What’s needed is another Paul Volcker
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The US reindustrialization began in 2022. It will really take flight in 2024. The reason that is important manufacturing is the major deflationary force in a healthy economy.
Our actual problem, China is not exporting that deflationary force any longer.
Summers knows it all. Just ask him. He is the best quarterback in football.
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Everyone is frustrated that reducing inflation is taking so long. It is clear the feds plan to keep raising interest rates until they get results.
That sounds like Paul Volker numbers are possible if required. Of course they hope the measures required won’t be that severe.
This is my conundrum… Do I jump on 18-month CD rates now at 5% or wait to see if interest rates keep rising where I can potentially get an 60-month CD for 8%?
'38Packard
→ staying put for now with high interest money market positions…
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Since you can find money market funds that pay over 4%, I’d hold off on the longer-term commitments for now and just watch to see where they go.
DB2
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For me the Treasury 2 year floating rate notes are how I compromise.
I’ve been buying 26-week T-bills. Most recently yielding just over 5%.
(I’ve also been buying all the other T-bills, except 52-week ones, because I like having them mature every week … in case that is a week of extraordinary market declines so I can use that money to buy stocks instead of a new T-bill.)
5-year TIPS are also nearly entering their “interesting zone” yielding CPI+1.64% right now. To me, interesting is somewhere above CPI+1.75%.
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Be careful what you wish for. Volker did right, and inflation was absolutely out of control, but he also brought about two grueling recessions and shot unemployment above 10%. 10%!
One piece I read in Bloomberg recently talked about this being a “rolling recession.” There were a fair number of bubbles going on a year or two back: stocks reaching new highs, housing prices accelerating and properties going at 20% over list, venture capital funds growing by leaps and bounds, stock buybacks accelerating, and the ever popular cryptomania.
If you look at each of those, some have popped (housing, crypto), some are deflating (stocks, VC, buybacks) but not all at the same time. The Volker solution (not a criticism) was to slam everything against the wall hard. A better solution is to bring the runaway carriage back under control - if possible - with reasonable force but not undue damage. I think that’s what’s going on, but it’s fair to say we will not really know until it’s over - which could take another 6-18 months.
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