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U.S. economy shrank at a 1.4% annual rate in the first quarter

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231–240 of 345 posts

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#231

It’s always good to remind people that: GDP ~= Population * Productivity If your population growth flat-lines (which it did last year), productivity has to compensate. Can productivity compensate if the average age is getting older (people tend to be less productive after a certain median age)? One reason investing in index funds makes sense is the underlying assumption that global population growth keeps increasing…

> Can productivity compensate if the average age is getting older (people tend to be less productive after a certain median age)? Most certainly. We'll very clearly do it with robots and artificial intelligence. Although people are expecting way too much way too soon. The classic line about how people overestimate change in the short-term and underestimate change in the long-term. Elon Musk may occasionally be a clow…

>and they have the cashflow now to easily afford to pursue it in a big way

Musk is in the process of tying most of his free cash up in a web app instead of investing it in his businesses which might cause those larger companies to have issues.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#232
post #151

Earlier quoted context omitted.

In my neck of the woods, by far the largest and most impactful inflation has been in the housing sector - 50% price inflation over the past two years. This is entirely attributable to the Fed's pumping of soft assets like stocks, leading to a bunch of paper millionaires cashing out.

Real estate prices aren't included in inflation (BLS CPI) calculations because those are investment assets, like buying stocks or gold bullion. The CPI does account for housing costs through rent and owner's imputed rent.

Except when it comes time to tax them then homes are taxed each year, in most of the US, on what they are currently valued at on the tax rolls.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#233
post #40

Earlier quoted context omitted.

There are many troubling things happening at the moment. From a US centric point of view. - Inflation is at it's highest since the 1970s in the US - There is a large military conflict in Europe. - There are shortages of chips, energy, and food on the horizon. - Unprofitable growth stocks have valuations as high as 100:1 on revenue. - There is increasing militarized tension on many portions of the global supply chain…

Let's not forget COVID is not done yet. We've had two years of restrictions and now it seems like folks are behaving as if it's over. Mutations are propagating and yet most people are out and about without masks and the dialog around vaccines has all but dried up. The ongoing confusion about what this disease's risk factor is worrisome. First I think people have much more distrust in science and government. There is…

COVID is endemic, which is functionally equivalent to 'over'. Just as there are bad flu seasons, there will likely be bad COVID seasons, but overall Africa has blessed the whole world with a relatively benign and incredibly infectious variant that keeps immune systems attuned without crashing. We have overwhelming returned to normal behavior around illness, which preferentially propagates mild pathogens by only stranding really sick people at home (where they don't spread things), while the rest of us go around unknowingly sharing our mildly inconvenient Omicron and omicron++ with one another.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#234
post #55

The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production is on lockdown and just about every product made, regardless of where it's made, is relying on part(s) coming from China. Supply is constrained and therefore prices are rising. Likewise, supp…

Don't forget about corporations price gouging their customers. There is a little bit of that too. And too much "money printing."

There can be a lot of reasons for inflation.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#235
post #55

The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production is on lockdown and just about every product made, regardless of where it's made, is relying on part(s) coming from China. Supply is constrained and therefore prices are rising. Likewise, supp…

Wait. Doesn't overheating produce exactly the same result? Supplies get constrained because demand went up. So now, demand stays stable and supplies are reduced. The gap is the same, isn't it?

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#236
post #113
post #101

Earlier quoted context omitted.

> a bunch of paper millionaires cashing out [to buy property] so what did the seller of those property spend their profits on?

More expensive real estate

You don't need to sell off stocks to invest in more real estate. Even small-time investors can get margin loans (or use them as collateral) to finance mortgages while avoiding the tax implications of liquidating investments.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#237
post #196

Earlier quoted context omitted.

> stocks don't have a positive return because GDP increases over time. They have a positive expected return over time because they have a risk premium You’re both right. The equity risk premium [1] is real. But it’s a premium over something. That something is, approximately, production. (It’s precisely the risk-free rate of return. Which, in the long run, is base-rate production.) [1] https://www.investopedia.com/ter…

Yes, all assets are priced relative to the risk free rate. As the assets all compete with each other and they all compete with cash rates. So that rate can be thought of as being baked into other assets already (including equities). Having said that, if you wanted a return strictly on base-rate production, then you'd invest then in risk free assets (vs equities).

