An acceptable invalidation of the model I am working with. I am still hoping for some brainstorms on velocity.
Sorry. Did I call you a-hole????? Apologies if I did. Anyway you won't be seeing me reply to your posts any longer because I want be seeing them. So headsup save yourself the trouble of replying to mine to others. Seems that the path to take unfortunately.
It's driven by low economic growth (with low rates, low inflation), as investors have extended for yield by adding duration and equity beta. What would cause an inflection in the slope would be a sustained period of growth (with higher inflation, and higher interest rates). Right now, drivers of growth are fairly weak in the developed world, which is why rates remain low across the board. For example, US population growth and productivity have slowed post-GFC: If we were in some kind of inflationary bubble, we would see long-term yields spike and the dollar fall.
A lot of what looks like inflation are temporary supply shocks and supply-chain constraints. Some of the temporary supply shocks will end up persisting, especially where there is secular demand (lumber if housing construction picks up, aluminum/copper if EV production ramps up faster than expected, etc.). But most of it is temporary. This is why breakevens are bouncing around 2.3% and not 5%+:
Beg to slightly differ with you, and The Fed naturally. For instance your chart of lumber clearly shows it has been sliced in half all the while the CRB is rocketing higher. As for bonds themselves, I think the outcome is still a tossup. But what do I know right? If it breaks the trendline, decisively, then I'll throw in the "Transitory" towel and say the Dismal Scientists got it right ... this time. If it bounces and clears magenta colored "line in the sand" and continues higher I'll start making uuuupward projections, among many other plans. 10 year constant rate (from Fed Fred data no less wink, wink):-
1- Lumber was an example of shocks to supply as the reopening rolls out (sawmills were closed, leading to a bidding war in available timber, etc.). This is going to happen to dry bulk rates too, which are driven by ore transports from Brazil & Australia to China -- here's Iron ore vs Baltic Dry index 2- You're looking at constant maturity, which is interpolated from t-bills, instead of the actual traded treasury note. Embedded in the nominal yield of bond is the real rate and inflation expectations. Here's an analysis of the US 10 yr, 10 year breakevens (market expectation of inflation as expressed through TIPS), and the real rate (US 10 yr - 10 Yr Breakeven): Let's compare this against a country experiencing high levels of inflation: Brazil has a higher level of inflation vs the US and Eurozone -- this is embedded in the yield curve: You can see how Brazil has a much higher level of inflation than the US and Eurozone (CPI all items): (brazil is green, usa is blue, eurozone is orange) This is what people mean when they say inflation will be transient -- it will rise in the short term and fall in the long term: U Mich Consumer Expectations of Inflation on a 1-year (orange) and 5 year (yellow) basis We are currently experiencing a rise in inflation and prices, that will likely fall within the next year as supply chains and inventories get back to normal (remember: many ports and areas had been shuttered). If we get a sustained rise in inflation, then the Fed will raise rates: (transcript from Jay Powell's presser)
What you're not going to hear from anyone here nor in the media nor in school is that inflation is the result of money-creation that goes towards asset-price inflation and not towards the production of goods and services. It's not money-creation by itself that creates inflation, it's where the money goes that matter. If money is created and it goes into the economy for the purpose of investing in businesses that (again) create more products and services, that additional supply of goods will hold off inflation. The same can be said for money spent towards infrastructure. But, if newly-created money go towards bidding up real estate prices, stocks, etc., while the real economy is neglected, then the prices of good and services will go up because you will create a scarcity of goods and services.
I watch and plot TIPS as well. Overnight SOFR/30 day LIBOR/90 day TMT/Freedie Mac 30 year weekly mortgage rate too. But we'll see what transpires. + + + As to the other point - I worked in the maritime industry when I first came out of school - for a cousin and then a couple of other noted transportation companies. My cuz many years later took his company public (after I left darnit ) on Nasdaq. I know of what I speak, especially with regards to the BDI, that it represents aaaa lot more than just ore movement.
so compare the breakevens from TIPS to your inflation expectations. Do you believe that breakevens are too cheap? Then buy them. ok. I'm heavily invested in marine shipping right now -- but that's because of early cycle recovery dynamics. uhh the supply of money is a well known driver of inflation — Milton Friedman even said that inflation is a monetary problem. So you do in fact learn this if you read about economics or study it lol. The problem with your statement is that you are saying that inflation is only a monetary problem. Doesn’t that ignore how shifts in aggregate supply or demand, debt, and other factors can impact inflation?