17 Comments

I agree that there are severe deflation forces present, especially demographic. However what you and all other deflationists always forget (and I am of the same opinion for many many years, not just in the recent year or so when inflation has became main narrative) that all deflation forces are trumped by fact that the main currencies countries can print even more money (and/or make larger deficits) than the amount of money/credit/value destroyed by deflation forces/lower speed of money circling around. I also agree there will be some tigthening of monetary conditions, as inflation expectation got too much ahead and became too noticable from public/political/investors's point of you, which will cause a temporary reccession(s) and/or stagflation down the road. But make no mistake, the main tool or maybe better say main goal of monetary policy

almost anytime anywhere in (modern) financial era has been inflating away value of debts and other liabilities. But it must not become too obvious, therefore there will be some tigthtening. And that is also the reason why true inflation data is almosts all the time everywhere underappreciated which is one of ways which enables inflating away debts. But the main reason for tightening financial conditions is the wish to cause recession in order to lower employment numbers, as power of labour became too strong in relation to capital; also had happened many times in the past, but of course noone can't admit it to wider public. I am of such opinion for many many years, but it recently former Reserve baank of Ney York Governor&Vice President of The FED Bill Dudley explained and confirmed that very clearly (but who of the labour class reads his columns in Bloomberg :-D ) and I think that even the FED president himself said clearly that labour market is too tight and therefore financial conditions have to be tightened in order to bring level of employment down.

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Apr 16, 2022·edited Apr 16, 2022

Yes agree consumers are/will reduce discretionary spending. This is really a deleveraging of the global debt markets especially Governments using inflation. If commod and energy stays high combined with limited supply then it will take longer to see deflation - might be 2024+. I have subscribed to the podcast - cant wait to hear - many thanks

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Anyone ever consider whether the Chinese approach to Covid (totalitarian shutdown) serves as a "hedge" to possible wilful mischief by, say the US, to spreading covid in China by way of proxy war? Xi Jinping doubled down on his totalitarian response, praising it again, in the press just a few days ago. Strange times.

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Andreas. Love your interviews with Alf. Just wanted to comment on a twitter post you made yesterday where you show the 10-year US Rates. (sorry, i don't have twitter, just see the stuff on a webpage). Try adjusting the chart using a log or semi-log scale. the downtrend line will fit better, and you will be able to see the extent of the "V" bottom (probably the greatest V bottom in history that i've ever seen). if you change the scale, you will be able to connect the peaks in 1981, 1984, 2007, 2017 and you'll be able to see we're through but barely. Regards. Nestor

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Have you had a chance to examine Charles Goodhart's view on persist above average inflation to come? Great WSJ article below on the topic. He also wrote a book on it.

https://www.wsj.com/articles/inflation-high-forecast-economist-goodhart-cpi-11646837755

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Big Picture:

According to Rystad, the current resource replacement ratio for conventional resources is only 16 percent. Only 1 barrel out of every 6 consumed is being replaced with new resources

https://oilprice.com/Energy/Energy-General/The-Biggest-Oil-Gas-Discoveries-Of-2019.html

Shale binge has spoiled US reserves, top investor warns Financial Times.

Preface. Conventional crude oil production may have already peaked in 2008 at 69.5 million barrels per day (mb/d) according to Europe’s International Energy Agency (IEA 2018 p45). The U.S. Energy Information Agency shows global peak crude oil production at a later date in 2018 at 82.9 mb/d (EIA 2020) because they included tight oil, oil sands, and deep-sea oil. Though it will take several years of lower oil production to be sure the peak occurred. Regardless, world production has been on a plateau since 2005.

What’s saved the world from oil decline was unconventional tight “fracked” oil, which accounted for 63% of total U.S. crude oil production in 2019 and 83% of global oil growth from 2009 to 2019. So it’s a big deal if we’ve reached the peak of fracked oil, because that is also the peak of both conventional and unconventional oil and the decline of all oil in the future.

Some key points from this Financial Times article: https://energyskeptic.com/2021/the-end-of-fracked-shale-oil/

Shale boss says US has passed peak oil | Financial Times https://www.ft.com/content/320d09cb-8f51-4103-87d7-0dd164e1fd25

SEE PAGE 59 - THE PERFECT STORM : The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel https://ftalphaville-cdn.ft.com/wp-content/uploads/2013/01/Perfect-Storm-LR.pdf

Our fossil fuel energy predicament, including why the correct story is rarely told https://ourfiniteworld.com/2021/11/10/our-fossil-fuel-energy-predicament-including-why-the-correct-story-is-rarely-told/

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Great piece. Well written and thoughtful. Looking forward to following along.

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“Economic freefall

Just how bad is Britain’s current economic collapse?

One indicator can be found in the monthly registration of new vehicles, which are generally higher in September and March when new registration plates are introduced. Nevertheless, total registrations were down 14.3 percent on this time last year – when the UK was still subject to lockdown. . . . the bigger concern is in the 27.6 percent fall in light commercial vehicle (LCV) registrations.” ?

https://consciousnessofsheep.co.uk/2022/04/06/in-brief-economic-freefall-peak-foodbank-electricity-first-fracking-back-there-were-no-clever-people-after-all/?fbclid=IwAR2MO7RM07XI1cgrkArWM5oK9B70AucIaMYWM58RwIQLWn_nXhFJ9jhYkL0

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W.F.M. is 'optimistic'?

“Inflation is not exploding out of control and interest rate rises will not help”

http://bilbo.economicoutlook.net/blog/?paged=3

“The current inflation still looks to be a transitory phenomenon”

http://bilbo.economicoutlook.net/blog/?paged=2

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Thanks for the post, very insightful! Any thoughts on USDJPY? Looking forward to the podcast btw

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Thanks for this thoughtful article, and I generally agree with your strategy (although I am reluctant to take short positions at the moment, when long positions in commodity producers and transporters seem to offer better risk/reward). I wonder (a) is it possible that the PRC has been underreporting imports from Russia over the last month? and (b) is it possible that the PRC lockdowns have distorted the data?

Is it possible that those prices are driven by (a) true demand being higher than reported demand and (b) purchases being postponed but not cancelled?

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I think we are already starting to see the demand side slow when looking at Retail sales data from yesterday. Gas stations up, non-store retailers down. Might be interesting to consider what portion of CPI is coming from that discretionary category.

Congrats on the new show

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Cannot wait for the podcast!!! Cheers to you both

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I'm not sure I would short Tesla - as much as it's deserved. Aside from that, great to see you publishing your own thing - even better that you teamed up with Alf for a podcast. Look forward to listening to it.

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The divergence between Chinese demand and commodity prices is pretty interesting... I'm just waiting for China to drop their non-Covid approach, because that will be a great opportunity to re-enter into commodities. What do you think?

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