2021.10.27 13:28 captnamurica2 Inflationary Depression (Part 3): Time to Make Money
Taking what I have written in Parts 1 and Part 2 (you can view each by clicking the links). Part 1 is about the Everything Bubble, and Part 2 is about Inflation before Recession. I think we have enough information to figure out how to make strategic bets to protect ourselves from the impending increased inflation and the governments response to the inflation.
The Economic Environment
Interest rates have bottomed, as was explained in Part 1 and Part 2. We have put more Government money into the economy than any other time and we have increased M2 more than any other time in history.
Well, in response we have gotten an economy that cannot handle the amount of demand that it has produced. The output gap produced (as was discussed in Part 2) has resulted in shortages across the board. This has given us inflation that the government had not prepared for (who could have predicted all this government spending would lead to inflation). Consumers are picking up steam with the latest data showing a huge increase in houses bought, consumer confidence increasing, delivery times picking up, input price increases and working demanding more pay.
Chart 1. Delivery Times (Along with Input and Output Prices) along with Core CPI Inflation showing a clear correlation
As you can see shortages are causing huge increases in delivery times and prices (with core inflation skyrocketing an important tool to try to predict what the Fed will do). Now how can we tell this is a fiscal stimulus problem? Because the US is the only one experiencing problems on the scale we are seeing here in the United States and the United States were the only ones to stimulate the economy in the extreme fashion that we did. (If your subreddit does not allow pictures I would check out Part 3 on BurryEdge so you can see the charts I have posted, I find them to be extremely important).
With basically every consumer goods company reporting shortages with insane demand which is coupled with the great resignation (discussed in Part 2) we have workers working in overdrive while not having wages that are keeping up with inflation. This has caused strikes across the board in what media is calling “striketober” as workers demand better conditions and more pay (this is extremely important). This could be the start of an unanchoring inflationary event known as the wage cost spiral. This is when workers expect more money to make up for their losses from inflation, this leads to higher input costs, which leads to higher output prices/higher inflation. This creates a feedback loop that can cause inflation to become unanchored in a negative manner. This is something we must keep a close look on. I believe if the John Deere strike results in success and they get higher pay, we could see more workers take notice and request higher pay across the country (I believe that strike specifically is the most important to pay attention to).
Now where are we seeing shortages and increased expenses? Well basically everywhere, from semiconductors, to food, to fertilizer, to precious metals (such as magnesium, steel, aluminum), commodities (coal, natural gas, oil), coffee, housing, paper pulp (Paper is up roughly 50% from last year and experts expect another toilet paper shortage along with books), LumbeWood again, HVAC systems, Chicken, and the list just keeps going.
Why this isn’t transitory and could become dangerous
Well, we just need to wait on the pandemic right, this is just supply chain kinks, right? Wrong, if you look at the above charts, Charts 1 and 2, you will see where the supply kinks fixed themselves around March. What we are seeing is demand driven shortages due to an economy operating at a pace that it literally cannot handle especially with a drop in potential GDP (Part 2). This demand is now hitting us due to pent up savings (discussed in Part 1 and Part 2), and the previously discussed fiscal stimulation (Part 1 and 2), and Covid coming to an end in the eyes of consumers. This is also the first Covid free Holiday season being celebrated by most Americans in almost 2 years. We are seeing shortages pick up in SeptembeOctober because consumers are worried about inflation/shortages and are starting to pick up the inflationary mindset (Part 2), another possibly dangerous unanchoring event that we must pay attention to. So how do we make money on this? (I know you’re just thinking “Finally!!!!”)
