100% agree with stagflation. BUT! while I don’t write off the possibility that the Fed increases rates, I don’t think they will.
The reason is that the Fed mainly needs the banking system to continue to function and exist. This is even more important than getting back to 2% inflation.
AND! The Fed has direct oversight of our banking system (and money). You know how banks make money? Loans. You know what banks have a lot of? Real estate loans. If the banks can’t make money and the assets they do have are rotting in the back of the fridge (like that ignored Tupperware of tuna salad) then that is a big problem. And getting biglier by the day.
Next, the interest due on the short term treasuries which fund our government is, I have a hunch, inflationary in its own right. That is getting close to a trillion dollars of interest going back into the economy every year. What will happen to those dollars? My hunch is that they will go into the same assets you mention in your article as an inflation hedge. A positive feedback loop of higher prices. So does raising rates paradoxically increase inflation? Hmmm…?
The Fed is caught in a prison of its own making. Fight inflation with raised rates and risk the underlying functioning of the system and paradoxical continued inflation or accept structural inflation as the reality in which we exist. I lean toward the Fed folding like a cheap lawn chair like the ECB and cutting rates. Perhaps sooner rather than later (maybe?!).
Another option: the Fed vapor locks and keeps things just as they are for a long time as the Titanic continues to list to port. Perhaps they rearrange some deck chairs and make speeches. Maybe they then do something dramatic after it is too late which… yeah, that checks out.
Keep in mind ... the huge numbers of excess deaths and disabilities caused by the Covid vaccines is driving the job openings... dead and maimed people of working age... who can no longer work ... is not exactly a healthy jobs market
But because almost all analysts are unwilling to acknowledge this ... (because they fear they or their family members are next..) we get confusion on this issue...
The IT sector is the sector that will continue to deliver EPS and FCF growth whatever the economic environment as these companies have quasi monopolistic position. In a stagflation, Investors want to avoid any exposure to the consumer (in the staples and discretionary segments). The Barbell equity portfolio is build on the negative correlation between IT and Energy.
Just note that we are not a net oil exporter but a net petroleum exporter in 2023. Only 40 percent of total petroleum exports or 4.06 million barrels/d are exported. The rest is products including refined products and liquids from other sources such as natural gas liquids, etc. Crude oil imports of about 6.48 million b/d accounted for about 76% of U.S. total gross petroleum imports.
Try to get your head around the idea that by 2027, US tight oil production might be 12 MM BOPD, not the 9 MM it is now, which is what cheerleaders say it will be, and that means we'll actually have to find and extract 12 MM BOPD... before we can ever grow the new 3 MM. Man, that is a slew of new wells! Thats gonna take like...four times the HZ wells we've already drilled in the US.
Great article. Very comprehensive.
100% agree with stagflation. BUT! while I don’t write off the possibility that the Fed increases rates, I don’t think they will.
The reason is that the Fed mainly needs the banking system to continue to function and exist. This is even more important than getting back to 2% inflation.
AND! The Fed has direct oversight of our banking system (and money). You know how banks make money? Loans. You know what banks have a lot of? Real estate loans. If the banks can’t make money and the assets they do have are rotting in the back of the fridge (like that ignored Tupperware of tuna salad) then that is a big problem. And getting biglier by the day.
Next, the interest due on the short term treasuries which fund our government is, I have a hunch, inflationary in its own right. That is getting close to a trillion dollars of interest going back into the economy every year. What will happen to those dollars? My hunch is that they will go into the same assets you mention in your article as an inflation hedge. A positive feedback loop of higher prices. So does raising rates paradoxically increase inflation? Hmmm…?
The Fed is caught in a prison of its own making. Fight inflation with raised rates and risk the underlying functioning of the system and paradoxical continued inflation or accept structural inflation as the reality in which we exist. I lean toward the Fed folding like a cheap lawn chair like the ECB and cutting rates. Perhaps sooner rather than later (maybe?!).
Another option: the Fed vapor locks and keeps things just as they are for a long time as the Titanic continues to list to port. Perhaps they rearrange some deck chairs and make speeches. Maybe they then do something dramatic after it is too late which… yeah, that checks out.
Keep in mind ... the huge numbers of excess deaths and disabilities caused by the Covid vaccines is driving the job openings... dead and maimed people of working age... who can no longer work ... is not exactly a healthy jobs market
But because almost all analysts are unwilling to acknowledge this ... (because they fear they or their family members are next..) we get confusion on this issue...
@Fast Eddy I think that it was clear the we don't see the current job market as healthy and that's why the US is heading into an inflationary bust.
I didn't mean you guys rather it's the mainstream financial press that is confounded.
I undersand reasons for investing into Energy, but why into very highly valued tech?
The IT sector is the sector that will continue to deliver EPS and FCF growth whatever the economic environment as these companies have quasi monopolistic position. In a stagflation, Investors want to avoid any exposure to the consumer (in the staples and discretionary segments). The Barbell equity portfolio is build on the negative correlation between IT and Energy.
Just note that we are not a net oil exporter but a net petroleum exporter in 2023. Only 40 percent of total petroleum exports or 4.06 million barrels/d are exported. The rest is products including refined products and liquids from other sources such as natural gas liquids, etc. Crude oil imports of about 6.48 million b/d accounted for about 76% of U.S. total gross petroleum imports.
The Precarious State of the Shale Oil Industry:
Try to get your head around the idea that by 2027, US tight oil production might be 12 MM BOPD, not the 9 MM it is now, which is what cheerleaders say it will be, and that means we'll actually have to find and extract 12 MM BOPD... before we can ever grow the new 3 MM. Man, that is a slew of new wells! Thats gonna take like...four times the HZ wells we've already drilled in the US.
Where? https://www.oilystuff.com/single-post/the-hamster-wheel