Bonds are flat this morning. The only news released was the existing home sales number, which was terrible. No surprise there. It is impossible to have housing affordability at an all-time low, with record consumer debt and the savings rate falling like a rock, without seeing a slowing in home sales and prices. We now have the retail inventory to sales ratio at nearly all-time highs. You may recall when the inflation storm started, I said that people were flush with cash and that all the buying and growth in the economy was revenge buying. My analogy was that people got starving (metaphorically speaking) while on lockdown.
Once they were free, they hit the buffet line, and cooks could not keep the food trays full. My point was that soon people would be full, but the cooks could not see this, and they kept on filling the trays. This is what the inventory-to-sales ratio tells us. Milton Freidman once said that the definition of inflation is too much money chasing too few goods. The government filled everyone's pockets just as the available goods dried up due to the shutdown.
Now it's different, and the pendulum will swing hard. We now have too few dollars (think record-high debt and nearly a record low savings rate) chasing too many goods. This is deflationary. Some have brought up the jump in the money supply. Economists know that money's velocity matters, not the money supply. The velocity of M2 is at an all-time low. Yes, this will lead to much lower rates and much lower prices. We have to let this play out.
Thought of the Day:
Nobody wins all the time. Nobody! Winners understand that there will be losses and that losses are on the same path that is taken to win. Average people turn back and go home
No comments:
Post a Comment