Australian (ASX) Stock Market Forum

Inflation

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mullokintyre said:
last night the Fed fessed up and admitted that inflation is " slightly worse " than expected, though still transitory.
So now they expect a rate rise in March.
From Kitco News


So the markets response was to drop everything and run to the USD.
A fiat currency that has been severely devalued by QE and inflation.
Makes so much sense.
Mick
Click to expand...
to a major extent that is to pay down debt , because a lot of it is denoted in US Dollars ( including a slab of Aussie Bank debt )

yes it makes sense IF you have a large amount of debt , not so much sense if you are low debt ( or debt in the local currency ) and have no intention of buying US assets or US stocks

HOWEVER it MIGHT signal a genuine crash or credit crunch coming ( because similar happened in the GFC and some big crashes before that )

now what i haven't seen ( evidence of ) so far ,is a rush into US Treasury Bonds ( by investors large and small ) ( which looks equally nuts to me at current rates )
 
On inflation
"

COVID-19 stimulus fuels US growth​

Fourth-quarter GDP in the US showed growth of 6.9 per cent, which was mostly attributed to businesses replenishing stock to meet strong demand for goods.

Annually the US economy grew 5.7 per cent, which is the strongest lift since 1984. It followed the government providing nearly $US6 trillion in pandemic relief."
Full article there.https://www.abc.net.au/news/2022-01-28/markets-wall-street-dow-jones-asx/100787008

Sure ,this is their ABC so can not expect much but if inflation is at 7% annually and gdp growth at 5.7%, does not this mean a going backward move?
My business sells $100 last year, i sell $107 this year but my costs raised $7..
Did my business grow?
 
qldfrog said:
On inflation
"

COVID-19 stimulus fuels US growth​

Fourth-quarter GDP in the US showed growth of 6.9 per cent, which was mostly attributed to businesses replenishing stock to meet strong demand for goods.

Annually the US economy grew 5.7 per cent, which is the strongest lift since 1984. It followed the government providing nearly $US6 trillion in pandemic relief."
Full article there.https://www.abc.net.au/news/2022-01-28/markets-wall-street-dow-jones-asx/100787008

Sure ,this is their ABC so can not expect much but if inflation is at 7% annually and gdp growth at 5.7%, does not this mean a going backward move?
My business sells $100 last year, i sell $107 this year but my costs raised $7..
Did my business grow?
Click to expand...
i can't tell you any more in the 2 + 2 = 5 world maybe you will when when the total is 6 ( 2 +1+ 1 tax )
 
waterbottle said:
BTC already down 50% from all time highs.

Meanwhile, jaw-boning from the Fed has seen a 15% drop from ATHs on the NASDAQ....

Then there's this guy - https://www.cnbc.com/2022/01/26/bil...nt-sell-off-becomes-a-top-20-shareholder.html - who drops a cool $1 billion on NFLX. Same guy who bought the dip in march 2020....
Click to expand...
He's also calling for a 50 basis point rise at the next meeting. He did something similiar with the first lockdowns and credit spreads. He basically bets on the powers that be making realisations or actions too late and thus having to overreact (ounce of prevention vs pound of cure and all of that).

Dude's smart.


I'd be willing to bet a very significant sum of money he has some kind of position betting on a 50 basis point rise.
 
over9k said:
He's also calling for a 50 basis point rise at the next meeting. He did something similiar with the first lockdowns and credit spreads. He basically bets on the powers that be making realisations or actions too late and thus having to overreact (ounce of prevention vs pound of cure and all of that).

Dude's smart.


I'd be willing to bet a very significant sum of money he has some kind of position betting on a 50 basis point rise.
Click to expand...
cynic ( that does NOT mean i disagree , but absolutely not betting against you )
 
Can a company that significantly improves its productivity reduce the effects of inflation? Of course it can, and in an industry of similarity it will thrive while others struggle.

ducati916​

The issue was whether 'productivity' could ameliorate the effects of inflation.

The numbers clearly indicate that TSLA currently cannot.
Click to expand...