> Yes, all assets are priced relative to the risk free rate.

Based on your name I bet you work in research at a hedge fund.

I hate to break it to you but ask most people who are price setters what their discount is and they’ll say 10% regardless of 10Y treasury yields (since you know, TINA)

As a result securities are increasingly priced on liquidity more than cash flows and that’s a function of the credit cycle way more than it’s a function of productivity.

It’s a weird post modern approach to the economy, but hey that’s showbiz baby.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#238
post #55

The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production is on lockdown and just about every product made, regardless of where it's made, is relying on part(s) coming from China. Supply is constrained and therefore prices are rising. Likewise, supp…

   >>> The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production …
Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid?

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#239
post #201

It’s always good to remind people that: GDP ~= Population * Productivity If your population growth flat-lines (which it did last year), productivity has to compensate. Can productivity compensate if the average age is getting older (people tend to be less productive after a certain median age)? One reason investing in index funds makes sense is the underlying assumption that global population growth keeps increasing…

A country with a declining population can keep a growing economy or low immigration, but not both. Some countries (the Anglophone countries, France, and Germany) are magnets for labor given their relatively high wages, standard of living, and multi-culturalism (racism and anti-immigrant politics are problems, but still). But others, like Japan (with low immigration) or Bulgaria (with low immigrant interest) can't rea…

Or you can have lots of immigration and a per capita contracting economy like France.

France population 1990: 58 million | France population today: 67 million

France GDP 1990: $1.2 trillion | France GDP today: $2.9 trillion ($1.2t inflation adjusted forward 32 years is $2.7 trillion)

They gained 15-16% in population, and gained 6-7% in GDP. A big net drop per capita over such a duration, particularly for a major affluent economy.

And if one wants to be more aggressive about how big of a failure their immigration program has been, the French economy has net contracted in real terms over the last 15 years. GDP was $2.9t at the peak in 2008, and it's still there now; except to just remain steady, it needed to climb to nearly $4 trillion to adjust for inflation. So France has gained 5% in population over ~15 years, and is missing a trillion dollars in GDP they should have just to remain flat (ie they've seen a massive per capita economic contraction over those 15 years).

One might claim the decline in France would have been even worse without their hefty immigration policies. Likely a false claim given the very high unemployment rate among immigrants in France over the past two decades. The French approach to mass immigration has been a disaster (while other better controlled examples have been great successes, as in Canada). Skilled immigration is vastly better than low-skill mass immigration, especially going into the era of basic human labor coming under attack by the field of productivity robotics. It's a far better approach to focus on improving your nation per capita net via attracting highly skilled labor, in terms of productivity and incomes, than just focusing on getting as much raw immigration as you can. That's the core failure of the French approach.

It's far better to be rich Canada, with a flat to very modestly increasing population, in which real per capita GDP keeps rising and they keep focused on adding high skill labor (which makes their country richer and richer over time), than to be an declining France that throws low skill labor at the problem. For one thing, the high skilled labor immediately begins contributing to the tax base in a big way, which is critical for an affluent welfare state; whereas a tilt toward low skilled labor + a welfare state is a recipe for fiscal disaster.

US GDP per capita is on track to reach a doubling of the French GDP per capita, plausibly this decade ($76k vs $44k now and the gap keeps widening year after year). Meanwhile Canada is also now up to $57k (France and Canada were nearly the same on GDP per capita in 2008, now there is a $13k gap), so they're increasingly leaving France behind as well.

Re: U.S. economy shrank at a 1.4% annual rate in the first quarter

#240
post #55

The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production is on lockdown and just about every product made, regardless of where it's made, is relying on part(s) coming from China. Supply is constrained and therefore prices are rising. Likewise, supp…

>>> The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production … Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid?

> Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid?

Given that other rounds of QE did not produce inflation, no, it's not a “necessity” of that. Money supply is a factor in inflation vs deflation, but do are lots of other things.

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