The United States Treasury Bond
As discussed in Part 1and Part 2, the US has been increasing M2 at a breakneck pace and the economy has gotten near levels that the Fed will consider “tapering” or the reduction of Quantitative Easing (Part 1). What this means is that the money supply will stop growing as fast, as the government stops buying bonds to flush markets with cash (that’s basically all QE is). Now, for those of you who do not know, there is a correlation between treasury bond prices and treasury bond yields. They work inverse so when bond prices go up, bond yields go down and vice versa. Well, when the Fed begins to reduce its bond buying this will cause bond prices to go down as result to a reduction in demand. When the prices of bonds go down yields go up (This will be discussed more in another paragraph). This causes a double effect of not only decreasing the money supply by reducing bond buying, but it also causes a decrease in the money supply by increasing rates. And based on our core inflation readings from earlier with the shortages getting worse, I think it is safe to say that tapering will begin on November 2nd. This is why the 60-40 rule of stocks to bonds is now longer good risk management because stocks and bond now move
Currently private investors are not buying treasuries, and neither are banks (as of recently). The only large buyer of bonds currently is the Federal Reserve meaning that there is no demand at current levels if the Fed stops buying, leading to a reduction in bond prices. This is where we will begin the thesis for our short on 20 year treasury shortages in the form of the $TLT ETF. As tapering decreases we will see TLT increase to the long term inflation expectation rate of roughly 3% (this will increase as inflation increases of course, this expectation can easily change with inflation fears). Current 20 year bond rates are at about 1.7% today, which means we can expect at a minimum, an increase of about 1% in 20 year bond yields when tapering begins to reduce. A 1% change in bond yields leads to about an 18%-20% decrease of TLT (Remember this is the minimum amount it will drop from just tapering).
As investor fears about inflation picks up, this could cause rates to increase faster, as less investors want bonds so they demand a higher yield. This also does not take into account the Federal Reserve moving up its timetable for a federal fund rate hike which would lead to a money crunch and a further increase in bond yields as demand reduces. So a short on TLT is one investment I think is a good move since I see a minimum drop of roughly 20% (or a buy on TBT which just works as inverse). These are 2 vehicles I would look into for investing against inflation.
This could’ve had more detail but I think it gets the point across, if you have questions please comment below.
An Asset Crunch
As I said before, stocks and bonds have moved in tandem in recent years. This new correlation is why you should also begin to short stocks. Well first let’s discuss why they move in tandem. It’s because the yield of a treasury bond is the discount rate used by the market. If there is confidence in the dollaFed, then companies will use this as their discount rate. So, when interest rates increase, the value of all stocks decrease due to this discount rate, it also acts as a money crunch since less money would be borrowed. Also tapering is decreasing as well, which has the double effect of increasing rates and reducing the money supply. So obviously this would normally only cause a small effect on stocks, unless they are in a bubble (or overleveraged). As we learned in Part 1, stocks and houses, are in a bubble. Now why would stocks in a bubble be a larger cause to worry. Well stocks in a bubble, act as a Ponzi Scheme. Now bear with me for a moment while I explain. A bubble is when an asset ignores its underlying intrinsic value and people simply invest in it because someone else will invest in it leading the asset price to increase. A bubble implies that individuals aren’t paying attention to the business, they are expecting to make a return based on the sole reason that someone else will want to buy the stock, not anything to do with the underlying business. Now when the money supply decreases or the discount rate increases, there is no next man up to pay for the asset. As with a ponzi scheme, when there are no more buyers everyone begins dumping their shares because it is now impossible for the asset price to keep growing and if something isn’t growing (especially in an inflationary environment) this will lead to a total collapse of the price until it becomes something worth of value.
This doesn’t include price pressures put on by shortages or the volatility that can be created by options. I suggest anyone who is reading this to read the thread by @ thelastbearsta1 on twitter regarding volatility. This explains why an asset crash will not be as long as the bubble burst in ’99 but will be a sudden and flash crash among stocks in a bubble (along with the fact that option buying is at all time high levels, possibly causing reverse gamma squeezes). My personal choices for these “bubble stocks” are Tesla (if you’re about to argue with me on this, think about the fact that Tesla went up 100 billion on a 4 billion revenue, not profit, contract), almost any EV company, Roku (this is one of my favorites), new tech IPO’s, ARKK fund (Basically the biggest bubbles that are expecting more growth, that higher interest rates won’t allow), some space companies (or other government contracted companies due to the government having to pay more interest on future debt), and many more. These companies are not necessarily bad companies, I think Tesla is a great company and managed well by Elon Musk, but it is in a massive bubble and there’s no way investors are expecting meaningful returns from the business. As well as those companies, you should also look at any company overvalued based on a huge amount of debt where they are taking on more debt to grow (an interest increase causes debt to get much more expensive). I also suggest finding value investments as they thrive in a higher interest rate environment while growth stocks suffer, one of my favorites is DISCK which is merging with Warner Bros (A spin off of AT&T) , but I would wait until DISCK finds some solid support.
These are the companies I would investigate and then identify the best choices, I don’t have DD for these suggestions which is why you should not invest without doing your own due diligence!!! Details were skipped here obviously but I am giving you the overall idea of why I have gone short on certain positions, and I am relying on you to dig deeper or find some DD as it would take me a long time to go into each individual stock.