Last year, Tesla’s Fremont Factory averaged a weekly production pace of 8,550 vehicles. That’s about 1,221 cars per day, 51 cars per hour, or about .85 cars per minute. However you break it down, the Fremont Factory’s manufacturing prowess showed its domination in 2021, as it was the most productive automotive factory in the United States in 2021, outpacing Toyota, BMW, and Ford factories that have long created the most robust figures of car production in previous decades.

While Tesla has only one operational U.S. plant as Gigafactory Texas nears production soon, its North American customer base has been accepting cars from the Northern California plant. However, this one plant has managed to avoid heavy delivery delays due to bottlenecks in the supply chain and parts shortages and become the most proactive American automotive manufacturing facility in 2021.

Most impressively, Tesla has continued to expand its yearly production capacity as a company. Last year, it was mostly due to Gigafactory Shanghai’s massive production figures, which accounted for a majority of vehicle deliveries as it is Tesla’s main export hub to the extremely competitive European market. Tesla managed 936,172 deliveries in 2021, a 47 percent increase from a year prior.
More here - Tesla discussion

www.teslarati.com

Tesla's Fremont Factory was the most productive auto factory in the U.S. in 2021

New data from Bloomberg states that Tesla’s Fremont Factory in Northern California was the most-productive automotive plant in the U.S., outpacing 70 other plants in the country. Last year, Tesla’s Fremont Factory averaged a weekly production pace of 8,550 vehicles. That’s about 1,221 cars per...
www.teslarati.com www.teslarati.com
 
JohnDe said:
Can a company that significantly improves its productivity reduce the effects of inflation? Of course it can, and in an industry of similarity it will thrive while others struggle.
Click to expand...
Absolutely, I was down the corner shop a Vietnamese guy runs it, he turns up 4.30 a.m to make sausage rolls and pies, that he doesn't run through the till.
When his wife comes in after taking the kids to school, he goes to the industrial area to buy his fruit and veggies that he sells in the shop, lovely bloke I was chatting with him the other day he says everything is going up.
He closes the shop at 9.00p.m, I told him his productivity will improve when his kids grow up and help out, his eyes rolled back in his head. ?
 
From Todays OZ
The Reserve Bank at its first board meeting of the year has held rates steady at 0.1 per cent and declared an end to its $350bn bond-buying stimulus program.
In a statement accompanying the widely anticipated decisions, RBA governor Philip Lowe said underlying inflation was now expected to climb from 2.6 per cent to 3.25 per cent “in coming quarters”.

Despite the materially upgraded inflation outlook – the central bank in November forecast core inflation would only be 2.25 per cent by the end of the year – Dr Lowe gave no firm sign of a rate hike in the second half of this year, instead reiterating that the RBA board “prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve”.
Click to expand...
So what will that do to the price of Bonds, and how much more evidence does he want before raising rates?
Maybe he has a house to sell.
I am glad that the rates talk is on the back burner again, as I am trying to sell a house in Darwin, and one of my kids trying to sell a house in Melbourne.
Mick
 
mullokintyre said:
From Todays OZ

So what will that do to the price of Bonds
Click to expand...

As usual, exactly the opposite of what everyone (even the RBA) says QE/bond buying does.

Bonds fell quite a lot since the start of QE (which is according to the RBA supposed to increase bond prices/decrease yields).

Immediately after the news that RBA was ending QE, bond prices shot up (yields fell).

(speaking as someone who holds 25% of their net worth in long duration Government bonds and tracks their pricing closely across the yield curve)
 
InsvestoBoy said:
As usual, exactly the opposite of what everyone (even the RBA) says QE/bond buying does.

Bonds fell quite a lot since the start of QE (which is according to the RBA supposed to increase bond prices/decrease yields).

Immediately after the news that RBA was ending QE, bond prices shot up (yields fell).

(speaking as someone who holds 25% of their net worth in long duration Government bonds and tracks their pricing closely across the yield curve)
Click to expand...
Great, seeing as you track their pricing closely, perhaps you could explain this small anomaly.
When the announcement came out that the RBAb was going into QE according to ABC News
It wants the whole structure of interest rates in Australia to be lower, to make it cheaper for governments, businesses and households to borrow and invest, and to keep the value of Australia's dollar down, to support economic growth.

