Wednesday, July 13, 2022 7:35:17 PM
Thanks for the thoughtful post. I'll give you my ideas on these issues.
1. Inflation will slow over the next six months, starting next month. As you noted wage increases have not offset inflation and as the government has backed away from much of the support provided in 2020-2021 that problem has become more prominent. The latest Michigan consumer sentiment survey is only slightly better than the GFC low points. People are very unhappy. I think three things will happen over the next 18 months to mitigate this problem: 1. People will continue to demand better wages, 2. Robotics and AI will continue to make work and other activities more efficient. 3. Inflation will drop back into the 2-3% range.
2. The housing market is moderating, mostly in areas where price increases were large. On average ,housing prices will not come down much, if at all, because of three forces: 1. Inflation causing devaluation of the US$ vs. commodities. 2. Supply chain disruptions and on-shoring. 3. Continued household formation by millennials. As for cars - no one should drive a car they can't afford to pay cash for or comfortably write off through business.
3. Yeah, climate change is a big one. All we've done so far is try to put on a few band aids. Atmospheric CO2 has moved up from 320ppm in 1960 to 420ppm this year. It's now moving up at between 2-2.5ppm per year so it won't take long to get to 500ppm. The last time CO2 was this high was 4MM years ago and sea levels were about 80 feet higher than they are today. We've just done it so quickly this time the ice hasn't had time to melt. I don't have a good answer other than a lot fewer people on the planet because almost no one cares enough to do more than lip service.
4. I think US market lows are in. We could test the June low but unless something changes Wall Street is already buying growth, planning for a stronger economy and lower inflation in 2023. I'll remain invested for that outcome unless something major changes.
As for charts, I try to use original data whenever possible. After all we pay for it as taxpayers so why not use it. If you use the St. Louis Fed's chart of employment income you'll see a different interpretation. After a long period of very flat income from 2000-2015 inflation adjusted income has been rising sharply over the last five years and is only coming back to the mean after moving almost straight up based on government programs during the COVID pandemic. It will take a few more quarters to see if this becomes a problem or if inflation moderates and the other forces I described intervene.
1. Inflation will slow over the next six months, starting next month. As you noted wage increases have not offset inflation and as the government has backed away from much of the support provided in 2020-2021 that problem has become more prominent. The latest Michigan consumer sentiment survey is only slightly better than the GFC low points. People are very unhappy. I think three things will happen over the next 18 months to mitigate this problem: 1. People will continue to demand better wages, 2. Robotics and AI will continue to make work and other activities more efficient. 3. Inflation will drop back into the 2-3% range.
2. The housing market is moderating, mostly in areas where price increases were large. On average ,housing prices will not come down much, if at all, because of three forces: 1. Inflation causing devaluation of the US$ vs. commodities. 2. Supply chain disruptions and on-shoring. 3. Continued household formation by millennials. As for cars - no one should drive a car they can't afford to pay cash for or comfortably write off through business.
3. Yeah, climate change is a big one. All we've done so far is try to put on a few band aids. Atmospheric CO2 has moved up from 320ppm in 1960 to 420ppm this year. It's now moving up at between 2-2.5ppm per year so it won't take long to get to 500ppm. The last time CO2 was this high was 4MM years ago and sea levels were about 80 feet higher than they are today. We've just done it so quickly this time the ice hasn't had time to melt. I don't have a good answer other than a lot fewer people on the planet because almost no one cares enough to do more than lip service.
4. I think US market lows are in. We could test the June low but unless something changes Wall Street is already buying growth, planning for a stronger economy and lower inflation in 2023. I'll remain invested for that outcome unless something major changes.
As for charts, I try to use original data whenever possible. After all we pay for it as taxpayers so why not use it. If you use the St. Louis Fed's chart of employment income you'll see a different interpretation. After a long period of very flat income from 2000-2015 inflation adjusted income has been rising sharply over the last five years and is only coming back to the mean after moving almost straight up based on government programs during the COVID pandemic. It will take a few more quarters to see if this becomes a problem or if inflation moderates and the other forces I described intervene.
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