We have got to capitalize on Shortages
Shortages are also a great place to find gains, although most ETF’s regarding commodities are already at extremely high levels. We should also look at companies that are still set to benefit, I really like SXC, OVV, and STNG. We have some great DD on those 3 stocks on BurryEdge if anyone would like to look more into those stocks, as they are all undervalued stocks. OVV is a natural gas and oil company, meanwhile STNG is a petroleum transportation company. Both have great write ups and are companies I am personally invested in (I’ve made roughly 25% in just stocks from those 2 and I believe they have more upside). SXC is an investment in coke steel plants (a great way to take advantage of steel when scrap prices are high). Some of the ideas that has been discussed are ideas in the food industry as well. Another way to capitalize on this is in a retailer that has prepped for shortages and are in an advantageous position such as WMT, a stock I have written DD for as well, and you can read more information on why I believe they are specially built for a shortage’s environment in the coming months. Just be on the lookout for shortages and honestly following shortages to follow future trends is probably not the worst idea. If you can get ahead of a shortages curve you can make a lot of money. Once again, I could have written much more but our community has other written pieces out there going in more detail, and I have given you the overall thesis for things to look into. If I were to jump into individual stocks I would take up way too much room.
Overall, in summary, inflation is here to stay, and we need to protect ourselves against it. I wish each of you good luck and I hope the information I have provided will help all of you achieve more financial freedom. I’m sorry for any spelling mistakes or grammatical errors, I hope it did not take away from the information given.
Remember I am not a professional nor do I claim to be. This is not investment advice, but merely musings from an amateur investor. I have positions in most of the positions listed above, they are through different types of securities such as Calls, Puts, and Stocks. If you choose to invest in any of these positions, you should inform yourself and do proper Due Diligence . The decision to invest in any position is yours and yours alone.
A special thanks to everyone who has followed and supported me through this 3-part series.
Thanks to all of you who followed my series, as I thoroughly enjoyed all of this. I found all material independently and I received feedback from the BurryEdge community, they have helped me form my thesis on inflation and have given various stock ideas to help make money against it, so if you’re interested in this material, please join that community (In regards to the paragraph regarding stocks and interest rates, I would expect BurryEdge to produce more DD’s on different bubbles over the coming months). Thanks to all of you who have supported me through the toxic/rude feedback and a special thank you to all of those who critiqued me in a respectful manner and helped me look at new perspectives.
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2021.10.27 13:28 docerta Kopaná
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2021.10.27 13:28 brianbrifri What's one thing you always seem to run out of?
2021.10.27 13:28 RedDeadAssassin Subliminal Message
2021.10.27 13:28 Kullnr [PC] [H] Tw RLCS x Dominus [W] 1.4K or equivalent in trade
2021.10.27 13:28 soldoutaffair His name was Falafel! He passed away many years ago, but I came across his old photos and they brought fond memories. He was very cuddly, actually :)
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2021.10.27 13:28 ----00 I Am Holding An Emergency Meeting With The Entire Hispanic Community RE: Dave Chappelle (ATTENDANCE. IS. FUCKING. MANDATORY.)
I'm just going to get straight into it. As a mixed dude who has grown up around the Black community, has Black & mixed family members, has a lot of close friends who are Black, who has gone to plenty of BLM marches and whatnot - lemme just say what I'm seeing done to Dave Chappelle is patently fucking inexcusable and has me sitting here like "That DAMN sure better fucking not ever happen with us".
The secondhand embarrassment I'm feeling right now is genuinely making me sad. As a dude who cares about and truly loves the Black community I have to say this is...... truly something else. I honestly can't believe this shit. At the NETFLIX walkout/protest/whatever I only saw 1 guy --a white guy -- standing up for Dave Chappelle. His own people were going full blown "We sick boss?" and used as mascots/human shields/diversity trophies against him. Looooo siiieeeentttoooo, homes.
Every self-respecting vato reading this needs to sit down with their family members TODAY and explain to them the necessity of "staying on code". Look, it's one thing if one of us does some truly disgraceful, dishonorable, heinous type of shit that makes us look bad (yes, *US*, because that is how it works in this country, dumbass. we are judged as a collective, you should fucking know this by now). Like the Parkland school shooter Nikolas Cruz, for instance. Fuck that guy full stop. We will never support anyone like that. If you shoot up a school or touch kids or anything fucked up then we should all condemn your bitch ass, stand back and let every community shit on you and have their way with you. Period. That is just as much as part of "the code" as anything.
