OT: Waitin' for the Fed

a la Lou Reed & David Bowie

https://www.youtube.com/watch?v=W4VEXl4vsq4

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Fed raises rates 0.75%, markets leap.
Alphabet earnings and revenue growth both below expectations, stock rises 8.6%.

I’m not sure why people complain about investing, this is all so obvious and intuitive.

Jim

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An aside—

Inflation is a very interesting subject.
Surprisingly, there is a wonderfully insightful presentation on the topic in John Oliver’s most recent show.
https://www.youtube.com/watch?v=MBo4GViDxzc

Not recommended because it’s funny, but actual economic insight.
The key points that you don’t often hear are that the recent burst of inflation does NOT, as many people would have you believe, involve any single big reason.
And that there is a huge difference between inflation caused on the demand side and inflation from the supply side, which is explained unusually well…using frogs.

He doesn’t go much (enough) into the fact that the appropriate policy response(s) depend very much on what mix of the two is causing the problem.
But still, much better than most articles and presentations quoting economists.

Jim

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But still, much better than most articles and presentations quoting economists.

Jim, I whole heartedly agree with you. Cut out the “cuteish - laughter added” comments and there’s a helluva lot of truth in what he’s saying.

Thanks for sharing and thinking of us.

Tex

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Fed raises rates 0.75%, markets leap.

Maybe knowing what’s ahead, even if that is not good, is better than insecurity?

If so, if today’s action is just relief that the time of insecurity is over, it won’t last, as the facts that bad times are ahead indeed (Powell: “narrow path to soft landing”) will come brutally into the foreground when that emotional relief is gone.

markets leap

$Trillions waiting on the sideline and full employment world wide.

Tech and S&P will outperform BRK in next 5 and 10 years.

Dollar cost average, sleep well, get rich slowly.

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this is all so obvious and intuitive.

Sell the rumor, buy the news.

Here’s another informative article regarding inflation and recession. This link is to a NY Times gift article by Paul Krugman presented yesterday:

https://www.nytimes.com/2022/07/26/opinion/recession-gdp-eco…

Tom

The John Oliver show was a nice summary of how not to get distracted by one side or the other saying “Hey, look! Did you hear that!” while excitedly pointing towards one shiny object, or shouting about one loud noise.

Interestingly, he didn’t present much in the way of solutions.
In the beginning, he noted that if the issue is an over-supply of money, then the Fed has some ways to try to address that.

Otherwise, he briefly presented a couple of ideas in one minute at the end of a roughly 24 minute presentation about ways he thought people could be helped through an inflationary period:
(1) refundable child tax credit which is offset by higher taxes on higher earners
(2) expanded rental assistance
But were those supposed to be solutions, or palliative care?

I wonder if inflation, or other macro economic effects, can be modeled in a similar way that AI (e.g. neural nets) can model fluid flow and other physical phenomena. Such modeling requires lots of data, but perhaps there is enough data. If you’ve got a black box that works well with small effects that happen frequently, and works well with moderate effects that happen less frequently, and works well with some much sparser large effects, then perhaps it’s an OK model?
The downside to such empirical modeling is that it’s a black box. The upside is that you’ve got something, to the extent that it’s validated out-of-sample, that might be better than waving your hands about ‘supply and demand’.

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Fed raises rates 0.75%, markets leap.
Alphabet earnings and revenue growth both below expectations, stock rises 8.6%.

I’m not sure why people complain about investing, this is all so obvious and intuitive.

Paying attention to details sometimes matters. The Fed switched from committing to raise rates, to meeting to meeting they are going to look into it. The fed starting by talking about inflation and ended the press conference pretty dovish.

So the market reacting positively. Separately, after the last meeting also market rallied only to fizzle next day and hit some new low’s.

The question is how many are positioned for a second half rally?

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Excellent presentation. Not bad at all for a Brummy.

Maybe I should buy one of the regular frogs.

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Otherwise, he briefly presented a couple of ideas in one minute at the end of a roughly 24 minute presentation about ways he thought people could be helped through an inflationary period:
(1) refundable child tax credit which is offset by higher taxes on higher earners
(2) expanded rental assistance
But were those supposed to be solutions, or palliative care?

Well, I suppose to be fair, he’s an investigative comedian, not the chairman of the Fed or the leader of a congressional committee : )

His brief starting point isn’t unreasonable: inflation spikes really hurt some people, and maybe it might be useful to consider ways to ease that pain.
Subsidizing the price of hydrocarbon fuels is NOT the right way to do that, it should be noted.

His analysis is keen in that one way: it really does matter what mix it is of demand surge and supply constraints.
If I were in charge (which I certainly would not want to be), I’d ask the Fed to research,
product by product experiencing price rises, a best guess of the level of supply constraint within that category.
Some of that will be obvious (bicycle parts have an 18 month back order), and some of it can be deduced by the turnover volume.
e.g., prices rising but shipments falling, it’s almost certainly a supply problem in that category.
This “diffusion” metric–percentage of categories rather than weighted average price rise–
would give an idea which fraction of the overall inflation impulse is coming primarily from supply constraints versus spiking demand.
The monetary response ought then to be only in proportion to that demand driven fraction, perhaps?

For the supply constrained goods, well, there really isn’t much anyone can do other than wait it out.
Maybe help a few who might really need help while it lasts, but otherwise, the to-do list is empty.
For stuff that nobody can find more of, like tantalum, it’s going to stay expensive and we’ll all have to adapt.
For stuff that will respond to the invisible hand of the market, it will fix itself as high prices attract new supply.
So far, there aren’t any new factories producing those frogs in response to the obvious shortage,
and rising interest rates won’t change that for the better.
Might hurt the process a lot, in fact, if I have to borrow money to build that frog factory.
But, given some time and visible demand, I’m sure somebody will have those extra large frogs in stock soon.

Jim

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Shoot, they already are:…

https://www.fountainsusa.com/products/design-toscano-giant-c…

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