It plans to do that by buying $100 billion of government bonds over the next six months.

Specifically, it will focus on buying government bonds with maturities of around "five to 10 years," but it may also buy bonds outside that time range, depending on market conditions.
Click to expand...
So when I look the yield on 10 year bonds over the past year, according to Trading economics
The RBA announcement was either on or just prior to November 4th 2020.
If you look at the chart, it seems that the yield did indeed go up.
Screen Shot 2022-02-01 at 16.58.25.png
Mick
 
sptrawler said:
What I was meaning by the statement was, a lot of the inputs into a business can't be controlled they are regulatory or influenced by outside forces e.g rates, rents, electricity, insurance, shipping costs, port handling charges, increased price of the product from the source.

I would assume those costs continually rise ( I know my rates, rego's, insurance etc have), a point must be reached where those costs erode a businesses margins to the point they either have to pass on those costs or go broke.

If a business buys in a product to sell and can't sell it for enough profit to cover their outgoings they will go broke eventually, so in reality the price of that product must go up as a function of increased costs, or the system fails.

Well that's my working out, the capitalist system we in Australia work in, whereby the private sector provide the countries trade and industries and the Govt provides services, unless the private sector can make money the system fails.

Which is why the Govt had to pour so much money into jobkeeper, otherwise there wouldn't be any goods available, when shoppers came out to shop, because the businesses wouldn't have been able to pay their suppliers and it would have imploded.

So really unless you can stop the price of statutory costs, energy costs, insurance costs etc rising, inflation is a naturally occurring event in the capitalist system.
I we had a socialist system, where the Govt owned everything, that's different. The Govt can just regulate the prices and take the loss into consolidated revenue, but that ends up with a dilemma when the taxes have to be so high to cover the loses, there is no point in striving to get ahead because you taxes become too onerous.
Just my thoughts.
Click to expand...
But those rising costs are inflation, a business will do just fine if there were no inflation and there fire all their costs stayed the same.

But of course if your costs are rising due to inflation, then you will need to inflate your own prices to maintain your profitability.

A worse scenario though is the deflation of the currency, eg prices dropping while there is also less cash circulating, and those with cash won’t spend or invest because they believe in a few months prices will be even lower.
 
mullokintyre said:
From Todays OZ

So what will that do to the price of Bonds, and how much more evidence does he want before raising rates?
Maybe he has a house to sell.
I am glad that the rates talk is on the back burner again, as I am trying to sell a house in Darwin, and one of my kids trying to sell a house in Melbourne.
Mick
Click to expand...
What it means is that bond prices will start to drop, and so the actual interest rates on those bonds will rise.

There are two ways to raise interest rates, 1st way is to change the actual interest rate written on the bond, the 2nd way is to change the price the bond sells for.

For example, the government can offer a 10 year $1000 bond with a 10% interest rate (coupon rate), on it but if the market only wants to pay the government $500 for it, then the actual interest rate is much higher than the 10% written on the bond.

So if the RBA stops buying bonds, there will be down ward pressure on bond prices, which means actual interest rates earned on the bonds will rise, even though they are not changing the states interest rate.

Think of it like them taking their foot off the accelerator, but not quite stepping on the brake yet.
 
mullokintyre said:
Great, seeing as you track their pricing closely, perhaps you could explain this small anomaly.
Click to expand...

The explanation is both simply and extremely complicated.

Simply put, Central Banks and modern "Economists" do not understand the economy or how the monetary system functions at all.

If you want to dive further I suggest https://www.macrovoices.com/aia/321...eaturing-alhambra-partners-cio-jeffrey-snider and https://alhambrapartners.com/commentaryanalysis/ and all the Making Sense episodes at https://www.youtube.com/channel/UCp8Xi-sPTL9VyZpHTPfLA-g/videos
 
Well, I was hoping for the simple part, as the data points I put up were quite simple, and showed that post announcement of QE, the yields gave a damn good impression of going up, which is the opposite of what you posted (without any supporting data I might add :):) ).
Mick
 

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