Now... as far as Dave Chappelle goes - Malcolm X spoke about this. I can't recall which speech it was off the top of my head but I distinctly remember how he was going into the importance of not tearing down another Black person PUBLICLY. Something along the lines of how "If you have differences with your family you don't go out onto the sidewalk and resolve them. You do it behind closed doors. You don't give the enemy/outsiders/white people an excuse to label you uncouth/unintelligent/unrefined/unsophisticated/etc."
FURTHERMORE (and this is me, not Malcolm X talking) you don't attack one of your own (again, unless it's a Nikolas Cruz-level fuckup) in such a way that it enables and emboldens other people from outside your community, (who don't even give a fuck about you and yours, mind you) to pile on top of your brothesister. Which is what truly sickens me right now because that's exactly what I'm seeing. Every ése reading this needs to over, under, and innerstand that if you talk shit on one of us to where now gay/trans pride flag, pronouns in the bio, anime/cartoon avatar weirdos are getting in on the fun and dogpiling on one of us - Fuck you. You are expelled from la raza. You have officially been banished and are now a permanent member of the white LBGTQ communtiy - not ours.
Alright. That's it. Rant over. You can go home now. Adios amigos.
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2021.10.27 13:28 Speedyy-__- I don't normally do this, but I made a menacing costume in spirit of the Halloween season. What are your thoughts about it?
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2021.10.27 13:28 Itchy-Top George carrol
Man goes missing in 1961. He has 4 children. Mother says he left because he didn’t want to be a family man and she didn’t report his death.
40 years later his son bought their house and over years tore up the basement floor and found the body of their father.
The mother had remarried the handy man who worked on their house. Dad died of blunt trauma to the head and buried. There’s no official suspect.
My take, the wife murdered the husband and the handy man covered it by burying him. I’d also be curious for a Dna test of the youngest child.
What are your opinions?
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2021.10.27 13:28 YeahWhatOk "Chasing Rhinos with The Swami - Volume 3" now available
2021.10.27 13:28 callekun2 5 quid
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2021.10.27 13:28 anotherbuttarevia Am I Shadowbanned?
2021.10.27 13:28 Litjoe97 RUQ feels swollen and tender to the touch
Over the past few months my right upper quadrant by my liver seems to be a inflamed or swollen, kinda feels like a fat pocket is there but you can clearly feel something is inflamed and causing my liver to feel like it’s pressed up against my ribs. I’ve gotten 4 CT scans over the past 4 months showing all was good besides the fatty liver and it measured 18cm. Does anyone else experience fullness on the side like this? When I eat it gets worse however when fasting or eating light it’s not as bad. But still always there - thx!
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2021.10.27 13:28 wishingwellington When Mindy matched with Sergio on Birdr, she thought he looked sensitive and romantic. Unfortunately, after a few drinks at the The Night Owl, he was all talons and she had to get the bartender to call an Ubir-d to take her home
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2021.10.27 13:28 c2v2m Clowns
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2021.10.27 13:28 goamanhara US government in a nut shell
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2021.10.27 13:28 ShortAlgo $PLRX Looks oversold Get a free trial at: https://t.co/NbEHDcudFV https://t.co/3ZwXrRaplN
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2021.10.27 13:28 biovinti0dinust Mizz twerksum - So Lewdly <3
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2021.10.27 13:28 gatvolvirkak 7 Days To Die - FarmerGlock EP21 (A Second Pit)
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2021.10.27 13:28 Ballistickisshaha Glimmering hope. I painted this a bit ago one of my ARK acrylic paintings.
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2021.10.27 13:28 AlyksTheSage Why can't we go back to colored motherboards? And while on that subject, colored cases? Collored accessories?
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2021.10.27 13:28 biovinti0dinust Mizz twerksum - So Lewdly <3
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2021.10.27 13:28 Leftlanebridge Just work hard and believe in yourself. <—- thats what I’m going to tell people when they ask me how did I make so much money! 😂
2021.10.27 13:28 Mental-Ad-2195 I won the war now what? U Decide I'll DO IT
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2021.10.27 13:28 babu0096 Navjot Randhawa
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