

This has to be one of the quickest repricing of odds to a Fed meeting that I can remember. In essence, the market is taking the lead and is pricing in a move to near 4% as the terminal rate by May 2023. The timing outlined for the end of this tightening cycle is once again being drawn closer, though the market is expecting an extremely aggressive Fed - more than what has been communicated.

 

In essence, the Fed's guidance is looking meaningless and if they get bullied into such decision-making in the coming meetings, it is going to be hard to imagine how they would be able to tame the wildness in the market over the past few days. In any case, at least things are going to be spicy regardless.

[Elias Pettersson]

We are looking at the crash of all crashes.  The world as we know it will never be the same.  Imagine all the people who bought homes in the last 2 years at these incredulous prices and now have to make monthly mortgage payments that are going to be 50-60% of their monthly pay cheques.  And then add to that the fact that they have to pay 50% more to drive their car and put food on their table.  And then add the fact that the average person has a boatload of debt via credit cards, car loans, student loans, etc.

 

It's all coming together in one final chapter that will see the stock market AND the real estate market collapse together.  The average person has not figured this out yet, but if you have studied history and followed the signs then you will have figured it out.  Inflation is uncontrollable at this point.  Nothing that will be done to control it will work.  It's too late.  The higher the rates go the closer we will get to destruction.  It's bad.  It's really bad.  Can't believe I am living in these times.  

[bishopshodan]

4 hours ago, Elias Pettersson said:

It's all coming together in one final chapter that will see the stock market AND the real estate market collapse together.  The average person has not figured this out yet, but if you have studied history and followed the signs then you will have figured it out.  Inflation is uncontrollable at this point.  Nothing that will be done to control it will work.  It's too late.  The higher the rates go the closer we will get to destruction.  It's bad.  It's really bad.  Can't believe I am living in these times.  

Wow.

Like we're all going to be living in caves bad?

Or Beyond Thunderdome bad?

 

Well, this average person is going to brush up on his crossbow skills. Plenty of deer in these parts.

Wait, I'm a vegetarian..

 

[Boudrias]

23 minutes ago, bishopshodan said:

Wow.

Like we're all going to be living in caves bad?

Or Beyond Thunderdome bad?

 

Well, this average person is going to brush up on his crossbow skills. Plenty of deer in these parts.

Wait, I'm a vegetarian..

 

We can haunt the highways and run them over. Always carry a knife.  Wait a minute my gas tank is empty!!! Damn that Trudeau it's all his fault!!!

 

While I think we have a serious overlay of people feeding off those who truly produce this down turn will end at some point. The 'feeders' will be thinned out. Real value will assert itself. 

[WeneedLumme]

6 hours ago, Elias Pettersson said:

We are looking at the crash of all crashes.  The world as we know it will never be the same.  Imagine all the people who bought homes in the last 2 years at these incredulous prices and now have to make monthly mortgage payments that are going to be 50-60% of their monthly pay cheques.  And then add to that the fact that they have to pay 50% more to drive their car and put food on their table.  And then add the fact that the average person has a boatload of debt via credit cards, car loans, student loans, etc.

 

It's all coming together in one final chapter that will see the stock market AND the real estate market collapse together.  The average person has not figured this out yet, but if you have studied history and followed the signs then you will have figured it out.  Inflation is uncontrollable at this point.  Nothing that will be done to control it will work.  It's too late.  The higher the rates go the closer we will get to destruction.  It's bad.  It's really bad.  Can't believe I am living in these times.  

That's a bit excessively doom and gloom. A big part of our current inflation is due to shortages and the supply chain kinks and they are not permanent.

 

The higher interest rates are already slowing the housing market which is a big economic driver as well as weakening the stock market, which is another big source of wealth/spending.

 

And another huge source of this inflation, energy prices, are not likely to stay at/keep shooting past $120/bbl indefinitely. When they start coming down, they bring inflation down.

 

It is true that it might require driving our economy into recession again to control inflation, as happened 40 years ago, but I don't believe that saying inflation is uncontrollable at this point is accurate.